Ian is joined this week by Dan Kelly, President & CEO of the Canadian Federation of Independent Businesses (CFIB). The CFIB is the biggest non-profit organization in Canada, lobbying on behalf of their 100k+ members. The show begins with a discussion on how SMEs have weathered trade uncertainty and more recently, higher energy prices. Dan does a deep dive on labour market trends across the most active SME industries, noting that nearly 65% of all private sector labour demand comes from small businesses. The show progresses with other topics discussed like overall business sentiment, alternative measures of the job market, and how the federal government needs to refocus its productivity strategy.
Intro: We absolutely are starting to see much more adoption of AI. We are doing some work right now about whether or not this is displacing employment and the early reviews, I just saw some very preliminary data from my team, and it does look like that's not happening in any large-scale way right now.
Ian Pollick: I hope everyone had a wonderful long weekend. This is Ian Pollick and we are back with another episode of Curve Your Enthusiasm. Small businesses and medium-sized businesses in Canada represent almost 70% of all private sector employment. When we think about some of the dynamics in the Canadian economy right now, obviously construction and residential investment are a big part of that narrative. And small and medium-sized enterprises represent almost 90% of all construction in Canada.
And so, it's very obvious that we care about this cohort given their importance in the labor market. And that's especially true given that the market's now pricing in almost two interest rate hikes from the Bank of Canada this year. And so, understanding the dynamics of the SME sector really gives us a pulse on the economy that we're not really seeing in some of the high frequency data. And to that end, I'm very excited to be joined today by Dan Kelly. Dan is the President and Chief Executive Officer of the Canadian Federation of Independent Businesses.
For those of you that don't know what the CFIB is, it is Canada's largest nonprofit organization. And really, they're an advocate and an advisor for Canadian small and medium sized enterprises. Dan, did I characterize that right?
Dan Kelly:
You sure did. Yeah, SMEs are a big deal in Canada, and we are the lead group in representing them.
Ian Pollick:
Well, we're really happy to have you on the show. And like I said, I think this is a really special opportunity to look at more of the micro dynamics in the Canadian labor market, Canadian business health. And so, let's just kick off the conversation. I want to get a sense of how SMEs were doing immediately out of COVID and how that changed as we entered into the start of the trade war in 2025. Maybe you can just walk us through how those conditions have broadly evolved.
Dan Kelly:
These have been just incredible times over the last number of years. And I think when I take a step back and look at what's happened, it is just enormously gratifying that as many small businesses as have are at the stage that they're in, they've stuck around through all of these incredibly turbulent times because this has not been easy. Remember, Canada had during the pandemic the longest lockdowns in the entire world.
In fact, in Ontario, where I sit right now, in the City of Toronto, certain businesses like gyms and restaurants were closed for over 430 days. Entirely closed, or least large portions of their business, entirely closed for 430 days over a couple of year period. Nowhere in the world locked down its business community for as long as we did in Canada.
And I don't even think we've seen the full extent of the damage from that wash through the economy just yet because it desperately weakened a ton of businesses over that period of time. And then, of course, we've not moved back from that uncertain period into huge degrees of certainty because we had the major inflationary impacts immediately after the pandemic. We've had major supply chain chokes and challenges along the way, some domestic, some international, trade wars and now of course rising energy prices. It has just been just shock after shock, many of them not domestic, many of them international in scope, but made worse by some challenging policies in Canada. So, it's been tough for a lot of entrepreneurs and it's a credit to as many as have to make it this far.
Ian Pollick:
Well, that resiliency is really important because I think it's one of the more interesting dynamics in the Canadian economy. I mean, right before the trade war started in 2025, there was very clear evidence that the Canadian economy was doing pretty good. Troughing in the fourth quarter of 24. Maybe just walk me through and walk the listeners through what you are hearing about the USMCA because obviously there's a lot of noise right now related to other shocks in the system. But I want to get back to, really, the pre-existing uncertainty that lives in Canada, which is just the trade discussion with the United States.
