Ontario’s innovation ecosystem faces substantial funding cuts

Less than two weeks after I outlined a coming review of Ontario’s innovation tax credits and “other R&D tax incentives” by Doug Ford’s Progressive Conservative government, news broke in recent days that Queen’s Park is moving to cut several important innovation programs for entrepreneurs, as well as at least one designed to help start-up businesses gain traction.

Media reports indicate that funding for the Ontario Centres of Excellence, an organization that supports innovators such as technology companies, will lose nearly half of its funding. This is in addition to funding cuts for innovation incubators such as Toronto’s MaRS Discovery District and Communitech in Kitchener, Ont., not to mention the potential cancellation of the Ontario Scale-Up Vouchers Program. The latter provides offsets of up to $1 million to help fast-growing technology companies mitigate the expense of everything from talent acquisition to intellectual property development.

Communitech has reportedly laid off nearly 15 per cent of its workforce after 30 per cent of its provincial funding was slashed. The Tories are apparently cutting 30 per cent of MaRS’ provincial funding, or more than $2 million. Word is that funding for Invest Ottawa, a regional innovation agency serving the nation’s capital, is also on the chopping block.

The cuts come in the wake of the 2019 Ontario budget, which projected a balanced budget in five years and promised a measured approach to achieving that important fiscal goal. The document was vague on details in some areas, but now we’re learning more about the government’s plans for eliminating the deficit—and who will be most affected.

The budget stated clearly that: “The government is reviewing business support programs to identify opportunities for better value for money. The aim is to ensure these programs are coordinated and integrated across government, and that they can demonstrate benefits for the people and businesses of Ontario.” One of the most sweeping and significant cutbacks is a 20 per cent reduction in the budget of the Ministry of Economic Development, Job Creation and Trade, the agency responsible for nurturing Ontario’s innovation ecosystem and aiding high potential start-ups through the early growth phase. Apparently these investments are deemed expendable by the government.

But as I argued in that recent blog, R&D and innovation subsidies, “ … do deliver a positive impact. They allow SMEs to compete with well capitalized, enterprise-sized firms that have far greater innovation budgets. In turn, they help fuel growth and, arguably, attract companies to the province from competing jurisdictions, in particular those lacking equivalent programs.”

While the province’s drive to eliminate the deficit and restore fiscal sanity—after years of running up a seemingly limitless credit card powered by the public purse—is laudable, the tactics Queen’s Park is using to meet that objective are raising doubts about the government’s commitment to long-term economic development, not to mention the credibility of their ‘Open for Business’ sloganeering.

They’re also being rolled out at a time when the federal government is moving in the opposite direction. In April, the Trudeau Liberals unveiled $52.4 million in funding for an innovation network to link hubs in Ottawa, Toronto and Kitchener-Waterloo. The 2019 federal budget also announced a removal of the cap on the amount of income an SME could generate and still qualify for the federal scientific research and experimental development investment tax credit. Coordination between the two levels of government seems at an all-time low, which isn’t entirely surprising given their diametrically opposed political viewpoints and shared animosity.

What this all means is less support from the provincial government for the growth of crucial sectors such as Ontario’s nascent artificial intelligence industry—which faces immense competition and could use all the support it can muster to solidify its status as a global leader—not to mention aiding companies as they make the transition to 5G wireless technology and weather threats such as a rapidly-escalating global trade war.

These programs are not merely handouts or corporate welfare. They deliver real results and significant return on investment, while helping to position Ontario as a go-to destination for entrepreneurs and leading knowledge-economy businesses. We’ve worked with many organizations that continue to benefit from these advantageous programs as they work to keep pace with both local competitors and deeper-pocketed international rivals.

The question is not whether the deficit needs to be tamed, but the approach to achieving that goal. What kind of business ecosystem do we hope to build and nurture in Ontario? Because without the right amount of governmental support, conceiving and growing an Ontario-based start-up success story such as another Shopify—or even Blackberry, for anyone who remembers when the company was the dominant player in smartphone industry—will be extraordinarily difficult, if not impossible.

Ontario’s innovation support network faces a death by a thousand cuts. It’s time to put a stop to the slow and deliberate gutting of a vital system.

Hartley Cohen, Partner

Hartley Cohen

905-946-1300, x. 223