Federal budget falls short of tech industry hopes

See related story: Canadian tech industry seeks bailout package in Federal budget

The Conservative government’s $40 billion investment in Canada’s struggling economy is a step in the right direction, but won’t create the level of innovation or employment growth in the tech industry that’s urgently required, industry observers say.

In the budget, announced Tuesday, Federal Finance Minister Jim Flaherty allotted more than $1 billion to information technology (IT) initiatives.

This includes $750 million for funding research infrastructure through the Canada Foundation for Innovation, and $50 million for building a top-notch research facility at the Institute for Quantum Computing in Waterloo, Ont.

The budget also dedicates $225 million, over three years, to extending broadband coverage to underserved communities, while offering $500 million to Canada Health Infoway to encourage greater use of electronic health records (EHRs).

A not-for-profit organization, Infoway collaborates with health care and technology providers to promote the use of EHRs in Canada.

Benefits for small businesses

The budget includes several provisions targeted at small and mid-sized businesses (SMBs) in all sectors. For instance:

  • As of Jan. 1, the first $500,000 of small business income would be eligible for the reduced federal tax rate of 11 per cent. That’s up from $400,000.

    • A 100 per cent capital cost allowance rate has been provided for computers bought for a business between Jan. 27, 2009, and Feb. 1, 2011.

    • Tariffs have been eliminated on a range of machinery and equipment.

    Toronto-based consulting firm Deloitte & Touche LLP lists other budget measures that could benefit SMBs in its 2009 Federal Budget – summary and highlights document.

    For instance, the Deloitte document notes that to help businesses experiencing temporary slowdown avoid lay-offs, work-sharing agreements – over the next two years – will be extended by 14 weeks, to a maximum of 52 weeks, and access will be enhanced.

    The National Research Council Industrial Research Assistance Program is also slated to receive an additional $200 million, over two years, to expand its initiatives for SMBs.

    There are other budget proposals to help budding entrepreneurs – such as providing $10 million to the Canadian Youth Business Foundation to support young Canadians creating new businesses.

    In Ontario, $1 billion will be offered over five years to the new Southern Ontario Development Agency to support economic and community development, innovation and economic diversification.

    Then there’s the increase – to $350,000 – in the maximum loan amount a small business can access under the Small Business Financing Program.

    The amount is increased to $500,000 for acquiring property.

    Export-oriented businesses could benefit from programs that give greater scope and strength to Export Development Corporation (EDC) and the Business Development Corporation.

    The authorized capital of each of these bodies is to be boosted by $1.5 billion each to allow them to expand their programs.

    In addition, EDC will be permitted to temporarily support financing in the domestic market including accounts receivable insurance.

    Good enough – but not enough

    While it’s clear the government is not ignoring science and technology, they aren’t advancing an innovation agenda either, said John Reid, president of the Canadian Advanced Technology Alliance (CATA).

    An association of high-tech professionals headquartered in Ottawa, CATA seeks to help its 28,000 members – 80 per cent of whom are exporters – access business opportunities in global markets.

    “Canada is suffering from a leadership gap when it comes to innovation,” Reid said.

    He said technology investments in the stimulus package would help create “some economic growth” but wouldn’t have a long-term impact.

    At least $60 billion needs to be spent to match the intensity of U.S. President Barack Obama’s response to the economic recession, Reid said.  

    “If we look at the U.S., percentage wise, we’d be doubling our investment. We should be keeping [pace] with their economy and looking to sell to that market.”

    For lasting impact, he said, Canada should look to invest more aggressively in the growing high-tech sector – specifically in areas such as alternative energy, smart infrastructure, and green technology.

    Give tech its due

    The average annual growth of Canada’s high-tech sector has been more than double that of the overall economy, the CATA president noted.

    Half the revenue comes from outside Canada, he said, representing new money entering our economy – the best kind of investment.

    With all these advantages, said Reid, we can create “human assets” that will intensify our global competitiveness five years down the line.

    He said putting infrastructure investment into knowledge-intensive service sector jobs will help Canada most – increasing employment, exports and our long-term competitiveness.

    Another observer agrees that greater technology investments are needed to help us rebound from the recession.

    IT delivers a “high bang for the buck”, noted Ian Lee, MBA director at the Sprott School of Business at Carleton University in Ottawa,

    “For every dollar of infrastructure spending, it generates a return of $1.60.”   

    But he said the challenge is the ROI could take some time to materialize as infrastructure spending is caught up in a lot of red tape.

    The economic stimulus could have been larger, Lee said, as Canada has the lowest debt to GDP of all the G7 countries.  

    But for him, matching the U.S. budget may not be the answer.

    The economic stimulus in the U.S. will hit 5 per cent of GDP, he noted. Canada’s will hit 1.5 per cent.

    With files from Brian Jackson

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