Category Archives: economy

A perspective on Universal Tax Debt Relief

COVID-19 Government Aid

Canadian governments at all levels responded to COVID-19 by telling people to stay home and shuttering large parts of the economy resulting in massive job losses along with creating massive liabilities for business owners and threatening the survival of businesses ranging from theatres, to restaurants and airlines.

Federal COVID-19 relief as of April 24, 2020 was $145.6 billion according to news media. In the first month COVID-19 emergency funding was already 3.5 times of Canadians’ old tax debt and it has continued to rise rapidly. As of May 26, 2020 news media reported that the $2,000 Canada Emergency Response Benefit had paid $40 billion dollars to 8 million Canadians. 8 million people represents a staggering 42% of Canada’s workforce, including sole proprietors, and self-employed Canadians.

The Government of Canada also immediately extended tax filing and payment deadlines from April 30 to September 1, 2020, ostensibly to reduce Canadians’ stress and anxiety of being unable to pay their outstanding 2019 taxes due to COVID-19 decimating their financial capacity to pay their regular bills for shelter, food and communications, let alone any outstanding taxes.

Canadians’ Tax Debts

In 2018, Canada Revenue Agency (CRA) reported that uncollected taxes had risen to $44 billion and “…unpaid tax owed is set to hit more than $47 billion by 2020. The steady increase in the tax debt — up by about $2 billion annually [since 2015] — comes despite a major investment in the 2016 federal budget to wrestle down fast-rising levels of uncollected tax debt.”

Importantly, “close to half of the unpaid tax debt is owed by individual Canadians. Corporations and businesses account for the remainder, which includes unpaid GST and payroll deductions not turned over to Ottawa.”

Source: https://www.cbc.ca/news/politics/tax-debt-liberal-budget-collections-1.4715967

To be clear, tax debt includes neither tax revenue lost to the underground economy (the black market) nor tax evasion, for instance through offshore tax havens. Tax debt means tax owed by Canadians who actually have filed their individual and business tax returns, i.e. people who rather than cheating are dealing with capacity to pay issues.

Universal Tax Debt Relief

Universal Tax Debt Relief is an efficient way to give affected Canadians a chance at recovery and rebuilding their lives, or at least some peace-of-mind. Meaningful tax debt amnesty has to extend to 2019 and perhaps include COVID-19 Year 1, ie the current year.

It would give affected Canadians a chance to wind down their businesses responsibly, perhaps even avoid personal and business bankruptcies, and stop having the millstone of CRA debt around their necks, potentially until the end of their lives. An utterly hopeless situation.

Eliminating their CRA debt would give affected Canadians a chance to begin the long but hopeful process of rebuilding their lives, their credit and start with a fresh slate in terms of their relationship with CRA. They could work to avoid poverty becoming a burden to Canada’s social safety system.

Unprecendented? Not really.

CRA has not collected from tax evaders despite having access to the Panama Papers and the Paradise Papers, for instance.

CRA has hired more tax collectors since 2015 to deal with the tax debt backlog, and they have assigned a few staff to tax evasion as well. But CRA simply does not have sufficient enforcement capacity and uncollected tax debt keeps growing – and no one seems to track what the other group, tax evaders, are doing overseas to avoid or evade taxes in Canada..

In 2012, the federal government simply wiped out about 280,000 skilled immigrant applications because they were backlogged and doing so gave the government a clean slate rather than have a years-old millstone around its ability to act in the present time.

https://www.cbc.ca/news/politics/canada-s-skilled-immigrants-backlog-to-be-eliminated-soon-1.1290847

But what about fairness?

COVID-19 isn’t fair. Falling into debt because of following ones passion
isn’t fair. Missing a single tax payment and learning the hard way how big a stick the government carries isn’t fair. Life isn’t fair.

My proposals isn’t suggesting anyone should not be paying their taxes – I pay mine and I expect all tax payers to pay theirs. This is simply a
recognition that there are groups of people who have ended up in dire financial situations, while they have been building businesses, communities and making all manner of contributions. With COVID-19 all bets are off. The fall out will include business and individual failures. This is a chance to give back hope for a better day.

COVID-19 relief has been fast and effective at saving the lives of millions of Canadians. It is time to save the lives of those Canadians who have been living under the unyielding choke-hold of tax debt and CRA tax collections.

Some added notes

Tax Debt and CRA’s punitive penalty and compound interest regime

CRA uses a punitive daily compound interest regime coupled with severe penalties for late filing or not being able to pay all taxes by the due date. This is applied in the harshest ways related to payroll taxes. GST debt and income tax is treated with somewhat less punishment in comparison. The penalties and compound interest exceed the average profit margin of many businesses by a wide margin, making catching up exceedingly difficult, if not impossible.

