By and March 28, 2023

Federal #Budget2023 includes cleantech commitments, little else for innovation

PM Trudeau and DPM Freeland speaks with media in West Block. July 16, 2020
Budget 2023 includes $500 million to SIF for cleantech projects, billions in clean energy tax credits.

The Government of Canada has published its 2023 budget, which is heavy on clean energy and cleantech investment but light on innovation funding beyond that.

Notable commitments include $500 million for cleantech investing through the Strategic Innovation Fund (SIF), and numerous new cleantech and clean energy investment-related tax credits totalling billions of dollars.

“Today’s budget did little to support Canada’s most promising businesses through a challenging time.”

Broadly speaking, the federal government’s latest spending plan appears geared towards three priorities: affordability, healthcare, and the green economy. On the latter front, the government aims to support cleantech development and accelerate Canada’s transition away from fossil fuels.
 

Compared to Budget 2022, which was surprisingly heavy on innovation policy, beyond cleantech, Canada’s latest annual budget appears to have less in the way of new tech sector commitments, as the federal government looks to balance making new investments and increasing affordability on shaky macroeconomic ground.

As Council of Canadian Innovators president Benjamin Bergen noted in a statement, “We are in a difficult and uncertain economic environment for the tech sector, and today’s budget did little to support Canada’s most promising businesses through a challenging time.”

Executive summary

  • $500 million over 10 years to SIF for cleantech
  • Acknowledges SR&ED review without sharing status update
  • New regulations to protect Canadians from the risks of crypto assets
  • No status update on open banking efforts
  • Legislative amendments to enable more clean economy investments from Canada Growth Fund
  • New 30 percent Clean Technology Manufacturing Investment Tax Credit
  • New 15 percent Clean Electricity Investment Tax Credit
  • Details on Clean Hydrogen Investment Tax Credit
  • Expanded eligibility for 30 percent Clean Technology Investment Tax Credit
  • Expanded eligibility for Carbon Capture, Utilization, and Storage Investment Tax Credit
  • $108.6 million over three years to expand the College and Community Innovation Program
  • $368.4 million over three years for forest sector innovation
  • $333 million over 10 years for Agriculture and Agri-Food Canada R&D efforts
  • Tax changes to facilitate the creation of Employee Ownership Trusts

As Canada’s Deputy Prime Minister and Minister of Finance Chrystia Freeland noted in her March 20 pre-budget positioning speech, one of the government’s “primary goals” in this year’s budget is “not to pour fuel on the fire of inflation.”

At the same time, as Freeland previously signalled, Budget 2023 prioritizes “two significant and necessary investments,” including funding for federal-provincial healthcare deals, and new measures for cleantech and the green economy.

With these moves, the Government of Canada aims to help bring the country’s green-transition efforts up to speed with the United States (US), which passed a historic $369 billion USD climate and tax deal last year.

Cleantech tax credits and investments

On the green economy front, Canada’s strategy as part of Budget 2023 is three-pronged: an array of investment tax credits, Canada Growth Fund (CGF) financial instruments designed to absorb risk and encourage private sector funding, and targeted support from Innovation, Science and Economic Development Canada (ISED).

The Government of Canada has planned four tax credits focused on clean electricity, hydrogen, cleantech manufacturing, and carbon capture and storage that are expected to cost nearly $17 billion CAD over the next five years.

This includes a new 30 percent Clean Technology Manufacturing Investment Tax Credit and new 15 percent Clean Electricity Investment Tax Credit. The feds have also revealed details on how the Clean Hydrogen Investment Tax Credit promised in the fall economic statement will work, and expanded eligibility for the 30 percent Clean Technology Investment Tax Credit and the Carbon Capture, Utilization, and Storage Investment Tax Credit, which were both first announced as part of Budget 2022.

The federal government has also allocated $500 million over 10 years to the SIF to support cleantech development and adoption. ISED-led SIF has also been directed to allocate $1.5 billion of its existing resources towards cleantech, critical minerals, and industrial transformation projects.

Budget 2023 also announced that the $15 billion CGF, first detailed as part of Budget 2022 and tasked with attracting private capital to build the country’s green economy, will now be run by the Public Sector Pension Plan Investment Board (PSP Investments). CGF will begin investing in the first half of 2023.

