IT wins and loses in federal budget

Although the budget handed down last month by the federal government focuses primarily on health care, IT industry observers say the document could affect the network technology space – for better or worse.

Minister of Finance John Manley on Feb. 18 promised to increase federal health care spending by $34.8 billion over the next five years. That figure includes funds for provinces and territories to bolster their health care systems and “an immediate investment…to relieve existing pressures” in the sector, according to a government description of the budget’s highlights.

But the budget also offers funding that speaks to Canada’s high-tech sector. Manley’s document lays out cash for 4,000 new university graduate-level scholarships, which could help communications companies bolster their human resources.

“It’s an investment in the creation of skilled people, which we think is the heart of the quest to become a more innovative nation,” said Lynda Leonard, vice-president, communications and research with the Information Technology Association of Canada (ITAC) in Ottawa.

The budget also promises to get rid of the capital tax on corporations, which some people say saps companies of cash that would otherwise go to research and development projects.

“Given the global economy at the moment, everything having slowed down…you don’t want anything among your tax laws that would discourage investment,” said David Paterson, national director, public affairs for the Canadian Advanced Technology Alliance (CATA) in Ottawa. “That’s exactly what this tax does.”

Rick Nathan, who heads up the finances arm of the Canadian e-Business Initiative (CeBI), pointed out that the federal government plans to amend investment rules that constrict foreign investment, which is good news, he said.

“Because there tends to be a lot of that cross-border merger activity in the technology growth cycle of a Canadian company, it’s something that hits our members directly.”

He added, CeBI is “generally pleased with what we’ve seen in the budget, primarily because it will assist in creating pools of capital for investment.”

But others say Manley missed the boat, describing how the government failed to make changes to the scientific research and experimental development (SR&ED) tax credit, a program that pays money to companies involved in research and development.

CATA and ITAC wanted the feds to change the rules governing who gets the cash. For the moment only profitable companies can apply for the credit, which doesn’t make much sense, Leonard said, explaining that just because a company is not profitable doesn’t mean it’s quit all R&D.

“Do we want an instrument that only works in good times? Or do we want to design an instrument that ensures the engine of innovation continues to turn over, that we have the capacity to innovate our way out of a downturn?”

Paterson said the SR&ED program affects all high-tech firms.

“At a time when business is tough and it’s difficult to scrape together the money to do anything, much less R&D, you find yourself in a situation where the government’s biggest incentive program does nothing for you.”

Critics say the budget presented no new funds for the national broadband initiative, a project that’s supposed to bring high-speed Internet access to every part of the country. However, Alberta, Ontario and Saskatchewan are funding their own provincial broadband endeavours. Does Canada really require a national agenda?

“There’s nothing going on where it’s needed the most, the far north,” Paterson said, adding that without federal funds, the Northwest Territories, Nunavut and Yukon might languish on the wrong side of a digital divide between high-tech “haves” and “have nots.” “The three territories are all the same in that…they have a huge expanse of territory, a small population and no money.”

Leonard said ITAC views broadband as an infrastructure project. As such, it should be funded by infrastructure dollars.

“Infrastructure in the 21 st century has got to include connectivity. We were successful through the following months [after last year’s budget] with the people in charge of the infrastructure program. If a community felt its infrastructure need wasn’t so much water or sewage, but a satellite dish or a broadband connection…they would qualify for funding.”

Still, concerning the 2003 budget, “We’re somewhat dismayed along with municipalities that it’s only $3 million over 10 years,” she said.

Paterson said the feds should move more quickly to tear down the capital tax. The budget plans to deconstruct the tariff over a period of five years, but that’s not fast enough.

“This is the high-tech industry. It works in Web years…years that are only three or four months long. So a program that’s five years long in the government environment is a 20-year program in the high-tech environment. It’s basically irrelevant.”

ITAC’s Leonard said the budget isn’t terrible and that health care funding could affect positively the communications industry.

“We’ve been advocating for some time now that ICT (Information Communication Technology) tools are one way to help get to a robust, functioning health care system in Canada – to do things like remote medicine, remote diagnostics, electronic records, remote surgery over teleconference and that kind of thing. Seeing a specific line item about information and technology tools was welcome.”

But Paterson said the budget is more bad news than good.

“We have always been active promoters of investment in education. And there’s a lot of that in this budget, but that’s about the only good thing you can say about it. The negatives outweigh the positives.”