“The penalty for late filing payroll remittances is:

3% if the amount is one to three days late
5% if it is four or five days late
7% if it is six or seven days late
10% if it is more than seven days late, or if no amount is remitted
20% if this is the second or subsequent time you are assessed this penalty in a calendar year, if the failures were made knowingly or under circumstances of gross negligence”

Amongst other penalties there is a “penalty for failure to file information returns over the Internet.” And for some tax remitting organizations, “payments made on the due date but not at a financial institution can be charged a penalty of 3% of the amount due.”

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/penalties-interest-other-consequences/payroll-penalties-interest.html

Importantly, any monies owned to CRA including penalties and interest CANNOT be used as a tax write off. Normally, interest on a loan is a tax write off, but interest on CRA debt has to be paid out of after-tax income, making paying old debts dauntingly difficult.

Getting a loan to pay off CRA debt?

Banks will not make loans to people carrying CRA debt. Loan sharks on the other hand charge more than 30% on loans they give – again, most businesses do not achieve such high profit margins. This spiral of despair is a set up for failure.

Does bankruptcy wipe out CRA debt?

Important to understand is that debt to CRA is unlike any other debt – even in bankruptcy CRA debt is not automatically wiped out and can persist to the end of a person’s life. In effect CRA can keep a bankrupt person from ever emerging from bankruptcy. CRA can and does claw back Canada Pension Plan payments, which average around $650 a month, leaving seniors with tax debt in a despairing situation.

Restaurants at the Brink – COVID-19 Response

A sector analysis series #1

Creative Commons Licence CC BY-SA (i.e. use in any way you want with attribution of source: “Inga Petri, Strategic Moves, May 17, 2020”)

Public health officials in Canada ordered dine-in restaurants closed everywhere during March 2020. Now in mid-May, they are musing about reopening restaurants with new obligations, centred on 2 metre distancing, disinfecting surfaces and perhaps more.

That potential “permission” to “open” cannot result in thinking restaurants and their owners wouldn’t require continued financial support.

The reality check

2018 financial data from Statistics Canada available at http://www.ic.gc.ca/eic/site/pp-pp.nsf/eng/home shows that for the 35,514 full-service restaurants with sales between $30,000 to $5 million (data for those earning above $5 million is suppressed):

35% did not generate any profit at all, i.e. they were operating at a loss.
The other 65% turned a profit of 7.6% on average, representing $24,400 for the year.

That means a profitable restaurant in Canada makes money only 4 weeks out of 52 on average. It also means a restaurant owner’s average annual profit is less than minimum wage. And no, many sole proprietors do not pay themselves a regular wage; instead keeping everything working in their business. Anyone can see the high risk restaurateurs take and how tenuous their existence is.

In the Yukon, where I live, the numbers are a little better: only 22% do not report any profit and of the 78% that do, the average profit is 9.3% representing $66,000 on average in 2018. Nonetheless these figures show how little slack there is and how all the money for the years comes from the now cancelled summer tourist season.

This data makes clear: the average restaurant, closed down already for two months due to the public health orders, is already bankrupt. Re-opening obligations are shaping up to be costly and won’t result in lower staffing complements despite serving far fewer customers due to new labour intensive cleaning regimes. There is simply no economic case to reopen for the great majority of dine-in restaurants.

Significant direct contributions to Canadians

Through the risk borne by them, restaurateurs have been contributing far-reaching benefits to Canada’s economy: according to Government of Canada data, the average dine-in restaurant had $765,600 in sales. Of that $250,300 went to labour costs and wages. Purchases and materials that are part of the cost of goods sold totalled $273,900. Rent accounted for $65,300 and so on.

And there are many more indirect, restaurant owners have been building communities, contributed to quality of life, played a large part in attracting and retaining a skilled workforce, growing tourism through the culinary arts and memorable dining experiences, supporting charities, paying staff, helping put young people through school, feeding people, all while breaking their backs and bank accounts.

In short, the direct and related economic activity generated by the restaurant sector is worth billions to Canadians and the Canadian economy.

A broken model – Restaurateurs need help

COVID-19 is showing for the world to see what has been true for some time: The business model independent full-service restaurants have been forced into, largely by price competition from other food sector players, is broken and the owners are broke.

The numbers also make clear why restaurants can fall into GST and Payroll remittance tax debt, when basic break-even is so difficult to achieve. Non-remittance incurs extraordinary penalties and interest charges that can take up any monthly surplus and more. And then they are exposed to the CRA’s relentless collections and being treated as less than valuable community builders and hard-working, creative, innovative business leaders.

