Clement begins work on national digital strategy; hints at changes to research tax credit system

Industry Minister Tony Clement wound up a major digital conference Monday with a promise that Canadians will start to see segments of an action plan for a digital economy in the fall, although he also stressed that the task of making Canada a leader in the digital economy is huge and that it might take some time to get a plan rolling. “You will see some movement on some of these issues in the fall,” he said in closing remarks, adding that: “Rome was not built in a day. You cannot expect to build a digital economy in a day.” Asked by reporters afterwards what he expects to be the first crucial issues to be addressed in formulating the strategy, Clement said copyright was top on the agenda. Earlier, he told conference participants that he and Heritage minister James Moore will devote part of their summer holidays to consultations on copyright, which he identified as a crucial component of an overall digital strategy. The conference, which attracted key leaders in the telecommunications industry, focused primarily on addressing issues on productivity, infrastructure and policies. Key industry leaders like Mike Lazaridis, president and co-CEO, RIM, Terry Matthews, chair, March Networks, J.Wayne Gudbranson, CEO, Branham Group Inc, and Tom Jenkins, chair and chief strategy officer, Open Text, attended the session. (Click here for a copy of Matthews' keynote speech). In opening remarks, Clement sounded upbeat and said he will incorporate some of the suggestions derived from the discussions into his action plan and that he will table the industry’s concerns to cabinet. “I believe that Canada is up to the task. I believe that we can re-take lost ground; I can tell you that this has to be our goal for our country. We can make Canada be number one, why not?” However, he rejected a suggestion by CRTC chair Konrad von Finckenstein that a royal commission be created to examine issues pertaining to a national digital strategy, noting that it will cause more delays. “I am not too crazy about that. I just think a royal commission needs three more years of delay,” he told reporters. Citing reports from major world bodies such as the OECD, Clement said Canada has dropped from second position to 10th in the global broadband ranking. He noted that business R&D, as a percentage of GDP has also declined, hence the importance of consultations with industry leaders to find solutions. In an interview with reporters, Clement noted that although Canada’s tax policies have been helpful to the industry, there’s still room for improvement, especially in the area of R&D. Bernard Courtois, president and CEO of the Information Technology Association of Canada (ITAC), said in an interview that in the tech industry, the fastest growing companies, which are breaking through mid-size to get larger, face major hurdles in accessing R&D money. On paper, Courtois says R&D policies look good, but in reality, many firms face difficulties in accessing this money. Canada’s single largest R&D incentive program is the Scientific Research and Experimental Development (SR&ED), which provides a refundable 35% tax credit to small, limited liability, Canadian-owned enterprises, and a 20% tax credit to larger Canadian-owned companies and foreign-owned enterprises that conduct R&D in Canada. But Courtois said young and newly established tech companies might not have large taxable profits for a number of years so the SR&ED credits in particular may not be useful to them. While noting that Canada generally has a good tax credit system, the problem of accessing R&D money is crucial and needs to be addressed, he stressed. “That is a very severe barrier because we are under-performers in business R&D,” he said. However, Courtois notes that recent tax policies introduced in the 2008 budget mean that by 2010-2011, Canada will have one of the lowest combined tax rates on investment in the G8 and “one of the most competitive among developed countries,” adding that when the recession ends, Canada will be one step ahead of the competition. “Generally speaking, we think our basic tax rates are pretty good because as the rest of the world goes through this toughest recession, their fiscal conditions are going to be significantly worse than Canada’s,” he said, adding that it is important to capitalize on this and build a national strategy for the digital economy, involving a holistic government approach. Courtois said there’s an urgent need to move beyond talk to action on a digital strategy, noting that “the issue has been studied to death and white-papered to death.” As for elections and shuffling industry ministers, he said it is not helpful as it slows everything down. “We’ve had many reports and we’ve come close to this. But we’ve probably had as many elections as we’ve had reports. Frankly, we are happy to see there’s no election in the summer and we are hopeful that now we have a champion who wants to move fast and will actually get it done.”

Clement begins work on national digital strategy; hints at changes to research tax credit system

Broadcast | June 23, 2009

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