What a Liberal minority means for Canada’s innovation economy | Financial Post

The Liberals fell short of a majority in Monday’s federal election, leading in 157 of the 338 seats in the House of Commons as of early Tuesday. That means Prime Minister Justin Trudeau will need to work with other parties to pass his proposals.

The Liberals are likely to look for support from the New Democratic Party, which took 24 seats. While they have different positions on issues like energy and trade, the Liberal and NDP platforms overlap significantly on the innovation economy.

The big picture

To some degree, the Liberals are likely to try to pick up where they left off. Innovation Minister Navdeep Bains was re-elected, though it’s unclear whether he will retain his portfolio.

However, both Jim Balsillie, former co-CEO of Research in Motion (now BlackBerry) and chair of scale-up lobby group the Council of Canadian Innovators, and Nobina Robinson, a senior fellow at the C.D. Howe Institute think tank, told The Logic they felt none of the parties paid much attention to innovation during the campaign.

Robinson said the government isn’t likely to move forward with implementation of new ideas on innovation and skills until the next budget. In a minority situation, that document “will be subject to a lot of negotiation on other issues,” she said, citing climate action and a national pharmacare plan as key priorities. Both were among the six “urgent priorities” NDP leader Jagmeet Singh said he would make part of any discussions about propping up a minority government.

As for the Liberals’ accomplishments to date, over the last two years they have created policies to encourage IP generation, as well as a digital charter of high-level principles like personal control over data and data portability. But Balsillie said they still need to implement national data and IP strategies. “They talk about it from a consumer point of view and a security point of view, but they don’t talk about it from a prosperity point of view,” said Balsillie. “And it’s become the new factor of production to drive economies.” He cited a Public Policy Forum study that found that while “intangibles” like IP and data account for an increasing share of global economic output and growth, Canada lags behind countries like the U.S., U.K. and France.

The Liberal and NDP proposal

Both parties promised a three per cent value-added tax on the targeted-ad sales and digital-service revenues of firms with at least $1 billion in worldwide and more than $40 million in Canadian revenue.

The Liberal platform counts on revenue from the measure beginning in the 2020–2021 fiscal year, meaning it would likely need to be implemented via a fall economic update or next year’s budget. The parliamentary budget officer, the fiscal watchdog agency, estimated it will bring in $540 million in the first year, rising to $1.2 billion in 2028–2029.

Balsillie welcomed the measure as a way to pay for other government programs.

But he said the tax does nothing to address “much more fundamental complaints” about foreign tech giants’ presence in Canada, like their use of the scientific research and experimental development tax credit, their creation of intellectual property via researchers at public universities and the added competition they create for local talent.

The Liberals have promised their levy will be an interim measure until there’s an international consensus on OECD-led changes to the global corporate taxation system, which will attempt to prevent large multinational companies from reducing their tax bills by moving profits and assets to other countries.

Some Canadian scale-up executives favour the OECD approach. “It’s not like we want to target Facebook and Amazon,” said Sachin Aggarwal, CEO of Think Research, a Toronto-based health-care technology firm. Affected firms “will have to spend more money in Canada, to reduce their taxes payable,” he noted, which could further increase competition for skilled talent.

It’s not clear whether the NDP would support the Liberal proposal. Canada “needs more fundamental reforms,” said Mélanie Richer, NDP director of communications and media, citing her party’s proposal to require parties to “prove the economic substance of offshore transactions.”

Singh is also seeking a “commitment to close tax loopholes.” The NDP promised to eliminate the lower stock-options tax rate for “big companies,” although Richer said the party recognized that the deduction helps “start-ups and growing businesses attract talent.” The current Liberal government has already imposed a $200,000 cap for options issued after Jan. 1, 2020.

Aggarwal said tech firms are concerned about new taxes on stock options. A reasonable approach would involve a “number that’s into the millions before you get taxed,” he said, and provisions to allow payers to carry forward what they owe, since private companies’ shares can’t easily be sold — even when their values rise on paper.

A municipal nominee program with at least 5,000 annual spaces for local governments, chambers of commerce and labour councils to sponsor new immigrants.

The Liberals launched the Global Skills Strategy in June 2017, a major change to the immigration system. The program offers faster application-processing, as well as a new stream for highly-skilled tech workers, following years of businesses saying the existing system was too slow.

“The tech community thinks it’s been a huge success,” said Aggarwal, whose company has hired people via the program.

Kareem El-Assal, director of policy and digital strategy at CanadaVisa, said the new municipal nominee program would help address another significant concern with Canada’s immigration system. “In seven out of 10 provinces in Canada, you have 80 per cent of all newcomers going to (the) largest city,” he said. (The exceptions are New Brunswick, Saskatchewan and Alberta.)

El-Assal said he expects the federal government will task select municipal governments — alongside chambers of commerce and employers — with identifying local needs, choosing immigration candidates, offering them jobs and working to settle them.

Labour needs vary across the country, El-Assal noted. “Talk to employers in Ottawa and Toronto; they’re dying for tech talent — they want engineers and marketers and other folks within their field,” he said. Atlantic Canada’s aging population needs health-care workers, while Whistler, B.C.’s hospitality sector needs staff. The program could therefore give local innovation clusters in smaller markets a new way to attract talent.

El-Assal doesn’t expect other parties to force the Liberal minority government to make major immigration policy changes. “Maybe the NDP asks for the government to take more of a humanitarian bent,” he said. Its platform states, “Family reunification should be a priority.”

Skills and education

To move forward with the Canada Training Benefit, an annual tax credit and employment insurance (EI) payout announced in the 2019 federal budget for workers who take time off for education. The party also promised to move forward with reductions in interest rates on federal student loans and increase grants.

Robinson doesn’t expect the NDP to oppose the Canada Training Benefit, but she questioned how it will be implemented — how the government will determine if recipients have actually done training, for example, and how it will affect federal-provincial agreements on employment programs.

The NDP platform promised to allow workers in unspecified sectors and parts of the country to go through EI-funded training “in advance of losing a job.” It also proposed a new Workers Development and Opportunities Fund for workers from marginalized backgrounds and in transitioning sectors.

“There’s some benefit, especially in the short term, to meet a need of a particular industry (with training),” said Valerie Walker, executive director of the Business/Higher Education Roundtable and co-chair of the federal Future Skills Council. But she noted that businesses have ranked soft skills — not industry-specific abilities — like communication and critical thinking as the top abilities for which they’re looking in both entry- and mid-level hires.

Robinson predicted the Liberals, NDP and Greens will be able to agree on helping students with post-secondary education debt. Waiving interest on student loans is one of Singh’s six “urgent priorities.” Robinson said the Liberals’ targeted policies make more sense than the Greens’ universal loan-forgiveness proposal, “so that the government doesn’t subsidize people that don’t need it.”

The government also needs to review the amount of money it gives provinces for higher education, she said. Provincial governments largely handle post-secondary policy, but their self-generated funding to those institutions has been falling, according to an analysis from Higher Education Strategy Associates.

Reduce monthly cellphone and wireless bills by 25 per cent in the next two years.

Trudeau campaigned on encouraging telecommunications firms to cut prices, and introducing more competition to the market if they are unable to meet the party’s target.

Reducing cellphone bills is another of the NDP’s six priorities. They proposed a price cap on wireless and broadband plans based on what customers in other OECD countries pay.  Carriers are opposed. “(Price caps) stifle innovation and discourage investment in the expansion and upgrading of wireless infrastructure,” Canadian Wireless Telecommunications Association spokesperson Greg Burch recently toldThe Logic.

The Logic