They need a chance at a life beyond COVID-19 and beyond a broken business model.

How can Canada help restaurants and their owners now?

A few ideas that could pull restaurants and restaurateurs back from the brink:

Consumers have to learn to pay much more for the pleasures of eating out, especially when they don’t wish to tip 20% for servers and rather see living wages for restaurant workers, rather than below minimum wage as is the case in some jurisdictions. In the Yukon where I live it appears as though most, if not all, workers in the restaurant industry earn well above minimum wage plus tips.
Landlords should permanently slash rents to restaurant tenants to enable restaurant owners earning a living wage and being able to invest in innovations in their business or business model.
In addition to short-term COVID-19 Transition Grants to pay for additional public health mandated expenses and staff training, Government has to consider providing meaningful tax debt relief to allow a fresh start or at least some peace for owners.
Sole proprietors must be considered as a special group requiring assistance. If sole proprietors are considered as “making a profit” when they barely break even before paying themselves anything, their work translates into not being able to cover their personal expenses and falling into debt.
Local governments should revisit their zoning requirements to enable new, innovative ways of providing food services to the public. They can range from quickly enabling sidewalk patios and taking over unused parking spaces (no tourists means ample parking spaces are unused); a new breed of home-based businesses offering nano-scale/single-table/prepared-food eating experiences without the massively expensive requirements for home-based commercial kitchens; significantly reducing restaurant and liquor licensing costs.
Canada’s provincial and territorial government-owned and run Liquor Control Boards should look at offering higher discounts or find a way to return most of their profits to their customers, i.e. bars and restaurants that must purchase alcohol at government controlled prices; allowing off-sales within every restaurant liquor license during the COVID shutdown period and 3 months beyond.

COVID-19 relief has been fast and effective at saving the financial lives of millions of Canadians. It is time to save the lives of those Canadians who have been living under the unyielding pressures of low price competition while the market demands quality food and high quality, unique dining experiences.

Taking steps to understand digital potential in the performing arts

At the CAPACOA conference in Halifax this past January, attendee feedback suggested that I made a compelling case for Breaking the Fifth Wall: Digitizing the Performing Arts. Indeed, attendees were buzzing with the challenges and opportunities presented. Others who have watched the presentation online have asked me how they can get involved. You can watch my talk here on video. In it, I weave together a case for sector-leadership and sector-ownership in developing a future digital platform. I am most excited about digitization beyond the 2-D screens we have today. In particular, I believe a future-oriented perspective requires us to contemplate live-streaming/streaming 3-D renderings; holographic and or virtual reality convergence in technologies. Things most of us have never seen but enabling technology solutions are advancing rapidly.

In this talk I offered a brief context of digital transformation in the last 20 years, an overview of experiments in digital performing arts presentation from around the world, a perspective on what it take to transform the challenging economic model that persists in live performing arts for the presenting field in particular, and a call to action.

At the upcoming CAPACOA national conference in Ottawa from November 25 to 28 I hope to turn that buzz into tangible action: Together with CAPACOA, we invite you talk about the next steps we as a sector want to take to drive this discussion forward and explore opportunities of digital distribution at scale in Canada and beyond. Can we establish a working group to spearhead conversations and build sector leadership on this central issue? Who wants to be and needs to get involved?

I am looking forward to facilitating this conversation on November 26 at 8 am.

Is it Sustainable? Volunteers in arts and culture

An off-the-cuff remark during the recent SPARC Network Summit, was captured by Chad Ingram of the Minden Times:

“The idea that we’re all volunteer-run [in rural communities] . . . is that sustainable?” [Inga] Petri asked, pointing out that the arts is one of very few industries where people are expected to donate much of their time. “We would never imagine mining to work that way. We would never imagine forestry to work that way.” [Or fisheries for that matter: all industries that are also often located in rural or remote locations in the country.]

So why do we not need to have volunteers running mining companies, like they run community-based arts presenting organizations in many regions of Canada? Why do forestry companies not call for volunteers to support their operations or sales teams, as many arts organizations do? Why such a dearth of volunteers in integral oversight roles in fisheries or construction industries?

Don’t worry. I get it. The performing arts is a sector where labour productivity can’t so easily be increased (that Beethoven symphony requires the same number of musicians today as it did when it premiered), unlike what has been achieved in those other industries through automation and machinery with ever greater capacity requiring ever fewer people. Yet, at the same time labour costs in the arts have to keep pace with inflation and cost of living for artists and administrators (well, that isn’t always the case, but still costs have risen while productivity has not). One response to what has been called Baumol’s Cost Disease means that it is hard to imagine the arts and culture sector existing to the degree it does in Canada without massive volunteer involvement.