Dan Kelly:
Yeah, it too is a big deal. And I think a lot of people don't appreciate just how significant it is for small and medium sized companies. When people think about trade, they often think about large commodities. They think about auto plants, natural resource products. They don't often think about the small local business that may either export or import from Canada. So, here's our data.
About 20% of small businesses in Canada export in some way to the United States, either as a big or small component of their business, but almost half of them import directly from the United States. And remember, the trade flow is both directions. Of course, we've spent lots of time thinking about the impact of Canadian exports to the United States, but it has not been easy days for those that import products either. There have been on and off reciprocal tariffs.
And still, the steel and aluminum tariffs that Canada charges are a big deal. So, this has been significant for a big swath of Canadian small and medium-sized companies. The good news is, of course, that the majority of Canadian trade still travels the border tariff-free in both directions. But it's the actual uncertainty over trade, policies changing, intentions changing from one day to the next, that has been the real killer and has caused a ton of businesses to just basically push pause on tons of operational decisions pending some kind of resolution to this mess.
Ian Pollick:
So let's just talk about that a little bit more because I think one of the narratives in the market right now is that once you get more trade certainty from the USMCA, there's enough pent up demand on behalf of businesses that they will be willing to invest. They will be willing to spend a bit more money. Do you agree with that?
Dan Kelly:
I do. I think that there are some businesses that have been sitting on their hands. Now, I will say, at the very end of last year, I think we had gone a few weeks without a major trade threat from the president. We did see optimism tick up a little bit in Canada. And that was because I think a lot of businesses have said, okay, I've been waiting for some degree of trade certainty.
That may not happen. It feels like trade is okay right now. And despite the fact that tariffs might have been 10% one day, threatened to go to 15 the next, or the Supreme Court decision, or this or that, or the other thing, businesses were having to make decisions because they couldn't put them off forever. So, we started to see businesses take action at the end of last year. Unfortunately, just as businesses were starting to make some of those decisions, then another curve ball with the war in Iran started. And energy price is thrown into the mix. So it's been, unfortunately, we've seen a drop in optimism once again, only a couple months later.
Ian Pollick:
For sure. And so, before we kind of talk about energy prices, I want to talk about overall small and medium sized enterprise business margins. You know, those margins were really important in terms of restricting some of the reciprocal tariffs being put into inflation. And when you speak to your kind of constituents, how are they talking about passing on input costs? How are they thinking about handling their margins when these costs are rising?
Dan Kelly:
Look, any business needs to pass on its any rise, rise in business price in business costs to its customers at one point or another, or it ceases to be in business. But I can tell you over the last number of years, many, many businesses have said because of shrinking consumer demand that they know that if they were to jack up prices significantly, they would end up losing a lot more market share. So, so many of them have had strategies and some of them, unfortunately, long-term strategies to just kind of eat these costs. On the energy side, for example, with the war, when we asked our members how many have had to do immediate price hikes, about a third of businesses said that they have had to increase prices as a result of rising energy costs. About two-thirds, though, said that they just can't do that yet because they don't want to end up losing some of their customers by jacking up prices at this stage. So, margins have been under compression for some time. And governments are not making this easier. Right now, I think we have about five provinces increasing the minimum wage in Canada. And while the minimum...you know...the vast majority of businesses don't pay the minimum wage, they pay well above that, it causes a ripple effect through the entire wage scale, putting pressure on them that way.
Ian Pollick:
Let's examine that a little bit because obviously, as I was saying in the introduction, I don't think people understand that at least when it comes to private sector employment in Canada, that SMEs are the lion's share of it. And so, in a world in which margins are being compressed, minimum wages are going up, how are businesses talking about their demand for labor? Are they...is it true that we're in that no hire, no fire type of economy? Or is there better days ahead? Or is it going to get worse?
Dan Kelly:
Look, at the moment, the good news is that I just looked at our small business barometer data. CFIB collects thousands and thousands of survey data points from its members. We have 103,000 small businesses as members of CFIB. We collect data from them every month. And our most recent data point says, which is available online, you can subscribe to it at CFIB.ca.
