The venture capital industry is applauding the $500 million earmarked for VC investment in Thursday’s federal budget.

The federal government proposed to devote $400 million to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector. It also promised $100 million for the Business Development Bank of Canada to support its venture capital activities.

The budget says the $400 million allocation “will increase the amount of funding available for growth-oriented innovative firms while focusing resources on those that are likeliest to become global leaders.”

The budget doesn’t spell out exactly how the funds will be dispensed, instead, indicating that, “In the coming months, the government will consider how to structure its support in order to incent private sector investments and management of seed and large-scale venture capital funds.”

On Friday, Canada’s Venture Capital and Private Equity Association congratulated the federal government for these measures. “In particular, we were pleased to see that the federal government has taken decisive action to address the acute shortage of venture capital by committing $500 million to the industry,” says Gregory Smith, president of the CVCA and managing partner of Brookfield Financial.

“We look forward to working with the federal government in determining how best to structure its support in the months ahead,” added Smith.

The CVCA also noted that there are other aspects of the budget that will help grow the tech sectors of the economy, and that it proposed changes to the Scientific Research and Experimental Development tax incentive program, which provided more than $3.6 billion in tax assistance to R&D in 2011.

The budget proposed a number of measures designed to streamline and improve the SR&ED tax incentive program, which, it says, are intended to simplify the program, and better align the tax credits received with actual business expenditures on R&D projects. They would also reduce the general tax credit rate from 20% to 15% in 2014 in recognition of recent reductions in overall corporate tax rates which had made the tax credit relatively more generous.

Implementing changes to the administration of the program will cost $4 million in 2012–2013, and $2 million in 2013–2014. The budget says the savings generated by those actions will be invested in “direct support programs that will reinforce business innovation in Canada.”

“We are pleased that the federal government has opted to keep the structure of the SR & ED program largely intact. We do support making the program more effective and will be examining the proposed modifications closely,” said the CVCA’s Smith.