Payroll taxes are taking a big bite out of employers’ and employees’ earnings and it is about to get even bigger, according to the Canadian Federation of Independent Business.
The group, which represents small and medium-size business owners across the country, said a survey finds that 77 per cent of small business owners say that payroll taxes are the form of taxation that most severely impedes their growth.
“Payroll taxes are one of the most detrimental forms of taxation for small firms, because they impose a heavy administrative burden and are not scaled up or down depending on how profitable a business is,” said Simon Gaudreault, CFIB’s senior director of national research, in a news release on Wednesday.
“With CPP and QPP set to increase by at least 20 per cent over the next seven years, payroll taxes will be taking an even bigger chunk out of salaries and profit margins, putting small firms’ ability to grow, hire new staff and compete at risk.”
The CFIB said an employer faces between three and seven different payroll taxes depending on where it is located, including CPP/QPP, EI and workers’ compensation.
“Governments need to move away from payroll taxes if they want to avoid suffocating small businesses and the labour market,“ said Marvin Cruz, senior research analyst at CFIB. “In the short term, employers usually try to offset their payroll tax costs by raising prices or cutting back on hiring. In the long run, however, payroll taxes lead to lower wages for employees, which in turn reduces their purchasing power.”
In its latest report, Taxing Payroll: A Barrier to Business Growth and Competitiveness, CFIB is asking all provincial governments to eliminate provincial health and/or education payroll taxes within the next 10 years.
It said governments should introduce an exemption threshold or raise the existing one to at least $2.5 million in total annual payroll and index it to inflation in order to help small firms stay profitable.
The report also says the federal and provincial governments should exempt senior employees (over 65) and young workers (under 18) from payroll taxes.
“At a minimum, governments and their agencies need to be more accountable for the cumulative burden of the different payroll taxes they impose on employers in their jurisdictions,” said Gaudreault. “Betting heavily on this form of taxation is simply not sustainable in the long run.”