Chapter 4. The strategic framework and delivery system for SME and entrepreneurship policy in Canada
This chapter assesses the formulation and delivery of SME and entrepreneurship policies and programmes in Canada. It presents the main federal government organisations involved and assesses the process of policy design and delivery. It also offers a simple assessment of the distribution of the SME and entrepreneurship policy portfolio across different types of programmes. The chapter highlights the major roles played by federal government departments, the federal Regional Development Agencies and the Crown Corporations, such as the Business Development Bank of Canada. It points to the lack of a comprehensive SME and entrepreneurship strategy document for Canada, although other mechanisms support policy formulation, including government consultative bodies, independent advisory panels and formal programme consultations. It identifies important cross-government co-operations in policy delivery such as the Canada Business Network’s one-stop business centres and web portal. It also shows that a large share of federal support is provided through tax incentives rather than targeted programmes.
Main federal government institutions in SME and entrepreneurship policies
The design and implementation of small and medium-sized enterprise (SME) and entrepreneurship policies in Canada is not concentrated in a particular flagship policy initiative or a sole government organisation. Instead more than twenty government departments and bodies are involved, with relevant ministries and departments regularly consulted in the development of programmes as part of the federal Cabinet process. This reflects the nature of SME and entrepreneurship policy, which cuts across various domains (e.g. finance, innovation, internationalisation, skills, etc.).
The Department of Industry Act of 1995 states that the powers, duties and functions of the Minister of Industry extend to matters relating to small businesses. A key player has therefore long been the government department Industry Canada, renamed Innovation, Science and Economic Development Canada (ISED) following federal elections in October 2015. Twelve departments and agencies operate under the responsibility of ISED, including the National Research Council (NRC) and the Business Development Bank of Canada (BDC).
Overall functions relevant to small business
ISED (formerly Industry Canada) has the mandate of helping make Canadian industry more productive and competitive within the global economy. With regard to SMEs and entrepreneurship, ISED has three main strategic objectives and areas of activity:
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Setting an efficient and competitive Canadian market place
ISED is responsible for the oversight and regulation of a number of aspects of market regulation including bankruptcy legislation, foreign direct investment, intellectual property protection and trade measurement. It administers framework policies that promote competition, innovation, investment and entrepreneurial activity.
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Strengthening the Canadian economy through advancements in science and technology, knowledge and innovation
ISED invests in science and technology to generate knowledge and equip Canadians with the skills and training they need to compete and prosper in the global, knowledge-based economy. It works with the private sector, industry associations, academia and all levels of government to foster an environment that is conducive to innovation, scientific excellence and industrial competitiveness.
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Building competitive Canadian business and communities
ISED encourages business innovation and productivity growth and collaborates with businesses, governments and industry to enhance the recognition of Canadian industrial capabilities and to identify and address opportunities and risks affecting industry competitiveness within the global marketplace.
Specific small business development functions
ISED’s Small Business Policy Branch has the mandate to encourage entrepreneurship and the competitiveness and growth of SMEs. It is organised into three directorates: i) Research and Analysis/BDC; ii) Small Business Financing; and iii) Policy and Liaison. It chairs the Interdepartmental SME Working Group which shares information across government that relates to small business policy and provides functional guidance to BDC. However, ISED’s Small Business Policy Branch does not have a mandate for overall small business policy coordination. Thus, any national SME and entrepreneurship strategy requires high-level buy in across the federal government and strong consultation with relevant stakeholders.
Another key group of players is the five federal Regional Development Agencies (RDAs) and FedNor, the federal government department for Northern Ontario, whose annual budgets total up to CAD 1 billion. RDAs and FedNor are part of the federal government, which established them to promote economic development and economic diversification at the regional level. Three were set up in the late 1980s and early 1990s, namely Western Economic Diversification Canada (WD), Atlantic Canada Opportunities Agency (ACOA) and Canada Economic Development Agency for the Regions of Quebec (CED). The Federal Economic Development Initiative for Northern Ontario (FedNor) was also established in this period. The remaining two RDAs, the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) and the Canadian Northern Economic Development Agency (CanNor), were launched in response to the recession of 2009. An important objective of the RDAs and FedNor is to support innovation and commercialisation in SMEs by improving access to capital, markets and productivity-enhancing technologies. To achieve this objective, the RDAs and FedNor work in collaboration with other federal government departments and agencies, the provinces, the private sector and post-secondary institutions to leverage resources and ensure that federal policies and programmes are aligned and complementary. RDAs and FedNor manage and deliver programmes on behalf of the federal government, but they also have their own regular programmes and a set of bespoke initiatives targeted at specific contingency problems. For example, the RDAs and FedNor manage the federally-funded Community Futures Program (CFP) and respond to issues such as industrial restructuring or natural disasters through targeted pro-tempore interventions.
