P i s t a c h i o

For Pacific-Prairie Restaurant News, June, 2008

Mid-Year Report: From Historic Growth to Consistent Decline

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BRITISH COLUMBIA

Greening Offsets Great Income Tax

The BC economy saw hearty growth in 2007, with a sturdy job market, and robust construction and mining sectors, both above the national average.

Wholesale and retail sectors improved, but manufacturing, agriculture and industrial production fell. For the third year running, wood exports are down because of the fall in the demand for lumber from the troubled US housing market.

The province’s real GDP is 3.0 per cent, respectably above the national average, with employment at 3.2, and disposable income at 6.3 per cent. Commercial foodservice sales were steady, up only 0.3 per cent. Per capital sales grew 1.8 per cent.

“It’s the year of the Green Budget,” says Mark Von Schellwitz, the Canadian Restaurant and Food Association (CRFA) Vice-President for Western Canada. He’s referring to the new carbon tax that will take effect July 1, 2008, which the government intends to use to cut greenhouse gas emissions by over 30 per cent by 2020.

Fossil fuels — gasoline, diesel, natural gas, propane, coal and home heating fuel — will be taxed at $10 per tonne of greenhouse gases they generate. The tax will rise $5 per year for the next four years. In 2008, the tax will add 2.4 cents per litre at the gas pump and 2.8 cents per litre to home heating oil.

Cooking with Gas
“How it’s going to impact the sector is being hotly debated,” observes Schellwitz. “We are a high-consuming industry, with kitchens going full tilt all day.”

The government is offsetting these increases with cuts to personal income tax — two per cent in 2008 and five per cent in 2009 — giving BC the lowest personal income tax rate in Canada for those earning under $110,000. Corporate and small business taxes are also being cut, one per cent and 3.5 per cent respectively.

Schellwitz applauds the news from the Provincial Nominee Program (PNP). It has extending its reach for the coming two years to target hospitality and tourism, and long-haul truck driving The program has singled out these sectors for their “acute and persistent” shortage in skilled labour, and their significant role in BC’s export-oriented economy.

There was a strong push to harmonize taxes, which would tax restaurant meals, but the government declined. “We’re pretty happy about that,” says Schellwitz.

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ALBERTA
Soft Growth Gets a Spending Budget

With $45 billion in financial assets, the Alberta economy has started to slow down, and still, people aren’t spending. House sales fell 30 per cent, and retail sales fell nearly 20 per cent, below the national average in retail sales for the first time since 2003.

Growth in 2007 was down 50 per cent from 2006. Economists blame the decrease in oil and gas extraction, and a decline in natural gas exploration.

The province recorded a real GDP of 4.3 per cent, with employment at 4.7 per cent and disposable income up 8.1 per cent. Commercial foodservice sales are up 2.5 per cent, the second best performance among provinces. Total per capita sales are up 2.9 per cent.

In a broad stroke of relief for individuals and businesses alike — savings of about $1 billion a year — the new budget eliminates health care insurance premiums, starting January 1, 2009. The savings offset new costs from the rise in minimum wage, 14 per cent more from only eight months ago.

“Last year was successful for our industry,” reports Dave Kaiser, President of the Alberta Hotel and Lodging Association, but not before adding that the main challenge was labour.

Help From Abroad
Addressing labour shortages, Alberta’s PNP program created 1,800 new workers for foodservice. “The industry is embracing the new temporary foreign workers,” added Kaiser, “and on the foodservice side, our members are working hard to attract and retain their workers with increased benefits.

Looking ahead, Kaiser said, “We’re not going to see the same growth in 2008. The rates are going to soften, particularly outside the major centres.”

“Thankfully, it was a spending budget,” Kaiser continued, happy with another $10 million to spend on marketing and development. He was also pleased to see small business getting a tax break, with only three percent under the $460,000 ceiling.

A change to the room tax brought good news. Until this budget, the five per cent levy went into the general coffers, “with no link to tourism,” explains Kaiser. Under the new budget, the levy drops one per cent, and all the room tax is now exclusively designated for tourism spending, 75 per cent of which will go to fund Travel Alberta, a new corporation devoted to tourism marketing, ready to do business in 2009.
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SASKATCHEWAN
Infrastructure Spending Protects Impressive Growth

Flush with the riches of a strong year, Saskatchewan’s population grew for first time in 11 years. Potash production is surging, making big news in the financial markets. The housing market is holding. Unemployment is 4 per cent, the lowest in 25 years.

The province reported a real GDP of 4.6 per cent, almost double the national average. Personal disposable income was 7.7 per cent. The province has the fastest growing retail sales in the country, also leading in commercial foodservice sales at five full percentage points above the national average.

“It’s a red-hot economy,” beams Courtney Donovan, CRFA’s Prairie Vice-President, “but there’s going to be a slowdown.” The CRFA is forecasting growth at 3.3 per cent for 2008 and 3.6 per cent for 2009.

Looking across the province’s western border, Donovan said: “The labour shortages crippling Alberta are slowly starting to creep east.”

Infrastructure Protecting Growth
The budget’s highlight is the $1 billion “Ready for Growth Initiative,” which Donovan characterizes as “the government showing real commitment to sustaining strong economic growth.” Spending toward a solid infrastructure, the initiative will focus on more hospitals, health facilities, schools, road and highways.

Tourism has $8 million more to spend, double from last year. Hospitality will benefit, but only slightly, from the cut in corporation income tax — one per cent, putting it at 12 per cent. The income threshold for the 4.5 per cent small business tax is now $500,000, up from $450,000.

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MANITOBA
Hearty Tax Relief Leads Give and Take

Construction, mining, agriculture, investment and aerospace are all performing well in Manitoba. The province has a real GDP of 3.5 per cent for 2007, with employment at 1.6 per cent and disposable income at 6.6 per cent. On the rise are wages and house prices, which lifted retail sales to nine per cent. Commercial foodservice sales fell 4.3 per cent, with total per capita sales also down, at 1.0 per cent.

“Sales are steadily declining,” says Scott Jocelyn, President of the Manitoba Restaurant Association, “down eight per cent since 2000.”

Despite hearty tax relief from previous budgets, the new budget provides another $103 million, including such tax credits as a $100 increase in personal tax exemption – which is not enough, according to Jocelyn, to offset the rising costs of two minimum wage hikes in one year.

“Every time the government wants to put some money into the hands of the low-income earner, it raises the minimum wage,” he declared, “but there are other options. This really hurts us.” Jocelyn would like to see better personal exemptions for more disposable income.

Gratuities and Pay Roll Tax
The other measure Jocelyn would like to see for Manitoba is a tipping wage for front-of-house workers, which would help take some economic pressure off the operator without overly punishing the employee.

“The only good thing about this budget was the small business tax, reduced to one per cent, and it’s on its way to being eliminated by next year,” declared CRFA’s Donovan. “The bad news,” she continued, “was the payroll tax paid for businesses earning over $1.25 million. It’s like having to pay for being successful.”

Donovan also wanted to see more tax relief for more personal disposable income. “We have the highest income tax in Canada, with the lowest personal exemption, nearly half of Alberta’s rate of $15,000.”

On the labour front, the PNP has been good for Manitoba, but Jocelyn would have liked to see more lower-skilled jobs included, as they were in other provinces.

Looking ahead this year, Jocelyn says that it will be interesting to see what develops with chains like Tony Roma’s, Moxie’s and Joey’s, who’ve recently taken up residence in the province. “We’re excited by their vision,” he says.

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