Canada's Tax Regime Drives Out "Scarce Skills,'' Nortel Networks CEO Says
Need to plug brain drain highlighted at annual shareholders' meeting
April 29, 1999
Canada Newswire

BRAMPTON, ON, April 29 /CNW/ - John Roth, vice-chairman and chief
executive officer of Nortel Networks (NYSE: NT/TSE: NTL), said today that
while Canada's flagship high-tech company remains committed to Canada, the
company is experiencing problems attracting and retaining "scarce skills''
because of high taxes.
    Responding to media speculation about Nortel Networks "allegiance'' to
Canada and its plans for the future, Roth said, "The issue in the recent
controversy isn't about Nortel Networks leaving Canada. It is about the
shortage of scarce skills and high tech stars Nortel Networks needs to
continue to grow in the country. It is about the movement of Canada's best and
brightest out of the country, the difficulty in drawing experienced people
from abroad, and the dampening effect this causes on growth here.''
    Speaking at the annual shareholders meeting at Nortel Networks' global
headquarters in Brampton, Ontario, Roth praised Canada for its quality of
life, support for research and development, and its school systems. He
detailed figures showing Canada is home to about one-third of the company's
global workforce and half its research-and-development investments, despite
accounting for only seven percent of global revenues.
    Roth emphasized Nortel Networks is a network design and engineering
company. Talent is the company's main resource, he noted, and recruiting and
retaining people with the right technical and management skills is essential
for growth.
    Demand for knowledge workers is growing globally and competition for
talented people is intense, particularly in the US, where the financial
rewards are substantial. Almost half the employees who left Nortel Networks in
the Ottawa region in the first quarter of 1999 went to the United States, and
one-third of them had highly prized "scarce skills.''
    "Taxation is testing the allegiance of some of Canada's best and
brightest.'' Roth said. "The people we need are being forced out. They're
highly paid and are faced with a huge gap between what their talents and
skills can bring them in Canada versus what they command elsewhere.''
    Roth gave the example of a skilled engineer in Ontario making Cdn$140,000
and taking home Cdn$83,000 after taxes and an engineer in Texas with the
equivalent salary of US$94,000 taking home US$72,000, or about Cdn$108,000.
"That's like getting a Cdn$25,000 pay increase - a 30 percent increase in
purchasing power - just for crossing the border,'' Roth pointed out. "And
salary has nothing to do with it. Tax makes all the difference.''
    Roth added that Canada's quality of life used to help attract people from
other countries to offset local talent shortfalls or losses, but that is no
longer the case. Personal income tax rates, capital gains, and stock option
rules make the premium for living in Canada too high for knowledge workers,
who earn less and build up much less equity than their counterparts in other
high-tech centers.
    "We're a knowledge-based company, and if the knowledge resources in our
industry aren't available or move out of Canada, we cannot grow here because
there are no options,'' Roth stated. "While the country has a climate
favorable for business, our people are going, driven out by a punitive tax
system. And that is a serious issue for Canada.''



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For further information: Jacques Guerette, Nortel Networks,
(905) 863-6251, jguerett@nortelnetworks.com; Kelly Norgate, Nortel Networks
(905) 863-6254, kellynor@nortelnetworks.com; Or visit Nortel Networks' at
www.nortelnetworks.com;
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