Last week, Alberta’s United Conservative Party (UCP) tabled its first budget. The party behind Premier Jason Kenney drafted $1.3 billion in spending cuts, with the province reducing operating spending by 2.8 percent over the coming years.
“The comments of the finance minister … reflect, at best, a bit of short-sightedness and, at worst, willful blindness.”
– Bryan de Lottinville, Benevity
The budget comprised a corporate tax reduction, the elimination of five tax credits, including the Alberta Investor Tax Credit (AITC) and the Capital Investment Tax Credit, a $65 million cut to artificial intelligence, and a $62 million cut to the ministry responsible for Alberta’s tech sector.
As part of the Technology Innovation and Emissions Reduction (TIER) program, the budget also called for a $30-per-ton carbon tax on large industrial facilities, with revenues going, in part, toward cleantech research. The budget estimates TIER will collect $556 million this year.
In light of the budget, BetaKit spoke with members of the Alberta tech community about their thoughts on the changes and how they expect the province’s tech ecosystem will be impacted.
Back to the future
Chris LaBossiere, the co-founder and CEO of Yardstick, an Edmonton-based company that focuses on training organizations in forward-thinking technology, told BetaKit he was disappointed with the new province’s budget. LaBossiere argued that the budget focuses on recovering the traditional economy, rather than putting more funds behind Alberta’s future economy.
“I recognize the need for some austerity in our budgets,” LaBossiere told BetaKit. “We’re at a very high cost in terms of what we spend in Alberta relative to other provinces. But one area that I think we should be focused on is what our future economy is, because knowledge economy jobs are going to become more and more prevalent. If we can’t keep our market share of [jobs] … we become even regionally less relevant from a fiscal perspective. So generally, I’m very concerned and disappointed.”
One day after tabling the budget, Alberta’s finance minister Travis Toews stated at a Calgary Chamber of Commerce luncheon that diversifying the province’s economy is a luxury, adding that diversification can be a focus once the budget is balanced.
LaBossiere called this statement “misguided,” with Bryan de Lottinville, founder and CEO of Calgary-based SaaS startup Benevity, agreeing with the sentiment, characterizing the minister’s words as short-sighted.
Benevity announced a $40 million Series C round earlier this month, leading to company valuations close to $400 million USD. Generating around $100 million in annual revenue, this would make Benevity one of Alberta’s, if not Canada’s, largest early-stage tech companies.
“As one of the larger software companies in Alberta, we were disappointed by aspects of the Alberta budget, particularly as it relates to the need to support the burgeoning tech sector in this province,” de Lottinville told BetaKit. “Both the removal of some of the tech-friendly tax incentives, and the comments of the finance minister to the effect that diversifying revenues is a ‘long term luxury,’ reflect, at best, a bit of short-sightedness and, at worst, willful blindness.”
Cutting taxes and tax incentives
Among the budget’s cuts were five tax incentives, including the AITC, which was initially suspended over the summer. LaBossiere argued that taking away an incentive for economic diversification, research, and commercialization, from institutions like universities, could have a significant bearing on Alberta’s tech sector.
Alongside getting rid of existing tax incentives, Alberta’s government decided to reduce the corporate income tax rate from 12 percent to eight percent over a four-year period. LaBossiere called the move “hugely advantageous” for oil and gas investments that often need more capital upfront. He argued, however, that scaling an idea or tech project requires much less initial capital related to future discounted cash flows, so a corporate tax cut would, therefore, be more beneficial to traditional sources of revenue rather than emerging industries like tech.
de Lottinville stated that a concentration on lower corporate tax rates, which are not that relevant to most early-stage and high growth tech companies, will not lead to more investment in the tech sector, rather it will “perpetuate the status quo.”
“I believe lower, generally lower, corporate tax rates will incentivize investments, but it’s less likely that it’s going to incentivize early-stage companies,” said LaBossiere, emphasizing that Alberta’s tech sector needs to be regionally competitive in order to keep up with the pace of other Canadian tech hubs.
Jeff McCann, founder and CEO of Apollo Insurance, a Vancouver-based insurtech startup, told BetaKit over the summer that his company heavily relied on British Columbia’s similar investor tax incentives. He stated that his company would not exist today without tax incentives for investors.
Curtis White, president of BC-based Caliber Ventures added that after a career of making use of tax credits as both an investor and an entrepreneur in a startup, he had seen the benefit of such programs for both sides. He called the tax incentives “absolutely critical to getting financing.” In August, he said he was “crushed” for what the removal of this incentive would mean for Alberta’s tech scene.
Another Alberta tax incentive coming to an end following the budget cutbacks is the Scientific Research and Experimental Development (SR&ED) tax credit program, an incentive that encourages Canadian businesses to conduct R&D. Outside of Prince Edward Island, Alberta is now the only Canadian province that will not offer this incentive.
Jeff Christie, the chief revenue officer at Boast Capital, which specializes in helping companies apply for funding through SR&ED, told BetaKit that while he sees the immediate impact being small, companies looking to set up shop in Canada could be less inclined to come to Alberta.
An AI hub with less funding
In February, the previous Alberta government, under NDP leadership, promised $100 million, over five years, to help invest in Alberta’s emerging AI sector. The most recent provincial budget offered a more modest $35 million “to bring Alberta technologies to the market,” in sectors that are not limited to, but include, artificial intelligence and autonomous systems. The five-year plan will support both Alberta Innovates and the Alberta Machine Intelligence Institute (Amii) to leverage partnerships with Alberta’s research universities.
“Generally, I’m very concerned and disappointed.”
– Chris LaBossiere
While an Amii spokesperson told BetaKit last week that the institution was pleased to even see funding for AI in the budget, another spokesperson from Alberta Innovates told BetaKit recently that this new budget “presents a challenge and an opportunity” for the organization and for the provincial innovation system.
As the research and development organization responsible for distributing the provincial government’s funding for tech and innovation ventures and projects, Alberta Innovates is the largest research and innovation agency in the province. In this year’s budget Alberta Innovates received just over $202 million. Its budget in 2018-19 was just over $278 million and $298 million in 2016-17.
“We are on a constant search for ways to incorporate the upside of the tech ecosystem across all industries, from smart agriculture to energy,” Alberta Innovates’ spokesperson said. “We’re committed to enabling Alberta’s innovators and entrepreneurs to launch and grow new ventures and develop solutions that create new jobs and opportunities for Albertans. We will be looking at various scenarios to align our operations with the priorities of this government and the realities of a smaller budget.”
What does the future hold
Having worked with a number of companies and startups, Christie called Alberta’s tech ecosystem close to reaching “critical mass.” He argued, however, that in terms of driving talent and capital to the province’s startups, Alberta may not stack up five years from now.
“One of the ways to get nascent industries started is to have different subsidies to try and encourage people that go into it, because people don’t generally like to take risk,” Christie said. “That’s the way I look at it. When you cut all the programs that we’re trying to have brought in, I don’t think it’s going to bode well for the long term. This is one more strike against the province.”
“Innovation through technology is the underpinning of virtually every business that exists today, including in the energy sector, and we simply need a more evolved tech ecosystem in Alberta,” de Lottinville said. “Alberta is competing with virtually every jurisdiction in the world for the smart capital and esoteric talent that are required to enable and support business innovation via technology.”
Image courtesy Unsplash