October 14, 2011
New Mowat research makes the case for a fundamental re-ordering of how innovation and research and development (R&D) are funded in Canada
Toronto – A new study published by the Mowat Centre in the School of Public Policy & Governance at the University of Toronto makes the case for a fundamental re-ordering of how innovation and research and development (R&D) are funded in Canada.
The study—Canada’s Innovation Underperformance: Whose Problem Is It?—authored by Tijs Creutzberg, proposes drastic cuts in federal tax incentives for R&D, a clearer division of responsibilities between the federal government and the provinces, and more direct support and grants to companies and industries. According to the study, the federal government should devolve responsibility for direct investments to the provinces and should reduce its expenditures on the $4.7 Billion Scientific Research and Experimental Development (SR&ED) Tax Incentive Program – which is by far the largest innovation expenditure.These funds should be redirected to provincial governments to be used for direct incentives.
According to Creutzberg, “with its national outlook, the federal government is best positioned to maintain the indirect and generic support the innovation process, such as tax incentives for research. The provinces, on the other hand, understand the comparative advantages of their communities. After all, the innovation and industrial landscape differs considerably from St. John’s to Vancouver”.
The study was published in advance of the release of a federal task force report on the nearly $7-billion a year Ottawa spends on R&D. The task force report will be released next week.
According to Mowat Centre Policy Director Josh Hjartarson, “clarification of roles and responsibilities in this policy sector should be seen in the broader context of encouraging the federal government to focus its efforts and funds in areas where they will have the most impact. Rationalizing roles in this policy area will generate greater returns on the federal investment”.
The new emphasis on direct support for firms and industries would represent a new direction in innovation policy in Canada.
Creutzberg notes, “Canada is an extreme outlier in weighting its investment in innovation so heavily toward tax incentives and away from direct support to sectors.”
He adds, “given our poor track record and national aspirations to do better, clearly now is a good time to fundamentally rethink the way in which not just the federal, but also the provincial governments collectively support innovation”.
