In the last 10 years, much of the hard earned core technologies of our sector have been lost as firms have failed and/or been absorbed offshore.
Nortel collapsed. BlackBerry (the erstwhile RIM) struggles to find itself. And, leading ICT firms like Cognos were being bought up by foreign interests in part due to their low market valuations in comparison with the intrinsic value of their technologists and their technologies.
These losses occurred in spite of one of the most generous R&D tax credit regimes in the world, overall business income taxes being lowered, and the acknowledged leadership of our universities as centres of scientific and technological world class leadership. From this perspective, the ICT sector should have done well. The firms that we’ve lost leveraged off the tax credits and our excellence in order to create world class technological innovations. Recently decreased corporate income taxes do not yet seem to have helped. Canadian firms continue to grow their technologies here, but find it necessary to reward their investors by selling these technologies and know-how offshore. For their size, they are very valuable businesses from the perspective of foreign eyes.
The question, for almost a decade now, has been: What’s going wrong?
Initially, we heard that Canadians were simply not innovators and that our universities were not producing enough science. But, these notions were debunked by the reality of the technologies we created. There was also the notion that Canadians were not competitive or entrepreneurial enough. And, finally, the notion is that perhaps our framework policies associated with the tax regime are the issue, or at least a compounding factor.
We commend the Government for taking this issue seriously, creating venues for the community to come to grips with what is wrong and to offer up solutions.
The discussion has correctly, in our opinion, moved from why Canadians are not innovators to why we do not commercialize our technologies and grow our businesses and our investments to their fullest.
CATA believes the most important recent realization for the ICT sector is that we have moved from advancing technology based innovation as the key success factor to achieving tangible product and process innovation as the key factor.
We have the technologies and the know-how to use them. It is how to use them creatively and win markets that is more often the challenge to the sector, today.
Unfortunately, recent federal budgets and the related discussion on technology transfer, technology commercialization, associated programs, centres of excellence and research are behind the curve on where our immediate competitors are moving. While having the potential to create growth, the timeframe associated with many of these investments is far beyond what seems needed to meet the challenges faced by the sector in today's fast moving environment.
Are we once again making what are important and profitable investments for the benefit of others? Is Canada once again falling back into its characterization as a nation of “hewers of wood and drawers of water”, so to speak? Is Canada a nation where the technology resources and know-how that it creates move offshore too soon so that others can develop them to their full potential and reap the economic rewards? Are we being significantly shortchanged?
We would suggest that the 2014 federal budget itself may be very much behind the curve. Hopefully, it is simply a work-in-progress, reflecting current realities of the fiscal focus of this Government.
The tax credits provided by the SR&ED Tax Incentive Program have been the historical mainstay of ICT sector support. But the SR&ED program has taken a huge hit as a result of the last several federal budgets and changes in the way the CRA approaches the program. For details, please go to:
The net result is that there should have been considerable room for new initiatives to create a more appropriate environment for firms to grow successfully at home. The key is to adjust thinking to the immediate realities and pressures created by today's rapidly evolving world opportunities – not simply to focus on past experiences. Hopefully, the reductions in the SR&ED program (likely more than $400 million for the ICT sector alone per year) are not just being eaten up by the need for Budget reductions and research-centric thinking.
The sector’s leadership needs to work to get the message across about the new paradigm we find ourselves in and the consequences of not responding quickly to it. Undoubtedly, this will require some refocusing of our own thinking about what is needed to get to solutions that have the agility required by the new environment. The question is what kind of change will be useful.
CATA has called for a very close look at the taxation framework to see if it can be adjusted to provide more incentive to growth at home; that is, better “pull” through better balanced rewards.