Budget seen as disappointing for tech, science

Outside of research into genomes and nuclear energy and the correction of various tax issues, the federal government's budget is being seen as a bust for the science and technology sectors.

The government lumped much of its science and technology spending into those areas, with the Genome Canada project getting $140 million this year for new genetic research, while the nuclear energy industry will receive $300 million in support.

Other key areas of need, such as broadband, student support and venture capital, were unaddressed, critics said.

Canada was an early leader in broadband deployment but has squandered its lead, said Iain Grant, president of the SeaBoard Group telecommunications consultancy. The government should have made the roll-out of high-speed internet which spurs health services, education and cultural development to rural communities a priority.

"We need some national vision on broadband. We've stood still while the rest of the world has caught up," he said. "We have greath swaths of the country that don't have access in the way we do in metropolitan areas."

The government also said it would dole out $34 million a year over the next three years to researchers inthe automotive, manufacturing, forestry or fishing industries.Researchers in health priorities, particularly as they relate to northern communities, environmental conditions, and food and drug safety will also get $34 a million a year over the next three years. Also,$12 milliona year over the next three will be granted to researchersstuding social and economic development in Canada's North.

Critics said the government was too focused in its funding and should have spread the research money around more.

"It's pretty clear they want to direct people into doing work in certain areas," said Mihkel Tombak, the Hatch chair in Technology Management at the University of Toronto's Rotman school of management. "R&D isa very risky thing. In many ways it's better to diversify your risk by funding a lot of smaller projects than a couple of big things."

The budget also gives new research and development tax bonuses to medium and large private businesses. The 35-per-cent scientific research and experimental development tax creditwill now be available to eligible private companies on their first $3 million in spending, up from $2 million under previous rules.

Canadian companies can also now claim R&D work done by Canadian-based employees outside of the country. Employees performing such work in a foreign country will be able to claim 10 per cent of their wages or salaries as a tax credit.

Jonathan Kallner, national industry leader for KPMG Canadas information, communications and entertainment practice, said private biotechnology firms in particular will benefit from those tax rule changes. Biotech companies tend to need to raise about $15 million to $20 million before they get to the first stages of clinical trials, which would often result in their exceeding the taxcredit limit. Raising that threshold and givingtax credit for work done in other countries gives them a lot more breathing room, he said.

Where the budget missed, however, was in giving larger publicly owned and foreign companies the same sort of tax breaks for conducting research and development in Canada.

"A lot of people were asking for some sort of refundability program for either public or non-resident-owned corporations," he said. "The thought process behind that was, as long as you're paying wages in Canada, we'll reward you with a kickback for the R&D because you're making Canada smarter."

The budget also took steps to fix what many have called a "dire" venture capital situation in Canada through the elimination oftax-filing requirements for non-resident investors in circumstances where no taxes are payable. The government also set aside $75 million for the Business Development Bank of Canada to support the creation of a new privately run venture capital fund.

The moves were welcomed by venture capital and private equity experts, but some said the government should have done more to spur investment in small technology companies.

"We still have a devastated domestic venture capital situation," said John Ruffolo, head ofDeloitte's telecom, media and technology practice in Toronto.