Federal government looks to "punch our way out of the COVID recession" with #Budget2021

The federal government has published its Budget 2021, which focuses on addressing the third wave of the pandemic and economic recovery. The commitments include targeted funding towards the tech and innovation sector as a way to support that recovery.

The Government of Canada called the budget “a plan to bridge Canadians and Canadian businesses through the crisis and towards a robust recovery.” Proposals include extending business and income support measures through to the fall and investments to create jobs. The Budget also includes plans to accelerate investment in the digital transformation of small and medium-sized businesses, and a focus on cleantech and creating inclusive workplaces, the latter of which includes a proposal to establish a $15 federal minimum wage.

“Technation and its members are quite bullish and applaud the federal government’s plan for our nation’s economic recovery,” a spokesperson for Technation said in a statement sent to BetaKit. “Budget 2021 signals the Government of Canada’s recognition that the technology industry plays a mission-critical role in Canada’s economy, driving investment and meaningful in-demand jobs.”

Executive Summary

A $450 million renewal of VCCI
$7.2 billion over the next seven years for the Strategic Innovation Fund
$500 million to the Industrial Research Assistance Program
$2.6 billion to the Business Development Bank of Canada
$60 million for the Innovation Superclusters Initiative
$443.8 million for the Pan-Canadian Artificial Intelligence Strategy
New quantum and genomics strategies
$90 million to provide startups with access to intellectual property services
$553.1 million over five years for a new RDA in British Columbia
A Digital Services Tax at a rate of three percent on revenue from digital services that rely on data and content contributions from Canadian users
A Canada Digital Adoption Program to help businesses adopt new technologies and grow their online presence
$87.4 million over five years to “modernize federal procurement”
$101.4 million to create a Small Business and Entrepreneurship Development Program
Another extension of the CEWS and CERS

VCCI, BDC, IRAP, and IP

For the innovation sector specifically, some of the government commitments include renewing the Venture Capital Catalyst Initiative (VCCI) and providing $500 million to the Industrial Research Assistance Program (IRAP).

Up to $450 million over five years is being made available to VCCI, with $50 million dedicated to investments in life science tech and another $50 million to create a new Inclusive Growth Stream to increase access to venture capital for underrepresented groups, such as women and racialized communities. Budget 2021 proposes to provide $500 million over five years to IRAP, with $100 million per year ongoing, to expand its support to up to 2,500 additional innovative small and medium-sized firms.

Up to $450 million over five years is being earmarked for the Venture Capital Catalyst Initiative.

Further commitments to investing in Canadian companies include the Business Development Bank of Canada receiving $2.6 billion over four years.

Following Canada’s Superclusters lobbying the government for more capital, $60 million has been promised over two years to the Innovation Superclusters Initiative.

The Pan-Canadian Artificial Intelligence Strategy is set to receive up to $443.8 million over ten years. The government has also committed to launching a National Quantum Strategy, which will receive $360 million over seven years, and a Pan-Canadian Genomics Strategy, which has been promised $400 million over six years.

Intellectual property also got a mention in the federal budget with the creation of ElevateIP, a program to help accelerators and incubators provide startups with access to expert intellectual property services. This is set to receive $90 million while $75 million over three years is being committed to IRAP to provide high-growth firms with access to expert intellectual property services. The government stated these investments are set to be “complimented” by a Strategic Intellectual Property Program Review. The government has also proposed to improve the Canada Small Business Financing Program through amendments to the Canada Small Business Financing Act, which would expand loan class eligibility to include lending against intellectual property and startup assets and expenses.

“This budget was a historic opportunity for the government to position Canada for success in the 21st-century knowledge-based economy driven by intangible assets like intellectual property, algorithms and data,” said Benjamin Bergen, executive director of the Council of Canadian Innovators. “The government’s focus on IP literacy for high-growth companies and increasing their access to IP experts is a very smart move for positioning Canada for the digital economy.”

Following its announcement in the Fall Economic Statement, the government has committed to creating a regional development agency (RDA) for British Columbia. The RDA is being provided $553.1 million over five years and $110.6 million ongoing. It is noted that the existing core program funding from Western Economic Diversification, the RDA that formerly served BC, will remain to support Alberta, Saskatchewan, and Manitoba.

RDA’s overall have been promised $500 million over two years to stimulate local economies and create jobs.

