The number of business start-ups and entrepreneurs is declining in Canada, according to a new report that links the shift to the aging population.
The report, released Wednesday by public policy think tank The Fraser Institute, found that the number of new Canadian start-ups as a share of existing firms between 2004 and 2012 dropped by 16.2 per cent.
Fraser Institute President Niels Veldhuis said one of the driving factors behind the decline is Canada's aging population.
Like many industrialized nations, Canada's population is getting older. Statistics Canada expects the proportion of Canadians over the age of 65 to reach 23.7 per cent by 2035, representing approximately one in four Canadians.
Veldhuis said the demographic shift has an impact on entrepreneurship, as the proportion of Canadians of working age (between the ages of 16 to 64) drops and the proportion of Canadians over age 65 continues to grow.
In particular, the shift will mean that younger workers will be less likely to get the managerial experience they need before they launch their own small business, which traditionally occurs between the ages of 35 to 44, Velhuis said.
"This is one of the problems: we have an aging workforce which means people stay in their jobs longer and longer, and take opportunities away from young people, which means less business start-ups," he told CTV's Canada AM.
"That means you're going to have fewer entrepreneurs, fewer business start-ups, all kinds of ramifications for our economy, including potential ramifications for innovation, job creation and just general economic growth."
The report also found that the rate of decline for businesses increases as the size of the firm increases.
According to the report, the rate of business start-ups for firms with five to 20 employees declined 41.3 per cent between from 2003 to 2012.
By comparison, the decline in firms with between 20 to 50 employees over the same period was 61.4 per cent. For firms with 50 to 100 employees the rate of decline was 68.3 per cent, the report found.
The right-leaning Fraser Institute suggests the government changes to Canada's capital gains tax that it believes will foster more Canadian entrepreneurs.
A capital gain occurs when an asset, considered a “capital property” by the Canada Revenue Agency, is re-sold at a higher price than its initial purchase price. Canada has the 14th highest capital gains tax rate among the 34 countries comprising the OECD.
Velhuis said a reduction in capital gains tax would help "supercharge" entrepreneurship, by making it easier to secure financing in the critical early days of business startups.
A reduction in capital gains tax may also help incentivize workers to leave a secure job at an established firm to launch their own business, the report argues.
The report makes two recommendations on how Canada can amend its capital gains tax. The first suggestion is that Canada eliminate the tax completely. The report notes that 11 OECD countries have no capital gains tax at all.
The second suggestion is that Canada adopt a deferral or "roll-over" system, similar to the system implemented in the U.S. The "roll-over" system allows for tax deferral if the capital gain is re-invested within a certain period of time.
