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Creating the Right Environment

Attracting New Investment and Keeping Business Competitive

Over the last several years, we have seen dramatic changes in our economy. These changes have altered the roles of all stakeholders. Government is no longer seen as having the sole responsibility for economic development. Economic development is now seen as a concerted, collaborative responsibility of all stakeholders.

" Businesses create products and jobs, the workers actually make it happen, and government's role is to provide the environment and infrastructure necessary to encourage and assist both new and expanding businesses."

- Mr. Wallace Roberts,
Seacraft Limited, Hermitage

The primary role of government is to ensure that a conducive overall environment is maintained so that we can take effective and timely advantage of the economic opportunities available to us. Maintaining and enhancing this environment requires that all stakeholders be aggressive in seizing the agenda together and be bold enough to adopt new approaches. It also requires us to focus on the many factors that contribute to the creation of the “right” environment to attract new investment and keep the business community competitive. The key factors, based on what we heard in the consultations, are summarized below.

• Encouraging new business investment and keeping business competitive will require that we pay attention to the structure and administration of our tax regime. This includes our personal income tax regime, our corporate tax regime, and our payroll tax regime.

" Availability of financing is a serious problem for all entrepreneurs during business start-ups, ... financing continues to be a major impediment to business and growth."

- Mr. Peter O'Brien, The Canadian
Federation of Independent Business

• It will require us to look at new ways of enhancing access to investment capital and to re-examine government's role in providing direct financial assistance to business.
  
  
  

• It will require us to maintain sound public finances so that there is a stable overall investment climate in the province.
  
  
  

• It will require us to maintain a responsive and balanced regulatory regime.
  
  
  

• It will require us to invest in modern telecommunications, transportation, municipal and social infrastructure in all regions of the province to be competitive internationally.

" Unnecessary or inflexible regulations impose burdens on new and existing businesses, hinder the development of job creation activities and restrict the province's economic expansion."

- Manufacturers Forum, St. John’s

• It will require us to use technology more effectively.
  
  
  

• It will require us to enhance and coordinate our public and private sector research and development capabilities in the province to support emerging new economic opportunities.
  
  
  

• It will require us to attract new investment and enterprises into the province in a manner comple- mentary to locally grown industry by marketing our strengths on the national and international stage.
  
  
  

• It will require us to be outward looking, both nationally and internationally, in seizing new opportunities.
  
  
  

• It will require us to ensure we have responsive, coordinated, streamlined and accessible government support programs to foster economic growth.

Priorities for Action

• Government will continue to reform and reduce provincial income taxes as our financial position permits in accordance with the three year plan announced in 1999. This will build a more competitive overall business environment, help to attract and retain a highly skilled workforce, and stimulate the economy directly through increased consumer spending. This will be accomplished without compromising our ability to provide quality and sustainable health care and other essential social programs.

• On April 1, 2000, government increased the tax-free threshold for the payroll tax from $150,000 to $400,000. This removed 1,300 small businesses from the payroll tax and put more than $6 million back in the hands of entrepreneurs for reinvestment in their businesses each year. This will help existing small businesses expand and create more employment. It will also address one of the major factors cited in the consultations as an impediment to new small business start-ups.
  
  
  

• Steps taken by government over the past several years to increase the payroll tax-free threshold now mean that over 90% of all businesses in the province are no longer subject to the payroll tax. Government will continue on the path of easing the payroll tax burden on business as the province's fiscal situation permits, with the goal of eventually eliminating it altogether.

• In direct response to the public consultations and following dialogue with the private sector, government introduced two new venture capital tax credit programs in the Fall of 2000. Both of these initiatives will provide investors with tax incentives to invest in new and expanding local businesses, with enhanced incentives if they invest in rural areas. An annual budget of $2 million has been allocated for these initiatives which should leverage up to $10 million each year in new venture capital for small businesses. Government will monitor private sector and investor interest in these new initiatives closely and will make additional resources available as demand warrants in keeping with the economic benefits generated from these initiatives.

• Government will explore with industry and key stakeholders, other ways in which the tax system can be used as a development tool to stimulate new private investment in strategic and targeted growth sectors of the economy, as was accomplished in 1999 with the introduction of the telefilm tax credit program.
  
  
  

• Our overall corporate income tax regime, especially our manufacturing and small business tax regimes, are among the most competitive in the country. Government is committed to ensuring this remains the case over time in order to attract new investment and keep businesses competitive in Newfoundland and Labrador.

• Government established a new $2 million Seed Capital Equity Program on April 1, 2000 in direct response to the jobs and growth consultations. This program makes seed equity of up to $50,000 available, on a matching basis, to new entrepreneurs or existing small businesses seeking expansion opportunities in emerging areas of the economy offering significant growth potential.
  