Digital tax, Data Commissioner, and Procurement

With its tax targeted towards Big Tech, the Government of Canada is proposing the implementation of a Digital Services Tax at a rate of three percent on revenue from digital services that rely on data and content contributions from Canadian users. The budget stated the tax would apply to large businesses with gross revenue of 750 million euros or more and will come into effect on January 1, 2022. It is estimated that this measure will raise $3.4 billion in revenue over five years beginning in 2021-22.

Budget 2021 also proposes $17.6 million over five years, and $3.4 million per year ongoing, to create a Data Commissioner position. The Commissioner would be tasked with informing government and business approaches to data-driven issues around personal data and innovation in the digital marketplace.

Other commitments concerning the Canadian innovation sector include $10 million to expand opportunities for Canadian SMEs to engage in research and development partnerships with Israeli SMEs as part of the Canadian International Innovation Program; a program that allows Canadian-controlled private businesses to expense up to $1.5 million, or over 60 percent, of capital investments made between now and before 2024; and $2.2 billion to Canada’s life sciences sector, including spending for vaccine development, as well as company creation and scale-up activities.

The government is also looking to work with the provinces to create a retail payments oversight framework, which would promote growth, innovation, and competition in digital payment services while making these payments services more secure. The budget has proposed a public consultation that would expand financial institutions’ use of electronic communications with their owner.

The budget also proposed to provide Public Services and Procurement Canada $87.4 million over five years, and $18.6 million ongoing, to “modernize federal procurement” and create opportunities for specific communities by diversifying the federal supplier base.

As part of ramping up procurement efforts, the budget proposes to “leverage supplier diversity opportunities” through domestic procurement, which could include competitions for Canadian-run businesses.

Diversity and Inclusion

Up to $101.4 million over five years is being committed through Innovation, Science and Economic Development Canada for the creation of the Small Business and Entrepreneurship Development Program, which is meant to create support for underserved groups such as racialized Canadians, young people, LGBTQ2 people, who face barriers to starting and growing a business.

The budget also outlines specific support for Black, Indigenous, and women entrepreneurs. The government is looking to top up its Women Entrepreneurship Strategy with $146.9 million over four years, and provide an additional $51.7 million for its Black Entrepreneurship Program over four years.

A proposed $42 million would also be invested in the Aboriginal Entrepreneurship Program over three years. The budget noted this investment is aimed to directly support Indigenous-led businesses and improve access to capital in Indigenous communities.

Cleantech

The budget noted that while Canada has a successful cleantech sector, companies often lag in commercial scale-up, export, and industry adoption. The budget is promising up to $1 billion available over five years, on a cash basis, to draw in private sector investment for cleantech projects.

The Strategic Innovation Fund is set to receive a total of $7.2 billion over the next seven years and $511.4 million ongoing. Of that, $2.2 billion is for innovative projects in the life sciences, automotive, aerospace, and agriculture sectors, while $5 billion is for SIF’s Net Zero Accelerator, which will support cleantech projects and “meaningfully accelerate domestic greenhouse gas emissions reductions by 2030.”

With this budget, we will make unprecedented investments in Canada’s small businesses, helping them invest in new technologies and innovation.

— Chrystia Freeland (@cafreeland) April 19, 2021

There are also several tax incentives for the green economy, which also apply to private firms. The budget proposed reducing the corporate and small business income tax rates by 50 percent for companies developing net-zero emission technologies. The budget proposed this tax rate would take effect in 2022 and would end in 2032.

The budget also proposed to provide $21.3 million over five years, and $4.3 million per year on an ongoing basis, to Global Affairs Canada for the continuation of the International Business Development Strategy for Clean Technology. This strategy is designed to support Canadian firms that are looking to capitalize on the global market demand for cleantech solutions.

COVID-19 Support Programs

During the pandemic, the federal government launched a number of programs aimed to support businesses during the pandemic. One of these includes the Canada Emergency Wage Subsidy (CEWS), which provides a subsidy to firms that have seen a revenue drop as a result of COVID-19.

In Budget 2021, the federal government said it is looking to extend the CEWS to September 25. It is also proposing replacing the wage subsidy with a new Canada Recovery Hiring Program (CRHP) for employers who are still being impacted by the pandemic.

The CRHP would cover up to 50 percent of salaries and wages, up to $1,129 per week. The budget proposed this program would run from June to November.

