Special Report

What the Liberals’ throne speech means for the innovation economy

Prime Minister Justin Trudeau waits for Gov. Gen. Julie Payette to deliver the throne speech in the Senate chamber in Ottawa on Wednesday, Sept. 23, 2020. The Canadian Press/Adrian Wyld

The federal government’s throne speech on Wednesday promised to extend key COVID-19 business-support measures and launch a raft of new incentives and funding programs targeting cleantech, worker training and connectivity for the post-pandemic economic recovery. It intends to pay for those plans in part by reviving proposals to tax stock options and tech giants.

Specific amounts and program details will have to wait until Finance Minister Chrystia Freeland’s fiscal update later this fall. Until then, here’s what you need to know about what the Liberals have planned.

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Talking Point

The federal government will extend COVID-19 measures like the wage subsidy and small-business loan program, and set up new incentives and programs for cleantech, worker training and child care, it said in Wednesday’s throne speech. A renewed stock-options-cap proposal and taxes on tech giants will partly fund those promises.

How they plan to deal with the pandemic

Ottawa’s wage-subsidy program will run “right through to next summer,” says the speech, read in the Senate by Governor General Julie Payette. The program is currently scheduled to expire in mid-December, and the payout declines month over month. As of September 13, the Canada Revenue Agency (CRA) had disbursed $35.31 billion to 312,750 firms, less than half the $83.6-billion budget. 

The extension is part of the government’s “campaign to create over one million jobs,” which it says will bring employment back to pre-COVID levels; Statistics Canada’s August Labour Force Survey put the gap at 1.1 million. Canada’s job recovery has slowed, with employment increasing by 246,000 last month, down from the record 953,000 increase in June, as the easy gains from provinces lifting lockdown restrictions were used up.

The government will also expand the Canada Emergency Business Account (CEBA), through which financial institutions issue federally backed, partially forgivable loans of up to $40,000 to small firms. The Canadian Federation of Independent Business has called for the credit to be increased to $60,000, and for half of that to be written off if the rest is repaid, up from a quarter. Financial institutions have paid out $29.96 billion in CEBA loans to 751,838 businesses so far.

The speech’s business-support promises also include “improving the Business Credit Availability Program,” which lets companies borrow up to $6.5 million underwritten by Export Development Canada (EDC), or up to $12.5 million funded by the Business Development Bank of Canada. Few firms have taken up the offer, although in May, EDC told The Logic it expects demand to increase in the fall.

How they hope to encourage a recovery

The throne speech lays out the roots of a green agenda, but doesn’t quite launch a full-scale economic transformation.

The government is promising that there will be “thousands” of jobs in home and building retrofits. Last week, the Task Force for a Resilient Recovery, a 15-member group that includes Prime Minister Justin Trudeau’s former principal secretary Gerald Butts, called for more than $27 billion over five years to fund such renovations. Ottawa’s been considering the idea since before the pandemic. Natural Resources Minister Seamus O’Regan’s mandate letter instructed him to create a no-interest loan program for homeowners and solicit bids for “four long-term funds to help attract private capital” for “deep retrofits of large buildings such as office towers.”

Other green promises recycled from Trudeau’s marching orders to ministers or from the Liberals’ platform in the 2019 federal election include installing more electric-vehicle-charging stations and giving companies that make zero-emissions technology or products a 50 per cent tax break. 

It’s also planning a new fund for such firms. Ottawa’s Venture Capital Catalyst Initiative already allocated $50 million to three cleantech funds in June 2019. Money for commercialization and growth remains in short supply for startup and later-stage companies. 

An April internal presentation prepared for then-Natural Resources Canada deputy minister Christyne Tremblay about the impacts of COVID-19 warned that “energy R&D and cleantech innovation are particularly vulnerable.” Most cleantech firms are small- or medium-sized firms engaged in “capital-intensive ventures,” with more than half doing “early-stage R&D and tech demonstration,” it states. But both customer demand and private capital—both debt and equity—have dried up, says the presentation, which The Logic also obtained via access-to-information request. 

The problem predates the pandemic. In a September 2018 report, the federal government’s advisory Clean Technology Economic Strategy Table identified “low access to patient growth capital, scale-up investments and grant funding” as a key challenge. 

