The Trudeau government cannot tax and spend this country into prosperity. Only innovation will accomplish that, but not without an American-style taxation policy that will provide incentives to encourage venture capital investment in emerging technologies.
Just look south of the border where tax breaks have created the world’s greatest innovation machines, Silicon Valley and Boston’s life sciences cluster.
Americans are writing 80% of the world’s software (the ultimate competitive advantage). The area around San Francisco alone generates a Gross Domestic Product equivalent to Ontario’s.
And 300,000 Canadians live there to take advantage of Silicon Valley’s vibrant and flush venture capital infrastructure and expertise, founded on tax incentives.
Some experts who have spent time in both countries reckon Canada can learn from this set-up, one accusing governments north of the border of spending too much on "fake startup stuff"
He urges governments to "create incentives for private capital going into VC. A good way to help the innovation agenda is to take however much money goes into Labour Sponsored Venture Capital Companies and the so-called Scientific Research and Experimental Development (SRED) tax credits and turn these into tax credits for investment in private venture capital."
Instead, governments support the politicized labour-sponsored funds despite studies showing they are duds and, worse, crowd out private equity capital that would do a proper job.
In contrast, the American venture capital industry invests $40 billion U.S. a year while Canada’s VCs invest $1.76 billion U.S., equivalent to half the VC investment in Los Angeles alone in 2014. By offering identical tax incentives to risk-takers with business smarts, the Canadian VC sector potential could reach $4 billion U.S. a year, proportionally speaking. If that happened, more Canadians with good ideas could build world-beater companies here.
Another important piece to enhancing innovation is for Canadian governments to build bridges to the American government research juggernaut. The U.S. federal government spent $100 billion U.S. on pure research last year — equivalent to half of the Canadian federal government budget as a whole in 2014.