Volunteerism – doing useful things in an organized way without pay to make others’ and our own lives better – is a great attribute of being part of a vibrant community. Yet, especially in smaller communities in Canada, worries about attracting, training and retaining volunteers are common. People burn out from the demands of volunteering in the arts, volunteering at the local hospital and any number of charitable and not-for-profit organizations.

We collected pertinent information underscoring the importance of volunteering – and inferred the great importance it signifies in terms of the arts for Canadians – in the Value of Presenting study (links to PDF):

“(…) Canadians who volunteer in the arts and culture sector gave on average more time (127 hours per year) than those in any other sector in 2010. This represents an increase of 21% since 2007, the largest increase of any sector examined at a time when 6 out of 12 sectors registered a decline. (…) When considered in terms of total hours, the amount of volunteer time equates to about 100 million hours. That is equivalent to more than 50,000 full-time jobs.

(…) in the Survey of Performing Arts Presenters … [more than] half of survey participants report more volunteers than staff. The average ratio of volunteers is 17 for each paid staff member. (…)

The profound reliance on volunteers is even more evident among presenters of entire programming seasons in small communities under 5,000 people. They are less likely to have any staff and instead tend to be entirely volunteer run. These rural organizations rely on a day-to-day volunteer complement of an average of 36, with half reporting the use of 12 or fewer volunteers and half reporting more than 12. This increases to an average of 167 during the height of their operations.

I wonder whether this reliance on volunteers is sustainable. And whether it is sufficient to off-set the cost disease that has been diagnosed. And whether it is makes sense and is fair that so many functions (we can look at them as potential full-time jobs) are filled by unpaid labour?

To be clear, arts organizations have also undertaken other strategies to alleviate the inevitable pressures, including:

Higher ticket prices
Advocacy for greater public support
Increase in private, corporate donations
Renegotiating union contracts to reign in costs

While they do not address the underlying structure of the sector, each of these strategies has bought time for many organizations, even if not all in Canada, by generating needed income.

So, where do we go from here?

Well, one place I will go is to the CAPACOA conference in Halifax, where I will discuss Digitizing the Performing Arts and explore whether that could be “the holy grail” to shifting the performing arts presenting sector’s structure toward a new model that suffers less from this dynamic.

What’s the matter with numbers?

With thanks to CAPACOA for commissioning my response to the Culture Shock debate entitled “Hard Facts VS. Proverbial Truths: The Impact of Arts & Culture on Canadian Citizens & Communities” held on November 20, 2014 at the Community Knowledge Exchange Summit. Moderated by Canada Council for the Arts CEO Simon Brault you can watch the archived livestream here.

Billed as #CultureShock, Alain Dubuc, a journalist and economist, and Shawn van Sluys, who heads up a philanthropic foundation that works to make the arts more central to our lives, debated whether “For arts and culture to be fully valued by society, their impact must be demonstrated with hard facts” or whether proverbial truth are sufficient.

The case for telling the stories of transformation and understanding through art was made eloquently. Yet, I was more struck by the economist’s assertion that hard facts are “the best way” rather than “the only way” to ensure we fully value arts and culture.

This debate brought to my mind Daniel Kahneman’s observation in Thinking, Fast and Slow that humans have a propensity to believe that “what you see is all there is.” He cautions us that we can easily miss important parts of a situation because there may be more going on than meets the eye.

And that reminded me of the old adage that what we count is what matters. By inference that suggests that we actually count what truly matters, and that those things left uncounted do not matter. In the arts much of what gets counted are ticket sales or attendance as a percentage of capacity. Until recently, little attention has been paid to collecting the stories, let alone data points, of impact and benefits of the arts. In my view, just because some things are (relatively) easy to measure, like attendance or GDP or employment figures, that does not mean that they tell the whole story – or the most important parts of the story. Conversely, just because some things are harder to measure that doesn’t necessarily make them any less important or, for that matter, immeasurable.

Indeed, I think we gain the deepest insights through a purposeful combination of numbers and stories. For numbers are not meaningful by themselves. Numbers require context and an understanding of the intrinsic dynamics at play. In my work as a researcher and strategist, my task is not merely to produce tables and analysis, but to interpret findings and create meaning. It is this highly creative process of meaning creation and collaboration with all the decision-makers that can lead to new insight. And in creating meaning we bring the numbers to life through examples: the stories.

