Canada's Economic Hotspots: Who's Up and Who's Down
What Canadian provinces are looking forward to a positive 2011? Where are business owners the most confident and where are they not?
The Canadian Federation of Independent Business and its 107,000 small business owners from BC to St. John ’s have a sense of guarded optimism for the new year. The CFIB's Business Barometer Index gauges expectations.
Index levels normally range between 65 and 75 when the economy is growing.
Sitting on the second-largest proven crude oil reserve in the world next to Saudi Arabia with an estimated 171.3 billion barrels—enough to meet Canada’s current oil demand for almost 400 year—is an obvious cause for economic optimism. And the news that PTTEP, Thailand's sole petroleum exploration and production company, has made a $2.28 billion entrance into Alberta’s oil sands, serves to backup that optimism. Look for legislative action concerning the oil sands to clear up uncertainty in the coming year.
Fresh off a year that saw Vancouver play host to the Olympic Games, British Columbia has shown tempered optimism for the coming year. While its neighbor to the East lays claim to a massive oil reserve, the BC economy will continue to ebb and flow with the world’s resource commodity markets, as its principle industries are mining and logging. Vancouver is a leading technology hub, but as stimulus funds start to dry up, many start-ups will be left scrambling to find capital. A bigger question in 2011: Who will lead the Provincial Government? Premier Gordon Campbell announced his resignation on November 3, 2010. When the next leader is selected in February, the business climate in BC will be much clearer. Not to be forgot; Vancouver will host the 98th Grey Cup at year’s end, and businesses are already making plans.
Newfoundland & Labrador
Back over on the Atlantic side, Newfoundland & Labrador has its fiscal house in order. The Honourable Tom Marshall, Minister of Finance and President of Treasury Board, announced at the end of last year that the Provincial Government is projecting a surplus for the 2010-11 fiscal year of approximately $12.3 million, an improvement from the $194.3 million deficit forecast in Budget 2010. And talk of surplus is sure to buoy spirits. Much of the surplus will result from higher corporate taxes and in particular from global mining giant Vale. In Long Harbour, Vale has capital expenditures of approximately $2.8 billion are being made to build new, state-of-the-art processing facilities to process nickel concentrate.
Some numbers just don’t add up. Manitoba has the most pessimistic economic outlook for 2011, yet the Province became the first with a zero per cent small business tax rate on December 1, 2010. Like the personal income tax system, all businesses pay a reduced provincial corporate income tax rate up to the current provincial threshold of $400,000. After that, the higher general corporate tax rate applies. Even so, business owners identified the shortage of labour both skilled and unskilled (51 per cent) and management skills and time constraints (39 per cent) as primary constraints and, oddly, tax/regulatory costs (69 per cent) and wage costs (65 per cent).
Prince Edward Island
Business in PEI is just as depressed as Manitoba and, largely, for the same reasons—taxes and bureaucratic red tape. The economy is dominated by the seasonal industries of agriculture, tourism and fishing. However, aerospace now accounts for over 25 per cent of the province’s international exports and is the island's fourth largest industry at $355 million in annual sales. Business owners, though, cite insufficient demand (42 per cent) and shortage of skilled labour (37 per cent) as constraints and energy cost (72 per cent) and taxes (61 per cent) as major concerns. Many business owners are blaming the harmonized sales tax and labour laws as primary culprits.
The majority of Quebec business owners view the overall state of business as good (53 per cent), but the numbers suggest the French speaking Province is bottom feeding on the optimism scale. There is a significant concentration of high-tech industries around Montreal, including aerospace companies such as aircraft manufacturer Bombardier, the jet engine company Pratt and Whitney and defence contractor Lockheed Martin Canada. But until manufacturing picks up by virtue of credit facilities resuming lending, many are taking a wait-and-see-approach. Business owners again cited a shortage of skilled labour (36 per cent) and insufficient domestic demand (30 percent) as the main constraints.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.