Good afternoon.
ITAC is grateful for the opportunity to join you for this discussion on fiscal measures to increase business competitiveness through innovation and commercialization.
I'm Karen Atkinson and I'm with Ernst and Young, and I also chair ITAC's tax and finance committee. ITAC is the voice of Canada's information and communications technology industry. Some important points about this industry are that it contributes $155 billion to Canada's economy, 1 million jobs, and at $4.8 billion annually, it is the largest private sector investor in R and D in the nation by far.
We strongly believe that ICT adoption is the engine of growth and that it can power up productivity across all industries and all sectors of our economy. Our experience has taught us that the recipe for building sound businesses is based on new innovations. You start with a great idea, you add a great measure of smart men and women to develop and test the idea, and then you bring it to market. At the same time, you need to add some capital to keep those people, labs, and offices going, as you go through challenges and bumps on the road until you finally get to that sweet moment when you actually generate revenue.
The secret seasoning in this formula is at least one good customer to help you hone the product and help you tell the world how good you are. Our 2015 pre-budget submission suggested a number of ways that various policy instruments could be used to help make this recipe a success.
Let's start with the task of finding the idea. Since the earliest days of Charles Babbage and Alexander Graham Bell, the only reliable route to finding technological breakthroughs has been through hard-core, grinding-out research and development. Canada's own public policy innovations have created tax credits to encourage R and D, and those have helped us build a strong, innovative ecosystem in Canada and an ICT industry that punches above its weight globally.
We continue to believe in the importance of tax-based incentives to encourage investment in R and D. Our members include the top R and D performers in Canada. They stress the importance of the scientific research and experimental development credit to their ability to establish research mandates and the highly paid jobs that fulfill them in Canada and will produce the knowledge-based industry that Canada needs in the next century.
CFOs and CEOs of all these companies tell me that they have experienced job losses in R and D departments to other jurisdictions around the world—not just the U.S., but China, the Philippines, and India—due to changes made in the 2012 federal budget. Our recommendation is to restore some of the value removed from SR and ED by increasing the tax rate on SR and ED qualified expenditures from 15% to 17% and to return capital expenditures to SR and ED eligibility.
The second ingredient is talent. We believe we must do more to improve our lacklustre performance in the creation of engineers, scientists, technologists, and mathematicians to guarantee our ability to compete in a fiercely competitive technology-driven global industry. Only 13% of Canadian degrees are in STEM disciplines, 9% in engineering. In terms of Ph.D.s in science and technology, Canada ranks 25th among the 30 OECD member countries. We must address this poor performance if we want to compete with other nations and, in particular, India and China. It should be a national priority.