Archive for the ‘Economy’ Category

Spring 2017 Newsletter- Canadian Business Growth and Innovation Funding

In our most recent Newsletter, we examine the performance of the Canadian economy, while comparing economic performance between provinces and the investments that each government has set aside to encourage business growth and innovation.  Provinces have proposed a variety of solutions to stimulate economic growth, including but not limited to tax rate reductions for small businesses, funding opportunities for early-stage start ups, tax credits to stimulate innovation, and funding for the development of technology clusters.

 

 

Federal Budget 2017 Highlights

Federal Finance Minister Bill Morneau’s second budget, tabled on March 22, 2017, forecasted an increase in the 2017-2018 deficit from $25.4B (projected in the fall) to $28.5B. Deficits are expected to decline gradually to $18.8 billion by 2021-2022.

There were no proposed changes to the corporate income tax rates or to the $500,000 Small-Business Deduction Limit for Canadian-controlled private corporations (CCPCs).

Budget 2017 provides a platform for the anticipated Innovation Agenda by proposing several new initiatives including:

Skills Development

  • $2.7B over 6 years for skills training programs through labour market transfer agreements with the provinces and to expand eligibility relating to Employment Insurance (EI) skills training/employment support;
    • Programming, and/or metrics to measure performance, will depend upon negotiations with provinces;
  • $225M over 4 years, starting with $75M in 2018 and an additional $75M per year thereafter, to establish a new agency to research and measure skills development;
  • $7.8M over two years, starting in 2017, to implement the new Global Talent Stream under the temporary Foreign Worker Program, and to introduce a new work permit exemption for short-duration work terms under the Global Skills Strategy;
  • $287.2M for a pilot project taking place over three years, starting in 2018-2019, to increase mature student access to government student grants and loans;
  • $395.5M, over three years for a youth employment strategy; and
  • $50M over two years to support initiatives aiming at teaching students to code.

Innovation

  • $950M, provided on a competitive basis over 5 years starting in 2017, to support business-led “superclusters” in clean technology, advanced manufacturing, digital technology, health/bio sciences, clean resources, and agri-food;
  • $125M to launch a pan-Canadian Artificial Intelligence Strategy to be administered by the Canadian Institute for Advanced Research (CIFAR); and
  • $2.2B to accelerate growth in Clean Technology, of which $1.4B will be provided through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC).

Startups and Small Businesses

  • $400M to BDC over 3 years, starting in 2017, for a new Venture Capital Catalyst Initiative to increase availability of late-stage venture capital;
  • Additional private funding available through the recently announced Canadian Business Growth Fund, which was created by Canada’s leading banks and other key financial institutions to provide long-term capital through minority interests in small- and medium-sized Canadian enterprises; and
  • A commitment to review the use of tax planning strategies involving private corporations, which can result in  tax advantages.

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Federal Budget 2016

The federal budget released on March 22, 2016 has made several changes that affect Canadian businesses, including announcements related to government funding programs and adjustments to the Small Business Deduction for Canadian-Controlled Private Corporations (CCPCs). Pertinent announcements are summarized below:

Reduced Small Business Tax Rate

  • Reduced small business income tax rate from 11 to 10.5% on first $500,000 of active business income. This reduction is in line with the reduction proposed in the 2015 Federal budget; however, reductions for future years have been deferred.

Trade Tariffs

  • Eliminated tariffs on several manufacturing inputs.  This is estimated to provide Canadian manufacturers in the consumer goods and transportation sectors approximately $9 million in tariff savings over the next five years.
  • Budget 2016 intends to launch public consultations on eliminating tariffs on food manufacturing ingredients other than supply-managed products.

Innovation (Investment of $137 million from 2016-2017)

  • $800 million over 4 years ($150 million in 2016-2017) to innovation clusters and networks as part of the government’s ‘Innovation Agenda.’  Further details will be provided in the coming months.
  • An additional $50 million to the Industrial Research Assistance Program (IRAP) to help small and medium sized companies to innovate and grow.
  • The Automotive Innovation Fund was extended to 2020-2021. Previously scheduled to close at the end of 2017-2018, the Automotive Innovation Fund was established in 2008 to support research and development projects to build more fuel-efficient vehicles.