But on that publication, it does show that there are more businesses still looking to hire today than to lay off staff. And that is good news. So, the wheels are still on the Canadian job market. We have seen unemployment tick up. I think a lot of that is driven by some of the trade uncertainty with some big plants, big producers that have unfortunately not been able to find alternative market share just as quickly as we would like.
But from a small business perspective, the wheels are still on. In fact, we're at this point, this weird spot, where there's been a tick up in unemployment, but small businesses still, huge swaths of them, report a shortage of workers, either a shortage of skills or a shortage of just people to put their products and services to market. And we have to remember, our job market is just not one big job market with interchangeable parts.
I've often said that the unemployed auto worker that's used to making a 100,000 a year in Ontario is unlikely to move his or her family to Estevan, Saskatchewan to go and wash dishes in the local pizza place, even if the local pizza place were to increase their wages dramatically. So, this does mean that there are some impediments to the free flow of labor inter-provincially, between sectors.
And so, it's not plug and play, and we need to take that seriously. There's a lot of things going on in the Canadian labor force and many businesses are struggling to find the people that they need to get the products and services to market. Beyond that, we also have, I have to say candidly, business owners talk a lot about this. We have a challenge with the work ethic of many in the domestic population where we are struggling to find people who have basic customer service skills and want to work and will show up on time and will show up for a full week without disappearing. These are sadly some of the things that I hear from business owners almost every day.
Ian Pollick:
Okay, so let's just talk about some of those labor comments you made, which are actually really, really good color on a micro scale. I think, you know, this is the type of environment where it's very easy to forget what happened a month ago or two months ago. And remember, right before the war, the big narrative in the equity market was displacement of jobs because of AI. And so, when you think about youth employment in Canada and youth SME employment, are you seeing broad adoption of AI that is impacting that part of the labor market?
Dan Kelly:
We absolutely are starting to see much more adoption of AI. In fact, it's gone faster than I might have expected, and small businesses using many of the tools. Now, for some of them, it may be just using it as kind of an enhanced Google search. But for others, they are starting to adopt it into processes. We are doing some work right now about whether or not this is displacing employment and the early reviews, I just saw some very preliminary data from my team, and it does look like that's not happening in any large-scale way right now. That doesn't mean that that's going to be the case forever, but in these early days it doesn't seem like AI itself is causing small businesses to let go of people. We have to also remember that small firms have a big insulating effect on the economy. They are often slow to hire, like they don't create a job unless they're pretty sure that they're going to be able to keep that person in employment for a longer period of time. But they're also slower to fire. So, when times get tight, business owners often will take it on the chin for a while and keep that person employed, even if the market doesn't suggest that they are going to be able to do that long term. They do that because they're hoping for better days. They do that because the business owner has a personal relationship often with that employee because he or she as the business owners working with their team of five and those relationships are strong, they don't want to see them go, they know that it's hard to find people to come in behind them. But on youth unemployment in particular, when we came out of the pandemic, the labor market was effectively broken. As you'll remember, people were screaming for workers in almost every kind of business that was out there. And so, students found it no problem at all to find summer jobs. It was fairly plentiful times. More recently, we've kind of returned kind of to a more normal labor environment. And so, the last couple of years, students have been reporting, I have a 17-year-old son that has been tighter to find a summer job. I gotta say though, and this is what I hear from small businesses, is that again, there is not a perfect mismatch, a perfect match between the kinds of jobs that people want and the kinds of jobs that businesses need. People say, well, wait a minute, why should we bring in temporary foreign workers to take jobs in, a quick service restaurant or a hotel? When kids are looking, Canadian kids are looking for jobs. Well, again, my kid in Toronto that's looking for a part-time job in the summer is not going to go to rural Quebec to a resource town and change sheets in a hotel room in the middle of November when he's in school. And so, we got to remember these kinds of things. The labor market is big and again, not plug and play.