Other federal government departments with significant involvement in SME and entrepreneurship policies include Global Affairs Canada (GAC), Employment and Social Development Canada (ESDC), and Public Services and Procurement Canada (PSPC). GAC, through the Trade Commissioner Service (TCS), as well as two crown corporations, Export Development Canada (EDC) and the Canadian Commercial Corporation, offers a wide range of services for small business exporting and internationalisation, including expert advice and counselling, export credits, soft loans, loans to strategic foreign buyers, promotional exposure, brokering assistance with potential overseas partners, and government-to-government contracting. ESDC manages a number of programmes affecting skills and training for small businesses, including the Canada Job Grant, which provides funding for companies to undertake training programmes both for the unemployed and current workers, and the SME internship programme. PSPC works to enable access to public procurement opportunities for SMEs through its Office of Small and Medium Enterprise (OSME) and runs the Build in Canada Innovation Programme (BCIP), a small-scale programme which helps Canadian companies to test their innovative goods and services through procurement within the federal government before selling them into the market.
The Department of Finance Canada is also a major player in SME and entrepreneurship policy through the special tax preferences accorded to small businesses, primarily the small business tax rate and the SR&ED enhanced investment tax credit rate for SMEs.
Finally, some of the federal crown corporations are key implementers of SME and entrepreneurship policies. Crown corporations are entities owned by the government but operating at arm’s length from it. They pursue a specific policy objective but they must also operate in a business capacity, notably by generating revenues from the sale of their services. In 2015 there were 46 federal crown corporations. The two most relevant to entrepreneurs are the BDC, which brands itself as the only bank dedicated exclusively to entrepreneurs, and EDC, Canada’s trade finance and insurance bank.
Table 4.1 summarises the main federal government departments and crown corporations involved in the design and implementation of SME and entrepreneurship policy in Canada.
Arrangements for co-ordination of policy design
Many government departments and bodies are involved in support for new and small businesses in Canada. This brings with it the challenge of co-ordinating policy across government in order to ensure that interventions meet overall priorities, that they support each other and that there are not important gaps. The Small Business Policy Branch of ISED chairs the Interdepartmental SME Working Group which shares information across government departments that relates to small business policy and provides functional guidance to BDC. However, it does not have a mandate for overall small business policy coordination.
Several countries choose to co-ordinate small business policy and support small business policy design by creating and following a national SME and entrepreneurship policy strategy that cuts across government departments and assigns clear objectives and responsibilities for meeting these objectives. In the case of Canada, there is not an overarching SME and entrepreneurship strategy document. Canada’s SME and entrepreneurship policy follows the priorities of individual government departments and crown corporations. This can lead to some degree of fragmentation in policy design and policy implementation although it can also help adapt policy interventions to specific needs (e.g. as RDAs and FedNor adapt programmes to local conditions).
The prioritisation and co-ordination of policy would benefit from establishing a clear leadership in SME and entrepreneurship policies within the federal government. For example, a government department could be assigned with a clear mandate and resources to undertake the co-ordination, with collaboration and support from other government departments. This role could include the development of a comprehensive and integrated SME and entrepreneurship strategy document, the co-ordination of government departments and agencies in the implementation of the strategy, and the development of stronger monitoring and evaluation evidence to guide decisions on which programmes to phase in and which ones to phase out.
Policy consultation processes and evidence base
In Canada, the design of small business policy by the concerned government departments and crown corporations benefits from several key consultation mechanisms with small businesses and experts, and from the use of statistical data on SMEs and entrepreneurship and monitoring and evaluation evidence on small business programmes. The key arrangements are presented below.
Independent advisory reports
The federal government commissions reports from independent advisory committees so as to receive advice on future policies and strategies. These reports generally reflect long processes of consultation with government and non-government stakeholders. Three relatively recent examples include the Advisory Committee on Paperwork Burden Reduction (ACPBR), the Advisory Committee on Small Business and Entrepreneurship (ACSBE), and the Independent Panel on the Review of Federal Support to Research and Development (i.e. so-called Jenkins Panel).
