Posts Tagged ‘recession’

The current economic recession has proven to hit even harder than many economists anticipated. An estimated 129,000 Canadians lost their jobs in January alone, of which Statistics Canada reports that Ontario workers lost a staggering 71,000. Alberta, once a thriving, profitable province, is even feeling the blow, having recently announced another 15,000 jobs lost. Forecasters predict a loss of yet another 250,000 manufacturing jobs over the next five years if the Canadian manufacturing sector follows similar trends occurring within the developed industrialized nations.

For several industries, there is little to no chance of a significant sales increase in the near future. With businesses grasping at straws to stay afloat in this downturn, it is more critical than ever to find a way to increase revenue.

Canada is internationally heralded as a leader in R&D funding for domestic-owned small to medium sized enterprises. The SR&ED program (Scientific Research & Experimental Development) is one avenue that businesses, especially manufacturers, can pursue to improve their bottom line. The goal of the federal SR&ED program is to encourage experimentation and technological advancements within Canadian companies, and this is of particular benefit in the recovery of our economy.

“Companies need to sit back and assess their individual circumstances. It’s time for a second look at the SR&ED process, whether you’ve claimed previously or not.” says Ajay Sinha, VP Operations with Northbridge Consultants. “That old adage is true – knowledge is power. In regards to capitalizing on the benefits of SR&ED, it is worthwhile to seek assistance from a reputable SR&ED consultant.” Sinha is reminding clients that the CRA has hired more auditing staff and made many revisions to the T661 and filing process. He emphasizes that navigating the maze of technicalities correctly is imperative to maximize the size of your claim, and increase the rate of approval to enlarge the dollar amount of returns or tax credits. “It’s a sink or swim situation.”

Sinha mentions that “For those who have had a negative experience or have been disappointed with the results, it is often due to qualifying activities that have been overlooked, and thus not claimed for, resulting in a much smaller return, or in some cases, rejection of the claim.”

Many companies use their SR&ED returns of offset incurred development costs. Alternatively, funds can be invested in new equipment and materials, new hires, or even facility expansion. Sinha adds “We also teach our clients how to track their future eligible activities to make documentation for claims easier and more substantial. This promotes repeated success with the program in the future. The extra resources to put towards the advancement of technology also give Canadians that edge above competitors internationally.”

Economists really do not have a consensus as to what will happen in the next little while. At the moment, they cannot agree whether inflation or deflation is the bigger threat.

Deflationists believe that the cooling economy will lead to decreased consumption.  This, combined with lower gas prices, lower housing prices, and the plummeting stock market, will cause the consumer price index to drop below zero.  For example, the Great Depression of the 1930s was a deflationary period when prices of goods and assets significantly declined.

On the mother hand, there are economists who are also predicting global inflation.  With the worldwide demand for financial bailouts comes the temptation for governments to print more money, which will lead to inflation.  For example, the 1973 recession featured runaway inflation in Canada amid oil shortages. At the moment, in Argentina, inflation has reached 25 per cent.  In Britain, inflation is currently at a 16-year high.

What do you think will happen in these uncertain times?

Keynesian Economics, or “The New Economics,” holds that governments should vary taxes and spending to offset both rising inflation and staggering output. Free-marketers argue that the cost of periodic crashes is worth it, in order to preserve the freedom of capital movements. At the moment, the former notion is prevailing.

Before the 2008 financial crisis, inflation stayed low (did not exceed 4% from 2004 to 2008) and there was little price volatility. It seemed like perpetual prosperity would ensue. What went wrong?

Unfortunately, it would seem that price levels and inflation are lagging, and not leading indicators. Although the metrics seemed stable before the financial crash, behind the scenes, too much money was being shifted from production into speculation. It took some time, but the speculative frenzy triggered by mortgage-backed securities finally kicked in. And the metrics plummeted, and now, output has staggered.

Keynes’ solution to a poor economic state is to “prime the pumps.” This means that government should step in to increase government spending. It is noted that massive military defence spending by the US in WW2 helped to end the Great Depression. If we apply Keynesian Economics to the current Canadian economy, now is the time to increase government spending to stimulate the economy. Our economy needs injections of cash from the federal government in order to prevent a recession.