Why cheaper money isn’t enough
The BoC’s cut to 2.25% signals easing, but also caution that we’re near the end of the cycle. Monetary policy can’t solve structural under-investment in early-stage innovation. (BoC announcement; Reuters recap; MPR Oct 2025). (Bank of Canada)
Meanwhile, inflation at 2.4% (ex-gasoline 2.6%) limits how aggressive policymakers can be. Monetary easing alone won’t crowd in the risk capital founders need. (StatCan, BoC indicators, TD Econ). (Statistics Canada)
Budget 2025 is the window
On Nov 4, Ottawa tables Budget 2025 under a new fall cycle and a capital budgeting framework that separates capital from operating—precisely the stage to extend Flow-Through Shares (FTS) to tech and unlock private risk capital without inflating the operating deficit. (Finance Canada backgrounder; news release; Reuters). (Government of Canada)
Independent voices are watching closely: the PBO flagged transparency questions; C.D. Howe supports fall budgets but warns the capital definition could be gamed. That’s a feature, not a bug—define FTS cleanly inside the framework. (PBO initial assessment; C.D. Howe). (pbo-dpb.ca)
How FTS for tech fits the capital framework
- Mechanism: Investors deduct eligible exploration-style expenditures (recast for R&D/market-entry milestones) from taxable income—crowding in private risk capital when banks won’t lend.
- Budget logic: Treat qualifying tech spend as capitalizable innovation “exploration,” ring-fenced with reporting/tracking—aligns with the new framework’s long-lived value intent.
- Macroeconomic fit: With the neutral rate ~2.25–3.25%, Canada needs structural tools to raise productivity, not just cycle-timing. (BoC neutral-rate note). (Bank of Canada)
Guardrails to satisfy PBO and skeptics
- Tight eligibility: Limit to pre-profit firms with auditable R&D and commercialization milestones.
- Disclosure: Publish standardized quarterly dashboards (raise, runway, jobs).
- Clawbacks: Miss milestones? Recharacterize deductions.
- Regional balance: Earmark a share for non-GTA ecosystems to counter concentration risk.
- Complement, don’t duplicate: Integrate with SR&ED reforms; prioritize net-new private dollars.
What leaders and investors can do this week
- Founders: Map your next four “exploration” milestones (technical + commercial) and the spend that would qualify under an FTS-tech schedule.
- Investors: Draft your FTS-ready term-sheet language so you can move first if Budget 2025 green-lights it.
- Ecosystem orgs: Publicly support a clean definition of eligible expenditures to avoid the “capital” grey zone flagged by C.D. Howe. (C.D. Howe commentary). (C.D. Howe Institute)
The Path Ahead
Learn more about PMI’s leadership work at Perry-Martel (front page).
If you’re aligned with making 2025 the year Canada fixes its early-stage capital gap, share the case and add your voice to the survey at CanFlowThrough.com. Budget 2025 is the window; let’s walk through it together.
