Tax incentives for small business don't create jobs and in some cases restrict a company's growth, says a new study from University of Calgary economist Jack Mintz.
The director of the university's school of public policy maintains Canada needs to revisit its small business strategy to encourage the sector.
"We really need to think a little more carefully about what we're doing here," said Mintz, who coauthored the paper with Duanjie Chen, adding that no studies back up the belief that small business is responsible for most job creation.
As well, a Bank of Canada study found the size of the small business segment is a reason Canada is less productive, he added.
In their paper, the economists question the "myths" about small business being responsible for most job creation and recommend incentives that would encourage investment in depreciable assets, as well as changes to capital gains rules.
Richard Truscott, Alberta director of the Canadian Federation of Independent Business, said the recommendations are worth further study. But he takes issue with the study's position that lower taxes create disincentives for small businesses to grow.
"If small businesses aren't growing, there's a whole range of reasons, including access to financing and capital, labour market shortages and red tape," he said. "Those have much greater practical impact on preventing the growth of small companies into bigger ones."
Mintz said governments have reduced or eliminated corporate taxes on small businesses (2.5% in Alberta) even though there is no evidence the move is effective.
The study says companies may break into smaller units to take advantage of tax benefits, people may create small corporations to reduce their personal tax liability, or keep companies from growing so they stay at the small business threshold.
Truscott said small businesses are "the first to hire and the last to fire during the boom and bust cycle and if they're not hiring people it's because they never laid them off in the first place." He added that not all businesses want to expand.