Elsewhere on the strategic finance front, the government has said that the Canada Infrastructure Bank will invest at least $20 billion from its existing resources into major clean electricity and clean growth infrastructure projects.

Feds tighten crypto disclosure requirements

Citing recent high-profile failures of cryptocurrency trading platform FTX and Signature Bank, the feds expressed that “there is a clear need for different orders of government to take an active role in addressing consumer protection gaps and risks to our financial system.”

Budget 2023 included a couple of moves aimed at doing just that. First, the government has tasked the Office of the Superintendent of Financial Institutions (OSFI) to consult federally regulated financial institutions on guidelines for publicly disclosing their exposure to crypto assets.

Second, the government is requiring federally-regulated pension funds to disclose their crypto exposure to OSFI, and working with provinces and territories to discuss crypto-related disclosures from Canada’s largest pension plans.

The Government of Canada also previously announced targeted crypto asset consultations as part of its review of the digitization of money per Budget 2022. As the feds noted, they plan to continue to advance this review and provide further details in its fall 2023 economic statement.

What’s missing

One area where little detail has been shared in recent months is the review of Scientific Research and Experimental Development (SR&ED) tax incentive program, which was announced in Budget 2022. CCI has previously lamented the lack of available detail on this review. As BetaKit has previously reported, some Canadian innovators have wondered what this SR&ED review will accomplish.

Budget 2023 did not contain any new information on this review, noting only that “The Department of Finance will continue to engage with stakeholders on the next steps in the coming months.”

RELATED: As Canadian innovators wonder what a proposed SR&ED review would accomplish, CCI lays out recommendations

Since 2018, Canada has been on a long, delay-ridden journey towards open banking, which the Liberal Party has previously pledged to introduce by 2023. Despite this, Budget 2023 contained no further details on the status of Canada’s efforts to implement open banking. “We did not see any update on open banking, in spite of an election promise that was broken months ago,” said Bergen.

Steve Boms, executive director of FDATA North America—which represents Canadian FinTech firms like Flinks, Mogo, and Questrade—sounded off on the subject as well. “We are disappointed at the lack of progress in Budget 2023 toward the implementation of Canada’s open banking regime, particularly since the timeline set forth in the 2021 Open Banking Advisory Committee report has now passed,” said Boms in a statement.

In addition to the absence of an open banking update, Bergen also highlighted that there was no mention of the Government of Canada’s 2021 election promise to create a council of economic advisors, which he noted “could have helped guide federal policy during this turbulent period.”

Meanwhile, Intellectual Property Institute of Canada CEO Adam Kingsley called out the fact that the budget barely mentioned intellectual property (IP).

“So once again big spending on R&D, yet no mention of earmarking any of the funds for protecting the resulting intellectual property? More broadly, no real mention of IP in a budget said to try and grow our economy? Hmmm…” tweeted Kingsley.

For his part, Bergen pointed out that the Government of Canada’s cleantech strategy lacks a focus on IP. “A cleantech strategy without a real plan in place to protect these assets will just keep subsidizing other countries’ success,” he said.

Procurement and other items of note

One thing tech stakeholder groups were pleased to see was commitments surrounding procurement.

The Liberal government committed to speaking with stakeholders about improving procurement for Canadian small businesses, noting potential measures to prioritize that over foreign players when it comes to government infrastructure projects. Funding was also set aside to establish a cybersecurity certification program to “protect Canada’s defence supply chain.”

“We were happy to see some measures on procurement reform which may provide a boost to some Canadian innovators, and look forward to more details being released about the new cybersecurity certification program to protect Canada’s defence supply chain ahead of the release of the next national cybersecurity strategy,” said Bergen.

“With the procurement challenges we are observing, the tech industry wants to work more collaboratively with the Government from the inception of projects, to ensure that the priorities outlined are actually delivered in this budget year and cost effectively,” added Michele Lajeunesse, senior VP of government relations and policy at Technation.

The budget also includes $108.6 million over three years to expand the College and Community Innovation Program, administered by the Natural Sciences and Engineering Research Council, to better equip post-secondary institutions for research and development.

