No sunny ways for the little guy
Few groups were as snubbed or soaked in the federal Liberals’ first budget as small business owners, Rick Spence writes.
“This budget puts people first,” said Finance Minister Bill Morneau in delivering his — or more importantly, Justin Trudeau’s — first federal budget on March 24. But small business owners who figured they’re people, too, got soaked, with promised tax cuts taken off the table by the “Sunny Ways” team, and no signs of help on notable Tory initiatives such as supporting women entrepreneurs, reducing red tape, or making the Canada Revenue Agency more business-friendly.
Probably no constituency was as ignored in the budget as entrepreneurs. At last, Prime Minister Trudeau’s aim in refashioning Industry Canada as “Innovation, Science and Economic Development Canada” is clear: small business is no longer the cornerstone of the economy. Infrastructure is king; innovation is a building block; and high-growth technology firms are the darlings on whom all hopes depend. Everyday business owners, praised in last year’s budget speech for generating more than 40 per cent of Canada’s privatesector GDP, are on their own.
While the budget doubles down on innovation, it offers few specifics, because Trudeau’s vaunted “Innovation Agenda” remains a work in progress. Navdeep Bains, minister of innovation, science and economic development, is on the hook to produce a strategy by the end of this year.
Meanwhile, Morneau didn’t mention “entrepreneurship” in his budget speech — and referred to “small business” just once. That’s when he boasted that Ottawa’s infrastructure binge would help dads get to their kids’ soccer games on time, and enable “a small-business owner in rural Manitoba” to build a website.
Morneau’s grab-bag of interim innovation investments includes such tired projects as student grants and summer-job programs, which have tenuous links to innovation.
Similarly, Ottawa is throwing another $95 million a year at “discovery research,” a laudable activity, but one that’s no more likely to promote world-class innovation than a hackathon of Latin teachers. And why is Ottawa doing the provinces’ job in spending $2 billion to upgrade labs in post-secondary schools? How can we support research excellence when every MP with a community college in their riding will be lining up for their slice of pork? Another surprise was Ottawa’s restoring of tax-credit support to provincially registered labour-sponsored venture capital corporations. Researchers from the CD Howe Institute (a thinktank Morneau chaired from 2010 to 2014) recently criticized LSVCCs as one of the least effective forms of venture capital, and said they “crowd out” alternative private-venture investments.
The Liberals got one thing
All business owners will be paying for the government’s investments ... that aid mainly the critical few.
right: giving an extra $50 million to IRAP (the National Research Council’s Industrial Research Assistance Program), which helps small businesses commercialize new innovations in a scientific way. But that’s just a placeholder as the Liberals decide where to send the big innovation cheques.
Innovative cultures and breakthroughs thrive in compact, open industrial clusters comprising highly motivated and mobile professionals. So Morneau proposes to spend $800 million over four years to support innovation networks and clusters. But clusters aren’t a new idea, and governments have tossed away millions trying to nurture manufacturing clusters and energy powerhouses and technology centres and automotive hubs. Restraint is the key. When Halifax, Calgary, Edmonton, Ottawa and lesser cities hold out their hands for cluster bucks, will the Liberals have the guts to say no?
Innovation clusters need more than creative entrepreneurs, collaborative peers and mentors; they need ample financing, and only Montreal, Toronto/ Waterloo and possibly Vancouver qualify on that score. As Silicon Valley innovation pioneer Steve Blank told me last year, “Entrepreneurial clusters require a culture of risk-taking, and that requires risk capital. Not just angel investors, but capital that can scale. And that occurs in just a few places in the world.”
Morneau’s recent comment that the government hopes to nurture clusters “across the country” should ring alarm bells.
Then there’s the elephant that’s no longer in the room: the ongoing reduction in small business tax rates promised by the Tories last year to encourage business investment and job growth. The proposal was eagerly supported by the NDP and also, if halfheartedly, by the Liberals. The new budget fixes the rate at the current 10.5 per cent, cancelling the scheduled reduction to nine per cent over three years.
The foregone amount will be $900 million a year by 2019 — which means all business owners will be paying for the government’s investments in innovation and IT and cleantech that aid mainly the critical few.
If this looks like the government is back to “picking winners,” you’re right. Dan Kelly, president of the Canadian Federation of Independent Business, says he would feel better about the “gazelle” model of economic development “if I had any confidence that government knows how to identify the gazelles.”
With even venture capitalists betting wrong 80 per cent of the time, how can the Liberals hope to do better?