The Effects of NAFTA, Increasing Minimum Wage, and Tax Changes

By Martin Rumack

March 27, 2018

Increasing Minimum Wage, Tax Changes, The Effects of NAFTA

How does the Tsunami Impact Small Ontario Businesses???

The Effects of NAFTA, Increasing Minimum Wage, and Tax Changes — How does the Tsunami Impact Small Ontario Businesses??? The combination of these factors will have a definite negative effect on Ontario small businesses, and maybe not-so-small businesses. Let me give an example of the potential effect on an Ontario small business entity. An Ontario corporation exports their products to the United States and has done so for many years. NAFTA is being renegotiated with the one and only President Donald Trump directing the U.S. negotiation team, with the goal of putting Americans first by slapping significant tariffs on the Ontario corporations’ products. The Provincial Liberals under the direction of our eminent Premier, the Honourable Kathleen Wynne, has resulted in the Province of Ontario becoming the have-not Province (which has been the case for a number of years under Liberal leadership), are going to raise the minimum wage from $11.40 to $15.00 by 2019.

Lastly, the good old Federal Liberals want to help increase their revenue stream by taxing the non-reinvested profits of Ontario corporations at excessive tax rates. Let us assume that after many years of building the business, the owner of the Ontario corporation would like to enjoy the benefits of that hard work. These combined issues will most likely negatively impact the value of the Ontario corporation, with the result that the owner will receive a lesser amount of money from the sale of their business. What happens if an Ontario corporation cannot afford to pay that new level of minimum wage? Will employees lose their jobs? Will the business close its doors? This increase will likely result in other hourly employees demanding a similar percentage increase in their hourly wage. The minimum wage increase will most likely affect those businesses which supply product to be used in the manufacturing of the Ontario corporation’s products, hence an increase in the cost of the raw materials and labour costs of Ontario manufacturers.

The bottom line is workers may be terminated; the cost of manufactured goods will no longer be attractive cost wise for export so ultimately business activity (i.e. sales) may decrease, leading to more layoffs, and the vicious cycle will spiral downwards further eroding Ontario’s manufacturing base. Finally, the proposed taxation of “passive income” plus the increase in minimum wage and a new NAFTA Treaty might leave the company with little income and lead to a bleak outlook for the company, its employees, and Canadian industry. Where does this leave the entrepreneurs who over a period of years built up a business, want to sell their business, but now after the Government’s “meddling and fiddling” has resulted in the value of the company decreasing significantly from what it was worth before all of these changes? As a result, this will significantly decrease the price an interested buyer may have paid for a business before these changes. What a tragic comedy of incompetency by our Federal and Provincial Governments!!!

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