Press Release No. 4

2004-2005 Budget Speech
Realizing Québec’s full economic potential

“The government will be a partner rather than an entrepreneur.”

Québec, March 30, 2004 – “This Budget lays the groundwork for a new economic development strategy that focuses primarily on SMEs and the regions,” said Québec Finance Minister Yves Séguin in the 2004-2005 Budget Speech.

Support for private investment and SMEs

The Société générale de financement and Investissement Québec will have their mandate refocused according to the government’s new policy directions, which provide for a review of the role and administration of these bodies. As for Innovatech, the government wants to use its investments in them as leverage to attract private capital. Public-private partnership formulas should make it possible to increase the capital available for investment in businesses.

The Minister of Finance also announced the creation of a new strategic-investment support program with a $75-million budget. This program will replace the FAIRE program, which is being eliminated.

Broadening of the exemption of the tax on capital
Owing to the increasingly competitive environment in which Québec businesses operate, the government wants to offer a more competitive tax system.

First of all, the Finance Minister announced that the tax on capital exemption will be raised to $1 million. As a result, 75% of Québec businesses will no longer pay tax on capital.

Secondly, Mr. Séguin announced his intention to reduce, as of the next Budget, the rate of the tax on capital for all businesses.

Promoting regional autonomy and development

To make funding more readily available to SMEs, the 2004-2005 Budget is providing $300 million for the creation of a regional economic intervention fund (FIER) to support business start-up and development in the regions. With its capitalization ensured under a public-private partnership formula in which the government will work with the Fonds de solidarité des travailleurs du Québec, Fondaction and the Mouvement Desjardins, FIER will be able to support the creation of autonomous, private regional funds. These funds will allow other private investors to combine their investments with that of FIER and thus increase leverage in regard to regional economies.

Developing and diversifying the regions is increasingly contingent on their innovation capacity. College technology transfer centres (CCTTs) maintain close ties with regional businesses and offer them a wide range of research and development services, technical support and training. Therefore, to encourage businesses to have greater recourse to the services offered by CCTTs, the 2004-2005 Budget provides that businesses will be able to claim 50% of their expenditures respecting these centres. This measure will enable CCTTs to broaden their business base.

Assistance for the regions
The 2004-2005 Budget provides for the extension, for another three years, of the tax credit for processing activities, which was to have ended next December. It also announces improvements that will benefit certain resource regions in particular.

• Specialized equipment manufacturing activities will once again be eligible for the tax assistance offered to the resource regions. This will be of special benefit to the Saguenay-Lac-Saint-Jean region, which will be able to continue its efforts to develop the Vallée de l'aluminium.
• The rate of the tax credit for job creation in Gaspésie-Îles-de-la-Madeleine and the maritime regions will be raised from 30% to 40%.
• A tax credit equal to 40% of salaries paid will be granted to the mariculture and marine biotechnology sector.
• The flow-through share system has been renewed permanently and deduction rates have been increased to up to 150% of amounts invested, measures that will be of particular benefit to the Abitibi-Témiscamingue region.

On-the-job training in businesses
To promote the return of young people to the resource regions, the 2004-2005 Budget provides that the tax credit for on the-job-training periods will be doubled, and will now be up to $375 a week. This measure will enable employers in the resource regions to offer more on-the-job training sessions to students. Moreover, to encourage new graduates of vocational schools, colleges and universities to acquire their first work experience in the regions, the Minister of Finance announced the introduction of a refundable tax credit of up to $8 000 for young graduates.

Cooperative Investment Plan
To resolve the difficulties of financing cooperatives, which are found to a large extent in the agricultural industry, the Finance Minister announced that the Cooperative Investment Plan would be improved through the introduction of a single deduction rate, raised to 125%.

Corporation de financement des infrastructures locales du Québec
Lastly, to promote the development of local and regional infrastructures, the Minister of Finance announced the creation of the Corporation de financement des infrastructures locales du Québec to channel infrastructure funding. This measure will help municipalities to better finance infrastructure projects, particularly in water management, public transit and the local road system.

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