Income from Investments on Reserves
The Indian Act specifies that if a person with status earns income on a reserve, his/her income is not taxable. This means that aboriginal people can technically get paid less and still take home the same amount as a comparable worker off reserve. Despite this powerful competitive advantage, in 2007, the Aboriginal employment rate was only 66.4% in Saskatchewan. This compares to 88.3% for non-Aboriginal people. This 19.9% difference represents the largest employment gap in all of Canada.
With stats like this, is it any wonder that one in four Aboriginal children live in poverty?
Aboriginal unemployment/underemployment should be a major concern to the powers that be in Canada. However, it sometimes seems like Aboriginal economic development is a far lower priority for Canadians than it should be. Is it really that much easier to watch Save the Children commercials when they are filmed in Africa?
With this in mind, I would like to propose a way to dramatically increase the Aboriginal employment rate. Currently, if a person with status earns income on a reserve, that income is not taxable. That is good, but it is not good enough. You need investment to create income and sadly, the investments are not coming in fast enough to feed a population boom. So, why not make investment income on reserves totally tax free as well?
Here is an example. Joe has $250,000 to invest, so he starts a business on a reserve. That business meets strenuous requirements for Aboriginal job creation and is approved of by the community in question. Therefore, any profits that Joe makes are completely tax free. If his business profits 8% of his investment, he will take home $20,000 and not have to pay a nickel in tax. If he turns around and sells his business for $5,000,000, again, he will not have to pay a cent of tax.
Sounds like a pretty good deal for Joe, doesn’t it? What does that do for the community? Well, let’s say that Joe hires 6 people and pays out a total of $159,840 in salaries (this is the equivalent of $216,000 off reserve). Some of this money will be spent on the reserve and other industries (fueled by other tax free investments) will start to spring up. As the money supply increases, both unemployment and poverty will decrease.
My gut tells me that I will I will be labelled as a meddler, or an apologist or a neo-con for writing something so business minded. That is fine because none of them are true. I am just a guy who really loves the free market and who gets really angry when little kids go hungry. Tell me what you think…
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About Greg: Greg Hluska is an early 30s Regina guy. By day, he works in User Experience in a technology company and by night, he is an avid reader/writer who helps publish the Regina Streets Magazine. |
Hi,
I’m just getting started with my new blog. Would you want to exchange links on our blog-rolls?
BTW – I’m up to about 100 visitors per day.
I think that Greg’s post makes a very interesting point, but I also think that it highlights one of the problems with blogs! There is just not enough space to address the greater nuances of both the benefits of such a plan, but also the problems that arise in implementation.
A great example is diamond mining in the Canadian North. The indigenous communities are about half and half for and against it. It brings much needed opportunities in employment and growth, but at the expense of environmental values. Not to mention the fact that it’s hard labour! In the September issue of the RSM last year, author John Bird pointed to the fact that the majority of employers available to aboriginal communities in this context are looking for able-bodied young men for specific labour positions. Translation – not everyone was built for mining! This seems to continue.
The point is, in circumstances like Greg’s idea, there is a great need for *meaningful* analysis of the businesses taking advantage of the tax-free status. Moreover, genuine and productive consultative processes with the communities in question *must* take place so that the “strenuous requirements for Aboriginal job creation” are met in a way that reflects intra-group difference.
Just a thought…
Mike, I will send you email to discuss this.
Thanks
Stacey
Thanks for the comment, Stacey….
That ‘article’ should really be about 200 pages long. I had to gloss over so much. For example, the analysis should have covered concepts like multiplier effects on reserve, community consultation, and the affects such an investment scheme could have off-reserve.
However, my point remains…free market can, if properly nurtured and channeled become the most potent tool for economic development at our disposal. If the free market is not nurtured, you end up with communities with 85% unemployment. But if the market is not properly channeled, you end up with sweat shops in our own backyard.
We need to find a middle ground – a policy in which we can help transform all reserves into economic powerhouses while focusing upon basic human rights and community consultation/control. With some luck, this article will be a beginning point to such a policy…
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