REFLECTING ON BUDGET 2019 FOR CANADA’S TECH INDUSTRY:

In the two weeks since the Federal Budget has been released, the SNC Lavalin story has overshadowed discussions of what was in the document. While Budget 2019 wasn’t the funding bonanza for tech on the scale of the 2017 Innovation Agenda, it includes some significant investments and policy changes that will have a broad impact on Canada’s tech industry and digital government landscape.

So, reflecting two weeks out, here are my top three important but under reported takeaways for Canada’s tech industry from Budget 2019:

1. Cyber Centre Takes Flight: Bill C-59 (currently working its way through the Senate) will extend Communication Security Establishment’s mandate from just protecting federal government networks to also protect “information infrastructure designated as important to the federal government” – which presumably includes provincial and municipal governments, critical infrastructure, and private sector companies in the utilities, financial services, energy and transportation sectors. Once C-59 passes, this consultative role will presumably fall to the new Canadian Centre for Cyber Security. Budget 2019 puts in place the funding to make this happen

2. Service Delivery and Citizen (Human) Focus: Unlike some other Budgets that had lots of money for back office IT, most new departmental funding announcements are focused squarely on improving the experience and outcomes for the end user. This aligns with the Treasury Board principles of transforming government into a user-centric service organization. Whether its CATSA, Service Canada, CRA to improve T1 adjustments and benefits navigation, or Immigration and Refugees to improve visa processing times, improving the citizen experience is the goal. In the case of CRA and Immigration, the Budget even references hiring humans to talk to Canadians! However, there will also be a major role for technology companies– especially UX, digital workflows and machine learning – to make frontline interactions efficient and pleasant.

3. Support for Fast Scaling Innovators- SR&ED and Stock Options: For several years, the government has been looking for ways to support fast growing Canadian tech companies – especially in talent attraction and access to capital. Budget 2019 makes two small but significant moves that could change the calculus in these areas.

First, it makes an important change to the Scientific Research and Experimental Development (SR&ED) program, far and away Canada’s largest R&D funding program. Previously, if a startup using SR&ED was making sales and growing rapidly, as soon as their corporate income hit a certain threshold, the SR&ED credit would be drastically clawed back, taking out the company’s knees right when funding is often most needed. This policy hurt innovative companies that are actually commercializing R&D and building a business – creating a perverse incentive to stay small. Budget 2019 changes SR&ED by eliminating this income threshold for the enhanced credit, so SMEs can find customers and keep building their next product. *Side Note – I had a lot of conversations in Ottawa on this issue when I was with ITAC, and kudos to @davidross of Ottawa’s Ross Video for being a major driver on this issue.

Second, Minister Morneau is again looking at taxing stock options. When this idea was first floated in 2017, small tech companies, VCs and Angel Investors mounted a furious opposition. The argument was that stock options are an essential compensation tool that startups need to attract and retain the talent they otherwise couldn’t afford. To avoid this backlash, the 2019 proposal only targets stock options for individuals working for large, long-established firms (with a $200k cap) – exempting SMEs entirely. Beyond just maintaining the status quo, taxing stock options for employees of large companies could potentially make working for a Canadian SME more competitive. Canadian start-ups regularly complain about how hard it is to compete for talent with Google, Amazon, Shopify, etc., and this change could help level the field, at least at more senior levels. Details of this new plan will be announced in August 2019.

Budget 2019 Legacy – Moon Robots

When it comes to the long-term legacy of Budget 2019, I believe Canadians can look back and say this was the budget when we decided to invest $150 million to put AI and Robots on the moon. This is a smart long-term investment, and I hope our mechanical lunar overlords will one day reward our grandchildren for this beneficence.