Ian Pollick:
I mean, let's just turn this a little bit towards productivity, because obviously one of the big problems in Canada in terms of growing our per capita GDP in terms of an overall better quality of life is just our lack of productivity. And given that SMEs represent such a tremendous amount of private sector jobs, what do you think that issue is with productivity? And do you think that AI really has the ability to improve it for SMEs?
Dan Kelly:
It absolutely can. There are lots of ways where a business owner can use AI to make it sort of more productive. We as an association are using AI tools in lots of ways to enhance the service to our members, for example. We're using AI to do basic research that then we can have a staff person set eyes to and then give better quality information back to a small business owner than they might have been able to do quickly on their own.
So, I think there's tons of room there. Our major complaint about productivity in Canada though is the tax and regulatory regime that we have in Canada right now. It is a major struggle. You know, we do a ton of work on inter-provincial trade barriers. We do a lot of work on provincial, federal, municipal regulations. We need regulations in Canada. We're not suggesting that we deregulate absolutely everything that moves, but here's the frustration for business owners. When we've done some work with provinces to total up the number of regulatory requirements that one provincial government imposes, the average in Canada is about 400,000 regulations per province. That's just at the provincial level. Forget municipal regulations on top of that. 400,000. Well, I could tell you. If a business owner could successfully implement, understand and implement 400 regulations in his or her business, I would be incredibly impressed. But there are not 400, there are 400,000 rules.
Ian Pollick:
Is that real? Are you sure you're not making that up?
Dan Kelly:
It is, yeah, I wish I were. The federal government had several hundred thousand of its own. Now, not every rule applies to every business,
Ian Pollick:
Sure
Dan Kelly:
But you get my point here. We have so many different agencies with conflicting rules and advice. I remember one of my favorite examples, business owner in Saskatchewan that had to prepare a safety, you know, the government requires them to have a safety manual, fair point, no problem there. They had an inspector come in and gave them a fine, a $300 fine because they used the wrong font in their safety manual. These are the kinds of things that just drive business owners nuts and yet governments are so slow to move on.
Ian Pollick :
Oh...lovely...
Dan Kelly:
These are the kinds of things that just drive business owners nuts, and yet governments are so slow to move on.
Ian Pollick:
So, what you're saying is really interesting because I think a lot of the narrative that we hear, even from the Bank of Canada, is that businesses should just invest and they should streamline their processes. But one of the big bottlenecks that you're suggesting is actually at the federal level. And it's regulatory, it's the tax regime, and that's only getting worse relative to the rest of the advanced economies.
Dan Kelly:
It absolutely is right. And look, will have to you, I roll my eyes pretty hard when it's federal government agencies that are lecturing businesses about being productive, when it is hard to get any decision any day of the week from a government agency. Now, I'm encouraged that at the federal government level, federally and provincially, that there is more happening than I've seen in a long, long time.
You know, some of the work that's happening on streamlining the major approvals for massive developments, resource projects, pipelines. I think all of that is fantastic. But right now, we seem to be doing that on an exception basis, which is this project is key to Canada. It's going to create 25,000 jobs. So let's fast track that. Let's streamline it through all the incredible processes that we have, but we're going to leave those processes alone for everybody else. Look, wouldn't it be more powerful if the 1.2 million small businesses with paid staff in Canada, if each of them was able to create one job, that would be massively more beneficial to the country than a major project that might create, you know, 5,000 or 10,000. And yet, we don't think in those terms of trying to make sure that the burden is lightened for everybody. We try to say, well, let's keep the regulatory regime in place. It's too hard to change it. We'll just fast track it for these five companies or these five projects because they're important.
Ian Pollick:
No, that's actually a very, very good point. And let's just talk about sentiment while we're on the subject. I think, you know, I'm going to do a little plug here. Everyone who trades the market knows that Canada has a lot of top tier and second tier indicators. One of them that often gets missed is the CFIB Business Barometer Index. I have used this almost my entire career. I think it is predictive. I think it is timely. I'm not too sure why markets largely ignore it, but we've seen a definite rebound in the level of this overall business sentiment. Can you walk us through what's going on here?
