Budget a big letdown for small Canadian firms

“Paltry” funds earmarked for small and mid-sized businesses (SMBs) in the 2010 federal budget, have come in for heavy criticism by tech industry observers.

“There’s really nothing much for SMBs — nothing has changed,” said Paul Edwards, research director for SMB and channel research at IDC Canada in Toronto.

The budget, he said, substantially fails to address the needs of companies in this sector.

He noted that $40 million has been provided over two years to support up to 20 demonstration projects.

This amount “is really not significant when you consider that SMBs make up the bulk of  businesses in Canada,” said Edwards.

To help small and mid-sized firms take advantage of such opportunities, he said, the government would need to organize trade shows where these companies could showcase innovative concepts to various federal departments.

He said the budget’s neglect of smaller businesses is especially regrettable, as many of these companies are eager to move forward after being held back by the recent recession.

Canadian businesses, however, can take some comfort in the Feds’ move to reduce corporate tax rates, the IDC Canada analyst said.

The federal general corporate tax rate, currently at 18 per cent, is set to go down to 15 per cent in 2012.

“That will have some positive impact for SMBs. But then again they’ll have to shoulder an increase in EI (employment insurance premiums).”   

Finance Minister Jim Flaherty announced that EI premiums would be kept at $1.73 per $100 of insurable earnings to the end of 2010, but raised by a maximum of 15 cents per $100 next year. He also announced administrative improvements to SR&ED credits.

The Canadian Advanced Technology Alliance (CATA) said it finds all this encouraging, but needs to see a clearer plan.

“The innovation issue and lack of productivity has been with us for 20 to 25 years,” noted Russ Roberts, senior vice-president, tax and finance for CATA.”If they come up with a concrete plan though, we’ll be more than satisfied. We really want to see results.”

Roberts said SR&ED will be looked at closely in the context of how it most effectively helps in closing the innovation gap.

No boost for tech talent

The allotment for education will hardly do anything to alleviate Canada’s tech talent shortage, according to another analyst.

Canada will face an IT talent shortfall of about 162,000 positions over the next five years, according to a recent study by Rob Babin, associate director and assistant professor for IT Management (ITM) at Ryerson University’s Ted Rogers School of Management. The current average age of IT professionals in Canada is around 45-years-old.

“The needs simply dwarf the money being put forward by the government,” said Carmi Levy, an independent technology analyst based in London, Ont.

The budget pledges to invest some $108 million over the next three years to assist young people develop skills needed to land jobs.

The initiative includes additional support for education of First Nations children and youth. Another $10 million is to be provided to the Canadian Youth Business Foundation to support its work with young Canadian entrepreneurs.

The government is also disbursing $45 million over the next five years to establish a post doctoral fellowship program to encourage future research leaders to stay in Canada.

“These amounts are just enough to maintain the status quo. They won’t get us out of our IT talent deficit,” said Levy.

The budget’s failure to address the needs of immigrants seeking to adjust to life in Canada was also lamented by Max Haroon, president of the Society of Internet Professionals.

“Again, there is a lack of focus in helping foreign trained IT professionals to rebuild their careers in their adopted country,” said Haroon.

“I am old school. I believe it is much better to teach a person how to fish than to give him money to buy it,” he said.

The new funding, however, was welcomed by Brent Artemchuck, director of marketing for Pink Elephant, a Burlington, Ont-based IT consulting and training company.

“I believe every little bit helps,” Artemchuck said.

He noted that many Canadian companies are in need of frontline IT staff. “These types of initiatives are extremely useful in developing a fresh crop of IT talent.”  

Clarity and targeting needed

A lack of clarity and targeting are two other factors working against this year’s budget, according to Roberta Fox, president and senior partner at Fox Group Consulting, and a board member with the Canadian Telework Association.

For example, she said, the provision that paves the way for greater foreign ownership of Canadian satellites is already causing much confusion.

Fox said the feds gave the green light to telecom company Globalive to launch Wind Mobile, even though Egypt-based Orascom Telecom owns the major equity stake in Globalive. In doing so, they signaled an opening up of the telecom industry.  

“Now the government is saying it has removed foreign ownership restrictions on satellites. Where does that leave other telecom firms such as cell phone companies, wireless providers and Internet service providers?”  

Disparities and conflicts have to be cleared up so companies will know what actions to take, Fox said.

She said it was disappointing that the budget failed to mention specific  IT programs that would benefit by much of the tech funding announced.  

For example some $497 million over the next five years has been allocated to develop the RADARSAT Constellation Mission, which consists of a three spacecraft fleet of Earth observation satellites.

Another $222 million in funding will go to TRIUMF, Canada’s national laboratory for particle and nuclear physics located at the University of British Columbia.

“These programs need to be clearly targeted,” she said.

One Toronto-based technology analyst also said she doubts, if the changes in ownership rules will result in immediate savings for cell phone users.

“Don’t count on getting a smaller cell phone bill any time soon,” said Michelle Warren, principal of MW Research & Consulting.

Warren said incumbents and newer entrants to the sector will most likely compete in terms of service bundles rather than plan rates.

“The telecoms know that bringing down rates is not sustainable and will only result in cut-throat competition,” she said.

John Hutson, tax partner for Deloitte Canada, said apart from pouring in money, the government has to establish clear plans and partnerships to move the tech industry forward.

Hutson lauds the elimination of ownership barriers in telecom and planned reduction of corporate taxes. The Deloitte tax partner said these moves will spur greater investment and alleviate the burden on entrepreneurs.

“Many of the government’s announcements were bang on in concept. But they need to take it a step further and create clearer plans.”

For instance, Hutson sees a great deal of potential in initiatives aimed at small and mid-sized firms.  “But they don’t take into account the difficulty businesses have in accessing capital and talent.”

He said there should be more effort put into developing partnerships between local and national governments, businesses and educational institutions.

“Funding for education can only go so far. Success will depend on how programs are led. If it’s done in isolation, it will not be effective,” Hutson said.

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Jim Love, Chief Content Officer, IT World Canada

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