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Entrepreneurial Advantage

Canadian businesses and entrepreneurs are the engine of our economy, helping make all of Canada strong. The Government is taking concrete steps to ensure that our markets remain competitive. We are also reducing barriers to small business growth, helping our agri-businesses succeed and reducing taxes on investments. Budget 2007 takes action on creating an Entrepreneurial Advantage in Canada by:

• Reducing the federal paper burden on small business by 20 per cent by November 2008.


• Reducing the tax compliance burden on small business by decreasing the frequency of their tax remittance and filing requirements.


• Appointing an expert independent panel to undertake a comprehensive review of Canada's competition policy.


• Committing to work with interested provinces/territories to examine how the Alberta-British Columbia Trade, Investment and Labour Mobility Agreement could be applied more broadly. This will help build our economic union and promote the free flow of people and goods within Canada.


• Working with the provinces and other partners to create a Canadian advantage in global capital markets, including a common securities regulator administering proportionate, more principles-based regulation for the benefit of investors, businesses and the economy.


• Strengthening capital market enforcement with better resources to tackle cases of fraud and stronger collaboration with provincial authorities. Appointing a senior expert advisor to the Royal Canadian Mounted Police to help develop and guide the implementation of a plan to improve the effectiveness of the Integrated Market Enforcement Teams.


• Enacting a Global Commerce Strategy to ensure that Canadian businesses can fully participate in global market opportunities.


• Introducing a new performance-based regulatory system with a commitment to efficient, timely and cost-effective regulation, underpinned by clear service standards and accountability for federal performance.


• Creating a Major Projects Management Office to streamline the review of large natural resource projects. With an investment of $60 million over two years, the Government seeks to cut in half the average regulatory review period from four years to about two years, without compromising our regulatory standards.


• Providing farmers with an immediate one-time payment of $400 million to address the rising costs of production.


• Enacting a simpler and more responsive income stabilization program for farmers with a new savings account program to be cost-shared on a 60:40 basis with provinces and territories. A one-time payment of $600 million will help build new accounts.

Canadian businesses and entrepreneurs are the engine of our economy, helping make all of Canada strong. The creativity and energy of Canada's entrepreneurs are key drivers of economic growth. Governments have a role to create economic circumstances where businesses can thrive, create jobs and succeed globally. Ensuring that markets remain competitive, reducing barriers to small business growth, helping our resource sectors succeed and reducing taxes on investment will help create an Entrepreneurial Advantage for Canada.

Improving Marketplace Frameworks

Advantage Canada committed to create a competitive, dynamic business environment. It identified the importance of enhancing competition, ensuring our capital markets are globally competitive, and encouraging free trade and foreign investment. Budget 2007 proposes a number of measures that will help Canadian businesses invest to compete and win in the global marketplace.

 

A Forward-Looking Competition Policy

Canada's competition framework must be modern and flexible. A highly competitive and open national economy drives firms to become more efficient, invest in new technologies, and introduce new products and services that benefit consumers. The Government is encouraging competition by letting market forces play out, while ensuring that consumers are protected from anti-competitive behaviour. Advantage Canada committed to review Canada's competition policies to ensure that they promote competitive markets, and to take further steps so that Canadians can benefit from enhanced competition in the telecommunications sector. The Government has already begun to deliver on these commitments.

In December 2006, the Minister of Industry released a policy direction to the Canadian Radio-television and Telecommunications Commission, instructing it to rely on market forces as much as possible in making its regulatory decisions. The Government has also acted to accelerate the introduction of real competition in local telecommunications services, so that consumers can benefit from greater innovation, better choices and lower prices. At the same time, to protect consumers against anti-competitive behaviour, the Minister of Industry introduced amendments to the Competition Act to provide for meaningful financial penalties if large companies are found to have abused their dominant position.

The Government will task an expert independent panel to undertake a comprehensive review of Canada's competition policies and report, before Budget 2008, to the Minister of Industry on options for future legislative amendments.