Forestry and agriculture also got some minor innovation investments. Budget 2023 proposes to provide $368.4 million over three years to Resources Canada to renew and update forest sector support, including for research and development, Indigenous and international leadership, and data.

The Liberals also promised to introduce tax changes related to employee ownership of businesses. Budget 2023 proposes to introduce tax changes to facilitate the creation of Employee Ownership Trusts. “Selling the business to employees would become a more attractive proposition for owners looking to exit, and employee-owned businesses would be able to re-invest more of their profits in growth,” the budget noted.

Budget 2023 also outlined the feds’ plans to increase minimum taxes for high-income earners and implement a tax on public company share buybacks.

Elsewhere in tech-related spending, among other things, the feds have allocated $138 million over four years to Transport Canada and the RCMP to assess and regulate advanced transportation technologies, including autonomous vehicles and aerial drones, and $10 million over five years to help Canada’s immigration agency adopt biometric tools.

Comparing past promises and what #CDNtech wanted

Over the past year, Canada has advanced some of its previously announced innovation priorities. This includes moving forward on a long-awaited Canadian innovation and investment agency designed by Dan Breznitz, which has since been named the Canada Innovation Corporation and given a budget of $2.6 billion upon absorbing the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP).

The Government of Canada also doled out funding for the rebranded Innovation Clusters and revealed plans for its $360 million National Quantum Strategy, first promised as part of Budget 2022 and Budget 2021, respectively, and advanced its efforts to regulate AI with Bill C-27.

In her fall 2022 economic statement, Freeland emphasized that investing in the green economy was a priority for the Government of Canada, promising more investment tax credits for cleantech in the wake of the US Inflation Reduction Act (IRA). Per The Logic, many energy companies had been asking Canada’s federal government to match various aspects of the US IRA.

Despite the size of Budget 2023’s new cleantech and climate-related commitments, whether the government will be able to fulfill them remains another question. According to a recent analysis by The Logic, the Government of Canada has thus far allocated only $868 million of the $1.28 billion it planned to spend over the past year on clean energy and climate programs.

RELATED: Canadian government ups semiconductor focus, invests $36 million in Ranovus

Beyond cleantech, certain tech stakeholders hoped to see Budget 2023 funding allocated towards Canada’s domestic semiconductor ecosystem following pandemic-fuelled chip shortages. Though the federal government has given more attention to this area of late, Budget 2023 did not include any new semiconductor-related commitments.

In a recent visit, US President Joe Biden made the case for greater US-Canada cooperation on chips, defence, and critical minerals. The US also announced an additional $50 million USD in Defense Production Act funding for US and Canadian companies to advance packaging for semiconductors and printed circuit boards. Last year, Canada committed to provide up to $150 million CAD for semiconductor projects from the Strategic Innovation Fund, recently adding an additional $100 million to that amount prior to the release of Budget 2023.

As Bergen noted, “We did not see support for Canadian semiconductor companies, at a time when we should be urgently moving to secure this industry, for economic and national security reasons.”

Semiconductor commitments weren’t the only thing that was absent from Budget 2023. The following items on Canadian tech’s wishlist were also missing from the feds’ latest spending plan.

For its part, the Canadian Web3 Council wants Ottawa to develop a national regulatory framework for blockchain and digital assets.

Meanwhile, amid the market downturn and Silicon Valley Bank’s collapse, some Canadian tech leaders have asked Ottawa to inject $700 million CAD of capital into the ecosystem via existing programs. This includes the launch of a second $300 million CAD Bridge Financing Program through BDC, accelerating deployment of the approximately $200 million fund-of-funds Venture Capital Catalyst Initiative (VCCI) and the $200 million EDC has allocated towards investments.

Though much of these liquidity concerns have since been assuaged, Canadian Venture Capital and Private Equity Association (CVCA) CEO Kim Furlong recently told BetaKit that the organization still sees a need for these measures amid a tough environment for tech.

According to The Logic, CVCA had also asked for a $100 million add-on to VCCI focused on emerging managers, and for the Government of Canada to expand a $50 million VCCI allotment for life sciences promised in Budget 2021 to $300 million.

Feature image courtesy Flickr.

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