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Finance Minister Bill Morneau and Prime Minister Justin Trudeau hold copies of the federal budget on their way to the House of Commons in Ottawa, Wednesday, March 22, 2017.

Adrian Wyld/THE CANADIAN PRESS

The federal government unveiled an innovation-friendly budget Wednesday that was welcomed by Canada's flourishing technology sector.

The government announced a sequel to the $400-million venture capital finance program introduced by the last government that significantly boosted the Canadian startup sector and pledged to buy more cutting-edge technology from startups. It unveiled $1.4-billion in new financing for clean technology firms while pledging $125-million to support Canada's teeming artificial intelligence (AI) sector in Toronto-Waterloo, Montreal and Edmonton, where some of the most renowned experts in the field work.

The artificial intelligence funding announcement "is the kind of leadership and foresight needed to ensure that our businesses and citizens will thrive in the 21st century," said Jean-François Gagné, co-founder of Montreal AI startup Element.AI, along with Youshua Bengio, a pioneer in the branch of AI known as "deep learning."

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The Globe and Mail has learned that about $50-million of the AI funding will be committed to a new organization to be housed at the University of Toronto called the Vector Institute, with a goal of contributing to the growth of Ontario's AI sector. The institute, which is being pushed by former banker Ed Clark, a senior adviser to Ontario Premier Kathleen Wynne, has secured a $50-million commitment from the province and is pursuing at least as much from private industry.

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The federal government also promised to review how it spends across an array of innovation funding programs and responded to calls from innovation experts, including former BlackBerry Ltd. co-chief executive Jim Balsillie, by promising to launch a "modern and robust" intellectual property strategy to ensure Canada's regime for protecting patented technologies.

"These are all measures that will make a real difference for Canada as we try to become more innovative," Finance Minister Bill Morneau told reporters.

The budget follows last year's launch of an innovation strategy by Innovation, Science and Economic Development Minister Navdeep Bains and draws from some advice Mr. Morneau received from a council of experts led by McKinsey & Co.'s Dominic Barton. Government sources said the innovation measures in the budget are more oriented to helping tech firms commercialize their technologies than past budgets, which have been more focused on earlier-stage research. Ottawa has already responded to demands from the technology sector by making it easier for skilled foreigners to immigrate to Canada and dropping plans to tax stock-option gains.

"Over the past year, Ottawa has demonstrated a clear desire to work with Canada's tech industry and CEOs to make sure they get their innovation agenda right," said Ben Bergen, executive director of the Council of Canadian Innovators, which represents high-growth Canadian tech firms. He said the CCI was "cautiously optimistic" the budget measures will help Canadian tech firms scale up.

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Despite undertaking extensive consultations, the government said it needs more time to study and design some of its signature innovation initiatives as it nears the halfway mark of its mandate. One year after committing $800-million "to support innovation networks and clusters," the government had little to add. It increased the amount to $950-million and said it would launch a competition to decide which "superclusters" – collectives of public and private sector organizations focused on specific sectors such as advanced manufacturing – will get funded. "It's still a question what that will look like," said Randall Bartlett, chief economist with the University of Ottawa's Institute of Fiscal Studies and Democracy.

Such is the case with another budget promise. Canadian startups have long complained it's easier to sell their technologies to foreign governments than to their own. So Ottawa will spend $10-million this year to administer a new procurement program modelled on the 35-year-old U.S. Small Business Innovation Research program, which has helped tens of thousands of U.S. startups. But the government didn't say when the program would launch or how much of its $18-billion in procurement spending will be earmarked for buying from startups, promising details "in the coming months."

One of the biggest prebudget innovation questions was whether the government would follow the previous government's $400-million Venture Capital Action Plan (VCAP) announced in 2012. The program has generally been regarded as a success, spurring an additional $900-million of investment in venture capital by private sources and helping to drive venture capital investing to a 15-year high in 2016 in Canada.

Under the new Venture Capital Catalyst Initiative program, Ottawa will provide $400-million over three years to the Business Development Bank of Canada, which manages the VCAP. The funds will be earmarked for investments by venture capital firms in "late stage" revenue-generating startups. The government expects its funding to spur an additional $1.1-billion in private-sector investment and promised further details soon.

"It's something we've been pushing for," said Mike Woollatt, CEO of the Canadian Venture Capital and Private Equity Association. "Obviously, the government heard us loud and clear."

The government also committed to enhance skills training for Canadians, acknowledging that many workers could be displaced by the very technologies it is helping to underwrite.

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