Special Report

Breaking down the federal Fall Economic Statement 2018

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The federal government’s Fall Economic Statement (FES) released Wednesday contains new funding for innovative Canadian companies, plans to help them export and regulatory exemptions to allow them to test ideas. However, unlike 2016’s Global Skills Strategy immigration changes, there was no big-ticket new program for the innovation economy.

Here are some key measures in Finance Minister Bill Morneau’s annual update to the government’s spending plans that innovative Canadian companies will want to pay attention to, and one crucial measure they won’t find in the document.

What: $800 million more for the Strategic Innovation Fund (SIF), the federal government’s main piggy bank for supporting economically-important industries.

How much: It’s the single biggest non-tax line item in the FES.

Who could benefit: Some of the money in the SIF is being used to back Canadian scale-ups. North, the Waterloo, Ont.-based wearables company, got $24 million earlier this month, while General Fusion, the Burnaby, B.C.-based energy technology company, received $49.3 million in October.

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What’s happened so far: The SIF was established in Budget 2017 with $1.26 billion, but most of that came from combining existing auto and aerospace programs—just $100 million was net new money.

What’s in the fine print: $250 million of the new funding is for steel and aluminium producers affected by the U.S. metal tariffs, adding to another $250 million announced earlier this year. Multinationals steel giant ArcelorMittal has already received $49 million from the program. At a House of Commons committee Tuesday, officials from Innovation, Science and Economic Development Canada said six or seven other steel or aluminum firms are having their applications reviewed. Another $100 million is for the forestry industry.

What: Establishing the Centre for Regulatory Innovation to manage a “roster of sandboxes,” where companies will be exempted from certain rules while running pilot projects and test products under the watch of regulators.

How much: $11.4 million over five years.

Who could benefit: That depends on what kinds of regulatory sandboxes the centre establishes. British fintech firms, for example, have benefitted from the country’s securities regulator’s encouragement of innovation via a sandbox.

What’s happened so far: As I reported, Innovation Minister Navdeep Bains told the CEO Summit of the Canadian Council of Innovators (CCI) last month that the government was considering how it could “create conditions in the regulatory system to reduce the burden, the red tape, the impacts, the impediments for a lot of the technology and a lot of the innovation that’s occurring.”

What’s in the fine print: The money is back-loaded, with more than half coming between 2022 and 2024. That suggests the sandboxes may be a few years away.

What: New tax rules that allow businesses to write off the entire cost of manufacturing and processing equipment in the year they start using it, up from a quarter. Firms will also be able to count the cost of investments in technology like computers, software, networking equipment and fibre-optic cables against their tax bills sooner than they previously could.

Who could benefit: Industrial technology companies that sell into manufacturing or processing facilities. That includes industrial robot companies, but also firms like Clearpath Robotics’ Otto, which makes robots for use on factory floors—investment in new or expanded facilities means more orders, even if the new rules don’t apply to the machines themselves.

What’s happened so far: The Donald Trump administration’s tax changes also included a similar provision.

What’s in the fine print: While they take effect immediately, the new tax rules  will be phased out between 2024 and 2027.

Talking Point

There’s new money in the Fall Economic Statement for scale-ups and clean technology, new supports for innovative exporters, and new rules about writing off capital investments that could bring technology companies new customers. Not included: cuts to the corporate tax rate.

What: $50 million in additional funding for the Venture Capital Catalyst Initiative (VCCI), specifically focused on clean technology firms. Also, businesses can write off the entire cost of new clean-energy technology the year they start using it, up from a quarter.

Who could benefit: Clean technology companies, whose pool of funding just got bigger, and who could sell their products to businesses taking advantage of the new tax measures.

What’s happened so far: The VCCI was established in Budget 2018, with $400 million. The money reaches startups through venture capital funds, which must raise private cash to match what they get from the program.

What’s in the fine print: The VCCI will likely have to make another call for proposals from venture capital funds to decide how the new money is allocated, so it could take some time to trickle down to firms.

What: Taking the Trade Commissioner Services’ (TCS) Canadian Technology Accelerator program beyond the U.S., to “global technology hubs such as Delhi, Hong Kong and Tokyo.” Also expanding the TCS itself to support digital-, e-commerce- and intellectual property-focused companies.

How much: $17 million and $25.4 million respectively, over the next five years.

Who could benefit: Companies that want to enter new markets, particularly those outside the U.S. The accelerators introduce Canadian startups to local business leaders and potential investors.

What’s happened so far: Budget 2018 combined a number of innovation-focused export programs under the TCS. Earlier this year, my colleague Zane Schwartz reported on documents prepared for the Digital Industries Economic Strategy Table that highlighted the Canadian technology sector’s poor export performance. “Global exports of ICT services grew by almost 48% from 2008 to 2016 while Canadian exports decreased by 13.5% over the same period,” the report reads.

What’s in the fine print: Getting the TCS to focus more on digital industries was also a focus of the Budget 2018 overhaul.

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Also of note: The government is planning to act on consultation recommendations on regulations in the agrifood, health and transportation industries. That includes supporting test ranges and pilot projects for drone use, and amending the Canadian Aviation Regulations to allow the use of drones. There will also be changes to make getting medical technology into the healthcare system—which companies currently have a very hard time doing, per a study I reported on earlier this year—easier.

What isn’t in the statement: A cut to the corporate tax rate.

What’s happened so far: The Trump administration cut U.S. corporate tax rates in December last year from 35 per cent to 21 per cent, on average. Corporate leaders have been urging the Canadian government to do the same. At the CCI CEO Summit, Bains warned Canadian technology executives not to expect a rate cut, citing previous times when a low rate didn’t lead to rises in research and development investments.

What’s in the fine print: Morneau said in his speech that matching the Trump cuts would “add tens of billions in new debt.” As my colleague Zane reported in July, internal government documents estimated the federal government would lose $2 billion in tax revenue for every percentage point reduction in the corporate rate.