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Eleven key takeaways from the 2019 federal budget for Canada’s innovation economy

Federal Finance Minister Bill Morneau holds a media availability in Toronto on Thursday February 28, 2019. THE CANADIAN PRESS/Frank Gunn
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The federal government’s 2019 budget released Tuesday contained funding for skills-retraining for mid-career workers and work experience for students, along with big money for high-speed broadband internet across the country.

However, in an election year, Finance Minister Bill Morneau mostly focused on workers over their employers. And, while tech scale-ups’ favourite immigration pilot program is now here to stay, there’s no big-ticket new program, national data strategy or funding for the innovation economy.

Here are some key measures in the budget that innovative Canadian companies will want to pay attention to, and one important measure they won’t find in the document.

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Talking Point

The 2019 federal budget creates incentives for mid-career skills training and work experience for students, and a key immigration program for scale-ups has been made permanent. But after a few years of blockbuster programs for startups, there’s little new money for innovative firms.

What: The Canada Training Benefit, an annual $250 tax credit for courses at universities, colleges and skills-training institutes. The government will pay out employment insurance (EI) for up to four weeks of leave for training in any four-year period. And, it will update legislation to give workers the right to take time off for training.

How much: $710 million for the credit, and $1.04 billion for the EI benefit, both over five years.

The fine print: The credit accumulates if it isn’t used, but it’s capped at $5,000. Small businesses will get an EI rebate. The federal government still has to negotiate with provinces and territories to put the leave provisions into all the laws governing workers across the country.

The context: In a February 2017 report, the Advisory Council on Economic Growth—a group set up to advise Morneau—said money spent by employers on training declined from $1,249 in the early 1990s to $800 in 2015. Canada lags behind other OECD countries in government spending on training programs to “help displaced workers and promote lifelong learning,” according to an internal government report obtained by The Logic through an access-to-information request. The Canada Training Benefit is reportedly modelled on a similar program in Singapore which provides workers $500 a year.

What’s happened so far: In February, the government announced that a Ryerson University-led group had been selected to set up the Future Skills Centre, first proposed by the Advisory Council. The centre will fund proposals to improve labour market information and pilots to test innovative training methods from a $363-million government capital pool.

Who benefits: Mid-career workers who can’t find the time or money to prepare for a career that requires new and different skills. Also, employers, who get to download responsibility for some training onto their staff and the government, although they may not appreciate the requirement to provide more time off or the impact on their EI bills.

What: Add 84,000 new internships and other work-integrated learning positions to the total number of work-experience positions available to students every year. The government intends to hit that number after five years.

The math: Expanding the Student Work Placement Program (SWPP)—which provides a subsidy to businesses that offer placements to students—from STEM to all disciplines will create 20,000 positions. Employment and Social Development Canada (ESDC) will create an additional 20,000 by funding companies that set up in-class or group-project-based experiences. And, the Business/Higher Education Roundtable, a Business Council of Canada offshoot, has committed to work with businesses to establish 44,000 more positions.

How much: $631.2 million for the SWPP and $150 million for ESDC, both over five years. The roundtable will get $17 million over three years.

The fine print: The government has set a 10-year target, saying “every young Canadian who wants a work-integrated learning opportunity should get one.” The roundtable estimates that 60 per cent of students currently have that chance, and 150,000 new annual positions are needed to get to the goal.

Who benefits: Businesses, whose entry-level employees will be more work-ready when they arrive. “The thing we hear [from companies] most often is they’re not able to come in and hit the ground running,” said Val Walker, executive director of the roundtable. Startups could also benefit from the expansion of the SWPP: while co-op students are common for tech-focused roles, it’s harder to find roles for co-op students with “soft skills” like sales, product management or copywriting.

What: Making the Global Talent Stream (GTS) permanent. The program makes it easier to bring in high-skilled workers for in-demand jobs in engineering and programming, as well as to fill executive roles.

How much: $35.2 million over five years, plus $7.4 million every year after.

What’s happened so far: The GTS was launched in June 2017 as a pilot, part of Canada’s new skilled-worker immigration program. As The Logic reported in December 2018, the government had approved 800 employers’ requests to bring in foreign workers for 3,100 positions as of October that year. Innovation Minister Navdeep Bains frequently talks up the program in his public appearances.  

Who benefits: Tech scale-ups. The Toronto-based fintech company Wave, for example, had brought four people to Canada under the program as of December 2018, including a top engineering executive. “Exceptionally talented people are looking for opportunities in Canada, and we can get them here in four to six weeks,” said Ashira Gobrin, senior vice-president of people and culture at Wave. The Council of Canadian Innovators (CCI), which advocated for the creation of the program, had making it permanent on its budget wish list.

What: A target internet speed of 50/10 Mbps for 100 per cent of the country by 2030, and a new Universal Broadband Fund to meet it.