  
  

• Government also created a new $500,000 Business and Market Development Program on April 1, 2000 to complement the Seed Capital Equity Program. This program provides new entrepreneurs or expanding small businesses with access to resources, on a matching basis, to help them acquire the necessary business expertise to research and pursue new business ideas, new markets and new investment capital for their products or services.

• In cooperation with the federal government, the highly successful Collective Enterprise Development Program will be expanded. This initiative is delivered by the Newfoundland and Labrador Federation of Cooperatives in partnership with various community based development organizations throughout the province. It provides micro-loans, ranging from $500 to $5,000, as well as peer counselling services to very small businesses and self-employed entrepreneurs, through membership in cooperatives and business credit groups. The micro-loans are provided directly by commercial lenders and are guaranteed by a $1 million fund to which the Federation and the Department of Industry, Trade and Rural Development have each contributed $500,000. Since first piloted in 1997, this initiative has assisted in the start-up or expansion of almost 200 micro-businesses, providing employment for more than 250 people.

• An investment of $10 million has been made in partnership with the federal government to provide new risk capital for small to medium sized businesses in communities affected by the collapse of the groundfish industry. This new pool of capital will be managed by the 15 Community Business Development Corporations in collaboration with the regional economic development boards. This reflects the call that was made in the consultations for greater local access to and involvement in small business investment decision-making.

• Women entrepreneurs are a driving force in the growth of small businesses across Newfoundland and Labrador. The province will work with the federal government to ensure that the support women entrepreneurs need to help grow the economy and create new jobs is available through such instruments as the Newfoundland and Labrador Organization of Women Entrepreneurs, the Collective Enterprise Development Program, and the Canada- Newfoundland and Labrador Business Service Network.
  
  
  

• Government will examine opportunities for extending across the province a small business investor- entrepreneur matching service that is being piloted by the City of Mount Pearl in partnership with Industry Canada.
  
  
  

• Government will explore with the commercial banks and other sources of business capital, including federal development agencies and credit unions, means of facilitating a better flow of capital to meet the needs of the small business community in the province.

• Government will continue its efforts to cut red tape and ensure regulations do not undermine the development of the economy, especially our small businesses. It will do so without sacrificing legitimate public policy imperatives such as the protection of environment and workplace health and safety.

• A competitive and effective workplace health, safety and compensation system is important to both employers and workers. Workplace injuries and associated compensation costs have increased significantly in the province in recent years. Employer premiums have risen on a comparable basis to deal with this situation and are now the highest on average in Canada and thirty percent higher than the average of the other Atlantic provinces. We need to collectively ensure that the system is fair, affordable and sustainable over the long term. A task force appointed by government to review the overall situation recently completed its work. The findings of the task force have been released for public review and government will move quickly on them to protect the integrity of the overall system.
  
  
  

• The Province will work with the federal government to ensure that the recently announced $300 million Atlantic Innovation Fund is directed at research and development needs in Newfoundland and Labrador to take full advantage of emerging economic opportunities in both traditional and new economy industries.

• In a rapidly changing global marketplace where knowledge and technology are the hallmarks of the new economy, it is imperative that businesses invest in research and development to remain competitive and capture new economic opportunity. Government will consult with the business community and other key stakeholders to explore potential means of enhancing the existing 15% provincial research and development tax credit to encourage greater investment in R&D by the private sector, especially in rural areas.

• To capture growing national and international investor interest in our province's economic potential, an enhanced and focused investment prospecting effort will be developed and implemented by the new Department of Industry, Trade and Rural Development. A balanced investment prospecting agenda will be adopted that reflects the needs and opportunities of all regions of the province, both urban and rural. We also need to work in partnership with the private sector in pursuing this agenda and to develop the right tools and incentives to be taken seriously on the world stage - to be a truly competitive force in the marketplace.

• Complementary to a new investment prospecting strategy, government will give greater attention to trade and export development as a means of creating new jobs and diversifying our economy. Subject to federal financial participation, this will be achieved through a new initiative called Trade Team Newfoundland and Labrador Incorporated, involving federal and provincial government departments as well as industry associations, regional economic development boards, the Federation of Municipalities and other key stakeholders. The needs of and opportunities in rural Newfoundland and Labrador will receive particular attention in this initiative.

• A targeted approach to trade and export development will guide the activities of this new initiative. It will focus on designated industrial sectors and markets around the world, such as Ireland and New England through dedicated trade “desks” modeled after and possibly incorporating the Ireland Business Partnerships initiative. Strong linkages will be established between Trade Team Newfoundland and Labrador Incorporated and the province's new investment prospecting agenda.

