BC Budget contains modest measures reflecting growing recognition of innovation

Cash-strapped British Columbia has been handed a Budget that seems to indicate that the beleaguered NDP government is beginning to acknowledge the importance of technology and innovation to the province's future prosperity. The March 27 Budget contains a sprinkling of modestly funded S&T initiatives that target niche areas singled out in last year's High-Technology Strategy - new media, fuel cell and clean energy technologies, information technology, aerospace and biotechnology. Also included are funds for additional spaces in university programs relating to technology, and tax reduction measures designed to appease the business community's growing frustration over an uncompetitive provincial tax regime.

The bulk of new money, however, goes to match recent federal moves to improve the tax treatment of stock options, reduce capital gains taxation and extend the Canada Foundation for Innovation (CFI) (see chart). BC is clearly cognizant of the dangers in slipping behind other provincial jurisdictions that are spending heavily on the new economy, and the measures should be cautiously welcomed as an early sign of a shift in thinking towards innovation and the high technology sector.

The Budget closely follows the release of a glossy promotional version of last year's strategy, and its high tech components will certainly be measured against a new provincially sponsored report by KPMG released last week. Entitled British Columbia: An Analysis of Competitiveness Issues for High-Tech Firms, the KPMG report extols the virtues of conducting high tech business in BC, including the contention of a significant after-tax cost advantage over competing high tech jurisdictions such as Seattle WA, Raleigh NC and San Jose CA.

In the Budget, BC's matching fund for projects seeking funding from the CFI -the BC Knowledge Development Fund - receives an additional $117 million over the next four years, bumping its six-year total to $217 million. The move comes after the federal government committed $900 million for a second phase of the CFI and will is aimed at equipping BC-based university researchers with the financial resources to compete on a level playing field with the other provinces.

Also noteworthy are two new small funds aimed at BC's growing strength in certain technology niches. The Strategic Research Partnerships fund allocates a relatively paltry $4.1 million towards the five above-mentioned technology sectors, while the $5-million Green Technology Research and Demonstration fund will assist collaborative ventures involving business, universities and the government. Although funding for both programs is for one year only, it's assumed additional resources will be committed to allow them to continue. Details on how the two funds will deliver assistance have yet to be announced but are expected in the near future.

The sectors to initially benefit from the Strategic Partnerships Fund will be fuel cells and new media. The former has been the focus of a concerted business lobbying effort to establish a national demonstration program and provincial officials are currently working with Industry Canada, the National Research Council and Western Economic Diversification to lay the groundwork for a possible initiative.

On the post-secondary research front, a commitment in last year's Budget to commit funds for the same niche sectors has finally been announced. The BC Advanced Systems Institute has been charged with disbursing $2 million in fellowship funding to universities, colleges and provincial research facilities. Fellowships of up to $40,000 a year for three years will be offered to attract top researchers in the targeted technology sectors and can be used to pay for research assistants, research materials, supplies and other related costs.

"The government is recognizing the importance of innovation, education and R&D," says Calvin Shantz, executive director of the Science, Technology and Telecommunications division of the provincial Information Science and Technology Agency. "There's been a lot of support from this government in the last couple of years."

That support includes the Scientific Research and Development Tax Credit, which was introduced in the 1999 Budget but only took effect last September. For its first full year, it's estimated the 10% top-up to the federal credit will cost the treasury $28 million.

The Budget also provides an additional $2 million for the Science and Technology Fund, which is used to finance the Science Council of British Columbia (SCBC) and other provincial initiatives. The new money helps maintain a three-year commitment for a high-technology regional program begun last year and delivered through the SCBC. Annual funding for the S&T Fund now stands at $19.2 million. The SCBC will also continue to deliver the R&D portion of the Fisheries Renewal BC program, which was given a three-year extension.

More generally, the government has taken modest steps to lessen the tax burden with reductions in the small business tax rate from 5.5% to 4.75% - the nation's lowest. The cost to he treasury this year is $11 million, rising to $22 million in FY01-2. For the purchase of new manufacturing and processing assets, a 3% investment tax credit has been introduced, costing a projected $20 million this year and rising to $30 million in FY01-2.

Reaction to the Budget from the business community has been largely negative, with continuing calls for reductions in taxation levels. Shantz acknowledges that the amount of money dedicated to the new initiatives is small compared to other provinces, adding that it's largely a reflection of the province's current fiscal state. BC will continue to run projected summary accounts deficit of $1.278 billion for FY00-1.

"The issue that business and industry continue to push is personal taxes," he says. "It continues to be their number one priority."

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