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Budget 2012 Outlines Timid Inovation Strategy

April 9, 2012

Last Thursday, the Conservative government presented a budget that draws out a timid course to close Canada’s long-standing innovation gap that will likely leave us lagging behind in the knowledge economy.

Reductions to SR&ED tax credits will save the government an average of $500 million a year, yet the budget only transfers $110 million of these funds to the Industrial Research Assistance Program. The budget is murky about whether or not it reinvests the nearly $400 million the government will save from cuts to SR&ED. The Jenkins Expert Review Panel called for a better balancing of R&D support between tax credits and direct grants – but did not suggest pulling funds from anywhere. Furthermore, removing capital expenditures from eligible tax credits will hurt businesses in the high-tech sector.

The budget reinforces the government’s commitment to an “all-in” approach to servicing the resource-based economy, particularly oil and gas, over strategic investments in value-added sectors and manufacturing that would move Canada downstream in the global value and supply chains. Budget 2012 offers no new funding for Sustainable Development Technologies Canada (SDTC), which had proven highly successful in the high-tech commercialization of clean technologies by leveraging nearly 1.5 billion dollars in private investments. As a result, SDTC will run out of funding this year

Third, through the continued muzzling of federal scientists, turning the National Research Council into a business services depot, and leaving the PEARL laboratory and arctic research out to thaw, budget 2012 undercuts the basic scientific research that is necessary to spur the next generation of discoveries. As Canada Research Chair Richard Hawkins put it: “public investment in “blue sky” science has been shown consistently to yield the highest coefficients in terms of stimulating and supporting innovation.” Yet the government clearly believes it is better positioned than Canada’s world-class scientists to decide what it is they should be discovering.

Support for the three granting councils’ industry-driven partnerships will come from cuts to other council programs. This comes at a time when success rates in NSERC’s Discovery Grants competitions have been steadily dwindling. This trend will disproportionately harm the research capacity of the smaller universities and compromise the invaluable training and experience opportunities these institutions can offer their students. This will only narrow the overall breadth of Canada’s scientific talent pool.

With only timid announcements for direct support for R&D and some 3 billion per year in tax credits, Canada has barely inched towards an innovation strategy that strikes a better balance between direct and indirect funding. By contrast, countries such as Israel (1), Sweden (2), Finland (3) and the USA (7) that lead in the OECD scoreboards for business expenditures in R&D deliver their support almost exclusively through programs that offer direct support. Canada ranked first for the use of tax credits to support innovation (Jenkins Report) and 18th for results in spurring private sector investments in R&D. The results of this strategy have already spoken for themselves, and budget 2012 fails to correct the course.