Budget Strongly Supports Canadian Innovation

Not surprisingly, the March 22 Budget delivered by Finance Minister Morneau was a comprehensive set of policy measures and initiatives designed to both deliver on election platform commitments and address economic challenges that have emerged in recent months. From the vantage point of Canada’s biotechnology sector, the Budget contained some very welcome investments and commitments, and one non-measure, that will greatly enhance Canada’s global competitiveness.

Early in 2016 with the Canadian dollar struggling and the price of oil hitting historical lows, Prime Minister Trudeau was asked about Canada’s economic prospects. The Prime Minister quite correctly noted Canada is more than a one trick economic pony whose strength and competitiveness lies in its diverse economy and capacity to innovate. The Prime Minister’s comments were later underscored in an opinion piece penned by the Minister of Innovation, Science and Economic Development, Navdeep Bains, who wrote of the economic importance of Canada becoming a “nation of innovation”.

Importantly, in achieving the Government’s objective of establishing Canada as an innovation hub, Minister Bains stressed the strategic role Government must play to “cultivate innovation and entrepreneurship” by “providing the necessary conditions to enable a thriving innovation ecosystem across Canada is essential”. This is an important acknowledgement that Canada is competing with other nations that are equally aware of the importance of innovation to their economic competitiveness and are quickly moving to develop domestic policy frameworks supportive of innovation and attractive to investment. Ultimately, commercially successful innovation, including biotechnology, is founded on a transformative idea, its supporting science and the ability to attract investment. Unlike many other industries with large manufacturing facilities or immovable core assets such as forests or mines, the ‘idea’ at the core of innovation is extraordinarily mobile. If Canada is not viewed as a jurisdiction supportive of investment and commercialization then entrepreneurs will have no choice but to commercialize in jurisdictions that are. In letting the innovation move elsewhere to commercialize, Canada will lose the economic benefits associated with commercialization.

No doubt, much of this shaped the government’s thinking as it crafted the objectives and measures related to the Budget’s ‘Innovative and Clean Economy’ section aimed at “starting Canada on the right path, through support for leading-edge research and for innovative and job-creating businesses”. That support came in the form of $800 million for innovation networks and clusters, including initiatives delivered under the Industrial Research Assistance Program, as well as for key sector organizations such as the Centre for Drug Research and Development (CDRD) and Genome Canada.

And while the Budget’s focus on supporting innovation was certainly welcome, for much of the biotech sector its significance was greatly enhanced by what it did not do. During the fall election, the Liberal campaign platform contained a proposal to alter the tax rate for stock options; a measure which would have significant negative implications for the competitiveness of many early stage innovative companies. For small start-up companies, the ability to offer stock options with competitive tax rates is an important compensation tool used to attract and retain top talent. Altering the tax treatment for options would have rendered stock options a far less useful compensation measure. In this context, the government is to be commended for consulting and listening to stakeholders during the pre-Budget period. The final decision not to proceed with the measure was the right policy decision.

All told, the Budget’s objectives, commitments and investments represent an important foundational step as the Government embarks on developing its Innovation Agenda in 2016. More broadly, Budget 2016 sends a very clear signal the Government sees itself not only as a policymaker and regulator but also as a key catalyst for innovation.