This note will not go into election dynamics and results, which have been extensively covered elsewhere but will deal instead with the implications of the election outcome for retailers, followed by RCC’s efforts and plans for engaging the federal government on policy issues.
Corporate Income Taxes
The Liberal plan does not propose to raise corporate income taxes (CIT), which means that Canada’s CIT rate will, at 15%, continue to be highly competitive when compared to our economic peers and the US in particular. The Liberals, like the Conservatives, have proposed to reduce the small business rate from 11% to 9% by 2019.
Personal Income Taxes
There is a more mixed story on personal income taxes (PIT). The Liberals have committed to cut the middle tax rate (applicable on individual incomes from $45,000 to $90,000) from 22% to 20.5%, putting more money in consumers’ pockets. This will be worth up to $670 annually for an individual. Enhancements to the child benefit program would mean further savings for most middle class families, to a total of $2500 annually for a family of four with a $90,000 annual income.
On the flip-side, the incoming government will introduce a sharp rate increase on income over $200,000 annually, rising from the current 29% to 33% on income in this category. While this group of taxpayers is small in number, being around 1% of income-earners, it has far higher disposable income. This could have implications for luxury retailers.
On balance though, it has been estimated that individual earners below $216,000 i annually will save money under the Liberal plan, which should see more income available for retail purchases.
The Liberals have also proposed to reduce the Tax Free Savings Account (TFSA) limits back to $5,500 annually, down from $10,000 and to end income-splitting for families (though not for seniors). These decisions are not expected to have a significant near-term impact on retail sales.
The changes outlined above are expected to proceed rapidly and no later than the first budget from the new government in early 2016.ii
Payroll Taxes and Contributions
Public Pension Plans
A big issue for retailers has been the pending introduction of the Ontario Retirement Pension Plan (ORPP). Retailers have been apprehensive about the plan, recognizing the long-term need for pension income adequacy but concerned about the near-term impact of an additional fee of 1.9% on payroll on incomes of up to $90,000 annually and about the compatibility of existing workplace retirement and savings plans. The phase-in of the ORPP is scheduled to begin on January 1, 2017 with full implementation by January 1, 2020.
The ORPP was originally conceived as a stand-alone policy for Ontario in light of PM Harper’s refusal to consider enhancements to the CPP. The federal Liberals campaigned on a CPP enhancement and, having won a majority government, are likely to proceed with such a policy if they can get provincial agreement. This has cast the future of the ORPP into doubt and on October 13, 2015, Ontario Premier Kathleen Wynne mused that Ontario would likely drop its ORPP proposal if the federal Liberals were elected, in order to get behind a Canada-wide solution.iii
If true, there are both pluses and minuses to this news. On the one hand, if a CPP enhancement deal can be reached, it will inevitably introduce higher payroll contributions in some provinces outside Ontario.iv On the other hand, there is apt to be a lower rate than was to be the case in the Ontario stand-alone version. This is in part because some provinces are seeking a less ambitious enhancement to the CPP and also because the plan can be run far more efficiently by the CPP and Canada Pension Plan Investment Board (CPPIB) due to economies of scale in administration and systems development.
A uniform, national system would also reduce the administrative burden on retail businesses, as compared to a patchwork of federal and provincial plans.
Lastly, the work necessary to get more provinces on board may delay implementation for several years beyond the ORPP’s planned phase-in dates of 2017-2020.
The Liberals are committed to reducing EI premiums but at a slower rate than the Conservatives had proposed. The Liberal plan will reduce the premium to $2.31 Employer/$1.65 Employee by 2017, whereas the Conservative plan would have reduced the premium to $2.09 Employer/$1.49 Employee.
The Liberal platform also proposes significant changes to parental benefits under EI, with implications for retailers. The proposal would allow for the existing 35 weeks of parental benefits to be divided up into smaller blocks of time, taken over an 18-month period from the birth of a child. There is also a proposal to allow for up to 18 months of continuous leave, including both maternal benefits and parental benefits, at a lower benefit rate than if taken over the standard 12 months.
The requirement that a job be held open during parental leave falls within provincial jurisdiction and the Liberal plan proposes working with the provinces to amend their labour codes accordingly. The proposed change is therefore not an imminent one.
Credit Card Fees
The Conservative government had rejected a regulatory approach to reducing interchange fees, preferring instead the voluntary reduction to an average rate of 1.50% to which Visa and MasterCard agreed, effective spring 2015.
RCC’s efforts in this area have previously engaged Liberal parliamentarians who have shown support for regulatory solutions to deal with what remain some of the world’s highest interchange fees. On September 11, 2015, the Liberal Party wrote RCC, confirming the following:
"The Liberal Party of Canada has long advanced and supported reasonable efforts to impose regulations that give small and medium-sized businesses more power to negotiate credit card fees, conditions, and to select which networks to use. We look forward to working with organizations such as yours to determine the best ways to support your industry."v
Tariffs (Customs Duties)
The Liberal Party has indicated that it will review the Trans-Pacific Partnership (TPP) trade agreement that could eventually save Canadian merchants as much as $500 million annually in customs duties on imports from seven new trading partnersvi but also made clear that it is a pro-free trade party. A review was required in any event as the TPP will need ratification by parliament. RCC does not anticipate that the Liberal government will oppose the TPP’s provisions on tariff elimination. RCC’s concern lies more with the US election’s impact on this issue than it does with the outcome of the Canadian election.vii
Positively, the Liberals have also agreed to look more broadly at the tariff issue and in particular, at those areas in which tariffs are imposed on items that are no longer (or were never) manufactured in Canada.