Enhancing Internal Trade

A more competitive domestic market will better prepare Canadian businesses for further success in the global economy. Artificial barriers to labour mobility can make it difficult for firms to find the skilled labour they need. Other impediments to internal trade can raise business costs and reduce competition. Reducing internal trade barriers will benefit us all through greater product and service choice, lower prices and higher economic growth.

All governments within Canada can contribute to a stronger domestic market. In April 2006, the Governments of Alberta and British Columbia signed the Trade, Investment and Labour Mobility Agreement (TILMA), a wide-ranging internal trade deal that will make it much easier for goods, investments and skilled workers to move between these two provinces. This agreement, the most comprehensive of its type in Canadian history, has created significant momentum. The federal government is committed to building on this momentum and will work with interested provinces and territories to examine how the TILMA provisions could be applied more broadly to reduce interprovincial barriers to trade and labour mobility across the country.

Creating a Canadian Advantage in Global Capital Markets

When companies raise money, and when Canadians invest their hard-earned savings, they rely on capital markets. In Advantage Canada, Canada's New Government committed to securing a competitive advantage in global capital markets. The objectives are to give enterprises of all sizes better access to capital at more competitive costs, provide investors with increased investment choices, and create more highly skilled, well-paying jobs in financial services.

Canada historically has benefited from vibrant, competitive capital markets. With the mobility of talent and capital and ever-intensifying global competition, developing leading-edge principles and rules to govern our capital markets is key to creating and sustaining a Canadian advantage.

The pursuit of a Canadian advantage requires the participation of all parties engaged in the regulation and business of capital markets, including provincial and territorial governments and the private sector.

To mobilize efforts, Canada's New Government, with this budget, puts forward a plan with four building blocks, detailed in a companion document entitled Creating a Canadian Advantage in Global Capital Markets.

1. Enhancing Regulatory Efficiency: A new approach to securities regulation is proposed, one that is based more on principles and tailored to the unique makeup of Canada's capital markets, with both Canada-based global corporations and a large number of small and medium-sized issuers. A move to proportionate, more principles-based regulation will be a significant undertaking that would be difficult to achieve under the current, fragmented structure of securities regulation. A common securities regulator will create the opportunity to deliver this new approach. It will help improve investor protection, cut red tape, reduce costs for market participants and give an equal voice to all participating jurisdictions. The plan also proposes to modernize the legal framework for financial transactions.

2. Strengthening Market Integrity: Investor protection will be enhanced by pursuing the highest standards of governance and by enforcing our laws more vigorously. Enforcement will be bolstered with better resources to tackle cases of capital markets fraud and stronger collaboration with provincial authorities. A senior expert advisor to the Royal Canadian Mounted Police will be appointed to help develop and guide the implementation of a plan to improve the effectiveness of the Integrated Market Enforcement Teams.

3. Creating Greater Opportunity for Businesses and Investors: Competition and choice for businesses and investors will be enhanced by pursuing free trade in securities with the United States and other Group of Seven (G7) countries. The plan also proposes to consolidate the debt issuance of some of the major financial Crown corporations with the Government's debt program to reduce overall borrowing costs and improve the liquidity of the government securities market.

4. Improving Investor Information: The plan will promote financial literacy, particularly for young Canadians, by developing new financial education materials. The plan will also improve investor information by introducing a new principles-based disclosure regime for bank investment products with complex features.

A Canadian advantage can build on positive steps taken in recent years by the full range of partners, including provinces and securities regulators. In some cases, this plan puts forward detailed measures Canada's New Government may move forward alone. In others, it proposes to partners a general direction and invites collaboration. The Minister of Finance will propose this plan to his provincial and territorial colleagues and looks forward to establishing with them targets and a timeline to realize a Canadian advantage in global capital markets.

Greater Openness to Trade and Investment

Global Commerce Strategy

Creating new trade and investment opportunities is critical to the success of Canadian business. Canada is one of the world's most open economies. Our current level of prosperity would not have been achieved had we not reaped the benefits of international trade, but the global economy is evolving. While Canada is responding, both government and industry have to do better in accessing global value chains and promoting our strengths abroad.

