Two weeks into Canada’s federal election, the shape of the four major national parties’ economic policies is becoming clear. But ideas for growing the innovation economy remain in short supply.
And while each of the parties has voiced support for innovative firms, the policies they’ve unveiled to date do not include significant new programs or funding for those that are growing quickly.
From big tech to data privacy and stock options, The Logic has broken down the key promises on innovation from the Conservative Party, the New Democratic Party (NDP) and the Green Party, as well as the Liberal Party’s promises—and the decisions it made in its first term in government—to highlight how they would affect startups and firms in fast-growing sectors.
The Green Party’s Elizabeth May was the only one to mention Big Tech at the first leaders’ debate in early September. “We don’t tax Google or Facebook—they take billions out of this economy,” she said, in response to a question about how she would fund a promise of a guaranteed livable income.
What they’re proposing: Big Tech
Greens: The party’s platform includes a corporate tax on “transnational e-commerce companies doing business in Canada” that will require firms to “register, collect and remit taxes where the product or service is consumed.” It will also require social media platforms to only allow users with “verifiable identities,” in order to prevent harassment and the spread of misinformation.
NDP: The party is proposing “a national working group to counter online hate and protect public safety, and make sure that social media platforms are responsible for removing hateful and extremist content before it can do harm.” It will also require digital media companies to pay the same taxes and make the same contributions to Canadian content as Canadian broadcasters.
Conservatives: Leader Andrew Scheer said the party will ensure that content creators receive more of the revenue that currently goes to social media platforms like Facebook and Google, which sell advertising against their content.
Liberals: In May, the current government released a digital charter, a set of high-level principles that will guide legislative changes if the Liberals are re-elected. It states that Canadians can expect platforms not to spread hate, violent extremism or criminal content, and that companies will be penalized if they violate the new rules.
The current government, under the Liberals, has participated in international policy discussions on measures similar to those proposed by the Greens.
In June, G20 finance ministers including Canada’s Bill Morneau agreed to come up with new international taxation rules by 2020. They will require large multinational firms to pay taxes in the country where they make sales, even if they are headquartered elsewhere, or pay an agreed-upon minimum rate on their global earnings.
Meanwhile, the NDP has focused on the tech giants’ content-moderation practices.
Melanie Richer, director of communications and media, said the party will pass laws to “designate large, significant platforms as social platforms, with specific, legislated responsibilities,” citing the recommendations of the House ethics committee. In a December 2018 report, the committee called for legislation “imposing a duty” on platforms to take down “manifestly illegal content in a timely fashion.” An NDP government will enforce the rules through escalating fines.
The major parties in this federal election want to change the way innovative companies in fast-growing sectors are funded, taxed and regulated. But they’re making those promises with consumers in mind, while offering little help to companies trying to scale up.
Liberal leader Justin Trudeau has also said social media platforms that violate the digital charter will face “meaningful financial consequences,” but the current government has not announced what those would be. And, Heritage Minister Pablo Rodriguez said in July that if re-elected, the Liberals will require streaming services to host “meaningful levels of Canadian content” and contribute to its creation.
The Green Party has not explained how its proposed verification process will work, or how it would enforce the rule. The party did not respond to The Logic’s request for comment.
While the Conservatives have not yet proposed new rules for social media content, party MPs Bob Zimmer and Peter Kent were among the most prominent members of the House ethics committee. The party did not respond to a question about whether it would implement the committee’s recommendations.
The ethics committee also proposed new legislation allowing the Competition Bureau to consider “non-price effects, such as data-driven mergers” when evaluating whether to let large deals proceed. No party has adopted that recommendation in its platform, although the digital charter’s principles include “fair competition in the online marketplace.”
Google Canada declined to comment for this piece. Colin McKay, head of public policy and government relations, said the company is ready to work with whatever government is formed after the election.
Facebook declined to directly answer The Logic’s questions. “As we’ve shared before, new rules for the internet should protect society while also supporting innovation, the digital economy and free expression,” said Erin Taylor, communications manager for Facebook Canada, in a statement. She added that the company “welcome[s] conversations with policy makers and legislators.”
In an email to The Logic, Ben Bergen, executive director of the Council of Canadian Innovators (CCI), a lobby group representing growth-stage Canadian tech firms, called for all the parties to release data strategies that address “open technologies, data sciences, competition, standard-setting, strategic regulations, trade agreements, algorithm ethics and IP.” However, the parties’ early proposals have focused on consumer privacy rights, rather than on how important data is to innovative businesses.
What they’re proposing: Data
Greens: They will require “all government departments, companies, banks and political parties” to report any data breaches.