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The ACPBR involved 13 federal departments and agencies. It was co-chaired by the Canadian Federation of Independent Business (CFIB) and ISED. Its mandate evolved around the Paperwork Burden Reduction Initiative (PBRI), which was approved in 2004, launched in 2005 and ended in 2009.
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The ACSBE was created to provide the government with private-sector advice on how to improve business access to federal programmes and information. Its most recent mandate ended in 2014. In 2013, the ACSBE produced the report “Towards a National Entrepreneurship Strategy”. It found that small businesses receive significant support in Canada but that “it is difficult to identify specific policies and programmes or budget allocations targeted at growing entrepreneurialism in Canada”. It concluded that Canada should develop a National Entrepreneurship Strategy and that this should support the development of entrepreneurs, start-ups and innovation, high growth firms, growth through expansion and retention of Canadian firms and talent.
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The Independent Panel on the Review of Federal Support to Research and Development (the so-called “Jenkins Panel”) was created in 2010 when the Prime Minister appointed Tom Jenkins to lead an independent, external review of federal support to R&D, and advise on how to improve support for business innovation. In October 2011 the Expert Panel submitted a report (Innovation Canada: A Call to Action to the Government) with findings and recommendations on how to improve support for innovative businesses. In the process, the Panel met with more than 160 stakeholders across Canada, received 228 written opinions, surveyed over 1 000 businesses, and consulted with numerous experts in Canada, Europe, Australia, Asia and the United States. The Jenkins report has had a major influence on innovation policy development, such as a change in the eligible R&D costs of SR&ED, an increase in the support of the National Research Council’s Industrial Research Assistance Program (IRAP), the establishment of a new concierge service within IRAP, and the creation of the BCIP to encourage innovative public procurement.
Government consultative bodies with the private sector
Another common approach to inform federal policy making is the creation within government departments of consultative bodies with the private sector. Some examples include:
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The Minister of Trade’s SME Advisory board: this board is composed of 18 members who are private-sector business owners involved in global commerce and who represent various industrial sectors and regions of Canada. The Board provides advice to the Minister on trade priorities and policies and inform the Minister of challenges to SMEs in the area of international trade.
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The Supplier Advisory Committee (SAC): this committee is located in the OSME of PSPC. It consults with a wide range of organisations, including the Canadian Federation of Independent Business (CFIB) and the Canadian Chamber of Commerce, and facilitates feedback from approximately 400 000 firms. SAC’s objectives are to: i) obtain information and experience pertaining to procurement issues within the responsibility of PSPC; ii) complement and supplement the government’s expertise through external perspectives and knowledge; iii) capitalise on best procurement practices by giving voice to industry-wide issues; iv) identify emerging procurement issues and recommend improvements to procurement tools and processes; and v) improve government-supplier relations. SAC is co-chaired by the Assistant Deputy Minister of Acquisitions Branch in PSPC and a private sector co-chair.
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The Private Sector Advisory Board (PSAB) is a body of respected industry leaders which was established by the Networks of Centres of Excellence (NCE) at the request of the federal government in 2007. PSAB provides expert advice to the NCE Steering Committee (see Chapters 5and 6 for more details on the NCE).
The government also has a regular dialogue with intermediaries that deliver programmes on behalf of the government, business associations such as the CFIB and the Canadian Council of Chief Executive, and entrepreneur communities such as Startup Canada (see Box 4.2).
Startup Canada is a community of entrepreneurs that plays an advocacy role in federal entrepreneurship policy. It has been active in soliciting government engagement in creating the conditions for entrepreneur success, in part through the Startup Canada Task Force. This is Startup Canada’s flagship government relations activity and has been created as a platform to advance entrepreneurship policy in Canada. The Task Force identifies priorities on a bi-annual basis, responding to what it perceives as the most pressing issues and imminent opportunities for Canada to advance its standing in entrepreneurship support. In doing so, it appoints committees to undertake research and initiatives necessary to advance the priorities. Startup Canada appoints the Members of the Task Force on a 2-year term with the possibility of renewal, with the requirement that an entrepreneur must chair the Task Force. The members of the Task Force are selected for their role in leading associations pertinent to the success of Canada’s entrepreneurs.
Source: www.startupcan.ca/ourwork/startup-canada-task-force/.
