Quebec Budget delivers $190 million for research and introduces generous tax credits to encourage the transition to the new economy

In contrast to previous years, the recent Quebec Budget was a touch light on S&T initiatives, but that's not surprising given the intense focus the Parti Quebecois administration has placed on all facets of the knowledge-based economy. The initiatives introduced this year pump $190 million directly into research endeavours, with millions more offered through tax incentives, credits and a $340-million e-commerce strategy that seeks to wire the province for a new on-line age.

But the new money in the Budget can be seen as a first phase, with another set of funding initiatives to be unveiled in the coming months with the release of the province's long awaited science policy. "The Ministry of Research, Science and Technology is preparing to table a new science policy later this year, which will be accompanied by the resources required for Québec to remain on the cutting edge of new technology and knowledge," stated Bernard Landry in his Budget Speech.

The Budget's S&T package is yet another substantive indication that Quebec is deadly serious about competing and winning in the new economy, continuing and strengthening its fiscal interventionist approach while cognizant of the leverage it can attain by complementing programs at the federal level.

In the latter area, the Budget extends the scope of Valorisation-Recherche Quebec (V-RQ), providing it with an additional $120 million dollars for researchers pursuing federal S&T funds. Previously conceived to assist in the commercialization of university research and fund multidisciplinary, multisectoral university research teams (R$, March 24/99), V-RQ will now be used to help fund researchers for federal programs such as the Canada Foundation for Innovation (CFI), the Canadian Institutes of Health Research and Genome Canada.

"This adds a new function to Valorisation-Recherche Quebec," says Camille Limoges, the new DM of the Ministry of Research, Science and Technology (MRST) and former president of the Council of Science and Technology (CST). "It will support research in the province, especially the counterparts to federal programs like the CFI and Genome Canada."

Prior to the Budget, Quebec-based researchers had access to matching funds through an informal research infrastructure program, reflecting the jurisdictional sensitivities between Ottawa and Quebec in the area of education. If Quebec researchers required provincial funds to compete for federal programs, the money was drawn from the existing budgets of the education and health ministries. (R$, March 25/98). The use of V-RQ can be seen as an acknowledgement by Quebec that its researchers need to be on an equal footing with other provinces which promote their own funds as a way to leverage federal financing.

The Budget also provides $40.3 million for Quebec's provincial granting agencies - a direct response to a recommendation made by the CST. The new funding will be directed towards the Fonds pour la formation de chercheurs et l'aide a la research (Fonds FCAR), the Fonds de la recherche en santé du Québec (FRSQ) and the Counseil québecois de la recherche sociale (CQRS), with much of the money devoted to reinforce research infrastructure. The granting councils will receive $5.3 million this year, rising to $14.7 million in FY01-02 and $20.3 million in FY02-03.

"Many of our research centres are too small," asserts Limoges. "The new funds are largely to help them grow and hire technical and support staff."

An additional $24.3 million over three years will be directed towards increasing financial support for bursaries granted to graduate and doctoral students.

On the tax side, the Budget provides significant increases in incentives for activities classified as business and new economy. The full year impact of the tax measures for business is $226 million and includes a 10-year tax holiday for major investment projects ($58 million); an extension of the 125% accelerated depreciation and tax exemption on capital for new expenditures ($120 million); a mirroring of the federal move to reduce capital gains tax rate from 75% to 67% ($32 million); and, capital gains deferral of certain small business investments ($16 million).

For the new economy, there is a new tax credit to encourage SMEs to adopt e-commerce solutions ($40 million); 125% accelerated depreciation for fibre-optic investments in the regions ($4 million); relaxation of the treatment on stock options ($20 million); an improvement of the tax credit for design ($6 million), a new tax credit for Technopole Angus ($2 million); and, an extension of the tax credit granted to the Cité de l'optique. The total package has a full-year cost of $85 million to the treasury.

E-commerce strategy

The province's new e-commerce strategy is a multi-faceted funding package geared to bringing Quebec up to speed in the transition to an on-line economy. More than a third of the funds ($126 million over three years) will be offered as a tax credit to smaller Quebec businesses to help get them on-line and develop transactional web sites, covering 40% of costs with a maximum of $40,000 per firm. Nearly as much ($121.5 million) is directed towards families for computer rental costs and Internet service. The incentives are being offered to families who receive family allowance cheques, and as such have an aim which is partly educational. For businesses, the Budget extends its 125% accelerated depreciation for fibre-optic and coaxial cable costs, with a financial impact of $9 million over three years. Work to ensure the confidentiality of government-public on-line transactions will receive $15 million in assistance.

"Quebec has the most aggressive use of tax credits in Canada, especially for the new economy," says Luc Muenier, Ministry of Finance's DM for tax policy. "We've done this in the past three budgets and it will continue in the future."

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QUEBEC S&T BUDGET MEASURES

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