 

The Government's Global Commerce Strategy signals a new and improved approach to strengthening our competitiveness in global markets. It features three core elements: supporting an expansion of our bilateral trade network, strengthening our competitive position in the U.S. market, and extending our reach to new markets, starting with Asia.

To expand our bilateral trade network, Canada is currently negotiating or exploring the prospects for free trade agreements with several countries including South Korea, Singapore, the Latin American countries of the Andean Community, the European countries of the European Free Trade Association, and countries of the Caribbean and Central America. Together, these markets represent populations of 216 million with a combined gross domestic product approaching US$2 trillion. Success in these negotiations will position Canada for further progress in opening markets for Canadian business. This renewed bilateral agenda does not mean that Canada is attaching less importance to our multilateral trade efforts in the World Trade Organization Doha Round. On the contrary, a successful Doha Round remains our main trade policy priority.

The second element of the trade strategy, developing a more comprehensive trade and investment relationship with our closest trading partner, the United States, is key to the success of Canadian business. For more than 60 years, we have been able to rely on our trade relationship with the world's largest, most dynamic economy. We continue to benefit from this relationship, yet we must recognize that new players are challenging us in our traditional market. The Global Commerce Strategy will address this challenge by reinforcing our U.S. presence and implementing new initiatives such as the direct engagement of private sector experts in order to connect Canadian companies with new opportunities and attract investment.

Canada must not only strengthen its North American relationship-it must also expand opportunities in fast-emerging markets like China, India and Brazil. The Global Commerce Strategy will enhance commercial services in new markets by opening offices in key growth centres in Asia. Moreover, the Government will introduce new measures to enhance Export Development Canada's (EDC's) ability to make strategic equity investments in order to encourage greater participation by small and medium-sized Canadian businesses in emerging-market opportunities. New regulatory amendments will be introduced to give EDC greater flexibility to invest in international partnerships, thereby creating opportunities for Canadian firms to expand the scope of their international business, and eventually transition into global companies.

To deliver on Advantage Canada's commitment to a Global Commerce Strategy, Budget 2007 provides $60 million over two years to advance these core objectives.

Creating a Performance-Based Regulatory System

Regulation has become so complex that many businesses, especially small businesses, apply much of their energy to coping with complicated rules and trying to navigate a cumbersome regulatory system. Canada's New Government is transforming the regulatory system to achieve better regulation from design to delivery, including a package of measures to better meet the needs of small business.

 

The objectives of a performance-based regulatory system are:

• Protection of Canadians and their environment.


• Regulation of the economy in the most efficient, timely and cost-effective manner.


• Clear service standards that hold the Government to account for performance.


• Monitoring and reporting on performance to provide pressure for continuing improvement.


• Ongoing assessment of and adjustment to regulatory approaches to allow for greater cooperation between regulators and orders of government.

At the heart of the Government's strategy is the adoption of a new Cabinet Directive on Streamlining Regulation that will come into effect on April 1, 2007. The Directive will make Canada a best-in-class regulator by ensuring that efficiency and effectiveness are key considerations in the development and implementation of regulations. It will improve timeliness by focusing resources on larger, more significant regulatory proposals, hold the Government to account by establishing service standards, and create pressure for continual improvement through periodic reviews, all while ensuring that the safety of Canadians is protected.

To meet the Government's Advantage Canada commitment to a new modern approach to regulation and improved efficiency and effectiveness, Budget 2007 provides $9 million over two years to implement this initiative.

As this new approach to regulation is implemented, the Government will consider whether a principles-based legislative framework to guide federal regulatory departments and agencies is necessary.

Reducing the Paper Burden by 20 Per Cent

Reducing the administrative and paper burden on small businesses is particularly important since these companies generally bear a disproportionately high regulatory cost compared to larger companies and provide much of the dynamism and entrepreneurial drive in our economy.

Based on British Columbia's burden reduction strategy, Canada's New Government is taking action in Budget 2007 to fulfill its promise to reduce the paper burden by 20 per cent by:

• Requiring key federal regulatory departments and agencies to establish an inventory of administrative requirements and information obligations, with which business must comply, by September 2007.


• Achieving a 20-per-cent reduction of those requirements and obligations by November 2008.