In a letter sent to Innovation Minister Navdeep Bains on Monday, the Council of Canadian Innovators (CCI) lobby group called for the government to increase procurement from cleantech firms; focus programs on “established products from market-tested companies” instead of “perpetual pilot projects”; and launch the Innovation Asset Collective, an IP program announced in August 2019. None appear in the speech. In a statement following the speech, CCI executive director Benjamin Bergen said the new fund was “promising,” but that Canada needs “a strategy to own more of our clean technology innovations.”

The Liberals are also planning “the largest investment in Canadian history” in worker training. The unspecified allocation will pay for education, accreditation, job-matching and skills upgrades. The government has already promised a major skills incentive, the Canada Training Benefit, announced in the 2019 federal budget. The program gives workers an annual $250 tax credit and up to four weeks of leave over any four-year period subsidized by employment insurance (EI) to take courses. At the time, it priced those two parts of the scheme at a collective $1.75 billion over five years.

While Canadian government bond yields remain below those of the U.S., credit agencies have called for the government to present a timeline to end the borrowing that’s funded its pandemic measures. They won’t find it in the throne speech. “This is not the time for austerity,” it states, adding, “Canada entered this crisis in the best fiscal position of its peers.” 

The address does signal where the government is looking for new revenues. Its plan includes “concluding work to limit the stock option deduction.” It’s the Liberals’ third attempt to cap the value of such derivatives to which individuals could apply the lower, capital gains tax rate.

The 2019 budget introduced a $200,000 limit, but promised to exempt employees of startups and fast-growing firms; in April 2019, Bains told The Logic that publicly traded scale-ups like Shopify would also qualify for the carve-out. In December 2019, Finance Canada announced it would delay implementing the cap following industry consultations, and promised more details in the 2020 budget, which was never unveiled.

Innovation-economy firms have expressed concerns that increasing the effective tax rate on stock options for their employees will make it harder to compete with U.S. firms for top talent. Tech-sector opposition, including from the CCI, scuppered a first attempt shortly after the Liberals took office in 2015. 

The throne speech also promises to address “corporate tax avoidance by digital giants.” The Liberals’ 2019 platform proposed to raise $2.5 billion in new revenue between the 2020–2021 and 2023–24 fiscal years by levying “multinational tech giants.” At the time, the party told The Logic a re-elected government would apply the three per cent tax on revenue from selling online advertising and user data to firms with at least $40 million in Canadian and $1 billion in global sales, starting in April. 

That didn’t happen, and whether Ottawa ever implements its own digital-services tax could hinge on the OECD concurrent process to update the global taxation system for multinationals; G20 finance ministers are aiming to have an agreement by the end of the year.

Beyond income for the treasury, the throne speech also promises to redistribute tech giants’ revenues in other ways. The government will require that they “contribute to the creation, production, and distribution of our stories, on screen, in lyrics, in music, and in writing.” Heritage Minister Steven Guilbeault has signalled he’d introduce legislation in the fall mandating Canadian content funding and discoverability standards from foreign platforms.

…and the rest

The government will launch an Action Plan for Women in the Economy based on expert advice, but doesn’t detail its scope or whether the recommendations will be binding. Women have regained fewer jobs lost during the pandemic than men; a mid-July report co-authored by RBC deputy chief economist Dawn Desjardins said the downturn “threatens decades of women’s labour force gains.” The throne speech promises a “significant, long-term, sustained investment to create a Canada-wide early learning and childcare system,” a key recommendation for many policy experts studying the pandemic gender gap.

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Ottawa will also speed up the rollout of the Universal Broadband Fund, a $1.7-billion, 13-year program announced in the 2019 budget. As part of an IT modernization effort, it will launch “free, automatic tax filing for simple returns.” Several of Canada’s OECD peers pre-fill forms for most residents. Tax-preparation companies and software developers have lobbied against such a system in the U.S.

The throne speech also commits the government to “going further on economic empowerment for specific communities, and increasing diversity on procurement.” Earlier this month, Trudeau announced $33.3 million for a loan program for Black business owners and entrepreneurs, with up to $128 million in additional funding from financial institutions. The combined sum is 0.29 per cent of the size of the CEBA program.