Last year, a surprise change to the capital gains tax rate stoked fury in parts of Canada’s tech sector. This year’s budget marked a stark contrast, as several innovators and the organizations that represent them offered pleased reactions.
It doesn’t hurt that the tech sector got a lot of what it asked for: more spending on defence technology, the promise of a stablecoin framework, steps towards open banking, updates to the research and development tax credit, and an eye-watering amount of money for defence.
“This is one of the most compelling symbols from Canada that we’ve seen in a very long time.”
“This is the biggest about-face of embracing and seeing how we can work together,” John Ruffolo said in an interview with BetaKit. The Maverix Private Equity co-founder and Council of Canadian Innovators vice-chair added that he was generally pleased, although there’s “lots of work to still do” and the “devil’s in the details” of certain items, such as the upcoming stablecoin legislation.
The new government’s engagement with the private sector has made all the difference, tech leaders say. Prime Minister Mark Carney’s private-sector experience has encouraged some parts of the ecosystem, as has the appointment of AI and digital innovation minister Evan Solomon.
Some of this newfound friendliness toward business is shown through the items that cost nothing, Ruffalo said. He was excited by the promise of a stablecoin framework, open banking advancement, and private sector collaboration through the Build Canada Exchange.
The latter is a rebrand of Interchange Canada, which will appoint 50 “external leaders” from tech and other sectors into the public service, the budget said.
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Daniel Eberhard, founder and CEO of Koho, claimed that the federal narrative was for a long time “anti-competition and anti-build.”
“I think this is one of the most compelling symbols from Canada that we’ve seen in a very long time,” Eberhard, who has written memos for tech-associated non-profit organization Build Canada, told BetaKit.
Claudio Rojas, CEO of the National Angel Capital Organization (NACO), said on stage at SAAS NORTH that “this government seems to have a much more sophisticated understanding of the innovation economy and how all the pieces fit together.” Rojas’s reaction comes after some of NACO’s asks, like more funding for Canada’s early-stage investment vehicles, were reflected in a $750-million commitment in the budget.
Shopify president Harley Finkelstein recently said that he’s seen more engagement in the past few months than he’s seen from the government in 16 years. And some of that translated into direct action: one of his ideas for speeding up the SR&ED application process, published on Build Canada, made it into the budget and was openly lauded by the finance minister.
Concerns about the budget’s large deficit—estimated at $78.3 billion—were minimal compared to the broader sense of optimism. However, Ruffolo said the high debt “concerned” him and that the government “didn’t take it as far as they could have.” For example, he had expected to see limits on the credits offered to foreign companies through the SR&ED program.
Kaylie Tiessen, chief economist at the Canadian SHIELD Institute, told BetaKit that lifting up Canada’s economic outlook—which the Bank of Canada said is now worse than before the US trade war—will require government spending. Eberhard called the large deficit number a “red herring,” arguing that Canada’s net debt-to-GDP ratio is relatively healthy.
This budget is about “catalyzing private sector money,” Tiessen said, which the government claims will add up to $1 trillion invested in Canada over the next five years. This means interfacing directly with the private sector.
However, Tiessen felt the budget lacked detail and clarity on how economic value will be captured within Canada, across jobs, intellectual property, and profits. There is clarity missing on how the “Buy Canadian” policy will be rolled out and how the government plans to retain Canadian IP.
Artificial intelligence (AI) was another pillar of the budget that left some tech leaders feeling underwhelmed. The budget earmarked $925.6 million to back a large-scale sovereign public AI infrastructure, $800 million of which was already announced, and didn’t provide further details on an AI strategy.
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However, recommendations from Minister of AI and Digital Innovation Evan Solomon’s AI task force weren’t expected to appear in the budget, as the group’s 30-day mandate to give feedback only ended last week.
Daniel Wigdor, computer science professor at the University of Toronto and CEO of venture studio AXL, told BetaKit that “Canada’s real advantage is that we can be jumping … by two to three years ahead of Silicon Valley,” rather than trying to emulate the US playbook. “The place we can compete is in where the actual value is going to be, which is in the application space,” Wigdor said.
In Wigdor’s view, the government should consider supporting the creation of an applied computing-focused centre similar to AI institutes like Montréal’s Mila.
Sarah Stockdale, founder and CEO of digital marketing company Growclass, told BetaKit that the budget did little to address a gap in AI literacy, despite the commitment to AI infrastructure.
“[AI] Infrastructure alone won’t create shared economic benefit,” Stockdale wrote in an email to BetaKit. She added that only 12 percent of Canadians have received formal AI training, and adoption rates among women are lower than those among men.
“If AI adoption mainly benefits large incumbents and specialized labs, the sector may grow, but the broader economy—and the opportunities for workers—won’t grow equitably,” she said.
With files from Alex Riehl.
Feature image courtesy François-Philippe Champagne via LinkedIn.