Making Canada a Global Leader in Innovation

At Issue
Billions of dollars have been spent for decades by consecutive Conservative and Liberal governments on corporate tax cuts and credits under the rationale that they help stimulate research and development (R&D) and innovation. Promised pay offs in the form of innovation, new jobs, and economic growth have not transpired. Instead, we know that many companies hoard piles of idle money while Canada’s innovation performance stalls. The Harper Conservatives’ approach to innovation is that it will just happen on its own. He does not believe we need strategic leadership, promotion, and targeted support to key sectors and industries. This complacency has failed to produce the innovative economy Canadians need. We can do better.

In Context
Between 2000 and today, Liberal and Conservative governments tried to outdo each other with deeper and faster across-the-board cuts to corporate tax rates. With the 2012 tax rate of 15% already set by Harper’s Bill C-28, the Parliamentary Budget Officer has reported that over three fiscal years, corporate tax cuts will cost Canadians $12.6 billion. Table 1 – Corporate Income Tax Rates Prime Minister Chretien Chretien Chretien Chretien Martin Martin Martin Harper Harper Harper Harper Harper Harper January 1 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Corporate Income Tax Rate 28% 27% 25% 23% 23% 23% 21% 21% 19.5% 19% 18% 16.5% 15%

Meanwhile, those governments have overseen one of the world’s most expensive government-funded R&D incentives. Research by the Canadian Manufacturers and Exporters Association indicates that Canada’s R&D tax subsidies (amounting to about 0.22% of GDP) are more expensive than any Source: Dep’t of Finance Annual Reports and Budgets other G7 country’s. The largest portion is Canada’s Scientific Research and Experimental Development (SR&ED) program, which delivers $3.5 billion per year in federal tax credits.


OECD data confirms how ineffectual this system of incentives is at leveraging business expenditure in R&D, which as a percentage of GDP has fallen by almost a third over the past decade. Canada is lagging embarrassingly behind: by 2010, Canada’s business R&D expenditure ranked 15th in the OECD, below all but one other G7 country. As a result, our productivity and exports stagnate. Tax cuts and credits to the tune of billions do not incentivize companies to invest in job-creating innovation. Instead, they get squirreled away in corporate savings accounts. Globe and Mail research found that since the onset of the recession in 2008, corporate Canada has added $83 billion to their cash reserves. Statistics Canada data indicates private currency deposits of non-financial private companies grew by 135% from 2000 to 2010 – from $195B to $458B. When financial corporations are included, private currency deposits totaled $859B in 2011. Canada’s R&D support is overwhelmingly indirect, consisting primarily of generalized tax credits. No other industrialized country hands out such vast amounts without direct accountability. Companies aren’t spending the money they already have – so why do we give them more, with no strings attached? What Canada needs is to examine and emulate methods proven by other countries with stronger business investment in R&D and corresponding productivity improvement, economic growth, and improved quality of jobs.

Business R & D Spending in Canada
Percentage of GDP

1.20% 1.10% 1.00% 0.90% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
source: Statistics Canada.


The Peggy Nash Plan
Under my leadership, the NDP – and the next government – will take practical steps to build policies that will motivate the investment needed for innovation-led growth and job creation right across our country. To provide new, proven, and practical approaches to fostering an innovative economy, I will: 1. Launch a new Canada Innovation Fund to provide targeted support for specific R&D projects and new product programs at qualifying high-tech firms – a portion of the proceeds from ending oil and gas subsidies and a review of corporate tax rates will be used to cover the budget of this Fund. 2. Provide pre-commercial and commercial fiscal support through a new Canada Development Bank for focused, sector-oriented projects and programs – the Bank will be capitalized by government, operate as an arms-length business, and offer leveraged and preferential loans to qualifying projects. 3. Implement expanded investment tax credits accessible only to companies that actually invest in high-tech new machinery and equipment – essential to realizing the benefits of innovation. 4. Improve systems to commercialize the R&D that takes place in Canadian universities and other public institutions while ensuring continued support for basic research. 5. Build market support for innovative Canadian products and services using tools such as domestic procurement policies; and ensure international trade deals signed by Canada do not put any of our drivers of innovation at a disadvantage in the global marketplace. 6. Bring together champions of Canadian innovation from the private sector, universities, scientific community, venture finance, labour, and other stakeholders to build sector planning networks that identify innovation challenges and opportunities, mobilize resources, and implement concrete strategies.


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