Some in the arts do not wish to speak the language of numbers which they equate with the language of business. From my experience working with corporations I know that yes, numbers are important, but many invest heavily in innovation and creativity in order to solve significant problems and improve quality of life through new products and services. The divide is not so great. Rather, we may well be just lacking translators or mediators; people who are proficient in both languages and who can help us understand each other better.

Watch the debate.

Economics of fear reloaded

Back in early 2009 I was struck by the incessant credit crisis coverage that had been going on since Lehman’s Brothers collapse in 2007, and before then if you had been paying attention to the sub-prime mortgage asset-backed securities issue. I thought it had to have impact on how people would behave in terms of consumption choices.

Economics of Fear and Sustainable buying practices

Now it’s late 2011, and we have just come through 5+ years of unending credit crisis, recessions and now debt crisis news coverage.

The coverage of “the markets” – those mysterious beyond-human-beings-making-decisions markets – is like a game show or maybe an endless cricket game, just a lot faster: like hockey where the spectator never quite “sees” the puck but can infer it from the players motions.

The headlines are unhelpful at best to illuminate the issues – headlines are there to “sell papers”, or in online vernacular “secure eyeballs.” (It’s good to remember the motivations each industry has in its activities.)

Yesterday’s news of German Bond Auction not selling out is a prime example of disinformation moving faster than light (Neutrino pun intended): How many in the public who consume headlines know what a bond auction is, how it works and who the usual buyers are? If you read beyond the headlines you might learn a few other facts:

They come from the bottom of a Wall Street Journal article headlined: “German Bond Sale Spurs Worries”

“Germany had never tried to sell a 10-year bond that paid only 2% interest, and the historically low yields appeared to depress appetite among the traditional circle of buyers.”
“Germany sold 3.644 billion Euros at 1.98% average interest.”
“Germany traditionally auctions bonds, rather than operating a syndicate of primary dealers to place them with investors. The Finanzagentur, the government’s issuing agent, then gradually feeds the bonds it doesn’t sell into the secondary market. This system means that there is no pressure on banks to bid for the bonds or risk their relationship with the sovereign. Moreover, banks across the Continent are trying to reduce their holdings of sovereign bonds, or at least not take on extra exposure, Mr. Krautzberger said.”
Take a moment to check out the interactive feature in the article that shows how German bond yields have declined recently …

No doubt it sounds like the Finanzagentur miscalculated and underestimated the political sentiments and headlines that could follow if they did not sell out and the concerns they might raise.

Bringing it home I have two questions for you: How much are the headlines affecting news-spectators decision making about their own debt, credit, income, savings and spending? And what is your organization’s strategy to adapt as consumer behaviours keep shifting ever more online/mobile which has shifted traditional power away from brands and toward consumers and the platforms they use?

In the face of uncertainty what’s your strategy?

The economic, financial, political and social pressures playing out the world over (Arab Spring, summer and fall, EU sovereign debt, US Congress debt failure) do not mean we all disappear from the face of the earth any time soon.

These massive disruptions simply have become normal.

You do not need to act globally to feel the effects of uncertainty on your business. This is the time for organizations and individuals to re-evaluate their specific situations and build new contingencies, develop new strategies, uncover opportunities for value innovation. Your capacity to analyze, understand and adapt will shape your outcomes.

This is the time for the kind of iterative 360 degree research and strategy process I use in my practice, and others use in theirs. It is by examining internal and external factors and helping people evaluate various dimensions rigorously that together we can shape a powerful direction forward. More than hope it provides pathways for decisive action, grounded in fact and using built-in measures to recognize when course corrections may be necessary.

A few questions

Are your customers particularly stressed due to the financial market turmoil? Which customer segments are more affected and how?

If you are in the B2B sector, are you aware of your business customers current concerns and how you can enhance their opportunities?

As a for-profit or not-for-profit corporation how are you taking account of changes in your environment, in your customer base, among stakeholders? Have you re-examined the assumptions in your 1-, 3- or 5-year business plans, yet?

Are you part of an industry / a sector that has been struggling already to maintain a resilient customer base? Have you accounted for and created strategic responses to the alternatives challenging your products or services in the market today? Have you examined how your products and services are essential – or hard to replace – to your customers?

How are you perceived in your community? How have you been managing your brand in order to create value and trust? How are you evaluating your impact on your community?

How have you responded to the massive changes in consumer behaviour due to the internet and now mobile technology? How have you leveraged the new opportunities that come with online and mobile communications and what are the next opportunities?

These are a few of the questions worth considering. It’s in part the impetus for the series of thought pieces I have been sharing on value innovation in the performing arts, a sector I care deeply about. The process is the same no matter the sector.