The Canadian Venture Capital and Private Equity Association (CVCA) published an open letter on Wednesday addressed to the major federal party leaders, outlining the organization’s priorities ahead of the 2019 federal election.
“In a highly competitive global marketplace, no nation can afford to rest on its laurels.”
Representing more than 1,500 individual members and more than 260 organizations, the CVCA brings together VC and private equity firms, as well as debt and equity providers, international investors, government entities, angel investors and more.
The CVCA letter acknowledged that the Government of Canada has taken steps in recent years to improve Canada’s ecosystem for private capital. However, it also took the opportunity to emphasize its priorities and offer recommendations on what it hopes to see each of the federal parties address in their platforms.
“The CVCA applauds the government’s actions to improve access to global talent, stimulate innovation and increase public funding for strategic investments in Canadian entrepreneurs and small businesses,” the letter stated. “However, in a highly competitive global marketplace, no nation can afford to rest on its laurels.”
The open letter highlighted CVCA’s three main priorities: a globally competitive tax and investment regime, attract and retain global talent, and increase Canadian venture funding.
Globally competitive tax and investment regime
“To attract and retain domestic and global investment Canada must maintain and continually enhance its tax regime,” the letter stated.
The CVCA pointed to growing competition between Canada and the US for VC and private equity dollars, urging the federal parties to “ensure the Canadian corporate tax rate remains competitive.” The organization also urged parties to move towards more competitive personal tax rates, similar to those in the US, arguing it would allow Canadian businesses to attract and retain highly skilled talent.
Currently, both the Liberal and Conservative parties have focused their tax policies on individuals, with both promising broad-based tax cuts for individuals. Not aligned with the CVCA’s recommendations though, the Liberal’s policy also states plans to phase out tax breaks for high-income individuals.
The Conservatives are pledging to reverse several small business tax changes made by the Liberal government, as well as lower taxes for business owners with more than $1 million in passive investments not related to business.
The NDP and Green parties, for their part, have both vowed to increase corporate tax rates.
“Maintain or enhance the capital gains tax regime to ensure it is competitive with the US and designed to encourage and reward investment,” CVCA stated. “Investors take risks when allocating resources to startup, scale-up, and growth companies and, accordingly, they should be incentivized and rewarded for such risk.”
The CVCA suggested that parties also evaluate the impact any potential changes to the interest deductibility rules would have on international competitiveness. “These changes could have a detrimental impact on many Canadian companies, which could impact jobs and the growth of these businesses in Canada,” the letter read.
The letter also reiterated previous CVCA calls to address the current proposed regulations related to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) that would expand the powers and application of the Committee on Foreign Investment in the United States (CFIUS).
In an open letter in July, the CVCA called on Canadian organizations to urge the US Department of the Treasury to exempt Canadian businesses from the law that had the potential to stifle Canadian investments into US startups.
Attract and retain global talent
Calling the competition for global talent fierce, the CVCA’s open letter made three recommendations on how federal parties could address Canada’s talent gap.
The letter asked leaders to maintain and build upon the Global Talent Stream visa program, pointing to success stories like Vancouver-based Vanhack, which has reportedly had 65 percent of their global tech talent placed in Canada, compared to 2 percent of US placements.
While the Liberals made the program permanent in Budget2019, no other parties have outrightly committed to doing the same.
The CVCA also noted that the venture capital stream of the Startup Visa program has experienced steady growth, and urged federal parties to expand on the program. The letter also asked to see investment in regional and national professional networks to cultivate and retain senior talent, a consistent challenge in the Canadian tech ecosystem.
“Human capital is paramount to translating investment capital into market value,” the letter said. “Without the right people, the full potential of our business and innovation ecosystem will not be realized. Canada must be vigilant in producing homegrown talent, while attracting and retaining the best and brightest from around the world.”
Increase Canadian venture funding
For its final wish from federal leaders, the CVCA asked that federal parties build on policies of investing in the VC ecosystem.
The letter recommended parties begin by “articulating that a healthy domestic venture capital industry is important to the Canadian economy and is a priority of your party.” The CVCA also asked for commitments on a long term, strategic public investment plan around the VC industry in order to ensure the development of a “robust” domestic private investment industry, as well.
With its strong focus on the innovation economy in its first term, the Liberal government funded investment programs like the Venture Capital Action Plan (VCAP) and the Venture Capital Catalyst Initiative (VCCI). Since announcing VCCI in Budget2017, the federal government, under the Liberals has expanded the program to include three streams, the latest being the cleantech stream, distributing $50 million.
The CVCA called on each of the parties to expand both programs, stating they both attract significant private investment in sectors like healthtech, biotech, and agtech.
“The CVCA will be closely monitoring these issues in the upcoming election campaign,” the letter concluded, noting that the CVCA is open to sitting down with the parties to address its concerns.
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