Federal budget promotes IT but not in a big way

While the federal budget does include several measures that prop up Canada’s role on the global information technology stage, industry observers say the budget tabled this week really falls short of expectations.

“There is a raft of individual measures all going in the right direction, but the real move in research and development is still to come,” says Bernard Courtois, president and CEO of the Information Technology Association of Canada (ITAC) in Ottawa.

ITAC seeks to identify issues and promote initiatives to enable the continued growth and development of the Canadian IT industry. This year, ITAC made recommendations that focus on improving Canada’s productivity, and its capacity for innovation.

“Overall, we’re not getting the degree of emphasis we would have liked,” says Courtois of the budget, which was tabled by Finance Minister Jim Flaherty in Ottawa on Tuesday.

In the area of IT, the much-anticipated measures included better corporate incentives for adopting productivity-enhancing technology, and a boost in cash investments to various areas, according to Courtois.

For instance, there’s an increase in capital cost allowance on computers for businesses, he says. “That’s a reflection of a pretty pressing need.”

Besides a capital cost allowance for manufacturers, $400 million will be provided to fund e-health initiatives through Canada Health Infoway, and a $600-million trust fund established to address hospital wait times.

Manufacturing robotics and implementing cost-effective technology to reduce wait times, for instance, will result in some of that budget trickling down to the IT industry, says Courtois.

While the ITAC president is supportive of measures implemented thus far, he says the Scientific Research and Experimental Development (SR & ED) tax credit program was in dire need of reform, because some tax-payer groups – foreign-owned companies and certain types of enterprises, for instance – were unable to derive full benefit from it.

The SR & ED is a federal tax incentive program to encourage businesses to conduct R&D that leads to new, improved, or technologically advanced products or processes.

“Instead of getting big movement on the SR & ED tax credit, we’re told to wait and see what the science and technology paper says,” Courtois notes.

The whitepaper, which has been under review for more than a year by Industry Canada, presents a proposed science and technology strategy for the country.

“Presumably the subject of SR & ED will be visited [in the whitepaper], but there will be no immediate addressing of changes needed to the tax credit program. Obviously, that’s not as immediate as we’d like to see.”

Recommending a tax credit reform is important to maintaining Canada’s research competitiveness on the global platform,” says Courtois. “Canada is in the envious position of having very high quality research capabilities. And from a cost standpoint, the country stands between developing countries, and the highest-cost jurisdictions, such as the United States.”

ITAC also recommended incentives for organizations to invest in technology. All the studies show the productivity gap is caused, specifically, by small businesses not investing adequately in product-enhancing technology, says Courtois.

Industry-specific skills’ training – another recommendation by ITAC – was granted no provision in the budget, he says. “There is nothing there to address 21st-century apprenticeships and training.”

While there currently exists industry-specific training, such programs for the IT industry are archaic at the very least, he says. “All our federal programs are focused on old technology jobs, therefore we need programs suitable to the knowledge-economy.”

Besides the need to increase the flow of local skilled graduates into Canadian companies, removing barriers – in particular, high personal income tax – to attract foreign talent is just as necessary, Courtois says.

“For us, it’s all about competing with the rest of the world.”

Although reforms to the SR & ED tax credit program are preferred, the boost to capital cost allowance for computers is not a bad move by the government, says Michael O’Neil, managing director at Info-Tech Research Group Ltd. in Toronto.

“Any measure that stimulates that kind of investment is positive in terms of imbuing the Canadian small business environment with the tools required to aid in competitiveness,” he says.

Financial support is especially important given that a relatively large portion of the Canadian industrial population comprises small businesses, he adds.

Any measure that encourages R&D is vital for establishing Canada’s position as a competitor on the world stage, agrees Altaf Jadavji, vice-president of the federal government practice at Sierra Systems Group Inc. in Ottawa, a provider of business management IT services.

“With R&D comes innovation, and with innovation comes further opportunities to increase productivity,” he says. “And these incentives are required for fledgling companies as they seek to establish themselves and build their technology base.”

As for industry-specific skills training, Jadavji says “it’s crucial for the overall robustness of the industry,” especially as labour markets tighten, and capacity needs to be built to meet demand.

Related content:

Public-private partnerships boost technology research

New govt partnership boosts SMEs in Quebec

R and D tax credit extension a top priority for US tech groups

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