Letter to Minister Tobin - Canada's Innovation Agenda
August 2, 2001
The Honourable Brian Tobin, P.C., M.P.
Minister of Industry Canada
235 Queen Street, 11th Floor
Ottawa, ON
K1A 0H5
Dear Mr. Tobin:
The Canadian Advanced Technology Alliance is pleased that the government is pursuing an innovation agenda. As you know, CATAAlliance is the trade association which represents the Canadian high tech industry. We have 600 member companies, and a further 1500 companies belong to associations which are affiliated with CATAAlliance. Most of the companies are in the information and communications technology industries, but we also have members from the aerospace, biotech and advanced manufacturing industries. While the very largest companies, like Nortel, Bombardier, Cognos and BCE Emergis are members, the vast majority are SME’s. The markets in which our members compete are global, where product innovation is the critical factor to success. As a consequence, only a few of them do not perform R&D.
CATAAlliance members understand the dynamics of innovation, because they are the most innovative part of the economy. They provide the products and services which drive the new economy, the knowledge based economy, and enable innovative Canadians to move ahead. They tell us that an effective government innovation agenda must focus on three factors: a competitive tax structure, strong support for R&D, and human resources. These are horizontal policies, which impact the entire economy. They do not believe that programs with a narrow focus on specific industries or technologies are nearly as effective as broad policies which stimulate innovative activities across the entire economy.
The government has made great progress on the first element of the CATAAlliance innovation agenda, a competitive tax structure. The October mini-budget was a huge step forward, particularly in the area of personal taxes. There are strong grounds for further reductions in corporate taxes, especially the capital tax which is a notorious disincentive for investment. The challenge for the government will be to improve Canada’s competitive position vis-a-vis the United States. The tax cuts in the Americans’ new budget have restored much of the advantage enjoyed our greatest competitor for people and investment.
The government has also made considerable progress on our the second issue, support for R&D. Unquestionably the most popular R&D program is the Scientific Research and Experimental Development tax credits. It is noteworthy that this is a horizontal program, open to all R&D performers. For several years CATAAlliance has been working with Revenue Canada/CCRA to improve the delivery of SR&ED. Our recently released SR&ED Report Card reports that considerable progress has been made in delivery of the program, but that further work needs to be done to achieve the efficiency and consistency which will achieve the maximum stimulus to R&D.
There are two other programs which our members regard as particularly valuable. Interestingly, they address opposite ends of the R&D spectrum. The first is support provided by the granting councils, NSERC and SSHRC, to academic research, and the second NRC’s Industrial Research Application Program, which funds R&D by small businesses. It is our members view that one cannot be effective without the other. Basic, speculative research provides the technologies and practices that businesses can develop into new products and services. Like SR&ED, these are programs which have a very broad reach, accessible to a wide range of innovators.
It is arguable that the third of our priorities, human resources, ought properly to be ranked first. An innovative economy, enjoying high productivity and rapid economic growth, is impossible without a rich mix of entrepreneurial, technical and communications skills. There are two sources of the key skills, education and immigration. Jurisdictional limitations limit the federal role in the former, but it has made valuable contributions to post-secondary education through the granting councils, the Canada Foundation for Innovation and the research chairs program. On the immigration side of the equation, Canada’s policy must be directed toward attracting the maximum number of skilled immigrants. Efforts should be directed at simplifying and accelerating the process for skilled, educated applicants.
CATAAlliance understands that government departments have presented you with "innovation agenda" proposals with a total cost in the vicinity of $16 billion. We believe very strongly that this is entirely the wrong approach to stimulating innovation. Government programs of this variety have a sorry history of excessive costs, and of supporting fewer winners than losers. Horizontal programs are far more effective, and less likely to inflict serious damage on the government’s budget. The present surplus may appear large, but it will quickly be drained away by expansive and expensive new programs.
CATAAlliance believes that the government is following the right course in examining the innovation agenda. Policies must be established to expand R&D and encourage innovation by all sectors of the Canadian economy. This can best be achieved by creating a favourable environment for innovation, a platform built around a competitive tax system, support for R&D, and strong human resource policies. We must seize the opportunity to move ahead.
Yours sincerely,
John Reid,
President
cc. The Right Honourable Jean Chretien, P.C., M.P.
The Honourable Jane Stewart, P.C., M.P.
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