Despite a strong lobby from US trade negotiators, the US airfreight industry, and online merchants based outside of Canada, the TPP did not contain any increases to the current $20 de minimis rate under which postal and courier shipments enter Canada free of sales taxes and duty. This is a positive outcome for retailers in Canada. Correspondence and discussions with staff of the incoming Liberal government have indicated no appetite for reopening this issue, whether within the TPP or otherwise.
A major increase in spending on transportation and transit infrastructure is a centrepiece of the Liberal plan. This $60 billion increase over the next decade would certainly benefit retail businesses in the movement of goods by road and the movement of customers and employees by road and public transit. It should be noted, however, that deficit-spending, if left unchecked, could lead to an increase in borrowing costs.
Food and Nutrition
Of particular interest to grocery retailers, the Liberals committed to take several actions to “help families make better food choices”. This includes bringing in regulations to eliminate trans-fat and reduce sodium in processed foods, and introducing restrictions on the marketing of food and beverages to children, similar to those currently in place in Quebec. Food labels will also be reviewed, with a particular focus on added sugars and artificial dyes, meaning a likely restart or significant revision to the Nutrition Facts table review consultations that began in 2014.
Minority Government Problems Avoided
Most pundits had called the likely outcome as a Liberal minority government, supported by the NDP, rather than the Liberal majority government that was elected. The majority result is almost certainly better for retailers than a minority would have been. First, markets are more positive about a stable government, with probable benefits in interest rates and exchange rates.
Second, the NDP had proposed a number of measures that would not have been welcomed by most businesses in the retail sector and which might have been among the NDP’s conditions for supporting a Liberal government. These included corporate income tax increases, and potential opposition to the TPP trade deal. The NDP had also proposed a $15/hour minimum wage, which though it would only have affected workers under federal jurisdiction, would have added symbolic weight to the push for a $15/hour minimum already taken up by the Alberta NDP government. On the downside, the NDP had proposed a faster reduction of the small business tax rate to 9% (i.e., by 2017), which will now proceed as planned by 2019.
RCC APPROACH TO THE NEW GOVERNMENT
Retail Council of Canada increased its engagement with the Liberal Party in the run up to the election. Over spring and summer 2015, we met with the senior policy teams for all three major parties, in order to learn more about their respective policy platforms and to convey RCC “asks” on areas including trade, payments, de minimis and regulatory harmonization. We also initiated an exchange of correspondence and received answers from the three parties to our questions. The Liberal response is linked here.
Concurrently, our regional teams met with over 40 candidates in competitive ridings, many of whom will now be taking up roles as Members of Parliament and some as Ministers and Parliamentary Secretaries.
Lastly, our VoteRetail campaign engaged our members during the election, raising our profile and issues through RCC member letters to 501 candidates in 123 ridings across Canada.
Toward a Retail Sector Strategy
Beyond the specific policy proposals that we have been advancing on trade, payments, regulatory harmonization and taxation, RCC has also urged all three major parties to examine the potential for an overall sector strategy for retail, along the lines of those that already exist for the automotive, energy and forestry sectors.
RCC continues to educate policymakers about retail’s 131,000 storefronts, the 2.2 million Canadians employed in our sector, our $350 billion in annual sales and the particular pressures that we face on trade issues, input costs and regulation. We have also taken some strides to convince decision-makers that these retail issues cannot be addressed simply by grouping business by size and that many are specific to the retail sector whether we are talking about small, mid-sized or large retail businesses.
At the same time that we are creating greater receptivity to retail issues, we also need to ensure that retail voices are heard strongly, hence our VoteRetail and RetailMatters initiatives. Maintaining a high level of member engagement will be vital to successful advocacy with the new government.
The government will be sworn-in on November 4, 2015, including the appointment of the Cabinet. Ministers will then take several weeks of briefings by their public servants. The hiring of ministerial staff will begin immediately but onboarding and briefing-up on files will not be completed until year-end.
Parliament could hold a short session in November/December to hear the Speech from the Throne (SFT) and deal with some housekeeping matters. However, recent comments from senior Liberal Ralph Goodale suggest that the House may not meet again this calendar year . Even if it does meet, RCC does not anticipate that much parliamentary business will be conducted until 2016.
RCC’s federal advocacy goals for the balance of this year are as follows:
- Closely study the government’s plans, especially if, as expected, Ministers’ mandate letters are made public;
- Refine our “asks” on key issues and our engagement strategy in light of the government’s stated priorities;
- Reinforce our relationships with existing government staff and develop those with new staff as they are hired;
- Continue to deal with public service decision-makers on day-to-day issues; and
- Begin plans for in-person meetings on files as the government settles-in in the New Year.
If you have any questions or concerns, please don’t hesitate to contact: Karl Littler, Vice President Government Relations and Strategic Issues at: [email protected] or 416-467-3783
i Preet Banerjee, CBC Radio Metro Morning, October 21, 2015
ii A Liberal government will introduce, as its very first bill in Parliament, a tax cut for the middle class,” Then-Liberal leader Justin Trudeau, The Canadian Press, October 9, 2015
iii Kathleen Wynne, The Canadian Press, October 13, 2015
iv Though Manitoba and Nova Scotia were already talking about joining up with the Ontario plan and BC and Alberta governments have been watching Ontario’s move closely.
v file:///C:/Users/klittler/Downloads/LiberalPartyofCanada_RCC-PartiliberalduCanada_CCCD.pdf, at parag. 2
vi Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam.
vii file:///C:/Users/klittler/Downloads/LiberalPartyofCanada_RCC-PartiliberalduCanada_CCCD.pdf, at parag. 3