The Secretary of State (Small Business and Tourism), with the help of Industry Canada, will work closely with the Advisory Committee on Paperwork Burden Reduction, which is co-chaired by the Canadian Federation of Independent Business, to implement these actions and to reduce paper burden on small business.

Reducing the Tax Compliance Burden

Budget 2007 also targets the tax compliance burden, an area of concern identified by small business, by reducing the frequency of tax remittance and filing requirements.

Throughout the taxation year, businesses are generally required to pay their income tax in instalments. They also collect goods and services tax/harmonized sales tax (GST/HST) on their sales and pay GST/HST on purchases and remit or claim a refund of the net difference. In addition, they make source deductions from employee wages for income tax and Canada Pension Plan (CPP) and Employment Insurance (EI) contributions, and remit these withholdings to the Government, along with their employer CPP and EI contributions. The remittance frequency of such payments for small businesses is less than that for larger businesses in order to lessen their tax compliance burden.

To further reduce the paperwork burden of small business, Budget 2007 proposes to allow small businesses to reduce the number of tax remittances and filings by:

• Introducing quarterly instalments of corporate income tax to replace monthly instalments for certain small Canadian-controlled private corporations.


• Increasing to $3,000 from $1,000 the corporate income tax payable threshold, at or below which corporations are eligible to remit annually.


• Increasing to $3,000 from $2,000 the net personal income tax threshold, at or below which individuals do not have to pay instalments.


• Increasing to $3,000 from $1,000 the average monthly withholdings threshold, below which businesses may be eligible to remit source deductions quarterly.


• Increasing to $1.5 million from $500,000 the taxable supplies threshold, at or below which businesses can file a GST/HST return annually.


• Increasing to $3,000 from $1,500 the net tax threshold, below which annual GST/HST return filers can remit the tax annually.

The impact of the proposed measures on a small business will depend on its particular circumstances, specifically the amount of its payroll, sales and income tax liability.

These changes will reduce red tape for small businesses, improve their cash flow positions and help to further the Entrepreneurial Advantage for Canada. More than 350,000 small businesses may benefit from these changes. The filing and remitting requirements for small corporations will on average be reduced by about one-third, and for some very small businesses the reduction could be as much as 70 per cent-from 34 to 10 annual remittance and filing requirements. It is proposed that these measures apply in respect of taxation years, or in respect of GST/HST registrants' fiscal years, that begin after 2007. The changes will have no impact on federal revenues.

These changes represent a good first step, but more progress needs to be made. The Department of Finance will work over the coming year with the Canada Revenue Agency (CRA) and the Office of the Secretary of State (Small Business and Tourism) to identify simplification options that could help further reduce the tax compliance burden on small businesses, including options to simplify the tax provisions relating to automobiles and taxable benefits. The CRA Action Task Force on Small Business Issues will be providing useful input on how to further simplify the tax system for small business.

Streamlining the Review of Large Natural Resource Projects

Large natural resource projects typically require a comprehensive environmental assessment, followed by a number of regulatory approvals. Project proponents say that a lack of coordination and accountability within the federal government results in unnecessary delays that are unrelated to any potential environmental concerns. This has become a significant obstacle to the successful development of major resource projects, such as interprovincial electricity or oil and gas transmission projects.

Budget 2007 takes an important step in addressing the issue by putting in place a Major Projects Management Office. The Office will provide a single window on the federal regulatory process for industry, and improve overall accountability by monitoring and reporting on the performance of federal regulatory departments. The Office will also serve as the focal point for developing legislative and administrative options to further consolidate and streamline regulatory processes. Budget 2007 also provides funding to increase staff in key regulatory departments and agencies to reduce project review times.

Taken together, these measures will cut in half the average regulatory review period for large natural resource projects, from four years to about two years. Budget 2007 provides $60 million over two years in support of these actions. This is a first step towards broader, longer-term actions to better coordinate and improve the efficiency of the federal regulatory process.

 

Reforming Grant and Contribution Programs

Federal grants and contributions include more than $26 billion in annual spending and support investments in research and productivity by business, individuals and institutions; they also support the work of community non-profit organizations across the country. In June 2006, the President of the Treasury Board commissioned an independent blue ribbon panel to recommend measures to make the delivery of grant and contribution programs more efficient, while ensuring greater accountability.

