Canadian Government Hesitation To Significantly Support The Technology Sector Will Cost Us All
The impact of COVID-19 on economies around the world has been massive. How governments are dealing with it varies widely. In Canada, there continue to be questions about whether the multitude of programs are reaching those in need, especially across the many business sectors.
The Canadian Advanced Technology Alliance (CATA) wrote to the Prime Minister on April 7 proposing a solution to swiftly move emergency assistance to established Canadian science and technology-centric firms. The plan is to work with the nation’s largest innovation program, the Scientific Research & Experimental Development (SRED) tax credit platform. This provides accountability and a feasible and swift pipeline to distribute a $3.6 billion Resilience and Rebound Emergency (RRE) fund.
An existing delivery system reduces complexity. Using verifiable SRED data as a pre-qualifier to emergency assistance boosts accountability and reduces red tape overhead for both applicants and bureaucrats. Assistance is tagged to trusted firms that already have a minimum two-year track record and have met the scrutiny of the Canadian Revenue Agency. The fund would provide zero-interest, partially forgivable loans to the nation’s most innovative tech firms.
A success story that could do so much more
SR&ED is a government success story. The $4 billion program provides tax credits encouraging businesses to grow through their own investments into science and research.
The tax credit powers innovative companies. These company investments into science and research enable job and economic growth in tech, which sharply outpaces the overall Canadian economy.
This was the status of Canadian SRED science and technology-centric companies, before COVID-19:
- 13,000, mostly small to medium-sized firms
- 760,000 direct jobs and millions downstream jobs
- $34.5 Billion in direct salaries
- $188 Billion in revenues
- The average SRED claimant has 8 years of successful claims
Tech deserves improved assistance
Billions of taxpayer dollars over many years helped build this technology powerhouse. Leaving these Canadian innovators behind is a broken promise to taxpayers.
Is this not a sector worth protecting? China recently confirmed it will invest US $1.4 trillion over the next six years to leapfrog ahead of the US in all the major technologies. While China makes tech a priority, Canada has left our best innovators and talent to largely fend for themselves.
Moving out of the starting blocks into the international race for economic recovery, all sectors will have a heavy reliance on technology to compete.
Layoffs in tech continue, just like many other sectors, but once gone, getting that rare valuable tech talent back won’t be easy. The world is in a fiercely competitive battle for tech talent, the International Monetary Fund forecasts a global shortfall of 85 million tech workers in the next decade. In historic economic downturns, Canada’s tech sector has been abandoned
CATA was encouraged when the government used another funding program, doubling up the annual Industrial Research Assistance Program (IRAP) budget as an emergency pipeline to deliver funds to 1,000 firms. A similar approach was used for other business and innovation programs, but for some reason, Canada’s largest innovation program has been left behind and forgotten.
The super success story – the SRED program has not been mentioned by government leaders as part of the assistance strategy. The government’s well-intended assistance programs are helping some, but many of the programs announced have a low uptake from technology and small businesses. A more comprehensive and inclusive emergency liquidity and capital emergency assistance approach is needed. A CATA survey of business leaders in late April and early May revealed key facts:
- Only 18% feel current government programs are adequate to keep critical teams together for 12-18 months
- 88% say they would apply for the RRE fund and 89% believe such funding would carry them through the next 12 months
- 69% say funding would prevent layoffs
- 97% of companies have been negatively impacted by COVID-19
Government is not listening
From our discussions with government officials, the government is communicating they have adequately looked after the tech sector. They are not listening to what business owners are saying.
Tech is not like the auto industry.
Tech is not like the oil & gas industry.
Tech is not like forestry or fishing.
Dan Breznitz, co-director of the Innovation Policy lab at the University of Toronto, spoke to the Canadian Press on May 20 and forecast global trade in raw commodities will decline as COVID-19 makes it more difficult to move people and goods. He said Canada’s vaunted resource-based industries, “Will have a problem just selling wood and unprocessed oil.” He added, Canada must rebuild its capacity to produce sophisticated goods through innovation.
Who then will lead the rebound? Technology.
Ontario’s Minister of Economic Development, Vic Fedeli knows what is at stake. In an interview on May 7 with Communitech, he stated, “We’ll need the tech sector to guide us through how we can [manufacture] in a way more efficient manner.”
CATA’s call for a simple, fast, accountable funding program has received positive feedback from some federal officials. Plus economists, like Sherry Cooper, Chief Economist, Dominion Lending Centres; accountants like Danny Ladouceur who as a partner at RSM Canada handles the largest SRED portfolio in the country; entrepreneurs like Bruce Croxon and over 2,000 signatures on a CATA petition.
The ability of the tech sector to be strong when the economy rebounds will be compromised if companies are closed, staff gone and great ideas sold off at bargain-basement prices all because of insufficient support. Make no mistake the buying up of tech firms is underway. The Financial Post reports that takeovers are now happening at the fastest pace in years. Yet the gravity and urgency are being missed by the government.
If taxpayers are worried about the loans, a portion will have to be paid back by the companies, the remaining money would be repaid in otherwise lost payroll tax alone within four years.
The problem is not going away, nor is CATA. We ask that after two months, the government makes a decision.
Lack of meaningful assistance equals no new jobs and a questionable future.
A pretty easy equation everyone can understand.
Will the government figure it out in time?
We hope so.
If you would like to get involved with the CATA campaign contact CATA’s CEO directly email@example.com
About the Author of “Canadian Government Hesitation To Significantly Support The Technology Sector Will Cost Us All”:
Suzanne Grant is CEO of the Canadian Advanced Technology Alliance, representing small to medium sized technology based firms. She is a military veteran with a communications engineering and intelligence background. She has 30 years of entrepreneurial experience include founding firms and doing business in 17 nations.