Experts Praise Glen Murray's Plan for Small Business and Jobs
Wednesday, December 5th 2012 11:12:33am
TORONTO - December 5, 2012 - Top Ontario business leaders and thinkers are praising the job-creating small business tax incentive and investment credit plan outlined by Ontario Liberal Leadership Candidate Glen Murray here today.
As Premier, Glen Murray would make it easier for small- and medium-sized businesses in Ontario to get the capital they need to grow and create jobs by creating the most attractive tax and incentive regime in Canada.
“I want our tax system to work better for middle-class Ontarians and small business. I’ve run a small business and I’m the only leadership candidate who has run a government - a major city where we cut taxes, improved services and attracted new investment. We can bring this innovative renewal to job creation for Ontario,” Murray said.
He launched his plan today at Ryerson University’s Digital Media Zone. Murray’s plan is designed to create more than 100,000 new private-sector jobs in Ontario over six years.
• Give Ontario the lowest capital gains tax rate in Canada for angel investment
• Create 35 per cent refundable tax credits for individuals and corporations investing in innovative companies
• Leverage more than $26 billion in capital for innovative companies over six years
• Create net new tax revenues of more than $3.5 billion over six years.
"I very much support Glen Murray's focus on angel investing and corporate venture investment,” said Roger Martin, Dean of the University of Toronto’s Rotman School of Management … “We have to target public money at more successful vehicles and Murray is doing just that."
"The plan put forward by Glen is innovative and dynamic and will no doubt secure Ontario as a global centre for investment and job creation in this new economy of highly mobile talent and capital. I am pleased to endorse these ideas," said Raphael Hofstein, President and CEO, MaRS Innovation.
"This is the kind of policy Ontario job creators have dreamed of,” said John Ruffalo, Chief Executive Officer, OMERS Ventures / Venture Capital. “Glen's jobs and tax plan including an angel investor tax credit, business investment credit and corporate credit will be powerful fuel to drive innovation, investment and job creation in Ontario.”
“I am pleased to endorse Glen’s plan as good public policy,” said Mark Chamberlain, President and CEO of Trivaris Ltd. “To both create and keep jobs in Ontario, we need not only great ideas, but an Ontario-based investment capability and capacity to fund these companies.”
As Premier, Glen Murray will bring in his tax cut and job creation plan in his first budget this spring. If the opposition shares our goal of building Ontario’s economy and creating jobs, they should support Glen Murray’s Ontario Liberal plan.
Glen Murray’s leadership plan for renewal as the next Ontario Liberal Premier calls for tax breaks for the middle class and small business, no-money-down tuition, cities and towns that work and smart government that listens.
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Confidence in Ontario’s future and the ability of all Ontarians to pursue and realize their ambitions requires a government that sets the conditions for the private sector to create good, well-paying jobs. Ontario has done a lot to create these conditions, and now Glen Murray is ready to take the next steps.
Ontario’s corporate tax rates, especially for small- and medium-sized businesses, are already among the lowest in North America and the tax paid on new investment is now among the lowest in the world. Glen Murray’s plan for job creation will take Ontario further, making us a world leader in the support of the high-growth companies that bring foreign investment, attract export earnings, create quality jobs and build the tax base through sustained innovation.
Only the Ontario Liberals have demonstrated that they know what Ontario needs to build the new, innovative economy, and Glen Murray has the plan to build on this success. The PCs don’t have a workable plan - they want to cut corporate taxes even though they are already very competitive. They want to cut taxes because they do not believe that government can be a force for good. Glen Murray and the Ontario Liberals say that’s wrong.
The NDP is suspicious of the private sector - not a good recipe for working with those who create good jobs. They want to raise taxes to pay for poorly conceived and easily abused subsidies for job creation. A Liberal Government led by Glen Murray as Premier will protect the services Ontarians rely upon and support private sector job creation by focusing on the needs of high-growth companies.
Glen Murray understands the high-growth sector. Today, just 4.4 per cent of companies in Canada account for more than half the net jobs created by the private sector. These are innovation-based companies typically operating for less than 10 years and with less than 500 employees. Ontario both builds and attracts a lot of these companies and Glen Murray’s policies will help us get more.
Often referred to as business “gazelles”, these firms are twice as likely as other firms to innovate, invest in computer-controlled production processes and train staff. These companies also place greater weight on technology, innovation, exporting and marketing. They create economic growth, higher-quality jobs and expand the tax base, which supports the programs needed by Ontarians like health care and the best schools in the English-speaking world.