• The EDGE program has been an important tool in attracting new business investment to Newfoundland and Labrador. It currently provides a ten year provincial corporate and payroll tax "holiday" for qualifying businesses, and allows municipalities at their own discretion to grant municipal tax "holidays" to designated EDGE companies for the same period. In support of government's new investment prospecting agenda, the EDGE program will be refocused and enhanced to target investment that would not otherwise find its way to Newfoundland and Labrador. The goal will be to make Newfoundland and Labrador the most competitive location in Canada for attracting new businesses vis-a-vis our overall corporate tax regime. The Irish adopted an aggressive corporate tax reduction strategy in the late 1980s and have cited it as a key factor in encouraging major new inward investment from international companies over the past decade and the subsequent economic transformation of Ireland. Details on a sharpened EDGE program will be announced in the near future.

• In recognition of the particular challenge of attracting new investment to rural areas of Newfoundland and Labrador, the refocused EDGE program will provide enhanced tax benefits for qualifying businesses that establish outside the North East Avalon region. In these areas, the tax "holiday" will be extended from the current ten year period to fifteen years.
  
  
  

• The federal government has a responsibility to provide a modern, reliable and competitive marine transportation service across the Gulf to meet the needs of our expanding economy. The Government of Newfoundland and Labrador will continue to promote this as a priority with the federal government.

• Government will also press the federal government to ensure it discharges its national responsibility and duty to maintain effective and responsive air transportation facilities and services throughout the province in keeping with the needs of our economy and the needs of our people. The recent merger of the two private national airlines makes this an imperative.
  
  
  

• Modern, efficient and cost-effective telecommuni- cations infrastructure is essential to a healthy economy and a healthy society in today's global environment. Access to modern telecommunications infrastructure also has the potential to "level the playing field" for all regions of the province. This is particularly important if we are to take full advantage of the growing opportunities associated with the knowledge based economy, including the information technology industry and e-commerce. Today, crowded telephone lines and inadequate telecommunications equipment in rural communities are seriously limiting our potential for growth. This is an issue requiring action by the federal government, which has exclusive regulatory responsibility in this area, and by the major telecommunications companies, which have an obligation to provide reliable and quality service. Government will continue to work with the industry, the federal government and other key stakeholders to ensure this issue is fully and adequately resolved in a timely manner. A recent commitment by NewTel Communications to invest $40 million to upgrade its telecommunications network throughout the province is a solid step in the right direction, as is the creation by the federal government of a national task force to develop a strategy for the country as a whole.

• The Department of Development and Rural Renewal and the Department of Industry, Trade and Technology have been combined to form a new Department of Industry, Trade and Rural Development. This brings together, in a single department, government's core economic and business development agenda. The new department will play a leadership role in shaping the overall environment for investment and employment growth in the province, in keeping with the new directions and priorities for action outlined in this report. It will focus on economic and business opportunities in all regions of the province, giving particular attention to rural areas. The department will also ensure that government's new investment prospecting and trade/export development initiatives play a more prominent role in developing the regions of the province. At the same time, the new department will bring a sharper focus to development of emerging new sectors of our economy for the benefit of the province as a whole.

• The consultations also emphasized the need for greater coordination among federal, provincial and community economic development agencies at the local level. The recently established network of "single window" business service centres in each of the 20 economic zones will be strengthened to achieve this objective. This will bring existing federal, provincial and community organizations together in single locations to provide more accessible and streamlined "one-stop" services to small businesses. A $1 million investment by the federal and provincial governments will be made in support of this initiative.
  
  
  

• In the further pursuit of a more coordinated, streamlined and efficient federal and provincial economic development delivery system, the province will explore, with the federal government, the merits and feasibility of combining the business assistance programs and services offered by ACOA and the new Department of Industry, Trade and Rural Development into a single federal-provincial agency, possibly modeled after the Canada-Newfoundland Offshore Petroleum Board.

• An “e-government” task force will be established to deliver more government services through the Internet wherever feasible, including services of direct relevance to the business community. Advances in information and telecommunication technologies are starting to eliminate the geographic barriers that often made it difficult for people and businesses in rural and remote areas to access government services. This initiative will help overcome these barriers and will complement government's plans to strengthen access to public services in all regions of the province in partnership with the federal government and communities.
  
  
  

• Government will examine ways of strengthening and enhancing Government Service Centres across the province to provide more efficient access to the regulatory services that individuals and businesses need.

• The consultations stressed the need to focus on sustainable development, both in terms of generating new employment opportunities that can be sustained over the long term and in regards to environmental stewardship and protection. Opportunities to grow our environmental services industry from a business point of view also depend on our approach to and success in environmental stewardship. As we enter the 21st century, the environment must play a more prominent role in government's overall policy agenda -including the jobs and growth agenda. A dedicated Department of Environment has been created to achieve this objective.

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