Let’s follow Ireland’s path to a thriving economy

As we head into 2024, Canada’s economic growth is anemic at best and has been for the past several years. We can put this down to the pandemic, a difficult global climate and political disruption worldwide. That may be reassuring. Or we can look at ourselves and what we could be doing far better. Since that’s all we can really control, maybe it’s where we should start.

The key to economic growth is innovation. It drives everything from consumer engagement to global trade and competitiveness. It comes as no surprise that Canada is not excelling and is, in fact, in a period of alarming stagnation. This at a time when it is vital that we have a dynamic creative culture that will drive prosperity in an uncertain global climate.

Innovation in any industry rarely happens organically. It must be nurtured. Some countries encourage it; others, such as Canada, less so. We score well on investment in innovation but badly on results. According to the Global Innovation Index, this country’s output gap is the second largest among G20 countries after Argentina.

We need to look to other countries for inspiration. I look to the country of my birth: Ireland. Growing up, I never imagined it could be an economic inspiration for anyone. In the 1960s and ’70s, the country’s economic situation was dire. Interest rates were 25 per cent, unemployment 20 per cent and agriculture was still the principal industry. There was a violent conflict in Northern Ireland that persisted into the 1990s.

In short, Ireland was not an obvious candidate to become an exemplar of economic development. But how things have changed.

In the past decade, Ireland’s growth has outpaced Canada’s to an astonishing extent. Since 2014, Ireland’s GDP growth exceeded Canada’s by an average of almost seven per cent annually, according to World Bank data. It currently has a GDP of more than US$104,000 per person — almost twice Canada’s. And its real GDP growth rate was 12 per cent in 2022, compared with our 3.4 per cent.

This wasn’t the result of extraordinary increases in industrial production. Rather, it was because of a culture that encouraged investment in intellectual property and R&D — especially in medical technology, pharmaceuticals and IT — and provided incentives to lure multinationals looking for a home where innovation is not taxed punitively.

Ireland’s success is based on decades of stewardship of its relationship with domiciled corporations. It has built a network of tax-free zones to encourage inward investment. More significant, it decreased corporate tax rates on intellectual property to 6.5 per cent. Though that rate has since been raised, it’s still extremely competitive.

Canada, by contrast, chooses to invest in institutions and government programs but offers few incentives for industry to develop intellectual property. A corporate patent holder registered in Canada pays corporate income tax twice — once to the federal government and again to the province. In Ontario, that can mean a tax burden on innovators of up to 23 per cent on corporate income. At least Quebec saw sense in 2020 and reduced its provincial rate to two per cent on income from patents developed and commercialized in the province.

So, what should we do? First, we should aggressively address the rapidly rising cost of university that is preventing people from accessing postgraduate education. We should create more free ports around major transit hubs to enable industry to import and export without taxation. And we should position ourselves as a destination for creative minds by reducing our taxes on patents, copyrights and trade secrets.

To this end, we should replicate the Irish Knowledge Development Box scheme that fuels so much of that country’s growth. Any company located in Canada that has intellectual property filed here should qualify for significantly lower corporate tax on income from that property. Combined with our existing Scientific Research and Experimental Development program, this would be a major step toward attracting the talent Canada needs.

These are not difficult things to do. They just require a change in mindset. You can keep throwing money at the same stagnant institutions but if you do not have the incentives in place to attract the right people, you end up being outflanked by a tiny island on the edge of Europe that has no natural resources but had the foresight to see the where the future lay. If we fail to act, Canada will continue on its glide path to mediocrity and diminishing global relevance.

INNOVATION IN ANY INDUSTRY RARELY HAPPENS ORGANICALLY. IT MUST BE NURTURED.