The March 19 Federal Budget: Implications for Business
Reports on the budget and the government spin on it have largely been focused on the tax benefits for families and individuals. Reports on business impacts have been sketchy and have tended to focus on what was not in or what businesses got hurt. This brief attempts to illuminate some of the positive business impacts that have not been highlighted in press and government reports.
Taxes: While the oft-rumoured capital gains changes did not appear, the budget did raise the lifetime capital gain exemption for small business to $750,000. There were also significant changes to the capital cost allowance provision, particularly as it affects property used for manufacturing and business purposes, for computers and for specialized investments including investments in LNG (Liquefied Natural Gas) infrastructure.
Also present are new incentives and capital available for ethanol production and new tax penalties and incentives for specified fuel inefficient and fuel efficient vehicles. Also widely reported are the “tax fairness” provisions imposed upon deductibility for foreign affiliates and offshore investments.
Education and Research and Development: This budget carries forward and improves most of the Liberal third party funding allocations to the granting councils and related organizations. However, commitments are made to make R and D tax programming more sensitive to business concerns and there is a new overlay of decision-making processes that will encourage the funding of research that has more commercialization prospects and direct business involvement. Business-led requests for funding will be a key component for success.
Direct Government Spending: Surprisingly there is very little new investment in the military with the exception of new programs for veterans. The Coast Guard did receive an additional $324 million for 4 new mid-shore vessels and 2 fisheries research vessels.
Regulatory Burden and Organizational issues: Marginal changes will be made to reduce tax filing and tax remittance frequency for very small businesses. Competition policy will be reviewed and a performance based approach to expenditure management and regulatory impact assessments will be introduced. A major projects office will be set up to facilitate a faster and more efficient government approvals process. Export Development Canada will be given additional funds to directly invest in select projects; and new Free Trade Agreements will be sought.
Infrastructure: This is an area where we expect to see significant change and where significant new opportunities will emerge for private sector project proponents. A new “Building Canada” Fund will be set up and the dollars allocated regionally on a per capita basis. Amounting to $8.8 billion over 7 years - this fund will focus on core national highway, public transit, sewage treatment and small scale municipal projects such as cultural and recreational facilities.
Government proponents must demonstrate that they have considered Public Private Partnership (P3) approaches to funding. A “Gateways and Border Crossing” Fund will be established ($2.1 Billion) for the purposes of funding gateway and border infrastructure, excluding the Pacific Gateway but including the Atlantic Gateway. Projects will be awarded on a merit basis. A National P3 office will be established to consider any projects brought forward by the private or public sectors. This office will administer a “National fund for P3s” that will contribute up to 25% of the cost of innovative Public Private Partnerships. Total allocation for this expenditure is $1.26 billion. The Asia-Pacific and Corridor Initiative will receive its own $1 billion allocation for roads, highways and road-rail grade separation. Additionally, each province will receive $25 million per year for national priorities, priorities designated as gateways, roads and bridges. Over the 7 year life, this program will fund $2.275 billion in new initiatives.
These new funds are allocated on top of the $17.6 billion Core Gas tax and GST rebate funding. The 2007 budget provides for sunsetting allocations from previous Liberal government infrastructure programs and incorporates Budget 2006 Infrastructure commitments into the new funding envelopes and formulae.
Significant changes have been made to infrastructure funding programs. There is a clear focus on transportation, environmental and border infrastructure. Business-led initiatives for R and D and university research could receive preference. The Capital Cost allowance improvements for property, manufacturing and selected investments could have beneficial impacts on business investment.