NDP: The party’s platform includes no specific proposals on data.
Conservatives: The party will require companies to provide “plain language use agreements.” It will also set up an expert committee to set “binding cyber security standards for critical infrastructure sectors,” and penalties for failing to meet them.
Liberals: The digital charter was accompanied by proposals for changes to the Personal Information Protection and Electronic Documents Act (PIPEDA), Canada’s consumer privacy law, such as giving users the ability to share or transfer data, and to delete information they’ve given to companies.
The Liberals’ charter was the product of the National Digital and Data Consultations, which were conducted between June and October 2018. Innovation Minister Navdeep Bains told The Logic in April that the principles would “create predictability and certainty for businesses.” However, the charter doesn’t contain new regulations, only guidelines that will influence those new rules.
There’s little difference between some of the opposition’s promised fixes on data and what the current Liberal ministry has proposed. The government’s PIPEDA changes, for example, include a requirement that organizations provide plain-language information about how they use the data they collect; the Conservative proposal is very similar.
What’s more, some of the opposition’s promised fixes on data are in fact already covered by existing laws, like the Green Party’s reporting requirement. Government departments, companies and banks are already required to disclose a breach to the federal privacy commissioner if it includes sensitive personal information that could cause harm to those affected. The Green Party is also promising to “significantly increase” the watchdog’s powers, though it does not specify how.
Canada is creating hundreds of AI startups. Firms in the subsector raised US$421 million in 2018, according to a report from PwC and CB Insights. But the space faces challenges, including a declining number of patents filed in the country each year between 2016 and 2018. Element AI, a Montreal-based firm whose executives are advising the government on AI and data standards, raised its latest investment round at a flat valuation, sources told The Logic. The company has struggled to launch products, and its staff has dropped seven per cent since March, LinkedIn data shows.
What they’re proposing: Artificial intelligence
Greens: The party is proposing a tax on large companies equivalent to the income tax of workers who lose their jobs to automation, which will pay for retraining programs. It will also set up a parliamentary committee to make regulatory recommendations on the “ethical, environmental, social and economic implications” of AI.
NDP: The party’s platform contains no specific proposals on AI.
Conservatives: The Conservatives say they will create regulatory standards to ensure “ethical and secure [AI] use.” It did not respond to The Logic’s questions about what kind of rules it would implement, or to which uses and sectors they would apply.
Liberals: In 2017, the current government launched a $125-million strategy focused on recruiting and retaining academic AI researchers. In May, it appointed an advisory council of tech executives and academics to identify ways to help the subsector grow.
None of the parties’ proposals include specific measures to improve access to funding or increase patenting activity in the Canadian AI subsector, although the Canadian Institute for Advanced Research has appointed 46 new research chairs with funding from the Liberal government’s AI strategy.
On the regulatory front, the country’s leading AI companies are already promising to develop and deploy the technology ethically. In December 2018, the Université de Montréal (UdeM) published a declaration on responsible AI development, the principles of which include ensuring that it does not discriminate against people for their ethnicity or sexual identity, and that automated decisions that affect people should be explained to them in plain language. Signatories include companies like Ottawa-based MindBridge Analytics, which makes AI-based auditing tools; UdeM’s Mila, a research institute started by Yoshua Bengio, who also co-founded Element AI; and the Montreal branch of the NextAI accelerator.
Regardless, Mike Murchison, CEO of Ada Support, a Toronto-based customer service chatbot platform with clients including Telus and Air Asia, told The Logic he believes governments should play a regulatory role in the ethical regulation of AI. He cited transparency regulations about informing people whether they’re speaking to a human or an AI program, and rules to ensure that companies are using a diverse data set to prevent their algorithms from producing biased outcomes.
While the Green Party’s platform promises to make Canada “the global leader in AI development and regulation,” it focuses heavily on imposing new rules, rather than fostering innovation. Murchison said the Greens’ automation tax proposal targets the wrong kind of company. “I wouldn’t want our customers to be taxed,” he said. “I would actually rather the onus be on the technology provider to … invest in reskilling and [be attuned to] these societal changes that the technology is producing.”
The NDP and Conservative plans could mean the end of the Strategic Innovation Fund (SIF), the Liberal government’s flagship funding program that has backed growth-stage Canadian companies like MindBridge; Vancouver-headquartered biotech firm Stemcell Technologies; and Waterloo-based quantum computing startup Isara Corporation.
What they’re proposing: Innovation funding
Greens: The party’s platform contains no proposals for business innovation funding or programs.
NDP: The New Democrats will “restore the Automotive Innovation Fund, create strategies focused on adding value and innovation for the high-tech, forestry, agriculture, aerospace and manufacturing sectors,” said Richer.
