Editorial - 20-17

The Harper government is to be applauded for its politically risky decision to pull the plug on income trusts. As Canada faces increasing competition in the global marketplace, competitiveness and productivity are seen as the great differentiators. To excel in these areas, businesses must become more innovative and the major components of any corporate innovation strategy are R&D and technology acquisition.

It's generally agreed that income trusts, which distribute cash to shareholders, limit the resources that are generally directed towards R&D or technology purchases. While they may please income trust shareholders, their impact on innovation is decidedly negative.

Canadian business already underperforms in R&D, lagging behind nearly any other advanced economy you'd care to mention. The forthcoming S&T Strategy is supposed to contain measures that will reverse the business R&D trend, but with income trusts on the upswing, that task is being made far more difficult.

With the prosect of BCE Inc converting Bell Canada into an income trust, the government felt compelled to act. Bell is Canada's second-largest corporate R&D performer, spending $1.7 billion in FY05.

By eliminating the advantages income trusts hold over the traditional corporate model, the rush towards conversion has been halted. The move will ensure that governments won't lose critical revenues from corporations that can be plowed back into innovation-inducing mechanisms and programs. Canada needs every tool available in its bid to become a truly knowledge-based economy.