Formal programme consultations
Formal programme consultations, such as the 5-year comprehensive reviews of main federal programmes or the 10-year legislative reviews of crown corporations, are also key vehicles of policy analysis and policy formulation. For example, EDC was subject to its latest Legislative Review in 2008 to ensure that the Export Development Act and the EDC’s mandate continued to meet the needs of Canada’s exporters and investors. The review found that the EDC’s operations were still consistent with its mandate and the government priorities of the time, including expanding its services into key emerging markets. In 2010, the BDC underwent the 10-year legislative review of its policies and operations (see Box 4.3).
As part of the BDC legislative review of 2010, the Standing Senate Committee on Banking, Trade and Commerce (SBTC) agreed to study the BDC Act and hear from the BDC and other key stakeholders. In December 2010, the SBTC issued a report containing a range of recommendations.
The highlights were that: the BDC had served approximately 57 000 clients over the review period 2001-2010; it had extended its reach to SMEs in specific regions and underserved markets; it had been the cornerstone of the government’s assistance to SMEs during the recent financial crisis, including delivering CAD 2.75 billion in financing and purchasing CAD 3.65 billion of asset-backed securities; it had met its financial sustainability requirement and paid CAD 164.5 million in dividends to the Government of Canada; and it had increased its assets under management from CAD 6.2 billion to nearly CAD 17.7 billion.
The report concluded that the BDC’s key objectives should be reaffirmed. However, four areas for improvement emerged during the review: extending even greater support to underserved markets; increasing accessibility and enhancing client service for SMEs; focusing on complementarity (vis-à-vis commercial banks); and enhancing performance measurement. In addition, it argued that changes to the BDC Act should be considered to position the BDC to respond to the changing needs of SMEs. Such changes could include diversifying the BDC’s financial tools and adjusting its role in helping SMEs grow beyond the domestic market. It recommended that consideration should also be given to modernising the scope of the consulting services BDC can offer and modifying a number of governance practices. The legislative review was completed in December 2014 with a few amendments made to the Act.
Source: www.ic.gc.ca/eic/site/061.nsf/vwapj/BDC_2013_eng.pdf/$file/BDC_2013_eng.pdf; www.bdc.ca/EN/about/corporate_governance/Pages/legal_page.aspx; www.ic.gc.ca/eic/site/061.nsf/eng/02863.html.
Reports by national industry and professional bodies
Other reports are produced by national industry and professional bodies. These reports often reflect the interests of the organisations which produce them, but also contain hints to major challenges facing SME owners that can affect policy making. Some examples are reported below:
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The Canadian Chamber of Commerce’s report A Path Forward for Entrepreneurship in Canada (2014) was informed by consultation with about 70 entrepreneurs. Several themes emerged that the Chamber believed warrant action: i) streamlining federal programmes, ii) communicating the nature, criteria and benefits of the programmes effectively; iii) streamlining the number and focus of programmes offered, making it easier for entrepreneurs to access, report on and manage them; iv) introducing a number of programmes for early start-ups and innovation, for example to address the issue of a lack of management expertise and v) developing programmes to support commercialisation. The report also contended that the government should direct financial incentives specifically at smaller entrepreneurial firms that are proving successful in fast-growing sectors and that, as a result, are more likely than others to create jobs and keep them in Canada.
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The Certified General Accountants (CGA) Association of Canada produced a report in 2010 which argued that the key challenges facing Canadian entrepreneurs included access to skilled labour, education and training as well as lack of innovation in businesses. Heralding the ACSBE report, the CGA report also recommended that the federal government should establish an expert panel in charge with developing a national entrepreneurship strategy. The report also stressed the burdensome cumulative effect of compliance measures and the duplicative and uncoordinated nature of federal, provincial and sometimes municipal regulations.
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Action Canada, which is in the private sector but receives support from Canada Heritage, published a report called a National Strategy for High Growth Entrepreneurship in 2011. This report is based on the results of a task force that connected with leading entrepreneurs, venture capitalists, angel investors, academics and policymakers to investigate why Canada is not among the world leaders in the rate of fast-growing entrepreneurial firms. Consistent with other reports, Action Canada found that while the rate of creation of new firms in Canada is not disappointing, a small proportion reaches the scale of a gazelle. Notably, Canada’s high-technology companies underperform despite strong public investment in R&D. The report concluded that Canada is lacking in two key inputs to a successful gazelle ecosystem: technology-savvy investors or “smart money” and business-savvy technologists or “smart management”.
