OTTAWA — After pledging billions for Canada’s artificial intelligence sector and basic scientific research, Tuesday’s federal budget called on businesses and private capital to do the spending that will support the country’s innovation economy and productivity.

“We’re working to empower our best entrepreneurs to put their ideas to work here in Canada and create good-paying and meaningful jobs,” Finance Minister Chrystia Freeland said in the text of of her budget speech, touting a reinforced effort to “attract investment, increase productivity, and boost innovation.”

The Liberals announced a $2.4-billion package of AI measures last week, one of a series of pre-budget previews ahead of Tuesday’s release of the document. The flagship initiative is $2 billion for compute, the processing power and other infrastructure needed to train and run machine-learning models. 

In her speech, Freeland talked up Canada’s potential to meet not just its own compute needs, but the possibility of exporting AI infrastructure to friendly nations as well. “We have a natural edge,” she said, citing clean power, a cold climate, skilled engineers and proximity to the U.S. market as selling points for data centre operators.

Today’s budget provided more details on the AI measures. The compute money will be split between an access fund offering subsidies to researchers and firms that need to pay for cloud time and a forthcoming strategy to establish sovereign capacity within the country. Innovation, Science and Economic Development Canada will lead the design of the new programs. The budget backloads the five-year spend, with Finance Canada allocating $1.6 billion in the 2027–28 and 2028–29 fiscal years on compute as well as funding for AI development and adoption.

The budget also seeks to incentivize cloud and other firms to build out data infrastructure by letting businesses accelerate writing off network, processing and computing software and equipment. Firms will be able to claim right away the full cost of any such technology they buy between now and the end of 2026, instead of over time. Finance Canada estimates the measure will cost the federal coffers $725 million over five years. Companies will be able to take the same deduction when they buy patents. 

Executives and lobby groups have complained that the Liberals interest in innovation and commercialization has waned, and warned that it isn’t doing enough to address stagnant productivity growth and investment. Freeland and colleagues have been firing back of late, pointing to existing and forthcoming incentives and urging businesses to step up spending. “Innovation is about the private sector,” Innovation Minister François-Philippe Champagne said in January, in response to those criticisms.

The budget promises further benefits for firms to innovate via changes to the government’s flagship scientific research and experimental development (SR&ED) incentive. Finance Canada’s initial consultations on changes to SR&ED closed Monday, and on Tuesday the department said it would launch another round on measures that include making publicly-traded companies eligible for the full 35 per cent credit that private Canadian firms can receive; large firms have lobbied for that change.

In anticipation, the budget boosts the program by $600 million over the four fiscal years from 2025–26 and adds a permanent $150 million annual top up thereafter. That’s a relatively small figure compared to the $3.91 billion Finance Canada expects SR&ED to cost Ottawa in 2024.

Beyond businesses’ own balance sheet, the budget is also looking to tap private markets, including the country’s pension funds. While November’s fiscal update signalled the government would explore whether Canada’s pension funds could invest more at home, Tuesday’s budget included some more details on how.

The Liberals are enlisting former Bank of Canada governor Stephen Poloz to lead a group that will discuss how to get pension funds to spend more at home. The seven- or eight-member panel will “identify priority investment opportunities” that both deliver returns and generate Canadian innovation and growth. Potential focus areas include digital infrastructure and AI, as well as venture capital. It’s due to report by the end of the summer. Some tech founders and funders have complained that Canadian pension funds haven’t allocated enough attention or money domestically, even as they back firms abroad. 

Ottawa will also seek to boost the country’s flagging financing ecosystem by adding $200 million to the Venture Capital Catalyst Initiative (VCCI), which backs asset managers. The program typically requires participating funds to raise matching private capital. The new cash will target firms outside major metropolitan areas—typically the tech sector’s money magnets—and underrepresented investors and founders. Ahead of the budget, the Canadian Venture Capital and Private Equity Association had lobbied for the same sum for VCCI, but for emerging managers.

In another bid to bolster startup funding, Tuesday’s document directs the Business Development Bank of Canada (BDC) to increase financing to high-growth firms, and direct more of its VC dollars to “emerging and higher-risk sectors.” The announcement comes after a government review of BDC released last November found that the agency should take more risk to support entrepreneurs from underserved communities.

Recent Liberal budgets have included hundreds of millions of new dollars for flagship programs like the Strategic Innovation Fund and the superclusters initiative. Tuesday’s document makes smaller top-ups, adding $14.5 million over two years for the Innovation Asset Collective, which helps cleantech startups create and obtain intellectual property, and $60 million over five years for Futurpreneur Canada, which lends to young founders starting firms.

In addition to subsidies for business operating and capital expenses, the Liberals are also signalling they will answer a long-standing call for the government to buy more from small firms and startups. The budget promises Ottawa will establish targets for procurement from those companies with a detailed proposal in the fall economic statement. The Council of Canadian Innovators recently recommended a carve-out.