Legacy of opportunity

Written by Rick Spence

Great theatre, bad business. Whenever a finance minister presents a budget, the usual suspects in politics and the media promptly fling their mud. Milksops and social activists decry the lack of support for healthcare / education / crumbling cities (pick a cause, any cause), while the right-wingers rail against the Betrayal of the Tapped-out Taxpayer.

But the February budget deserves another look. For in the debate that followed John Manley’s fiscal debut, a fundamental point went overlooked. What’s important to entrepreneurs is not whether “Jean Chrétien’s legacy budget” was right or wrong, but what opportunities it creates.

Manley is throwing money, and you should be lining up to get your share. Over the next few years, the budget provides $1 billion to daycare. There’s $3 billion for new infrastructure investment in cities across Canada; with matching contributions from other governments and industry, that could stimulate spending worth $7 billion. And, yes: there’s $35 billion for healthcare.

There’s money to be made in every sector. Someone has to plan these initiatives, maintain the computers, feed the construction workers and lease the heavy equipment. “There’s a lot of new opportunities at this end of the budget,” says entrepreneurial accountant John Voorpostel in Toronto. “You just have to go sniff them out.”

There’s $2 billion to support Kyoto-related initiatives and $600 million to upgrade water systems on Native reserves. There’s $100 million for food inspection and $100 million for the Canadian Learning Institute, a new think-tank that will tell governments how to spend their education dollars more effectively (insert your own joke here; I’m trying to be positive).

Manley is also investing $1.7 billion in innovation, including funding for agriculture, genomics, industrial R&D and regional innovation centres. Whether you know genomes from garden gnomes, that’s a lot of spinoff benefits.

Ottawa’s largesse takes many forms. Often, as in the case of higher tax credits for Canadian film production, the benefits will likely go to those already in the industry. But when Manley chucks cash at medical equipment, alternative fuels and food inspection, it means Ottawa is trying to encourage new players to come forth. When the budget stimulates home-based healthcare, electronic medical records and affordable housing, it is prompting service companies to come up with new ideas or competitive tenders. Overall, the feds hope their investments will help accomplish their policy goals.

Ottawa’s tax changes are equally appetizing. Entrepreneurs who bonus company profits down to $200,000 every year to profit from lower small-biz tax rates will be delighted with the increased limit of $300,000. This will help manufacturers and growth firms trying to build up capital, says Voorpostel: “Small-business champions have been pushing this for a long time.”

Ottawa is also making it more attractive to invest in small businesses. For years, investors complained about the capital-gains bite when they sold their shares in small businesses; by penalizing exits, Ottawa discouraged investment. In 2000, Paul Martin deferred capital-gains tax on the first $2 million when the funds are rolled into new investments. Manley has lifted that limit.

Meanwhile, the feds are injecting $190 million into the battered venture-capital sector through the Business Development Bank. (That’s big bucks, considering total VC investment in Canada last year was $2.5 billion.) More than $50 million will go where the need is greatest: into seed and startup funding. Another $50 million will go to a “fund of funds”, BDC’s new vehicle for leveraging its investment by attracting partners — particularly pension funds, which have never been big players in venture capital. “We’re hoping to attract five or six times as much money as we put in,” says BDC president Michel Vennat.

Jean Chrétien and John Manley may both have new jobs 12 months from now. But this budget’s impact will be felt for years by entrepreneurs who can act on opportunity when it knocks.

Rick Spence is a former editor of PROFIT.

© 2003 Rick Spence

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