The budget also proposes extending the Canada Emergency Rent Subsidy (CERS), which is available to commercial renters, to September 25. The CEWS and the CERS are currently expected to expire in June.

In its Fall Economic Statement, the government proposed a $500 million top-up of the Regional Relief and Recovery Fund (RRRF). The federal government is now looking to extend the application deadline for this fund, as well as the Indigenous Business Initiative, until June 30, 2021. The budget also proposed up to $80 million for the Community Futures Network of Canada and RDAs, and to shift remaining funds under the Indigenous Business Initiative into 2021-22.

Skills and jobs training

Another key priority in this federal budget is on upskilling to fuel the pandemic recovery. The government is looking to launch the Canada Digital Adoption Program, aimed to create thousands of jobs for young people and help up to 160,000 SMEs adopt digital technologies. This program would help main street businesses as well as small manufacturing and food processing operations, expand their customer bases online and adopt new tech.

The budget proposed $1.4 billion over four years to ISED to provide Canadian businesses with access to skills training, microgrants to support tech adoption, and work opportunities for 28,000 young people to help SMEs adopt technology.

The budget also proposes $250 million over three years for an initiative that would scale up approaches to upskill and redeploy workers to meet the needs of certain industries.

The government is also looking to invest in CanCode with an $80 million investment over three years, which it said would help CanCode reach and train three million students and 120,000 teachers. Mitacs is set to receive $709 million over five years, to create a minimum of 85,000 work-integrated learning placements that provide on-job training, as well as support to businesses on developing talent.

First budget in two years

This is the federal government’s first budget since 2019. Due to the COVID-19 pandemic, the Liberal government did not release a budget for 2020. In lieu of a budget, the government released an economic statement in the fall.

That Fall Economic Statement estimated the national deficit would reach $381 billion for the 2020 fiscal year, and proposed $100 billion in stimulus spending over the following three years.

Among the commitments outlined in Budget 2019 was making the government’s Global Talent Stream (GTS) permanent. The GTS aimed to bring in high-skilled workers for in-demand jobs in engineering and programming. Other innovation incentives, such as the Canada Training Benefit, Student Work Placement Program, and Scientific Research & Experimental Development (SR&ED) were either expanded in scope or introduced in the 2019 budget.

The government also committed $100 million over four years to the Strategic Innovation Fund, and $219.1 million over five years to create regulatory department “roadmaps.” However, the 2019 budget notably lacked new, pricey innovation commitments compared to past budgets.

The fall economic statement did, however, include several commitments to the innovation ecosystem. The government announced plans to create a new regional development agency (RDA) in British Columbia, and topped up some of its COVID-19 support programs.

The Fall Economic Statement also proposed a $14.8 billion extension of the Canada Emergency Wage Subsidy (CEWS), a $2.18 billion in additional spending on the Canada Emergency Rent Subsidy (CERS), and a $500 million top-up of the Regional Relief and Recovery Fund (RRRF). The Fall Economic Statement also included $250 million to the Strategic Innovation Fund over five years, to help intellectual property-rich firms face the challenges of the pandemic.

Since the release of the Fall Economic Statement, the Trudeau’s government has seen several developments in its innovation agenda, including a cabinet change. Navdeep Bains, who had served as Canada’s minister of innovation, science, and industry since 2015, stepped down from the role, and was replaced by François-Philippe Champagne.

Since his appointment, Champagne has released updated guidelines for national security reviews of foreign investments into Canada, and the federal government has doled out new funding for Canadian tech companies, extended the CEWS and CERS through to June, and launched a new credit program for businesses in sectors that were “highly affected” by the pandemic.

Over the last few weeks, stakeholders within the Canadian innovation economy indicated what they wanted to see in the 2021 budget. The Canadian Council of Innovators (CCI) has specifically called for a focus on increased access to capital, increased IP capacity, foreign direct investment frameworks, and a national data strategy.

The CCI published a letter to Trudeau in October signed by more than 100 CEOs in Canada, that called the government’s tech policies “more of a patchwork” that do not bolster Canada’s position as a global innovation leader.

The letter called on the federal government to support the tech sector by creating strategies that grow Canadian ideas to be used globally and by designing an ecosystem where Canadian tech companies can grow both domestically and abroad.

Others in the sector have argued that Canadian innovation can play a significant role in Canada’s pandemic recovery. In November, the CCI’s Jim Balsillie said there is an “existential” need for Canada to develop a new plan related to innovation.