By Matt Jeneroux

Too much tax hurts tech sector

Canada is on the cusp of the Fourth Industrial Revolution with the emergence of the biotechnology industry. This revolution, where digital processes and artificial intelligence (AI) are changing the way products are made, is also coming at a time when Canada is experiencing a brain drain in our tech sector.

A study published earlier this year by the Munk School of Global Affairs’ Innovation Policy Lab found that one-quarter of graduates in science, technology, engineering, and math (STEM) fields from Canada’s top universities were working outside of the country. Most of those working outside Canada are in the United States, particularly Silicon Valley.

We have federal research and development support programs for companies in the tech sector, including the Scientific Research and Experimental Development Program (SR&ED) and Industrial Research Assistance Program (IRAP). These programs were designed to help companies innovate through tax breaks, which should work well in theory.

However, these programs aren’t helping retain tech talent in Canada because of several other factors. First, personal income taxes and taxes on small businesses are high here. When businesses pay more in taxes, they have less disposable income to invest in hiring employees, funding new research, and setting up new spaces. Even when businesses are established in Canada, government policies can sometimes make it impossible to get anything done, as we recently saw with the Trans Mountain expansion project.

Second, Canada’s intellectual property (IP) policies make it cumbersome for researchers to bring discoveries to the public. The government released its long-awaited IP strategy earlier this year and it included $30-million to create a third-party patent pool to acquire IP that Canadian firms could access. This was criticized as confusing and unnecessary. Research from the Centre for International Governance Innovation found that American firms own more Canadian patents than Canadian firms. It is clear that we have some great innovators, but our policies and research environment cannot make it difficult for them to succeed here in Canada.

As well, the Munk School’s study found a number of graduates moved to the United States because of higher salaries. As mentioned above, a high tax rate has many repercussions for Canada, including the ability to offer high salaries to recruit and retain employees. A look at our tax policies and how they are affecting the tech sector is critically important.

Canada has a competitiveness problem. Businesses in all sectors are leaving the country in droves because it’s become unnecessarily difficult to get anything built. Lower tax rates and less government interference south of the border is understandably tempting for business owners and innovators.

Canada has an opportunity to be a leader with the emergence of biotechnology and artificial intelligence. While the SR&ED and IRAP programs are well-intentioned to keep biotechnology businesses in the country, there needs to be a stronger focus on the entire business environment that will help Canada’s economic competitiveness.

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