Ontario needs to keep moving forward. Kevin Lynch, former Clerk of the Privy Council of Canada and Federal Deputy Minister of Finance says Canada - including Ontario - faces an “innovation deficit”. The service sector makes up 70 per cent of Canada’s GDP but spends only 0.6 per cent of its output on innovation. The natural resource, utilities and construction sectors, which are 16 per cent of GDP, spend barely 0.3 per cent on innovation. We’ve got to do better. Glen Murray, with his experience and understanding, knows that Ontario needs to go beyond "business as usual" or an approach that just cuts taxes and hopes for the best.
As the global economy recovers from the recession and competitors become more sophisticated, innovation is more important than ever for Canada, and Ontario, to compete.
Understanding How Companies Grow and Create Jobs
In Canada, too many promising companies sell out early to global giants, robbing Canadians of the chance to guide these enterprises to their potential and see the jobs, economic growth and tax revenue stay at home.
A major reason this happens is the fact that our business environment for venture capital is too small to meet the needs of small- and medium-sized enterprises throughout the normal life cycle of business growth.
It may come as a surprise to many people that, in 2010, only about 350 companies in all of Canada received venture capital funding, with an average investment of $3.2 million and a total investment of $1.1 billion. Venture capital investment in the United States that same year was $21.8 billion - about 20 times the Canadian total, and the average deal size was about twice as large.
The Funding Chain by Stage of Development (Review of Federal Support to Research and Development. Figure 7.1)
Canadian high-growth firms have trouble accessing the financing they need. Industry Canada’s Shunji Wang found that highly innovative companies seek external financing almost 50 per cent more often than non-innovative companies. Innovative small and medium businesses are four times more likely to seek equity financing and they are twice as likely to be turned down for credit.
Glen Murray - Meeting the Challenge
As Premier, Glen Murray will make it easier for small- and medium-sized businesses in Ontario to get the capital they need to grow and create jobs by creating the most attractive tax and incentive regime in Canada for risk capital.
Here’s how Glen Murray’s plan will create the best environment in Canada for unlocking risk capital:
Ontario Angel Investor Capital Gains Credit
Angel investors put up funds to small businesses that can’t get money easily elsewhere, but which have potential. If you’ve seen the CBC TV series Dragon’s Den you have an idea - it’s what the Dragons do on the show.
Glen Murray believes that investors, not government, should pick business winners - they have the experience and the track record. He’ll make it easier for Angel Investors in Ontario - and the recipients - to build job-creating, innovative businesses.
Glen’s plan will create a tax reduction of up to 47 per cent for eligible capital gains earned from investments in qualified new and early stage businesses. There’s a reason for this number - it will ensure that the Ontario personal income tax capital gains tax rate for these investments is 9.9 per cent, making it the lowest rate in Canada.
This will cost Ontario’s treasury an estimated $3.4 million a year assuming 500 qualified capital gains per year.
Ontario Innovative Business Investment Credit
To encourage individual investment in new and early stage businesses an Ontario Liberal government under Premier Glen Murray will create the Ontario Innovative Business Investment Credit (OIBIC).
It works in other places. British Columbia’s highly successful program of tax credits for Eligible Business Corporations is an example of this model of stimulating investment and job creation. Ontario’s OIBC will offer higher limits and higher levels of support than any comparable incentive available in Canada for “Angel Investors”.
Manitoba introduced a "Small Business Venture Tax Credit Program" that offers eligible investors a 30 per cent nonrefundable provincial tax credit up an annual limit of $135,000, which can be carried for ten years. This more modest program is fully subscribed - more proof of the practicality of this approach to provoking high-value investment.
In Glen Murray’s plan, investors will be able to claim an investment of up to $300,000 each year for equity investments in qualified businesses. Investments in excess of this threshold may be carried forward and claimed in subsequent years. To qualify for the credit, the initial investment must be held or the principal amount re-invested in a qualified small business for a period of five years.
Investors will be able to claim a refundable credit of 35 per cent each year. Unused credits may be carried forward indefinitely until the full deduction is realized. Unlike other provinces, the full tax credit will be available to investors from outside Ontario as a means of attracting out of province and foreign capital into Ontario.