The panel concluded that there is a need for fundamental change in the way the federal government understands, designs, manages and accounts for its grant and contribution programs. The panel also concluded that it is necessary to simplify administration in order to strengthen accountability.

The President of the Treasury Board will lead in the development of an action plan to reform the administration of grants and contributions with a view to ensuring they deliver clear results in the most effective and efficient way possible within a sensible risk management framework. The Government will continue to consult with the recipient community as this action plan is developed.

Helping Canada's Farmers

New Income Stabilization Program for Farmers

Canada's farmers don't just feed Canadians, they feed the world. A strong and vibrant farm sector benefits not only our rural communities, but also our country as a whole. Farm income stabilization programs support our farmers by helping them to manage their business risk due to plant or animal disease, or extreme weather conditions. Farmers want income stabilization programs that are simpler, more predictable and more responsive.

Budget 2006 allocated $3.5 billion over five years for the farm sector. With this funding, the Government delivered on its commitment to provide an additional $500 million annually for farm support programs, and provided a one-time payment of $1 billion for 2006-07. This has also provided for significant progress to be made on a new suite of business risk management programs. The Government has introduced major improvements to program delivery and design through: a more accurate method of inventory valuation; better coverage of negative margins; an enhanced cash advance program that doubles the amount of interest-free advances available to farmers; and a new Cover Crop Protection Program to help farmers affected by spring flooding. Agreement in principle has also been reached with the provinces and territories on a separate disaster relief framework and on options for considering the extension of coverage under production insurance to livestock and additional horticultural crops.

The Government now proposes a separate, simpler and more responsive income stabilization program, through the establishment of a new savings account program for farmers. The federal government will be undertaking discussions with the provinces and territories with a view to replacing the top tier of the current Canadian Agricultural Income Stabilization program with the new savings account program. As it is the case with income stabilization programs, the new program would be cost-shared on a 60:40 basis with provinces and territories. Government contributions and income earned on government contributions would only be taxable on withdrawal. Farmer contributions and income earned on farmer contributions would be treated like regular investments for tax purposes.

The Government also proposes to establish a cost-of-production element with these savings accounts, at a cost of up to $100 million annually. Specifically, in years when costs of production for the sector as a whole are rising, the federal government will make additional contributions to the new savings accounts. More information regarding the new farm savings accounts, including details regarding tax treatment, will be released following discussions with the provinces and territories.

Recognizing the challenges currently being faced by farmers, Budget 2007 is also providing two separate payments to producers. In order to help them build their new savings accounts, Budget 2007 will provide a one-time payment of $600 million into the new savings accounts, once agreement is reached with provinces and territories and these accounts are established. As well, to help address rising costs of production over the last four years, Budget 2007 is providing an immediate payment of $400 million.

In total, Budget 2007 is allocating new funding of $1 billion to farmers. These measures would have tax costs of $110 million in 2007-08 and $45 million in 2008-09.

Canada's New Government will have provided a total of $4.5 billion to farmers through Budget 2006 and Budget 2007 measures.

Table 5.5
Entrepreneurial Advantage
(millions of dollars)

	2006-07	2007-08	2008-09	Total
Canadian Advantage in Global Capital Markets
Integrated Market Enforcement Teams			10	10
Financial literacy		1	2	3
Subtotal		1	12	13
Greater Openness to Trade and Investment
Global Commerce Strategy		10	50	60
Subtotal		10	50	60
Creating a Performance-Based  Regulatory System
Cabinet Directive on Streamlining Regulation		4	5	9
Large natural resource project regulation		30	30	60
Subtotal		34	35	69
Helping Canada's Farmers
New income stabilization program for farmers
Agriculture-immediate payment	400			400
New savings accounts-direct costs		600		600
New savings accounts-tax costs		110	45	155
Subtotal	400	710	45	1,155
Total-Entrepreneurial Advantage	400	755	142	1,297
Note: Totals may not add due to rounding.

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