The government will continue to support its five-year corporate tax cut plan and has set aside $110 million to kick-start Industry Canada’s national broadband network plans.
Based on budget leaks in the weeks prior to Paul Martin’s Monday delivery, industry organizations were largely confident that the federal budget was in keeping with their recommendations.
“If the leaks are real, then I’m expecting a good budget,” said Gaylen Duncan, president of the Information and Technology Association of Canada (ITAC). “Certainly, with the stuff that we had been putting on the table for the last year or year-and-a-half, we’re starting to hear good stories.”
One of those leaks was continued support for the corporate tax cut plan to reduce taxes from 28 per cent to 21 per cent for large and small businesses, first outlined in the 2000 federal budget.
With combined federal and Ontario tax cuts, corporations based in Ontario can expect a corporate tax rate of about 30 per cent by 2005, said Karen Wensley, a partner with Ernst & Young in Toronto.
“That’s lower than the U.S. When you start being able to compare favourably with the U.S., then you start to drive multinationals to look where they’re going to invest their next dollar,” said Wensley. “A jurisdiction with lower tax rates starts to look more attractive.”
“The smartest thing (the government) can do in terms of getting companies to do more innovation is to give tax breaks. . . . If we don’t see that (tax cuts), then you’re going to see a real scream,” said Duncan.
The government devoted $110 million to expand Canada’s national broadband network and link Canada’s “research-intensive institutions,” though there was no mention in the budget of bringing broadband access to remote and rural communities, contrary to expectations. The government has not yet allocated funds for broadband in the coming years.
The initial round of broadband financing is low, said CATAAlliance executive director David Paterson, “but we’re not sure that is necessarily a negative. I think they (the government) are going to have to do some experimenting to find the best methods of cooperating with the private sector to deliver the broadband initiative.”
The federal budget’s focus on security concerns in the climate generated by the Sept. 11 attacks were bound to take a toll on broadband spending, said Jim Peters, executive vice-president of Telus Mobility. “(Industry Canada Minister Brian) Tobin was probably expecting more, but under the circumstances we think they probably hit a fine balance between the other concerns (such as security) and the ability to expand high speed services,” he said in the hours prior to the budget’s release.
CATA was among the organizations that pushed for increased security funding prior to the budget, particularly cross-border security. “There are two kinds of infrastructure at the border, the physical infrastructure and the information infrastructure, and neither of those is as good as it should be,” said Paterson. “If they’re improved it means that the border will not only go back to its position on Sept. 10, but it can be made much more efficient than it was prior to the attacks.”
In response to Sept. 11 security concerns, the government has earmarked $7.7 million for military spending and to beef up national security, including border security, over the next seven years.