Conservatives: The Conservatives will cut $1.5 billion in “corporate welfare handouts.” It also promised to review federal innovation programs to ensure they back firms “with patents, technologies and economic benefits that remain in Canada.”
Liberals: The party is proposing that the Business Development Bank of Canada (BDC) run a three-year pilot project to give up to $50,000 to a maximum of 2,000 new small businesses every year.
In the 2017 budget, the Liberals consolidated the automotive fund into the SIF, which is open to companies from any sector. Automotive firms have been awarded over $260 million from the new fund, or 12.9 per cent of the total, The Logic’s analysis shows. However, the NDP is promising to reestablish it as a standalone program, arguing that its cancellation showed the Liberal government had “given up on the auto sector,” and that Ottawa should take a “sector-specific” approach to innovation support. The NDP has “not taken a commitment for the rest of the SIF,” Richer said.
The Conservative Party did not directly answer a question about whether it would eliminate the SIF if elected. “We will conduct a comprehensive review of all business subsidy programs – any corporate welfare that makes rich people richer will be eliminated,” said Simon Jefferies, associate director of media relations.
But the party has expressed a desire to focus on Canadian innovation, which could affect the SIF. In February, The Logic reported that the program awarded just over half the $951 million it allocated between July 2017 and January 2019 to the Canadian subsidiaries of foreign companies, though all recipients are required to spend the money on domestic projects.
A Conservative government review of the federal innovation support system would be the second in as many ministries. After a year-long study, the Liberals cut up to two-thirds of the federal government’s 92 innovation-support programs in the 2018 budget.
This election, the Liberal Party is connecting its proposed $50,000 grant program to small firms’ role as “Canada’s largest employers.” Small businesses employed 69.7 per cent of private-sector workers in 2017, according to Statistics Canada.
The funding would also address a significant concern for BDC, the country’s largest early-stage technology investor. In June 2018, it told The Logic it was concerned about a decline in the number of new IT companies founded in Canada.
The grant could “have a very material impact—it’s effectively angel funding,” said Murchison, noting that he raised about $50,000 for Ada’s first round of financing. The median size of an angel investment round in Canada in 2018 was $120,000, according to the National Angel Capital Organization, an industry group.
The Liberal proposal marks a shift from the approach they took in their first term, which saw them refocus R&D- and commercialization-support organizations, like the Industrial Research Assistance Program and Sustainable Development Technology Canada, on larger projects for growth-stage firms, and order the regional development agencies to “place greater emphasis in helping firms scale up.”
The party did not respond to The Logic’s request for comment on its innovation policies.
These proposals have focused on the deduction as a way to pay for their spending promises. But Canadian tech firms have expressed concerns that implementing these policies could hurt their ability to hire staff.
“Our members rely on [stock-options plans] to attract and retain the highly-skilled talent needed to expand their companies globally,” said the CCI’s Bergen. “When only 1% of Canadian companies grow beyond 500 employees, the government’s priority should be on seeing more companies reach this pinnacle of success instead of penalizing those who do.”
What they’re proposing: Stock options
Greens: The party is promising to “close tax loopholes that benefit the wealthy,” citing the stock-option deduction—which allows taxpayers to claim income from options at the lower capital-gains rate—as one example.
NDP: The party is proposing to tax 75 per cent of capital gains—the difference in the price for which you buy and sell a house or security—up from the present 50 per cent, which will reduce the size of the stock-option benefit. It will also eliminate the deduction for employees at “big companies,” said Richer.
Conservatives: The party did not answer a question from The Logic about whether it will maintain the scheduled cap. “We’ll have more to say on these topics as the campaign continues,” said Rudy Husny, associate director of media relations, noting that the party has not yet released its full platform.
Liberals: The 2019 federal budget imposed a $200,000 cap on the options taxpayers can claim at the capital gains rate.
Some of the parties have included carve-outs for such firms. The Liberal plan will not apply to employees of “start-ups and rapidly growing Canadian businesses,” although the government is still determining which companies will qualify for the carve-out. A three-month consultation on the matter ended in mid-September; in April, The Logic reported that publicly traded scale-ups will be exempt.
Richer said the NDP recognizes that “options help start-ups and growing businesses attract talent for competitive levels of compensation,” and will maintain the deduction for “small and medium enterprises.” Federal programs typically define such companies as one with 500 or fewer employees, meaning staff at fast-growing firms like Shopify and Ceridian would lose the tax benefit. When asked if the NDP would use this definition, Richer said it would work with startups to ensure the changes don’t hurt their ability to hire.