Dan Kelly:
Yeah, look, our barometer has been shown to track to GDP really, really well. To your point, there are tons and tons of measures of the kind of large business sentiment, consumer sentiment, but very, very few insights on what's happening in what I call the non-stock market economy, those smaller players that are out there. And so, this is why I think our indicator, the CFIB Business barometer has been so powerful.
It has been bouncing around for a while. We did, as I said, see a bit of an uptick at the end of last year, which was really good news. I do think that part of that was that, you know, as I said earlier, the wheels were still on the majority of Canada's trade with the US and businesses were starting to say, well, I got to make decisions. I got a plan for it. Looks like it's not so bad. Maybe I can make this work. So, I think that that is a good chunk of it. Entrepreneurs are optimistic by nature.
You wouldn't start a small business in Canada if you were avoiding taking on any kind of risk. So that is a part of this too. But these have not been easy days. A strong wind could blow down some businesses. They've been so weakened over the last little while. But I do believe that if we can get some of the trade crap behind us, better days are ahead.
Ian Pollick:
Do you think that businesses can withstand an increase in interest rates?
Dan Kelly:
Look, there are more and more businesses that are trying to operate with, and I think this does connect to the productivity argument, that businesses have been conditioned to try to operate with less debt than before. And so, yeah, are, like a lot of businesses in Canada are fairly mature. We've also had the benefit of a lot of new Canadians that come into Canada with some money that then invest in businesses in Canada and that certainly helped. That unfortunately I think is going to be a little light over the next year or two as Canada's ratcheted down some of its immigration numbers. But interest rates certainly do play a role for some sectors of the economy, and I think in our most recent indicator I did notice that about a third of businesses have said that they are constrained because of the cost of borrowing.
Ian Pollick:
And that's obviously going to get somewhat more squeeze if energy prices kind of persist at these levels for a while. One of the questions I have for you is reading a very interesting stats can paper on SMEs. And what this paper showed was up until the end of 2025, over the last five years, the difference between SME births and deaths was only about 10,000, which was the lowest in a very long time. And so maybe talk to us a little bit about that net SME business creation within the context of what is driving it? Is it there's less people leaving the system? Is there more people entering the system? What's going on here?
Dan Kelly:
Yeah, you know, we've been we've been keeping our eye on that number. It is such an important indicator because typically even in tough economic times, there are more people starting businesses than ending their business career. We've also done a lot of work on business succession at CFIB. We've got some reports that one of them showed that seven out of ten business owners are looking to exit their business in the next decade. 70% looking to exit their business in next decade. So those demographic challenges that are facing Canada from a retirement perspective, they're very real. Now, the good news is in small business, and I've talked to many of them, that business owners often have an intention to retire in say five, years. And then five, ten years later, they still have a plan to retire in five ten years. My favorite story from one of our agricultural members. We went in and visited a business owner who was super excited. He said to us, look, dad on the farm finally, finally showed me the books to the business as he's starting to prepare for a succession. I've been waiting for this day for so long and he was so proud of that. In this story then, we learned that the son that was learning the books was 65 and dad was in his 80’s finally showing him the books of the business. So that's unfortunately a classic story from far too many business owners. But the demographic realities are starting to take hold. We've had now, I think, five quarters in a row where there are more business deaths than business opening. And that is very unusual. And something's going on. Some of that may be pent up losses from weakened businesses over the last number of years through the pandemic and the other shocks we described. The demographics are kicking in in Canada. Oh, so the other piece I should add here, a recent survey of CFIB showed that over half of business owners would not recommend starting a business to Canadian young people. Think about that for a second. Half of the existing entrepreneurs have said, you know what, son, daughter or friend, don't do it. It's not for the faint of heart. I don't want my kid to go through the hell I've had to go through as a business owner. So that's the negative. The positive, Canadian young people seem to be rejecting that advice anyway. And many of them are more attracted to entrepreneurship than we've seen. And that is good thing. I'm happy for that, that young people still want to start their own business, many of them not looking to be confined to the traditional work environment that perhaps some of us have over the years.