Statistical evidence for policy formulation
A further fundamental support for small business policy design and policy implementation is access to monitoring and evaluation data on programmes and statistical information on SME and entrepreneurship development and factors affecting it (such as structural and demographic business statistics, labour market information, and training and education outcome data).
Canada has a very strong system of programme monitoring and evaluation. However, there are some weaknesses with respect to the broader statistics available for policy development. Many Canadian specialised surveys have been discontinued in recent years and even when useful data are collected by the national statistical office, they can be difficult for government officers and external researchers to access because of high charges and restrictive rules on privacy.
For example, the Canadian official statistical database in the field of workforce skills and training appears relatively weak. Many specialised data series routinely collected in other OECD countries are not available or are out of date in Canada, such as data on SME participation in apprenticeship and continuous training by enterprise size, economic sector, region and type of training, or data on demand and supply of apprenticeship places by occupation and region. Some specialised surveys, such as the Workplace and Employee Survey and the Youth in Transition Survey, have also been discontinued in recent years. As recommended by the 2009 report by the Advisory Panel on Labour Market Information (i.e. the so-called “Drummond report”), priority should be given in particular to reinstating the “Workplace and Employee” and the “Youth in Transition” surveys. Information from these surveys and other sources could be collected in an annual report that portrays the state of health of workforce skills development in Canada.
More generally, an improved statistical database and easier access to this database for researchers and policy-makers in SME and entrepreneurship conditions could lay the foundation for better-informed SME and entrepreneurship policy design.
Policy delivery
Channels for delivering programmes to beneficiaries
A common challenge facing the implementation of SME and entrepreneurship policies is making the intended beneficiaries aware of the policy offer and ensuring that access to programmes is simple and inexpensive. This is especially important in the case of small business policies because access to programmes features fixed costs that are proportionally larger for smaller enterprises. SME policy delivery in Canada is further complicated by the large number of government organisations involved and the geographical extension of the country, which also includes extremely remote areas.
SME policy delivery in Canada follows a three-pronged approach. First, federal government departments have in some cases a key role not only in policy formulation but also in policy implementation. For example, ISED directly manages the Canada Small Business Finance Program (CSBFP) and PSPC/OSME directly manages the BCIP. Direct administration is facilitated by that fact that both CSBFP and BCIP are relatively small programmes.
Second, a more common case is when federal programmes are delivered by crown corporations or the RDAs and FedNor. Among the crown corporations, for example, BDC implements the Venture Capital Action Plan (VCAP) through its subsidiary BDC Capital, offers management advice through the BDC Advantage Programme, and backs accelerators and incubators though the Venture Capital Strategic Initiatives Plan (VCSIP). By the same token, EDC delivers financing, insurance and bonding services to Canadian exporters. RDAs and FedNor are also major developers and implementers of federal programmes. For example, the RDAs and FedNor develop and implement their regular programmes in order to implement national priorities with a place-based approach through the regions. Also, the RDAs and FedNor were responsible for the implementation of the Community Adjustment Fund, which was part of the stimulus programme of the federal government following the 2008-09 global recession, and manage the Community Futures Program, a federal initiative supporting local economic development in rural regions of Canada.
Third, it is not uncommon for federal departments, crown corporations or RDAs and FedNor to use external organisations (i.e. intermediaries) for the delivery of specific interventions and services linked to the public programmes they manage. This is especially common for programmes that seek to reach remote areas or for programmes that require specialised knowledge unavailable within the government. The first case is exemplified by the Community Futures Program. This programme is funded by the federal government and administered by the RDAs and FedNor, who provide funding to a network of 269 community-based, not-for-profit organisations across Canada that support SMEs and social enterprises and undertake appropriate community development initiatives. The second case is epitomised by the Operational Efficiency Programme of BDC. This helps small businesses to streamline production processes, reduce costs and improve business productivity. Given the technical expertise involved in this intervention, some of its activities are implemented by external consultants and consultancy organisations selected, trained and accredited by the BDC.
Cross-government interventions supporting policy delivery
Delivery of policy to beneficiary small businesses and entrepreneurs is also supported by a number of cross-government initiatives run by the federal government in partnership with provincial and territorial governments, other local authorities and, in some cases, not-for-profit organisations. The most notable of these are BizPaL, the Canadian Business Network (CBN), and the Common Business Identifier.
