Federal budget leaves IT sector players wanting more

The 2015 federal budget delivered by Finance Minister Joe Oliver got a somewhat tepid reaction from observers in the technology sector on Tuesday.

Oliver announced a $1.4 billion surplus, in part boosted by putting aside less for contingency funds. But the government is also introducing new tax breaks including a promise to lower the small business tax rate.

The head of one of Canada’s largest associations representing the technology industry said he found “no surprises” in the budget.

“We were expecting it to be a political platform and the general consensus was it succeeded in that,” said John Reid, president of the Canadian Advanced Technology Alliance (CATA Alliance). “There were no surprises.”

“It’s a pretty neutral budget from a technology sector point of view. Nothing extraordinary,” remarked Karna Gupta, president of the Information Technology Association of Canada (ITAC). “This is an election year budget and it should be looked at in that colour.”

Tom Turpin, president of staffing and human resources service firm Randstad Canada, described his overall reaction as “cautiously optimistic.”

“There’s not a ton of new things in there. It’s always good news when you have any sort of surplus, that’s a positive thing, even if some people are skeptical of how it was created,” he said. “Is it a budget that I’m going to go and dance a jig over saying look at the jobs we created? No, probably not.”

The fiscal roadmap presented by Oliver offered some support for small businesses, including help for women entrepreneurs. For instance, Ottawa will be gradually reducing the small business tax rate to nine per cent from 11 per cent beginning next year. However, corporate taxes will remain untouched. Taxes for large businesses were ratcheted down to 15 per cent from 22 per cent when Conservatives took power in 2006.

Women entrepreneurs will also receive some tax breaks under the new budget and the government announced a program aimed at “connecting women with the tools they need to succeed in business.” This could include access to $700 million over three years from the Business Development Bank of Canada.

In between nailing down a surplus and announcing tax hikes for both businesses and individuals, there wasn’t a ton of cash left over for tech-related line items. But the government did dig deep to find money for spending on high-end research and development in specific industries and training.

“Anytime you have a budget for a certain sector, it’s a statement of priorities,” Reid said. “Of course, we could always ask for more, but the fact that assistance for entrepreneurs is a headline item is a positive.”

“Funding aimed at developing talent and encouraging more women is a positive thing for the tech sector because we always have a shortage of talent,” said Gupta.

“Tax cuts for small business – it’s overdue when you look at the difference between corporate taxes,” Turpin said.

The budget also provided for:

  • $100 million for the Automotive Supplier Innovation Program
  • $105 million for the Canadian Network for Advancement of Research, Industry and Education (CANARIE) a non-profit corporation which maintains a set of leased wide area network links (WAN) for the transfer of large data files
  • $56.4 million in funding Mitacs, a non-profit national research organization that manages and funds research and training for undergraduate, graduate students and postdoctoral fellows

“Investing in education and driving people into the right areas is the second most important part of the budget,” said Turpin.

He also said organizations like CANARIE and Mitacs drive innovation and it is important to fund and develop them.

Gupta, however, believes the budget should have contained more discussion on the digital economy.

“If you look at past budget documents, there were significant amounts of funding for developing the digital economy,” he said. “There was not much discussion about that here. That’s not a good thing for the tech sector.”

Among the questions Gupta felt were not asked, were:

  • Do we have enough funding to provide people with broadband access across the country?
  • Are we providing enough funding for innovation?
  • Are we providing enough financial backing for developing technical skills past high-school and university levels?

Reid believes the budget should have tackled the current tax regime.

“We’re still very much approaching taxation in a piecemeal manner rather than developing a tax regime in-line with the 21st century,” he said.

CATA Alliance recommends the creation of a blue-ribbon committee that would “re-think current taxation rules geared towards incentivizing and encouraging technology innovation and growth,” said Reid.

CATA Alliance believes there should be a shift away from tax credits to providing businesses direct investments and improving the financing environment.

The alliance also hoped that the budget provided for a rejigging of the government’s Scientific Research and Experimental Development (SRED) tax incentive program.

“SRED is now viewed by a lot of people as problematic rather than a real incentive program,” said Reid.

He explained the original intention of the program was to boost research and development in the sector but over time SRED requirements have become very stringent that some businesses just don’t want to bother with the paperwork.

“It’s become more and more onerous and less predictable,” said Reid. “You can go over the top and drown people in compliance.”

With notes from Brian Jackson.

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Nestor E. Arellano
Nestor E. Arellano
Toronto-based journalist specializing in technology and business news. Blogs and tweets on the latest tech trends and gadgets.

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