Ian Pollick:
Well, look, there's only two ways you grow an economy. Either add more workers or you make current workers more productive. And so, by opening more businesses, that's obviously a key conduit to kind of get that standard of living higher, that level of potential growth higher. So, it's a very, very important topic. And just circling back with the idea of regulation, and we've just gone through a lot of the provincial budgets. Most of them have come out. I think we're just waiting on a couple in the East Coast. But, you know, the recent Ontario budget decision to reduce the small business rate is really important. Talk us through what that actually means for Ontario small businesses, but also your expectation of whether other provinces are going to follow suit or the feds.
Dan Kelly:
This is super helpful. The provincial government in Ontario has announced just last week a 1.1 billion dollar corporate income tax cut for 375,000 small businesses. They lower the rate from 3.2% to 2.2%. That's cutting their tax rate by nearly a third. That's really good news. The reason that Canada Canadian small businesses have a lower tax rate than larger corporations is that in those early days when you don't have a lot of money, any profit that your business might eke out, you're able to invest more of that back into the business. And in fact, that's what our data shows. What are businesses going to do with this tax cut? They're going to invest it either in wages because they know they need to try to keep up with larger corps in paying their staff as well as they can or they're going to invest in productivity enhancing equipment or technologies. And so, both of those outcomes are really, really positive. We're encouraged by that. Some of the other Saskatchewan, a couple of the Atlantic provinces recently increased their small business threshold so that you got to pay that lower rate on instead of 500,000 in corporate income on six, in the Atlantic cases, 600,00 0 in corporate income.
But we're really pushing hard to get the feds to do the same. I was in Ottawa yesterday trying to push the Department of Finance, the Prime Minister's office along those lines. But we need something big to happen at the federal level. It has been a decade since we've seen any reduction in the small business rate at the federal level.
Ian Pollick:
Listen, Dan, this has been a truly fascinating conversation. The work that you're doing, the lobbying efforts that you are conducting on behalf of SMEs, you know, we thank you for everything that you do. It's a terrific thing that you are doing for that community. The last thing I want to talk about before we end the show, and remember that you're talking to a bunch of bond traders who are trying to understand how strong or how weak the Canadian economy is. Give us the bottom line. Is the Canadian economy in your view based on what you see, are we, you know, three inches away from going off the edge? Or do you see some potential path that things are going to accelerate and improve?
Dan Kelly:
I remain in that optimistic column, and here's why. One of the things that did happen, you know, over the last year, really in 2025, was I do think Canadians got a bit of a reality check, that we were living in a bit of a dream world here. The economy had been issue number probably 500 on the federal government's list of priorities, and it showed. I will say with the shock from the US, not that I would have wanted that in any way, and it's still obviously a strong negative for the country at this moment. But it did cause Canada to come out of this decade-long delusion that we had that we could just let the economy drift and tax the heck out of everybody and regulate the heck out of every process, and there would be no consequence. Canadians basically rejected that. The government did. Look, when Carney was elected, he got rid of the stupid idea of increasing the cap of the inclusion rate, the capital gains inclusion rate. He ditched the carbon tax, both decisions that small business owners opposed, both of those decisions, small business owners wanted to happen for some time and had a big fight with the Trudeau government on. There's more to be done. But I think Canadians have realized, well, we can't just say, forget it to conventional energy. We're just going to leave it in the ground. You know, at this moment. Gosh, how much better would we be off as a nation had we spent a decade trying to facilitate the conventional energy and do that at the same time as we try to improve environmental protections rather than just one over the other? And I think Canadians in general are behind that. And that's what I'm starting to see. So if we can get the trade issue behind us, we can get this current friction point of the of the war in the Middle East behind us, and then Canadians can still move ahead with a more aggressive pro-economy agenda federally and provincially as is starting to happen, I think the country will be better off as a result.
Ian Pollick:
Well, I hope you're right, sir. Listen, Dan, I know you're a busy guy. We really appreciate you taking the time to be on the show and I hope everyone has a great week ahead. And remember, there are no bonds harmed in the making of this podcast.
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