3.2 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, where the private sector is recognized as the engine of the economy.

"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 and be bold enough to adopt new approaches. It also requires us to focus on the many factors that contribute to creating the right environment. 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 and our business or corporate tax regime.

"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 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 and municipal infrastructure in all regions of the province to be competitive internationally.

• It will require us to maintain an assertive yet balanced approach to receiving full and fair benefits from our resources.

"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 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 into the province in a manner complementary to locally grown industry by marketing our strengths effectively on the national and international stage.

• It will require us to be outward looking, 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. 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 social programs.

• Effective April 1, 2000, government will increase the tax-free threshold for the payroll tax from $150,000 to $400,000. This will remove approximately 1,300 small businesses from the payroll tax altogether and put more than $6 million yearly back in the hands of entrepreneurs each year for reinvestment in their businesses. It will also lower the tax burden for many other small businesses. 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. Government will continue on the path of easing the payroll tax burden on business as the province's fiscal situation permits.

• Government will introduce a venture capital tax credit program that will provide investors with a tax incentive to invest in local businesses through privately managed venture capital pools within the province. This will provide a new source of patient long term capital for small and medium sized businesses. A tax incentive in the order of 15% would raise $6 million in new venture capital for every $1 million in tax incentives provided directly by government. Details on this new program will be announced in the near future following further consultations with the business community and other key stakeholders.

• Government will maintain its stimulative manufacturing and processing corporate tax regime at its current level of 5%, in recognition of the significant growth potential of the small scale manufacturing sector as identified in the consultations. The Advisory Council on the Economy and Technology had recommended earlier that government consider increasing this tax to the general corporate tax rate of 14% as a possible means of financing tax reform in other areas. However, government's fiscal position is sufficiently flexible at this point to implement a responsible tax reform program without increasing the manufacturing and processing tax.

• The Cabinet Committee on Jobs and Growth will explore with industry, and other stakeholders, ways in which the tax system could be used more effectively and creatively as a development tool to stimulate new private investment in strategic growth sectors of the economy.

• Government will establish a $2 million seed capital equity program in the Department of Development and Rural Renewal. This program will make 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 will establish a $500,000 Business and Market Development Program in the Department of Development and Rural Renewal. This program will provide new entrepreneurs or expanding small businesses with access to resources, on a matching basis, to help them acquire the necessary business expertise to pursue new business ideas and markets 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 counseling 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 Development and Rural Renewal have each contributed $500,000. Since piloted in 1997, this program 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 will be 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.

• The Cabinet Committee on Jobs and Growth will examine the merits of 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.

• The Cabinet Committee on Jobs and Growth will pursue discussions with the commercial banks and other sources of business capital, including federal development agencies and credit unions, to explore 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 its regulations do not undermine the development of our economy, especially our small businesses. The Cabinet Committee on Jobs and Growth will engage key stakeholders to isolate major areas that need to be examined to achieve this objective, without sacrificing legitimate public policy imperatives such as the protection of the environment and workplace health and safety. Particular attention will be given to streamlining and coordinating regulatory processes among the federal, provincial and municipal levels of government, and to reducing the general paper burden faced by the business community.

• The critical importance of ensuring the federal government fulfills its responsibility to provide a modern, reliable and competitive marine transportation service across the Gulf to meet the needs of our expanding economy and to help stimulate further growth will remain a priority for the province, both in the short term and the long term.

• Government will take similar action with 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 telecommunications infra-structure is essential to a healthy economy and a healthy society in today's global environment. This is particularly important if we are to take advantage of the growing opportunities associated with the information technology sector and e-commerce. Today, crowded telephone lines and inadequate telecommunications equipment in rural and remote areas are seriously limiting our potential for growth. This is an issue requiring further 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 has and will continue to work with the industry, the federal government and other key stakeholders to ensure this issue is fully and adequately resolved. 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.

• The federal government recently announced a new $2.6 billion national infrastructure program. Government will work in partnership with the federal government to ensure this initiative is directed to those communities and areas of the economy whose potential is limited by inadequate or aging infrastructure.

• In addition to partnering in the national infrastructure program, government, through the Department of Works, Services and Transportation, will provide increased resources in 2000-01 to support new capital investments in highway and road infrastructure, bringing its level of investment to an historic high of $132.5 million.

• The recently established network of ''single window'' business service centres in each of the 20 economic zones will be strengthened. This will bring federal, provincial and community development organizations together in single locations to provide more accessible and streamlined ''one-stop'' services to the small business sector. A $500,000 investment from the post-TAGS economic development agreement has been made to support the network.

• Government will establish an Information Technology Task Force to deliver government services through the Internet wherever feasible, including services of direct relevance to the business community. Advances in IT 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.

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