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If we are serious about helping businesses, tax credits should be made more widely available to modern industries such as renewable energy, where Canada already enjoys a competitive global advantage. (Jupiterimages/Getty Images/Creatas RF)
If we are serious about helping businesses, tax credits should be made more widely available to modern industries such as renewable energy, where Canada already enjoys a competitive global advantage. (Jupiterimages/Getty Images/Creatas RF)

Guest Column

Why Canada needs to step up and better support entrepreneurs Add to ...

Canada lost nearly 40,000 jobs in July and it now has an unemployment rate somewhere between 7 per cent and 13 per cent, depending on whether you count people who have given up looking for work.

For the 1.4 million Canadians without a job, it must seem like there is very little light at the end of the tunnel.

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Job grants and training programs are a step in the right direction but the government needs to start thinking creatively about how it can pull the country out of this prolonged slump. One idea that deserves serious consideration is the aggressive promotion and support of Canadian entrepreneurs. It can be done with a number of relatively simple policy changes in three main areas:

  • Access to capital.
  • Reductions in corporate taxes.
  • Additional support for research and development.

Among the hard lessons of the financial crisis is that capital is the lifeblood of businesses big and small. Timely access to capital and the cost of it will determine the success of an enterprise.

While some parts of the Canadian economy are favoured by heavy federal government subsidies, others aren’t so lucky. Investors in the mining and oil-and-gas sectors benefit from a tax incentive that allows investments in specific projects to get a percentage returned to them as a tax credit. It has the effect of lowering risk and enhancing potential returns, all of which give companies in those sectors access to relatively cheap, abundant capital when they need it.

If we are serious about helping businesses grow and hire more people, this tax benefit, and others, should be made more widely available to modern industries such as renewable energy, aerospace and telecommunications – sectors in which Canada already enjoys a competitive global advantage.

And given that small and medium-sized businesses (SMBs) employ slightly more than half of all Canadians – a number that is only expected to grow – a federal agency such as the Business Development Bank of Canada (BDC) should provide loan guarantees that go beyond traditional bank financing.

Financial institutions usually provide businesses loans that total 75 per cent of receivables and 25 per cent of inventory. The BDC should provide loan guarantees above those two thresholds. This would provide SMBs with quicker access to their own capital and give them greater flexibility to expand and hire.

Government policy has to evolve so we can harness the entrepreneurial drive of Canadians. Over the past 10 years, the government has taken baby steps in this direction, but bold action is needed. A targeted reduction in payroll and corporate taxes would help many SMBs grow and employ more Canadians.

Finally, the government needs to modernize its policy for research and development. Programs such as the Scientific Research & Experimental Development (SRED) tax credit are critical to many businesses across the country. Canada needs even more R&D support to maintain its competitive edge.

The government should consider loosening the criteria for SRED to give smaller firms greater access. Reducing the amount of paperwork needed for a SRED tax credit is also important to give time-challenged small-business owners the ability to expand. The complexity of the forms and the time needed to complete them is so great that many entrepreneurs feel they have no choice but to hire consultants to apply, another cost they can scarcely afford.

The government has made some moves in the right direction, including the announcement, and re-announcement, of a $400-million venture capital fund, plus $100 million for the BDC to bolster its capacity to provide loans to startups. Both are sound initiatives and should be applauded, but there has to be some transparency attached to this policy. The public needs to see exactly which companies and what sectors have received funding and how much.

If Canada is going to address rising unemployment and the structural deficit, providing meaningful assistance to homegrown entrepreneurs and innovators will put us a long way down the road. There is no need to re-invent the wheel, either. What’s required is a deliberate approach: strategic, sensible policy changes that will spur investment in SMBs and promote business innovation.

There is light at the end of the tunnel – our lawmakers have the ability to create a new generation of business leaders who can help Canada compete in a rapidly changing global economy, create well-paying jobs, and make all of us proud.

Vincent Gasparro is managing director of the Green Tomorrow Fund, an independent, sustainable merchant bank that has a mandate to invest in clean energy projects, invest in sustainable businesses, and invest in businesses that support the green economy.

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