March 24, 2017

CATA Tax & Finance Advocate Brian Cookson Offers Insights into the 2017-18 Federal Budget: Sounds Good, But Will It Work?

federal-budgetSounds good, but will it work?

When I first read the chapter on innovation within the 2017 federal budget plan, I thought: Yeah, OK, they are saying the right things. Most, if not all, of the initiatives set out in the budget were taken from a report released in February by the Advisory Council on Economic Growth that had been commissioned by the Liberals to provide recommendations, so the details released in this week’s budget were not much of surprise from that standpoint.

In nutshell, here is the strategy;

  1. Create a new Strategic Innovation Fund by consolidating several other existing funds and kicking in another $100M. This fund will invest in the brightest companies in class with a focus on aerospace, automotive, clean tech and agri-food.
  2. Have a competition to award $950M over 5 years to “superclusters” (points for coming up with a new trendy term), dense areas of sector-specific business activity akin to the Silicon Valley. The idea is to share the risk between companies, both large and small, research organizations and post- secondary institutions within the supercluster, to develop platform technologies and disruptive technologies that will boost Canada’s competitiveness in advanced manufacturing, agri-food, clean technology, digital economy, health/bio-sciences, clean resources, and infrastructure and transportation.
  3. Give $400M, over 3 years, to the Business Development Bank of Canada (BDC) so that they can identify high growth companies to provide late-stage investment capital (presumably in conjunction with private VC funding, which the government is hoping will inject a total of $1.5B into the innovation capital market).
  4. Futurpreneurs (I thought at first this was an entrepreneur from the future that would guide us to innovation nirvana), will have access to $14M in funding toward financing and mentoring for young entrepeneurs.
  5. The government is going to take another crack at government procurement (what happened to the Build in Canada Innovation Program?). $50M will be set aside to allow companies to sell their first new innovative product to the government. Essentially this is a “lite” version of the Small Business Innovation Research (SBIR) program that has been in place for years in the US.
  6.   Specific program commitments have been made for the clean-tech industry, in the form of $375M for challenge-based funding competitions, a $1.4B increase in available financing for clean-tech firms via the BDC and Export Development Canada, and $600M for clean-tech development and demonstration.

That is about it for cash being doled out over and above previous budget commitments. Of course, there is the obligatory review of SR&ED and other government programs (no budget over the last 15 years would be complete without this recommendation).

So, what now?

Well I suppose if you are a company in one of the focus sectors and are a fast-growing and up-and-coming business you may succeed in attracting investment from one of these funds, or get to join a supercluster. There is bit of hope for start-ups, but if the $14M is spread too thin it may not have much of an impact.

Advanced manufacturing and digital industries are to be a priority under the new Innovation Canada platform, but while the budget makes specific commitments for agri-business and clean tech, we have to wait for the results of yet another strategic review by the government before details of how specific programs will support these broadly defined industries are known.

I have thought about the innovation dilemma in Canada for some time. Forget comparing us to the US, but why is that the UK, Netherlands, and Israel have each succeeded (they are generally ranked in the top 5 countries in the world), where we seem to be the laggard in the group?  From my personal experience, the UK and the Netherlands are about as close to our business culture as you can get. All of us are risk averse; we don’t exhibit false bravado; and we are frugal when it comes to spending.

So, what is the difference? I am not sure I have the answer but one thing I see is that when a new idea sounds interesting, they do not reject it out of hand because it might cost too much or it will cause change or disruption to the business. What they do is exercise a little business judgment. They start small and test the waters, but more importantly they start and act. If it doesn’t work, they have not lost much money and they move on. They are also very prudent with their money. Canada gives its businesses a lot more funding than these countries. There were about 5 people in London who marketed the crap out of Tech City (a growth accelerator for the UK’s digital economy) and in five years achieved outstanding results.

How the results will compare to Canada’s $950B investment for superclusters remains to be seen. Might it be that, when it comes to superclusters, investment funds, and government procurement, Canada would be better off hiring someone from Tech City UK in London, the Hi-Tech Campus in Eindhoven or anyone from the start up investment fund in Tel Aviv, who has actual experience in building a successful national innovation program?

cooksonAbout Brian Cookson, President & Managing Director, RDP

As President of RDP, and CATA Tax and Finance Advocate,  Brian has been assisting a wide variety of companies obtain R&D tax credits for over 20 years worldwide. Brian initiated and grew RDP’s practice in Canada, United Kingdom and the United States. He has lectured and written extensively on R&D tax credits including SR&ED, and has presented seminars to industry groups and tax conferences. Brian’s role is to ensure RDP is providing value added service to its clients. Brian also consults with companies that have significant R&D tax credit issues and negotiates on behalf of clients with government representatives. Brian is a chartered accountant and worked with Ernst & Young in their high-tech services group from 1982 to 1987.