IT community tempering expectations ahead of federal budget

Published: March 2nd, 2010

The IT community has a number of important priorities it would like to see the government address in the next federal budget, but with the message out of Ottawa being restraint, expectations for action have been tempered.

After the prorogation of Parliament by Prime Minister Stephen Harper in December, politicians return to Ottawa today for a Speech from the Throne this afternoon where Governor-General Michaëlle Jean will outline the Conservative government’s priorities for this session of parliament, followed by a budget on Thursday. The signals being sent by government officials are to expect little in the way of either major new spending, or cuts to existing core programs, as the economic recovery continues.

However, that doesn’t mean the IT community hasn’t been making the government aware of the challenges facing the industry, or the actions it would like to see the government take to encourage the industry to succeed and thrive.

The Information Technology Association of Canada (ITAC) will be watching the throne speech and budget and Lynda Leonard, senior vice-president with ITAC, said she’ll be hoping for measures to improve our performance as a technologically-adept, innovative national, and hence a more productive nation.

“We need measures to encourage the more rapid adoption of technology across the country,” said Leonard.

Specifically, ITAC would like to see a strengthening of the federal government’s SR&ED (Scientific Research and Experimental Development) Tax Incentive Program. The single largest source of federal government support for industrial R&D according to the Canada Revenue Agency, the program gives companies tax credits for eligible R&D performed in Canada.

It’s not just about R&D though, said Leonard. Finding talent in today’s market is also a challenge, as is commercializing the research once it’s complete. ITAC would also like to see more capital made available to emerging companies through avenues such as the Business Development Bank of Canada (BDC), as well as the National Research Council’s Industrial Research Assistance Program (IRAP).

In the last budget, we did see some movement to strengthening the availability of capital to emerging companies through BDC,” said Leonard. “We also need some of the obstacles to the availability of foreign capital removed.”

Last year’s budget also included an accelerated capital cost allowance on the purchase of certain categories of IT products as a stimulus measure, essentially allowing a company to write-down the cost of a new computer in one year instead of two. The program is scheduled to end in 2011, but ITAC would like to see it continued, and expanded to include additional IT categories.

“With the focus of IT shifting from the desktop into applications and the cloud, leaving software and applications out of eligible categories is an oversight,” said Leonard.

The Canadian Advanced Technology Alliance (CATA) has long been calling attention to what it calls Canada’s Innovation Gap, and the need for a comprehensive and long-term plan to help with areas such as the skill shortage, investment, and technology commercialization. Rather than just point initiatives, CATA says there needs to be a framework that looks at the challenges and addresses them comprehensively.

“We think there’s been a lot of good discussions over the past year defining that problem more clearly for the country, and that our longer-term economic success in dependent on getting that right,” said Russ Roberts, CATA’s senior vice-president, tax and finance. “At the centre of that is the current inability to fully commercialize what we produce and develop in the ICT sector, and to maintain and grow those firms as Canadian firms in the long-run.”

CATA has a few key areas where action is needed that it would like to see included as part of that comprehensive Innovation Nation vision. The first is around venture capital, and the availability of capital for emerging IT companies.

“Venture capital is critical, and there are some tax measures that wouldn’t be too costly which would allow foreign investors to invest in Canada more effectively,” said Roberts. “We need a broader pool of funds for investment.”

The second priority centres around tax credits, and particularly the SR&ED program. Roberts said the program needs to be made more effective. For example, currently a company must be profitable to benefit.

“We look to these credits as the key source of innovation in Canada. It’s a close to $4 billion program,” said Roberts. “We want it to be as effective as it can be for all firms.”

Tempered expectations

Neither CATA nor ITAC are expecting major action on these priorities in Thursday’s budget. While you’re always optimistic, ITAC’s Leonard said many of their pre-budget conversations with government officials have centred around a “very hard reset of expectations” with the message to expect restraint and no lofty expectations.

“You have to make investments to achieve growth though, and I think there’s got to be that recognition,” said Leonard. “I’d question against any view that these are just pure expenditures. There will be returns on everything we’re suggesting. The government has estimated an 11 per cent return (profit) on every dollar spent on SR&ED.”

CATA’s Roberts also isn’t expecting major action on Thursday, but he would like to see a focus on getting a plan right and off the table so we can then move forward with solutions.

“We realize that changes that actually require expenditures will need to be thought through carefully, but overall we feel getting this innovation program right and this country moving forward is very important,” said Roberts. “We hope to hear a focus on how to get that framework right.”

He added, though, that after many years of debate, it needs to be more than talk.

“We’ve talked about it for 20 years,” said Roberts. “We’re looking for a phased plan that would deliver something concrete.”


More Articles