Canadian politicians have a soft spot for smaller companies. This we know. 

But our leaders and administrators deem some smaller companies more in need of the government’s warm embrace than others. According to TMX chief executive John McKenzie, policymakers tend to favour closely held firms, assuming any company that trades on public markets must already have graduated to the big leagues. 

“Governments often will think that public companies are big and successful, and they don’t need help,” said McKenzie, who oversees the country’s main stock exchanges, including the Toronto Stock Exchange and the TSX Venture Exchange. “And so they miss the fact that the bulk of the Canadian public-company ecosystem is actually small and medium enterprises.”

You could see how separating companies into a “private” bucket and a “public” bucket could be a useful heuristic for a public servant assigned the task of creating an irresistible incentive to innovate and grow, but with a limited budget. You have to draw a line somewhere, and most of what the public knows about public markets is based on triumphant stories of oversold initial public offerings or dodgy penny stocks backed by scamsters. Neither is the type of company that elected officials want to be seen helping. 

Bay Street and Ottawa are separated by only a four-hour train ride, but much of the time they might as well be on separate planets. The divide shows itself when the finance minister pleads with businesses to invest more, and the lobbyist for the country’s corporate titans responds by telling Ottawa to stop doing things that make it impossible to earn a suitable return on investment. 

It’s easy to dismiss such exchanges as something akin to the kayfabe of professional wrestling. A government that has positioned itself as a champion of the middle class feuding with the one-per-centers, or a group of people with a fiduciary responsibility to their stakeholders feuding with a government that doesn’t understand business—they’re all just playing out an exaggerated version of reality. Behind the scenes, responsible adults make responsible decisions that ensure no one gets hurt. 

But play a game too long or too hard and it becomes all you know. Those YouTube-ready promos and my-way-or-the-highway commentaries form the environment in which policy is made. 

Take the Scientific Research & Experimental Development (SR&ED) credit, arguably the federal government’s most important tool for driving animal spirits towards activities that could boost innovation and productivity. Private Canadian companies can generally claim a 35 per cent refundable tax credit on up to $3 million, while publicly traded companies can claim only 15 per cent on R&D expenses. 

That’s weird. A well-funded, venture capital-backed firm can gobble up every subsidy for which it qualifies, while a publicly traded company of the same size or smaller is treated as if it were Shopify. If another country discriminated against Canadian companies in this way, the trade minister would have a legitimate complaint. In this case, a group of Canadian companies has been put at a disadvantage by its own elected representatives.   

“There’s an imbalance in the government’s support for innovation in [private and public companies] companies for no other reason than their corporate structures,” McKenzie said in an interview. “I don’t believe it’s intended for the government to have done that.”

There are 2,205 companies listed on the TSX and the TSX Venture Exchange and 1,713 of them—78 per cent of the total—employ fewer than 250 people, according to an estimate compiled by TMX. 

But those companies aren’t necessarily world-beaters, as their combined market capitalization represents only six per cent of the total value of all the entities listed on the two exchanges. In other words, there’s little reason to think a publicly traded company is in a better position to grow than a private one. The heuristic is no longer valid. 

“When [governments] bring on new programs, they rely on the Canadian-controlled private corporation as a vehicle to deliver them,” McKenzie said. “That disenfranchises any small public company.”

TMX is pushing hard to level the playing field. The federal government is reviewing SR&ED, and McKenzie used the opening to formally ask Finance Minister Chrystia Freeland to make the full credit available to publicly traded smaller companies. He said his case is getting “airtime,” though he senses apprehension that expanding the program would cost too much. McKenzie’s counter is that the economic growth that would result from the change would more than make up for any tax leakage. 

Of course, McKenzie has an interest in doing whatever he can to boost the fortunes of the companies that list on TMX’s exchanges. But TMX’s interests and those of the government align, assuming Freeland and her colleagues are serious about boosting innovation and productivity. If TMX is getting richer, so is the rest of the economy. 

“One of [our] most important stakeholder groups is the public companies today, but also the private companies that [will be] the public companies of tomorrow, that will rely on the capital markets to raise money to expand, to build, to hire, to invent,” McKenzie said. 

That isn’t a lobbyist or consultant or an ideologue playacting. McKenzie is an economic actor with skin in the game. Hopefully policymakers can still tell the difference.  

Kevin Carmichael is The Logic’s economics columnist and editor-at-large. He has spent more than two decades covering economics, business and finance for outlets including Bloomberg News, The Globe and Mail and the Financial Post, where he also served as editor-in-chief. 

Correction: Private Canadian companies can generally claim a 35 per cent refundable tax credit on up to $3 million. This column has been updated.