GLOBE-Net, April 4, 2012 -The
federal government's 2012 budget - Budget 2012 - introduces a
number of initiatives designed to promote innovation and
sustainable job creation and to support innovation in Canada using
a markedly different funding model.
Governments at all levels routinely use their annual
budgets as vehicles to stimulate job creation initiatives. During
the recent recession, for example, Canada joined with many of its
OECD partners in using stimulus spending to generate job creation
as part of its economic recovery program.
But the federal government's goal in Budget 2012 was
focussed more on creating long term sustainable jobs, which
required dealing with some troublesome systemic issues that lay at
the root of earlier job creation and investment promotion
In 2007, the Canadian economy was bullish. The TSX was
close to 14,000 and the Canadian dollar was above par with the U.S
greenback. Solid growth was reinforced by an all-time low
But the hourly output of Canada's business sector was
lagging the U.S. and the investment in the latest technology such
as computers and communications was less than many other countries.
In short, Canada had a serious productivity growth problem.
Business spending on research and development was down 20 percent
from its peak in 2001. For an economy to succeed, growth in this
critical area was essential.
The then federal government decided to act and ordered an
examination of Canada's mediocre innovation record from the Council of Canadian Academies
(CCA). The Council's June 2009 report "Innovation and Business Strategy: Why Canada
recommended many of the reforms that found expression in the
spring 2012 budget.
includes measures that shift how federal money is distributed
for business research and development. Instead of providing almost
half a billion dollars in tax credits to private businesses, Ottawa
proposes to provide grants totalling $165 million over two years to
companies conducting research and development that lead to new
One of the more controversial measures announced was a
shift in focus for the National Research Council of
(NRC). The NRC is to focus its research on innovative and
marketable products that lead to new companies and job creation. To
this end the government's plan is to inject $67 million into the
NRC for 2012-13 with orders to "refocus on business-led,
industry-relevant research." Basic or "blue-sky" research is to be
folded into universities and other research institutes, while
scientists at NRC labs will be directed towards R&D projects
that support industry innovation.
"Canada has significantly boosted direct
funding for university R&D in the natural and social sciences,
has one of the most generous tax subsidies for business R&D,
and is generally not lacking in knowledge and scientific know-how.
But this push has yielded little, if any, business innovation and
productivity, which has essentially flat-lined since the
mid-2000s." Jeremy Leonard, Research Director, Institute for
Research on Public Policy
The government will continue to support advanced research
at universities and other leading research institutions by
providing direct support to granting councils, genomics research,
international research and infrastructure investment for Canadian
universities, colleges, research hospitals and other not-for-profit
research institutes across Canada.
Another shift in innovation research funding involves
streamlining the Scientific Research and Experimental
Development Tax Incentive Program.
The program provides almost $4 billion in tax credits
for business innovation. Budget 2012 is acting on the CCA report's
recommendations for improving the program "by extending the
"refundability" of the credit beyond small businesses to R&D
performers of any size."
The government also plans to invest $400 million to
help increase private sector investments in early-stage risk
capital, and to support the creation of large-scale venture
capital funds led by the private sector.
These measures are designed to help to create enabling
conditions to develop new companies from concept to sustainable
business. The investments will encourage access to mentoring,
business experience, commercial networks and entrepreneurial skill
The government added $100 million to the Business Development Bank of Canada to
support its existing venture capital program. That program already
focuses on innovative technology-based Canadian companies with high
growth potential. Ballard Power Systems and Metrowerks are
examples of BDC investments that have either succeeded on their own
or been acquired by a larger company like Motorola.
The Budget also acts on a key recommendation of the CCA report
for increased funding of the National Research Council's Industrial Research Assistance
Program (IRAP). This program is well-regarded by
technology-oriented smaller firms, but it lags the impact that a
similar program in the U.S. has enjoyed.
To enable the Industrial Research Assistance Program to enhance
the depth and frequency of its interaction with the commercial
world, the government has added $110 million to IRAP, in effect
doubling its budget.
Another government initiative focused on innovation, the Canadian Innovation Commercialization Program,
is to receive an infusion of $95 million over three years, starting
in 2013-14, and $40 million per year thereafter. Created in 2010,
this program is to become permanent.
The program helps early-stage companies in the environment,
safety and security, health and enabling technologies bridge the
pre-commercialization gap by awarding contracts for their products
and services. The government will now add a military component to
According to the GLOBE Advisors West Coast Clean Economy
Report, public sector leadership by leveraging its purchasing
power to support early adoption of innovative new technology is
essential. Such progressive public procurement policies allow for
clean technology enterprises to accelerate their growth and
encourage downstream expansion capital.
Funding for Sustainable Development Technology
Canada (SDTC) was not affected by the budget. This highly
successful arms-length federal agency was set up by the
government with $550 million in finance to support the
commercialization of innovative clean technologies, and has
received an additional $540 million in the past few years to
address the strong demand for its work."
While there are many other changes proposed in Budget 2012 that
have generated controversy, the innovation oriented provisions
could do much to remedy Canada's poor record relative to other
countries with respect to private sector investment in
More importantly on the longer term it could prove to be a
valuable stimulus to the commercialization of research into
products and processes that create high-value jobs.
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