Science and Research (Investment of $853 million in 2016-2017)

  • $4 million in 2016-2017 to the Growing Forward 2 (GF2) initiative. Budget 2016 provides continued support to Agri and food processing companies through the GF2 initiative in line with the current five year (2013-2018) $3 billion investment.
  • $30 million over four years, starting in 2016–17 to maintain Canada’s participation in the European Space Agency’s Advanced Research in Telecommunications Systems program.
  • Additional investments to strengthen science and research including $95 million on an ongoing basis to granting councils (including Canadian Institutes of Health Research, Natural Sciences and Engineering Research Council Social Sciences and Humanities Research Council and Research Support Fund); $237.2 million until 2020 for advancing Canadian leadership in Genomics; $32 million over two years for commercializing Canadian Health discoveries; $12 million over two years to strengthen stem cell research through the Stem Cell Network; $50 million over five years to the Perimeter Institute for theoretical physics; $20 million over three years to support brain research; and $14 million over two years to promote Canada as a premier destination to study and conduct research.

Workforce Development

  • $165.4 million for Youth Employment Strategy (YES). The federal Youth Employment Strategy contributes over $330 million annually to help youth gain the skills and experience necessary to thrive in Canada’s highly competitive labor market.
  • The YES investment is in addition to the $339 million announced in February 2016 for the Canada Summer Jobs program, which provides funding to help employers create summer job opportunities for students.

Clean Tech

  • $1B over four years, starting in 2017–18, to support development of clean technologies in the forestry, fisheries, mining, energy and agriculture sectors.
  • Further details about funding allocation will be provided in the coming months as part of the Innovation Agenda implementation.

Stay tuned as we continue to bring you the most recent developments in government funding and details on the new Canadian Innovation Agenda proposed in the 2016 federal budget.   

Update of Federal Economic and Fiscal Projections

On Friday November 20, 2015, Federal Finance Minister Bill Morneau released an Update of Economic and Fiscal Projections which placed an emphasis on providing a realistic, sustainable, prudent and transparent fiscal management approach.  The 2015 update reassesses the forecasts presented earlier this year in Budget 2015, and effectively reduces the projected budgetary balance by about $6.0 billion per year, on average, resulting in deficits of $3.0 billion in 2015–16 and $3.9 billion in 2016–17, and improving to surpluses of $1.7 billion in 2019–20 and $6.6 billion in 2020–21.

The recent economic and fiscal projections cover national and global GDP activity as well as commodity prices and financial market development, and are detailed below:

Canadian Economy
• Following a significant drop in Canadian business investment, the first half of 2015 saw reduced economic activity with a 0.8% decline in real GDP in the first quarter and a 0.5% decline in the second quarter.
• The decline in economic activity in the first half of 2015 was concentrated in the energy sector, which experienced 17.8% and 12.8% reductions of business investment in the first and second quarters of 2015, respectively, resulting from a significant decline in crude oil prices in mid-2014.
• Additional factors that negatively impacted GDP output in 2015 include weak U.S. economic activity in the first quarter of 2015, reduced consumption and increased global economic uncertainty.
• Output in non-energy sectors maintained growth despite declining overall economic output with a 0.4% and 13.3% growth in real GDP and non-energy merchandise respectively.
• Manufacturing sales and export are expected to continue growing with strong demand from the US and a lower Canadian dollar.
• According to private sector economists, real GDP growth in Canada over the next four years is expected to average 1.9% per year. This represents a 0.2% reduction from the figures projected in Budget 2015.

Global economy
• In 2015, the pace of global economic activity was at its slowest since the global recession in 2009.
• While the U.S. experienced weaker than anticipated growth resulting from the effects of reduced oil prices on capital spending as well as severe winter weather, real GDP growth is expected to pick up by 0.3% in 2016 as compared to 2014.
• Following high financial market volatility during the summer of 2015, global equity markets have somewhat rebounded but continue to demonstrate instability.

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The 2015 Federal Economic Action Plan Supports Advanced Research Funding

In the 2015 Economic Action Plan, the Government of Canada prioritizes funding to foster advanced research within the nation, especially in the sector of advanced manufacturing. Over a six-year time frame, the Canadian Foundation for Innovation will receive $100 million to support digital research facilities as well as $1.33 billion to fund cutting-edge research facilities in Canadian campuses. Additionally, the Government offers $46 million annually to the Granting Councils to encourage collaborative research between universities and colleges as well as industry in a wide range of sectors, including agriculture, advanced manufacturing, and natural resources.

Support for R&D partnerships and internships is also a priority, with $56.4 million designated for over 6,000 new graduate internships in industry-related R&D and $119.2 million designated for partnerships between industry and the National Research Council. Moreover, the satellite communications sector will receive $30 million for industrial research. To maintain Canadian participation in international aerospace projects, the Government has allocated $243.5 million over ten years to the development of the Thirty Meter Telescope on Mauna Kea in Hawaii. Going forward, new strategies will be announced by the federal government to enhance business access to R&D support programs.

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