How much: $1.7 billion over 13 years, with $717 million of that over the next five years. The government hasn’t yet said how that money will be spent.

What’s happened so far: The Connect to Innovate Program, launched in the 2016 budget, was set up with $500 million for broadband in rural and remote communities, and 180 projects covering 900 communities. On Monday, Telus announced $40 billion for rural and remote internet services, and Xplornet committed $500 million last week.

Who benefits: Low-earth orbit satellite companies like Montreal-based NorthStar. The government plans to use these networks of smaller communications transmitters to reach the most remote communities in the country. Also, the Liberals: voters often bring up their new internet access at the door, Bains told The Logic in December 2018.

What: Expanding eligibility for the enhanced portion of the Scientific Research & Experimental Development (SR&ED) tax incentive.

The math: Companies get a 35 per cent rebate on their first $3 million in R&D spending under SR&ED, but the amount they receive varies based on their assets and earnings. The budget removes the earnings cap.

How much: $395 million in lost government revenue over five years.

What’s happened so far: SR&ED is the government’s biggest innovation support program, distributing $5 billion in credits to companies annually. But in October 2018, The Logic reported what entrepreneurs have long suspected: big companies get more out of the program than small firms.

Who benefits: Small firms with unpredictable profits—say, tech startups. They’ll be better able to predict how much they’ll receive from SR&ED year-over-year. And, until now, firms sometimes lost more in SR&ED credits than they gained in increased profits year-to-year. Now, a good year won’t hurt the balance sheet. But the change won’t necessarily help scale-ups, since the program’s asset and R&D spending thresholds starve them of capital during their growth phase—when they need it the most.

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What: Regulatory “roadmaps” that include setting up sandboxes—environments exempting companies from certain requirements while testing products or services—as well as putting more information and applications online and coordinating with provinces and territories to harmonize rules across the country.

In plain English: The government is pledging to reduce red tape in specific industries.  

How much: $219 million over five years.

What’s happened so far: The government announced a major regulatory modernization effort in the Fall Economic Statement in November 2018, including requiring regulators to take into account the financial impact of new rules, and a Centre for Regulatory Innovation to manage the sandboxes. The Economic Strategy Tables, an advisory group of business leaders, recommended increasing the use of pilots and attempts at intergovernmental cooperation as part of a regulatory reform plan they projected would grow the economy by at least $15 billion.

Who benefits: Companies in the agri-food, health and biosciences and transport sectors, each of which is getting its own roadmap.

Also of note: More funding for cybersecurity, including $80 million for joint academia-business R&D networks, although there’s no money specifically for procurement from the growing domestic sub-sector in digital defence technology. An extra $60 million for CanCode, a kids’ programming fund that’s also popular with voters.

The Clean Resource Innovation Network, another academia-business consortium, will get $100 million funnelled through the Strategic Innovation Fund to develop new emissions reduction technology for the oil and gas industry. And, the government will give drivers a rebate of up to $5,000 for buying electric or hydrogen fuel cell vehicles that cost less than $45,000—a subsidy aimed at the category of budget battery-powered cars like Telsa’s Model 3 or Chevrolet’s Bolt.

The Office of the Privacy Commissioner of Canada is getting a $22 million boost to its budget; the information watchdog has experienced a significantly increased caseload after new data breach reporting requirements took effect in November 2018.

The government did revive a plan to tax stock options, introducing a $200,000 cap on the value of exercised options that individuals can have taxed at the lower, capital gains rate, rather than as income. But it made clear its target is big business executives, and not the employees of startups and fast-growing firms, which will be exempt from the new rule.

What isn’t in the budget: A national data strategy.

What’s happened so far: A report about innovation policy released by Innovation, Science and Economic Development Canada (ISED) in February 2019 said investments in digital technology and big data are “required today because the impact of the data-driven digital economy will only continue to intensify and expand.” The government’s approach would be informed by the National Digital and Data Consultations, held between June and October 2018, it said.

What’s in the fine print: The results of those deliberations have yet to be made public, five months after they concluded. Compare that to ISED’s consultations prior to the 2017 budget’s innovation policy overhaul, which were held between July and September 2016, with the findings published in December that year.

Who’s disappointed: The CCI, which has been advocating for a national data strategy since before the last budget. “It’s disappointing to see no national data strategy,” said Ben Bergen, executive director, in a statement. “Data is the essential capital stock of today’s economy and Canada continues to lack a comprehensive strategy that ensures Canadians own and control the data they generate.” It’s likely already too late for the government to introduce the major legislative changes. But a budget commitment might have given some indication of the government’s thinking on key topics like data sovereignty and portability.

It was also a down year for “innovation,” the word. It appeared 79 times in the 2019 budget, compared to 197 mentions last year. But 2017—the year the government launched the Innovation and Skills Plan—had the most, with 262.

 

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