Bloomberg News

Canada Budget Offers $3B to Boost Investment

March 29, 2012

Jim Flaherty, Canada's finance minister. Photographer: Alessia Pierdomenico/Bloomberg

Jim Flaherty, Canada's finance minister. Photographer: Alessia Pierdomenico/Bloomberg

Canadian Finance MinisterJim Flaherty is aiming to boost flagging job growth and investment with C$3 billion ($3 billion) over two years for research and job subsidies.

The federal budget set aside C$1.1 billion over five years to support research and development and offered another C$500 million for venture capital. The government’s export-financing agency will extend its temporary authorization to make domestic loans for another year, a plan that has already allocated C$6 billion since 2009.

“We need to promote innovation more effectively, to keep creating good-quality jobs,” Flaherty said in his budget speech today in Ottawa.

Prime MinisterStephen Harper said his main focus is sustaining job growth that has slowed since the middle of last year after hiring gains led the world’s 10th-largest economy out of recession in 2009. Bank of Canada Governor Mark Carney has kept his key interest rate at 1 percent since September 2010 in the longest pause since the 1950s and said companies must take advantage of low borrowing costs to invest and boost lagging productivity growth.

“This budget will go some way positively to increase confidence,” said Catherine Swift, president of the Canadian Federation of Independent Business, adding the plan addressed eight of 12 of the group’s priorities including changes to jobless benefits. “The confidence challenges are really coming from outside the country.”

Changes to the country’s jobless benefits program were the most expensive items aimed at jobs and investment over two years, at C$482 million. They include limiting the increases in premiums paid by employers and workers to 5 cents a year until the benefits fund eliminates a deficit, and altering a system that bases payouts on regional unemployment.

Tax Credit

Flaherty in 2010 froze employment insurance rates at a cost of C$3.5 billion and lowered the maximum increase to 5 cents from 15 cents.

Another C$205 million will extend a C$1,000 tax credit for small businesses hiring new workers for another year, the budget said. At the same time, the government said it will ease regulations to allow more skilled foreign workers to enter Canada where there is sufficient demand.

The research and venture capital funds follow recommendations by an expert panel studying federal funding on science and technology, which was headed by Open Text chairman Thomas Jenkins.

“Canada continues to lag behind peer countries in terms of overall innovation performance” such as lower business research and development spending as a share of the economy, the budget document said.

Labor Costs

Canadian labor costs in U.S. dollars have doubled since 2002 because of weak productivity gains and an increase in the currency, which has traded for about parity this year.

Canadian businesses will need to take over from indebted households and boost investment to sustain the country’s expansion amid slumping global growth, Bank of Canada Governor Mark Carney said in a Dec. 12 speech.

The government said the productivity measures would help to offset the 19,200 federal government jobs that will be eliminated after a spending review aimed at helping the government eliminate a budget deficit.

The national unemployment rate will rise to 7.5 percent this year from 7.4 percent in 2011 and decline to 7.2 percent in 2013, according to a survey of 14 private economists polled ahead of the budget.

The budget also proposed extending a 15 percent mineral exploration tax credit for another year through the end of March 2013 at a cost of about C$100 million.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.


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