If we set an annual target of 500 new financings for qualified businesses, this credit can leverage $150 million in private investment, at a cost of $50 million in foregone tax revenue.
Based on the British Columbia experience, these credits will also leverage an additional $560 million in equity financing and $194 million in debt financing for eligible small businesses - for total annual investment of more than $900 million.
This investment means jobs.
In BC, 2.15 net new well paying jobs are created for every $10,000 in tax credits. Based on this, the OIBC can be expected to create almost 11,300 well paying jobs each year.
Growing companies grow the tax base with their spending, the taxes they pay and the taxes paid by their employees. In BC, $1.41 in taxes are generated for every dollar in credits. It’s reasonable to assume at least the same tax return for Ontario’s OIBIC.
By investing in early growth companies it is reasonable to assume that the $50 million in lost tax revenue will be offset by at least $70 million in new tax revenue for the Province.
Ontario Innovative Business Corporate Credit
The Royal Bank of Canada has recently estimated that corporate Canada, excluding financial firms, hold almost $526 billion in cash and short-term securities. At 30 per cent of gross domestic product this amount is three times the historical average.
This was recently referred to as “dead money” by the Governor of the Bank of Canada. This stockpiling of cash contributes to the sluggish recovery especially in the area of job creation.
To unlock this “dead money” and encourage companies to invest in the growth needed to create jobs a Glen Murray Liberal government will encourage corporations to establish Ontario focused venture capital investment funds to support "grow-up" stage innovative businesses. Glen will do this by introducing a new Ontario Innovative Business Corporate Credit (OIBCC) comparable to the Venture Capital Corporation tax credit in British Columbia.
Corporations will be able to claim a credit of up to $200 million per year for investments into new or existing qualified venture capital corporations that invest in qualified small and medium sized businesses.
Each year, corporations will be able to deduct 35 per cent of this credit to an annual maximum of $70 million against Ontario corporate income tax from all operations. Unused credits may be carried forward until the full allowable deduction against provincial corporate tax is realized. Investment funds will be required to invest for five years.
Individual investors will also be able to invest in these funds through the purchase of shares in Venture Capital Corporations. Investors will be able to claim a credit of up to $300,000 each year for investments in Venture Capital Corporations. Investments in excess of this threshold may be carried forward and claimed in subsequent years. Investors will be able to claim a refundable credit of 35 per cent each year to an annual maximum of $100,000. Unused credits may be carried forward indefinitely until the full deduction is realized.
The goal is to set up at least two new $300 million funds each year. Funds of this size would be comparable to the best performing venture capital funds in the United States.
Creating $600 million in new venture capital funding will cost $210 million in foregone tax revenue.
Based on the British Columbia experience, these credits will also leverage an additional $2.3 billion in equity financing and $540 million in debt financing for eligible small businesses, for total annual investment of more than $3.4 billion.
This investment means jobs.
In BC, three net new well paying jobs are created for every $100,000 in tax credits. Investing in more mature “grow-up” companies, the job creation effect is lower than for start-up companies. Based on this, the OIBCC can be expected to create almost 6,300 well paying jobs each year.
Growing companies grow the tax base with their spending, the taxes they pay and the taxes paid by their employees. In BC, $2.45 in taxes are generated for every dollar in credits. It is reasonable to assume at least the same tax return for Ontario’s OIBCC. By investing in early growth companies it’s also reasonable to assume that the $210 million in foregone tax revenue will be offset by at least $515 million in new tax revenue for Ontario.
The Plan at a Glance
Glen Murray knows how important it is to help small business with tax breaks because he has operated a small business himself.
Glen was also Ontario Minister of Research and Innovation and Minister of Training, Colleges and Universities, so he understands why we need to stay at the cutting edge of new technology and development.
As Premier, Glen Murray will bring in his tax cut and job creation plan in his first budget this spring. If the opposition shares our goal of building Ontario’s economy and creating jobs, they should support Glen Murray’s tax cuts for the middle class in the next Ontario Liberal budget.
Glen Murray understands how to make our tax system work better for middle-class Ontarians and small business. He’s the only Ontario Liberal Leadership candidate who has run a government.
Glen Murray knows how to bring in new ideas that work. He knows how to win.
As Mayor of Winnipeg, Glen Murray cut taxes, boosted services, cut debt and paved the way for the return of NHL hockey. He’s a proven vote-getter, ready to lead Ontario Liberals and ready to be Ontario’s next Premier.
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