BizPaL
BizPaL is a collaborative partnership between the federal, provincial/territorial, and municipal governments launched in 2005 that provides online information on the permits and licences required to start or expand a business. Over 34 federal departments and agencies, the 13 provincial and territorial governments and more than 750 municipalities participate in BizPaL. This project receives an annual budget of CAD 3 million, which enables an ongoing improvement of the service. Access to BizPaL is also possible through the CBN website.
Through BizPaL, entrepreneurs and small business owners can identify which permits and licences they need and how to obtain them by selecting the business activities and geographical location of choice. BizPaL automatically generates a list of all required permits and licences from all levels of government (federal, provincial/territorial and municipal); along with basic information on each with links to the specific government sites where the entrepreneur can learn more and, in some cases, apply online.
In developing the BizPaL service, ISED has been responsible for securing the participation of provincial/territorial governments, and provinces/territories have been responsible for securing the participation of municipal governments. ISED manages the project centrally, but each jurisdiction is responsible for maintaining its own data within the system.
The Canada Business Network
The Canada Business Network (CBN) is a network of one-stop business centres (Western Provinces and Quebec), call-centres (Atlantic Provinces and Ontario) and a web portal. The stated objective of CBN is to reduce the complexity that entrepreneurs experience in dealing with multiple levels of government and consolidating business-relevant information in one service. In particular, the CBN provides information on what an entrepreneur needs to know about starting, planning, financing, managing and growing a business; information on business registration, regulations, taxation, public procurement and bankruptcy; and information on government financing and non-financing programmes. The CBN therefore shares with BizPaL the objective of making access to information and advice easier for entrepreneurs.
As with BizPaL, the CBN is the result of collaboration among federal departments and agencies, provincial and territorial governments and not-for-profit organisations. At the federal level, the CBN is managed by ISED, which hosts the national office, while the RDAs (ACOA, CED-Q, WD, FedDev and CanNor) and FedNor are responsible for the management and implementation of the CBN in the jurisdictions under their mandate.
There is low awareness of CBN among small business owners, partly because of the various different names used to identify the CBN network across the country and limited resources spent on marketing. Despite these limits the original rationale behind CBN is still valid, as small businesses often require assistance to navigate the offering of government programmes and benefit from easily accessible market research and strategic business information (ISED, 2014). A recent ISED evaluation report recommended a number of actions for further development of the CBN, such as using standardised performance measures, ensuring that a proper procedure is in place so that changes in government activities are reflected in the different components of the CBN network (i.e. one-stop centres, call-centres and the website), and developing better promotional tools (ISED, 2014).
The common business identifier
There is an ongoing effort to use the Canada Revenue Agency’s (CRA) Business Number as a fully-fledged common business identifier that identifies each business through a single number used for business-government transactions across federal departments and provincial governments. Initially introduced as a tax identifier by the CRA, this identification number has already been adopted by three federal programmes (two by ISED and one by PSPC), six provinces and one municipality with the aim to simplify relationships with business clients (World Bank, 2016).
If adopted across more federal departments and provincial/territorial governments, the CRA’s business number could assist in keeping track of which programmes companies have applied for and from which they have received support. This could assist in identifying further support that businesses would benefit from. It could also facilitate programme evaluation by making it possible to compare the performance of government-assisted companies with a control group that has not received similar support.
Small business policy expenditure portfolio and mix
Table 4.2 provides estimates of federal government spending on targeted programmes that are relevant to or primarily used by small business and projected fiscal costs of tax incentives targeted at or relevant for small business. Spending estimates on targeted programmes are based on information collected during meetings with government officers or have been directly provided by government departments and bodies. When programmes have multi-year budgets, an assumption has been made that the budget has been spent equally in each year covered by the budget. Projected fiscal costs of tax incentives are primarily drawn from Finance Canada’s 2016 edition of the Report on Federal Tax Expenditures.
The Table suggests that fiscal incentives (i.e. foregone tax revenues) accounted for about 80% of government direct expenditure for SMEs and entrepreneurship, whereas targeted programmes accounted for only 20%. The small business tax rate represents annual fiscal expenditures of approximately CAD 3.2 billion. By itself the small business tax rate constitutes more than half (53%) of fiscal resources spent on incentives benefitting more or less directly SMEs. The second largest federal fiscal incentive available to SMEs is the Scientific Research and Experimental Development (SR&ED) tax credit, which represents approximately CAD 1.5 billion of annual expenditure, approximately one‐quarter of total fiscal incentives being channelled in high proportions to SMEs. Within direct programmes, general scope and innovation programmes absorb roughly similar amounts of federal annual government spending (CAD 467 million and CAD 437 million). Skills development absorbs nearly CAD 600 million. However, in this last category, the lion’s share is taken by the Canada Job Grant (CAD 500 million) that mostly helps companies, both large and SMEs, to train unemployed people, while there is little emphasis on other skills development activities such as on-the-job training and entrepreneur mentoring programmes.
