Since the Alberta government cut support for innovation and tech companies late last year, the federal regional development agency for Western Canada has seen a spike in inquiries from firms in the province looking for financial backing, The Logic has learned.
Western Economic Diversification Canada, the federal regional development agency, has experienced a surge of interest from Alberta in its funding and support services after the provincial government cut innovation programs in favour of a corporate tax cut in October 2019. Ottawa’s contribution to business R&D spending has already increased in recent years, but Alberta tech executives say it should step in to further fill the gap.
In its first budget five months ago, Alberta’s newly elected United Conservative government cancelled five tax credits, including the provincial rebates for scientific research and experimental development (SR&ED) and developing interactive digital media, as well as one for investors in companies that are inventing or commercializing new technology or in the gaming and animation sectors, among others. The government also reduced the operating budget for Alberta Innovates—which offers funding, research support and advice—by $129.7 million over the next two fiscal years. The province instead plans to lower the corporate tax rate from 12 per cent to eight per cent by 2022.
An analysis of the Alberta budget prepared by officials at Western Economic Diversification Canada (WD) said the provincial government would “reduce or eliminate several economic development programs and services, placing increased pressure on [the agency] from stakeholders to supplement this short fall.” The Logic obtained the briefing note via access-to-information request.
The agency has indeed seen that uptick in demand. “Through WD’s program outreach and engagement activities, clients and stakeholders have demonstrated an increased interest in accessing WD funding due to reductions in provincial economic development funding and programs,” spokesperson Mark Feldbauer told The Logic. He also cited the economic downturn in Alberta as a contributing factor. The agency does not record the volume of inquiries it receives, since many of its conversations with potential applicants are informal. It would not disclose whether there had been a corresponding increase in the amount of funding it had provided to Alberta-based applicants.
The office of Economic Development Minister Mélanie Joly did not answer The Logic’s questions about whether Ottawa plans to increase WD’s funding or launch any additional measures to support businesses in Alberta in response to the provincial government’s reductions. The agency has spent more than $309 million in the province since the federal Liberals were elected in 2015, said spokesperson Jérémy Ghio, adding that WD received an additional $224.2 million for programming across the last two budgets.
The Alberta government is “realigning [its] programs in order to get the best return on [its] investment,” said Justin Brattinga, press secretary to Alberta Economic Development Minister Tanya Fir. “Research, innovation, and economic development programs have a focus of investment attraction and commercialization of technology.” He cited over $200 million the province has allocated for research and innovation in its 2019 and 2020 budgets.
In November 2019, Alberta Innovates laid off 125 people, its second staff reduction in two years, after the previous NDP government cut its budget by $76 million between 2015 and 2017. The following month, The Logic reported Toronto-based software company Wattpad had chosen Halifax over Calgary for its second headquarters, in part because of the elimination of Alberta tech tax credits.
Shortly after The Logic reported on Wattpad’s decision, the Alberta government set up a seven-member advisory council to look at ways of attracting tech investment in the province. Brattinga said the group’s report is due on April 3.
Some Alberta tech executives say the provincial changes have hurt the local startup ecosystem, and want Ottawa to help fill the gap. “It would be a great opportunity for the federal government to extend an olive branch to the taxpayers of Alberta,” said James Keirstead, CEO of Levven, an Edmonton-based company that makes controls for home electronics.
Levven had raised funding under the scrapped provincial investor credit, and had support from Alberta Innovates for hiring and development. It is also receiving funding through WD. “The problem with a straight tax cut is it doesn’t benefit diversification,” Keirstead said, contrasting the provincial and federal approaches to supporting innovation and noting that startups typically don’t have taxable profits.
Edmonton-based TIQ Software, an online learning platform for employees, has previously received provincial and federal SR&ED tax credits; CEO Jason Suriano said it used its 2019 rebate from Alberta’s digital media program to hire additional staff. Accelerators and investors outside the province are now targeting firms like TIQ to move all or part of their operations elsewhere to take advantage of provincial incentives, according to Suriano. “’Instead of scaling your entire company here, you’re now contemplating fragmenting it,” he said.
Suriano called for Ottawa to institute a Canada-wide digital media tax credit akin to the federal carbon tax program—companies in provinces that don’t have a local incentive will have access to the federal backstop. “That’s an easy win [with Alberta], because they would be known for diversifying our economy,” he said.
Businesses and provinces have been uploading an increasing share of innovation expenses to the federal government, The Logic’s analysis of Statistics Canada data shows. Under the Liberals, Ottawa has significantly boosted its funding for R&D conducted by businesses, spending $3.49 billion between 2016 and 2019—nearly double the $1.76 billion spent under the Conservatives in the four previous years. Over that eight-year period, the federal share of financing also increased substantially, from 2.06 per cent to 4.77 per cent, while the private sector dropped to 73.3 per cent and the provincial contribution was essentially stagnant.
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WD has previously followed provincial financial freezes with new awards of its own. Alberta Innovates stopped accepting funding applications in July 2019, and the government suspended the investor tax credit the following month as part of a pre-budget review. That September, WD announced $40.6 million in interest-free loans for 22 firms through its Business Scale-up and Productivity (BSP) program, as well as grants for local accelerators, innovation hubs, companies and universities.
The agency plans to spend $106.5 million on innovation-focused programming across all four Western provinces in the 2019–2020 fiscal year, and another $81 million on business services and growth supports such as export promotion and investment attraction. That’s up from $61.5 million and $73.5 million, respectively, in 2018–2019.