Industry's recipe for an innovative Canada

Canada's standard of living results from a lot of hard work, but to maintain it we have to do more - work smarter. And that means we have to continually innovate and be more productive. It is our only choice.

Inexpensive labour and the mobilization of its capacity to produce has vaulted many countries to the top as global producers.

There are some who think that the market forces are working the way they should and that we should concentrate on being a service-industry-based economy. We think differently.

We need manufacturing to take place here in Canada.

Manufacturing is how we convert the natural resources, the knowledge and the skills of Canadians into higher-value products and services that can be traded around the world. More than six million Canadians depend on the health of our manufacturing sector for their livelihood. It accounts for 15 per cent of Canada's GDP. Every dollar of manufacturing output creates more than $3 in total economic activity.

Global competition offers us challenges, as well as opportunities.

Our challenge is that global competitors are putting our manufacturing sector's survival at risk, most of them with the support of their governments. As a result, despite the fact that Canadian ingenuity has kept us at the forefront in several key sectors, our manufacturing industry is facing a difficult situation.

We recognize that the onus is on each and every Canadian business to compete and win. As we have done in the past, we must continue to make crucial improvements to remain competitive, to grow in global markets and to retain high-value jobs in Canada.

Our opportunity in today's market, then, is to create a level playing field with companies around the world.

To do so, our federal and provincial governments have a critical role to play in ensuring that the Canadian business environment enables our industry to retain and attract investment.

Canada is lagging behind competitors in research and development. The incentive to increase this crucial investment can be easily accomplished by making improvements to the successful Scientific Research and Economic Development (SR&ED) tax-credit program. The program makes money for Canada and supports innovative new activity.

Studies show that for every $1-billion returned to the industry in SR&ED tax credits, approximately 10,000 jobs and $675-million in economic activity is generated. The Department of Finance and the Canada Revenue Agency consultation document on SR&ED shows that this program does not cost the government money. On the contrary, it generates an 11-per-cent return on investment in new taxes. This proven mechanism for encouraging innovation is not a subsidy. It puts the tax money that has been paid by our businesses back to work.

We applaud the Minister of Finance's approach to our economic future as outlined in Advantage Canada. We see as a positive sign the Minister's recent comments about encouraging innovation and productivity.

We welcome the corporate tax cuts he previously announced, the accelerated capital cost allowances on equipment in the last budget, as well as his recent extension of tax-credit carryovers from 10 to 20 years for the Scientific Research and Economic Development program.

The 2008 budget comes at a crucial time for Canada as companies are trying to counter the effects of the rapid rise of the Canadian dollar. To encourage more and faster Canadian innovation, we must further adapt our tax policies and improve tax incentives.

The 2008 budget should adopt the unanimously agreed recommendations made by the industry, science and technology committee in its February, 2007, report.

The finance committee passed a motion endorsing the industry committee's report, and further recommended implementing several improvements to SR&ED tax credits in the pre-budget submission tabled in the House of Commons last week.

The industry committee recommended (recommendation No. 3) that the government of Canada improve the SR&ED Tax Incentive Program to make it more accessible and relevant by:

* Making the investment tax credits fully refundable;

* Excluding investment tax credits from the calculation of the tax base;

* Providing an allowance for international collaborative research and development;

* Expanding the investment tax credits to cover the costs of patenting, prototyping, product testing and other pre-commercialization activities.

Implementing this recommendation would put funds back in the hands of innovators to develop the next generation of value-added products. That would also keep high-paying jobs that contribute to our standard of living in Canada.

A change in the program is a win for our industry, a win for the federal treasury and a win for all Canadians.

We urge the minister to commit to adopting tax tools that drive investments so that we can build our collective future and remain one of the world's leading economies.

By the numbers

$200-MILLION

The approximate annual amount that would be recaptured by

government through taxation if a billion dollars of extra tax credits a year were to flow back to firms

10,000

The number of full-time

equivalent jobs that would be created with the extra tax credits to business

$675-MILLION

The added value to the economy that would be created.