Consideration should be given to whether the share of small business support expenditure that comes in the form of tax incentives is too large relative to direct targeted programmes. Whereas the tax incentive approach has relatively low administration costs and can reach large numbers of small businesses, there is also a case for increasing resources aimed directly at overcoming market failures in areas currently be underserved by programme intervention at the federal level. Comparative evaluation evidence across the portfolio on the relative efficiency and effectiveness of interventions in meeting key policy objectives should be a key tool to guide these decisions on the relative balance and mix of federal expenditures across the small business support portfolio.
Conclusions and policy recommendations
There are more than 20 federal government departments and organisations which, to different degrees and in different ways, support SMEs and entrepreneurs in Canada. There are several mechanisms of co-ordination and consultation in place to support the design of policy in this system. However, there is no formal overarching strategy document setting out main responsibilities for each of the government actors involved in SME and entrepreneurship policy.
The implementation of SME and entrepreneurship programmes is also multifaceted. Key implementing agencies are federal crown corporations, such as BDC and EDC, and the RDAs and FedNor, which are tasked with adapting federal priorities to the local economic context. The use of intermediary organisations is also common, especially for programmes that need to reach peripheral areas or that require specialised knowledge and expertise unavailable within the government. Policy delivery is also supported by government-wide initiatives such as BizPaL, the CBN, and the Common Business Identifier.
Finally, a simple policy portfolio analysis of small business-related programmes and tax incentives shows the prominent role that tax breaks play in the SME and entrepreneurship policy landscape of Canada. Within targeted programme measures, which comprise about 20% of government spending on SMEs and entrepreneurship, resources are shared roughly equally between programmes supporting business development in general and programmes fostering business innovation activities.
Based on this analysis, the following recommendations are offered to strengthen the strategic policy framework and policy delivery system for SMEs and entrepreneurs in Canada.
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Develop an integrated national SME and entrepreneurship policy strategy document that sets out the federal government’s vision, objectives, priorities, and proposed actions to support SMEs and entrepreneurship, and assigns responsibilities for appropriate interventions across government departments and bodies.
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Give clear leadership of the strategy to one government entity, including the roles of leading the drafting of the strategy, coordinating its implementation across government departments and bodies, and developing monitoring and evaluation evidence to guide policy decisions.
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Improve the availability of statistical data relevant to SME and entrepreneurship policy development and make it more easily accessible to researchers and policy makers.
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Carry out a formal portfolio analysis of federal programme expenditures, activities and impacts to identify gaps in policy support and significant divergences in policy effectiveness and efficiency as evidence to be used in adjusting the overall SME and entrepreneurship programme mix, including between tax and direct programme expenditures.
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Leverage the Canada Revenue Agency’s business number as a common business identifier for government, so as to facilitate government-business transactions, keep track of which companies have received government support and support public programme evaluation.
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Increase awareness of the Canada Business Network among entrepreneurs and SME managers through more advertising, increased co-operation with intermediary organisations delivering interventions on the ground, and use of a common, recognisable brand for the programme across the whole country.
References
Advisory Committee on Small Business and Entrepreneurship (ACSBE) (2013), Towards a National Entrepreneurship Strategy, unpublished report.
Department of Finance Canada (2016), Report on Federal Tax Expenditures: Concepts, Estimates and Evaluations 2016, Ottawa, www.fin.gc.ca/taxexp-depfisc/2016/taxexp-depfisc16-eng.pdf.
Independent Panel on Federal Support to R&D (IPFSRD) (2011), Innovation Canada: A Call to Action, Ottawa.
Innovation, Science and Economic Development Canada (ISED) (2014), Evaluation of the Canada Business Network, www.ic.gc.ca/eic/site/ae-ve.nsf/vwapj/CBN_Evaluation_Report_eng.pdf/$file/CBN_Evaluation_ Report_eng.pdf.
OECD (2016), OECD Economic Surveys: Canada 2016, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-can-2016-en.
World Bank (2016), Implementing a Unique Business Identifier in Government: Guidance Note for Practitioners and Nine Country Case Studies, Washington, DC.