Ontario Budget 2018 puts more support for scale-ups, startups and promising sectors

With elections just around the corner, Ontario Liberals released earlier than usual its 2018 budget, which includes at least $1.5 billion for R&D and innovation. The $158.5-billion spending plan focuses largely on enhanced social, education and healthcare initiatives but also commits millions to businesses as well as R&D, innovation and competitiveness.

Some initiatives expand the Jobs and Prosperity Fund (JPF) launched in early 2015. But new programs include more funding for startups and scale-ups, and tax credit enhancements.

Under the renewed JPF in Budget 2018 are $85-million over 10 years for a new Venture Technologies Fund and $50-million over 10 years for a Transformative Technology Partnerships Fund. Both are expected to generate thousands of jobs and attract millions in investments by helping companies attract capital.

The Venture Technologies Fund will complement Ontario’s Scale-Up Vouchers Program which has already provided 25 vouchers worth $8 million to innovative firms.

The Transformation Technology Partnerships Fund aims to support companies focused in key technologies, such as 5G, artificial intelligence, autonomous vehicles, advanced computing and quantum technologies. The Ontario government said it is supporting companies in these sectors to accelerate the development and commercialization of technologies. The fund will bring together technology adopters, technology developers of various sizes, and post-secondary and research institutions to collaborate.

This support for scale-ups is welcome news to innovators. In a statement, the Council of Canadian Innovators say this support for high-growth scale-ups is timely. “For far too long, the fastest growing firms in Ontario couldn’t access the critical capital they needed to scale up because these programs were tailored towards large, foreign multinational companies. Canadian CEOs are hopeful that new funding programs like the Venture Technologies Fund will help more Ontario-based firms access capital, so they can continue to scale up globally,” said Benjamin Bergen, CCI’s executive director.

An additional $500 million is committed to the New Economy Fund, which supports priority sectors, such as advanced manufacturing, information and communications technology, life sciences and cleantech. As an example of an investment in R&D in advanced manufacturing, Ontario is investing $50 million in Guelph’s Linamar Corporation. The government aims to leverage $500 million in investments from the company and generate 1,500 new jobs and retain 8,000 jobs as the company seeks to introduce advanced auto technology in its operations.

There were other initiatives in Budget 2018 which are very specific to transformative technologies. For example, while Ontario pre-announced some funding for artificial intelligence last October, with the Vector Institute receiving $30 million to be able to hire more faculty, Budget 2018 announce a new AI initiative -- $15 million over three years for the NextAI program of NEXT Canada to help promising entrepreneurs. NextAI is a Toronto-based accelerator helping early-stage startups in a range of AI applications – from healthcare to fintech. In a statement, NEXT Canada CEO Sheldon Levy said the financial support will help support more of these promising AI entrepreneurs. “Ontario's public and private sectors have been working closely together to make this province an emerging leader in the field of artificial intelligence. This announcement strengthens Ontario's position,” said Levy.

The Budget provides additional support for the Ontario Brain Institute with $100 million over five years This financial support is to help commercialize research in healthcare.

Ontario is also supporting the province’s life sciences sector by way of the $50-million life sciences venture capital fund. The amount was previously announced early in March.

Ontario has also committed to support research and innovation in agri-food by renewing a 10-year agreement with Univ of Guelph for $700 million, which has conducted agri-food R&D on behalf of the province for the past two decades. The fund will support research in food safety and the protection of plant, animal and human health.

There are other new initiatives in the Ontario 2018 Budget but without any funding commitment. These include the new Made-in Ontario data strategy, an IP strategy in the works and support to make the financial technology (FinTech) sector competitive.

“Recognizing the explosive growth of the data‐driven economy, the government is exploring a Data Strategy for the province that will help ensure that the people of Ontario are able to reap the significant benefits from responsibly using publicly funded data generated here, while protecting the public interest,” states the Budget plan. “The government will consult with key stakeholders to inform a Data Strategy so that Ontarians benefit from data generated in Ontario while leveraging the potential that data holds to enhance economic activity and grow Ontario businesses.”

On the IP strategy, Ontario said it wants to help innovators protect their IP and use it as leverage to grow their business. The government notes that the province has a strong foundation in research yet some businesses and innovators are missing out on opportunities from the IP they produce.

There are also tax credits aimed at helping companies be globally competitive by innovating and conducting R&D. Ontario enhanced the Ontario R&D Tax Credits (ORDTC) to encourage large businesses to continue to do R&D and the Ontario Innovation Tax Credit (OITC) for small and mid-sized firms. The enhanced ORDTC is 5.5% on expenditures over $1 million. OITC is applicable to SMEs on a tiered basis depending on the ratio of their R&D expenditure to gross revenues. Both tax credits will be prorated from March 2018.

Though welcomed by innovators, the CCI urges the government not to make the tax breaks too cumbersome. “Enhancements to the (ORDTC and OITC) that are focused on helping scaling tech firms grow in size and global reach are welcomed by domestic technology CEOs. To ensure their ultimate benefit is realized by innovators, the government should ensure that these tax measures are as streamlined as possible and do not become a burden of paperwork for the high-growth firms,” CCI said in a statement.

Finance minister Charles Sousa said in his Budget speech that diversifying the economy by supporting technologies and industries of the future, like AI, quantum research, regenerative medicine and the like, help strengthen the province’s economic position.

“We have to invest to create growth,” he said. “We have slayed the deficit, balanced the books and are projecting a $600 million surplus while diversifying our economy.”

The $1.5 billion funding targeting R&D and innovation does not include other support systems, such as initiatives to supply the highly skilled workforce for industries and infrastructure build-up, like providing broadband access to remote regions. For example, Ontario has committed $132 million over the next three years for skills programs in post-secondary institutions. It is also investing $30 million over the next three years in the Forestry Growth Fund. The fund will support the forestry sector for innovating, strengthening its supply chain and gaining access to new global markets.

R$

* Not included in R&D and innovation budget total