Experts disagree on budget’s ability to stimulate tech innovation, job growth in Canada

See related story: Federal budget falls short of tech industry hopes

Significant funds allocated to Canada’s science and technology infrastructure in the 2009 budget could stimulate future job growth and innovation in the high-tech sector, some observers say.

But others are less optimistic, suggesting the budget’s “lack of attention” to venture capital and equity funding would negatively affect both productivity and innovation.

Funds for science and tech infrastructure projects total $1.5 billion in the $40 billion economic stimulus plan that is the focus of Tuesday’s Conservative budget.

A bonanza for ICT?

For the Information Technology Association of Canada (ITAC) that’s proof enough the Feds understand the intimate link between economic productivity and serious investment in information and communications technologies (ICT).

Headquartered in Mississauga, Ont., ITAC represents a broad cross-section of Canada’s ICT community spanning sectors such as telecommunications, Internet services, consulting services, hardware, microelectronics, software and electronic content.

The Association was keen to see evidence in the budget that the administration was focused on future needs, while also addressing current realities in the ICT sector, according to ITAC president Bernard Courtois.

The current budget, he said, does this admirably, by allocating funds to create a modern infrastructure, a well-educated workforce, a competitive tax structure, and a productive economy.

All this, Courtois said, could help us “recover quickly from the current economic downturn.”

Some key tech investments include: $500 million for e-health, $225 million for broadband extension, $200 million for the Industrial Research Assistance Program and $50 million to Waterloo’s Institute for Quantum Computing.

In addition, $500 million has been allocated to Canada Health Infoway, opening up the possibility that more than 50 per cent of the country’s health records (EHRs) may be online by 2010.

A non-profit organization, Infoway collaborates with the provinces and territories, health care providers and technology solution providers to promote and speed up the use EHRs in Canada.

Canadian firms view public health care as providing them a competitive advantage over the businesses in the U.S. – but it can become a disadvantage if the system doesn’t perform properly, Courtois said.

Moving health records online, he said, will reduce healthcare wait times and costs, improve the sharing of digital imaging and x-rays, as well as considerably lower the overall burden on the government’s pocket book.

And public health cannot be maintained unless e-health is improved, the ITAC president emphasized.

Likewise, he said, dedicating $225 million, over the next three years, to building a broadband infrastructure in under-served communities is a good move.

It will  improve the ease of conducting business in Canada, and create business growth within smaller localities, he said.

“Broadband is an essential [pre-requisite] for participating in the economy, and this will have a huge social impact.”

This view is echoed by a Canadian telecom analyst.

There is a direct link between Internet access and innovation, according to Roberta Fox, director of Fox Group Consulting in Markham, Ont.

She applauds the government for expanding broadband, noting that countries where high-speed Internet access is more pervasive, generally witness greater innovation.

“However, Canada is an interesting business case because there aren’t enough high-speed customers in remote areas to make it economically worthwhile – that is why some government assistance is necessary.”

Entrepreneurs or laid-off IT staff won’t be able to transport new ideas or create their own home-based business unless they are connected to the Internet, Fox said, and the government needed to step in here to promote equality.

The budget will also allow business taxpayers to fully expense their investment in computers. It proposes a 100 per cent capital cost allowance rate for computer hardware and systems software acquired between Jan. 27, 2009 and Feb. 1, 2011.
 
Courtois  predicts this step will encourage companies that want to invest in computing systems – and could boost economic productivity.

The Government will also continue its efforts to reduce the general level of corporate income tax. It aims to drop the current rate of 22.12 per cent to 15 per cent by 2012, which will make it the lowest among all G7 countries.

Why Raymond Laflamme is smiling

There’s also funding for students and high-tech research groups, with the budget expanding the Canada Graduate Scholarships program and allocations for the national granting councils.

The University of Waterloo’s Institute for Quantum Computing will receive $50 million for construction of a new facility.

Institute director Raymond Laflamme says the announcement put a huge smile on his face.

He said the funds will be used for “brick-and-mortar” projects, as well as to get the best researchers and staff to the facility – set to open in 2010.

Investing in quantum information is key to driving Canada’s economy, Laflamme said, as it transforms from a natural resource-based economy to high-tech.

He said the study of mechanics, chemistry and quantum physics would eventually lead to the creation of powerful devices for potential use in areas such as cryptography, coding or security.

“We want to look at what Canada can take advantage of over the next 20 to 30 years and start building fundamental research to develop new products and jobs for the future.

“This could change Waterloo and the Southwestern Ontario corridor into a new type of quantum Silicon Valley.”

Venture capital misadventure

Commitment to public investment in research is also commendable, says ITAC’s Courtois, but one concern exists around the lack of venture capital currently available.

He notes that while the budget increases access to funding for Export Development Canada and the Business Development Bank of Canada , companies ready to produce innovative technology now may not have access to funds.

And at least one observer is even sharper in his critique.   

Richard Remillard, executive director at Canada’s Venture Capital and Private Equity Association (CVCA) says last month he put out a four- point program for the government’s consideration – but none of those issues were reflected in the budget.    

Venture capital, he said, has decreased 40 per cent. “A lot of attention has been paid to accessing credit and debt capital – but with the recent economic turmoil there’s been less attention to equity capital and the effect of high growth on the high tech sector.”

Canada’s venture capital sector, Remillard said, supports emerging companies in the life sciences, high-tech and clean tech industries. And companies backed by venture capital generate sales of $18.3 billion and employ nearly 148,000 employees.

He said when fewer dollars are invested in fewer companies that negatively affects innovation – and future productivity gains, which are the consequence of innovation.  

At a time when the economy is really suffering, Canada could have really benefited from more venture capital – but this was an opportunity was missed, he said.

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