CCI’s Message to the House of Commons Finance Committee

Today, CCI Director of Federal Affairs Nick Schiavo and Director of Policy and Research Laurent Carbonneau appeared before the House of Commons Standing Committee on Finance.

In his opening remarks, Nick emphasized the ongoing review of the Scientific Research & Experimental Development tax credit, and the urgent need for procurement modernization as key policy priorities that will matter for innovators.
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Here is our full opening statement delivered to the committee:

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Good afternoon to the Chair, Vice Chairs and Members of the Standing Committee on Finance. Thank you for the opportunity to present today on Bill C-59 and efforts to implement Budget 2023 and the corresponding Fall Economic Statement.

My name is Nick Schiavo and I am appearing today as the Director of Federal Affairs on behalf of the Council of Canadian Innovators (CCI). I am joined by my colleague Laurent Carbonneau, Director of Policy and Research. CCI is a national business council representing 150 of Canada’s fastest-growing companies. Our member companies are headquartered here in Canada, employ north of 52,000 employees across Canada and are market leaders in the sectors of health, clean, and financial technologies, cybersecurity, AI and more.

There’s no denying the tough economic position Canada finds itself in today. For years we’ve heard about this precarious position often referred to as the “Great Canadian Slump”, the “lost decade” or even most recently by the Deputy Governor of the Bank of Canada as a productivity “emergency”. Regardless of the choice of words, the warnings are clear. Canada is facing a rising cost of living, stagnating growth and declining productivity. Taken together, these factors are having a negative impact on our GDP per capita, and by extension, the quality-of-life that Canadians expect.

Currently this stagnation is predicted to make Canada the worst performing economy in the OECD from 2030-2060. Taken together with a variety of structural challenges facing our country such as climate change, war and cyberwarfare, healthcare and a lack of competition, the status quo is simply not working.

Canada needs to chart a new path forward for sustained growth and prosperity rooted in a strong innovation economy.

Looking back to Budget 2023 and the Fall Economic Statement, and more importantly, looking ahead to Budget 2024 and beyond, Canada must develop and implement a smart industrial strategy that builds wealth, enhances productivity, and aligns with our other strategic priorities. At the heart of this strategic lens must be industry-led reforms to Canada’s research and development frameworks and procurement mechanisms at all levels of government, alongside other important innovation levers including a patent box regime.

In the spirit of the government’s central theme of Budget 2023 to “build a stronger, more sustainable, and more secure Canadian economy for everyone”, today, I’d like to speak to two key opportunities to do exactly that.

Firstly, enhancing the Scientific Research and Experimental Development Tax Credit to maximize the full benefits of R&D performed in the country, and secondly, reforming Canada’s outdated procurement processes to spur economic growth and better service delivery for Canadians. CCI has spent months engaging with Canadian innovators and the tech ecosystem to develop comprehensive research reports to enhance both SR&ED, and procurement in Canada. These timely reports are tabled for the Committee, alongside these opening remarks.

Canada’s Scientific Research and Experimental Development Tax Credit, known as “SR&ED” is the single largest science and innovation policy lever in the federal government’s toolkit. For over 5 years CCI has called on the government to update this critical innovation program and we are pleased to see the ongoing consultation at this time.

With an expected budget of nearly $4 billion in 2024, it is ten times larger than any other science and innovation policy tool. Now more than ever, in a constrained fiscal environment, the government should be seeking to maximize the long-term benefits of SR&ED for the national economy.

Unfortunately, despite the long history of SR&ED dating back to the 1940s, and other research tax incentives, gross expenditure on research and development and business enterprise R&D, also known as BERD, is low in Canada by the standards of other advanced economies. In 2020, Canada’s BERD was the second lowest in the G7 after Italy, despite having more generous tax support for business R&D than all but the UK and France. Canadian firms also make less use of intangible assets compared to global firms. Intangible assets like intellectual property make up 70% of the value of firms listed on the TSX and over 90% for the S&P 500.

As such, Canada should incentivize early investment in IP development and protection so that firms maintain the ability to export into large markets. This is referred to as the “freedom to operate” and it is critical for companies looking to scale, export, compete globally and ensure strong economic growth for the Canadian economy.  

Additionally, SR&ED needs more transparency. The net benefits of the program to Canada should be made public on an ongoing basis – Canadians should understand what SR&ED is doing for the economy. Wherever possible, more of the benefit should flow directly to firms performing innovative activities and less to intermediaries such as tax preparation consultants by simplifying administration.  

Similarly, the current culture of government procurement, both federally and provincially, is not serving the Canadian economy, and it is not serving governments’ own purposes. In fact, in 2021, procurement amounted to 14.6% of Canada’s GDP - translating to billions of dollars and a meaningful force that shapes our economy.

Canadian governments especially struggle to buy innovative, novel products and services, which does little to help Canada’s other innovation problems.

Our low rates of BERD have contributed to stagnating productivity and lower national wealth. This is a public policy problem, not a failure of entrepreneurship. For generations, governments have focused on supply-side science and innovation policy in the form of research funding, and this approach has not managed to close the innovation gap between Canada and leading advanced economies.

While there is no single solution to improving our performance in government technology procurement, the government should begin by tackling the big problems – excessive risk aversion, processes that don’t allow for iterative innovation, low capacity and expertise, and a lack of pathways from procurement to the market – and use a variety of policy tools to address them in tandem.

Ultimately, governments across Canada need to build a culture where an empowered public service can find novel solutions to the problems they face, where innovators are confident that selling innovative products and services to government will be worth their time and help grow their business, and where the public ultimately benefits from more agile, solutions-oriented government.

To conclude, we are pleased to see the government invest in Canada’s innovation ecosystem in Budget 2023 and the Fall Economic Statement, but to ensure these investments have the maximum impact on economic future we need to be bold, innovative and strategic to create prosperity for all Canadians.

Thank you and we look forward to your questions.

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About the Council of Canadian Innovators

The Council of Canadian Innovators is a national member-based organization reshaping how governments across Canada think about innovation policy, and supporting homegrown scale-ups to drive prosperity. Established in 2015, CCI represents and works with over 150 of Canada’s fastest-growing technology companies. Our members are the CEOs, founders, and top senior executives behind some of Canada’s most successful ‘scale-up’ companies. All our members are job and wealth creators, investors, philanthropists, and experts in their fields of healthtech, cleantech, fintech, cybersecurity, AI and digital transformation. Companies in our portfolio are market leaders in their verticals, commercialize their technologies in over 190 countries, and generate between $10M-$750M in annual recurring revenue. We advocate on their behalf for government strategies that increase their access to skilled talent, strategic capital, and new customers, as well as expanded freedom to operate for their global pursuits of scale.

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