Gaylen Duncan

It's About More than Tax Cuts

By Gaylen Duncan

Item: The Finance minister, under the banner of a crusade for innovation and enterprise, announces the largest tax cut in Canadian history and a massive one time investment in university R&D. Item: One of the first issues to emerge in the federal election campaign is the brain drain. Candidates scramble to articulate their solutions against the background of information technology (IT) start-ups and high tech plants. There's something happening here. Clearly the 2000 federal election is an historic first - the first to be consciously conducted in the context of the New Economy.

It's about time.

Since the late eighties, the IT industry has been urging government to understand and prepare for the global knowledge-based economy. In recent months, we've sharpened our focus to insist that government must do three things:

1. Keep our people, particularly our high potential knowledge workers, living and working in Canada.

2. Keep our knowledge-based enterprises here in Canada with an investment climate as robust and fruitful as anywhere else on earth.

3. Encourage innovation and enterprise among all Canadians, without sacrificing compassion, fair play and the other attributes of the Canadian character.

The tax cuts Paul Martin announced on October 19 will do a great deal to address points 1 and 2. Personal income tax reform will remove a gratuitous incentive for high-income workers to consider employment in the US. Capital gains reform will help foster the kind of investment environment that will fuel innovation and growth.

But there's more to preparing to lead in an economy predicated on knowledge than tax cuts. In the competitive race for leadership among nations, tax cuts are the market equivalent of commodity pricing. Strategic competitors know that for long-term leadership, they need better value-added differentiators.

Determining what that differentiator should be requires introspection. We have to figure out as a nation what unique selling proposition to offer that will attract investment and innovation. This notion is central to a comprehensive strategy of incentives, focused investment and promotion to attract investment.

Canada can learn from this. We have a number of strong attributes. For example, we have the most attractive tax environment for R&D investment anywhere in the world. Companies can get the equivalent of $1.38 worth of value from every dollar they invest in Canadian R&D. And they can profit from one of the best-educated work forces on earth to fuel this activity.

And Canada just invested another half-billion year-end dollars in the Canadian Foundation for Innovation to support university-based R&D, this time - cleverly - to support the operating costs of previous CFI investments.

But if our R&D advantages are to be cornerstone of our knowledge-economy strategy, we have to do a better job of promoting them. When Canadian IT executives trumpet Canada's advantages to internationally counterparts, too often they're greeted with questions like, "If you're so great how come I haven't heard of you?" Maybe it's time we invested in promoting our advantages more aggressively.

Another unique selling proposition is "connectedness". Largely through the vision of former Industry minister John Manley, we have achieved a level of access and a wired sensibility culturally that is unrivaled. But it too, is a well-kept secret in the global investment community.

Tax reform is welcome, but an agenda for the future built exclusively on tax cuts isn't enough. We're creating a highly competitive climate for IT investment in Canada. It's time the rest of the world knew about it.

Gaylen Duncan is the president and CEO of the Information Technology Association of Canada