Small businesses are often described as the backbone of our economy — and that’s because they are. They develop new products and technologies that drive economic growth and create new jobs. But if small businesses are so important, why aren’t we doing more to support their success and foster even greater growth?
Small businesses bore the brunt of the economic fallout during the pandemic. The on-again, off-again lockdowns dried up revenue, drove away customers and made employee retention very difficult. I often wonder how many of the small businesses that went under during the pandemic could have become another Magna International?
Legendary entrepreneur Richard Branson famously said that all big businesses start small. When I started Magna, I opened up a one-man shop in a rented garage at the corner of Dufferin and Dupont streets in Toronto. I bought some used equipment and, to save money, slept on a small cot inside the shop. I then went hustling for work, knocking on the doors of other factories and businesses in the neighbourhood.
After only a month, I hired my first employee. By the end of my first full year in business, I had 10 workers on my payroll, and after two years I had 50 employees. In each of the years that followed, the company got new customers, hired more people and made more money.
This is much harder to do today because we have saddled small businesses with burdensome regulations, incomprehensible tax rules and ever higher taxes. We’ve placed so many hurdles in their way that countless small businesses can’t even get off the ground.
If you’re willing to take a risk by starting a company, buying equipment and hiring people, the rewards for doing so should be substantial. But that’s no longer the case.
We need to completely unshackle our entrepreneurs and small businesses and let them drive our economic recovery by creating hundreds of thousands of new jobs. To do that, we should eliminate the income tax for any small business with 300 employees or less.
However, owners would only be allowed to take out the money they need in the form of a salary or living wage, and any money that owners took out would be taxed as personal income. This way, the bulk of the profits could be reinvested in hiring more employees to grow the business further. That’s what I did and so too did many other entrepreneurs.
After my small tool shop got up and running, I moved out of the garage and rented a cheap nearby apartment with a shared bathroom at the end of the hallway. This way, I was able to keep plowing most of our profits back into the business so we could buy new machines and hire more toolmakers.
At the end of the day, the government would receive far more in personal income taxes — by far its largest source of revenue — from new jobs that small businesses create than it ever could by taxing those same businesses. The tax base would grow, the economy would expand and Canadians would have more jobs and better-paying jobs because the demand for labour would drive up wages.
In addition, if we removed income taxes for small businesses and startups, it would give them the runway they need to rapidly expand, and would free them to focus all their energies on product development and customer service. It would be pure free enterprise — small businesses would be let loose to grow, invest and make money. The only regulations they would have to deal with were those related to workplace safety and protection of the environment.
The benefits to Canada of unleashing small businesses would be enormous. Small businesses are woven into the fabric of our communities. They often hire locally, give back to the community and are less likely to pull up stakes and move overseas.
We’ve got to stop stifling our entrepreneurs by taxing them into the ground and making them jump through countless bureaucratic hoops. If we eliminated all income tax for small businesses, everyone would win: government would collect more taxes, Canadians would have more jobs and entrepreneurs would finally get a fair reward for shouldering all the risks associated with running a business.
In the final analysis, any society that stifles its people in the pursuit of creativity, productivity and ingenuity is a decaying society.
Frank Stronach is the founder of Magna International Inc., one of Canada’s largest global companies, and an inductee in the Automotive Hall of Fame.
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