Finance committee report recommends changes to R&D funding mechanisms

The federal government should move quickly to make changes to the way it funds research and development in this country, the House of Commons Standing Committee on Finance recommends in its recently tabled pre-budget report. The committee recognizes that the federal government has made headway in addressing concerns of industry players and advocates, but indicates that still more could be done. There are a number of research entities, commonly referred to as the federal granting councils, supporting R&D in Canada such as the Natural Sciences and Engineering Research Council and the Canadian Institute for Advanced Research, among others. The Canada Foundation for Innovation (CFI) also funds research infrastructure in Canada. The finance committee notes that while these groups have been successful in funding research, they may actually be victims of their own success. "According to the Canadian Consortium for Research, increased federal support for research infrastructure through CFI has placed additional demands on the base budgets of the councils, as has the increasing number of new and young scholars being hired in Canadian universities," states the committee’s 188-page report. The finance committee also notes that there isn’t unanimous support for CFI. Established in 1997, CFI funds the infrastructure needs of universities, colleges and other institutions. It also provides funding to the granting councils, which dole out the money for specific projects. "(S)everal (witnesses) suggested to the committee that the presence of the CFI is leading to duplication in the federal granting structure, and that research and development efforts would be better served by redirecting CFI funds towards the other granting institutions. As well, we heard criticisms that the CFI favours larger institutions that have access to private funding and commercialization offices at the expense of smaller institutions, including private colleges," the committee writes. As a result, the committee recommends that the granting councils and the CFI pay greater attention to the needs of smaller institutions and ensure that they aren’t faced with discrimination in the dissemination of research funds. With increased funding to universities for research activities, there has long been a complaint that the government hasn’t provided enough money for the indirect costs associated with research such as infrastructure, equipment, administration and others. While the federal government allotted $200 million in a one-time payment for this end in the 2001 budget, the finance committee believes that this isn’t enough. "In particular, the indirect costs of research continue, and it is unlikely that the $200 million committed last year was sufficient to meet the need. For this reason, the committee recommends that the federal government, in the next budget, provide a permanent program for financing the indirect costs of federally funded research," the committee writes. In a related recommendation, the finance committee also states that the federal government should move to commit to funding 40 per cent of the indirect cost associated with research activities. SR&ED tax credit system under fire from several parties Several witnesses complained to the committee about the inflexibility of the government’s current science research and experimental development (SR&ED) investment tax credit system. Under current rules, only profitable companies are eligible for refundable or non-refundable credits depending on the type of company. These groups, including the Ottawa Centre for Research and Innovation, told the committee: "(T)he SR&ED tax credit needs to be improved for it to have its intended effects of encouraging research and development for all Canadian companies," it notes. The federal government needs to simplify the process for firms to apply for SR&ED tax credits, the committee concludes. "Moreover, a change should be made that would allow the credit to be better utilized by a company during periods that are not profitable so as to act as a continuing incentive to invest in research and development." The committee also heard from groups that while investing in R&D is a significant first step, the federal government must also pay greater attention to the way R&D is commercialized. "Canada’s innovators must be provided with assistance to bring their ideas, products and processes to the marketplace, since to do so would result in more jobs, increased economic activity and future R&D undertakings," it writes. To support a greater emphasis on commercialization efforts, the committee recommends that the government create a commercialization office within Industry Canada. The finance committee also reserved some criticism for the government’s seeming lack of effort in determining the potential economic impacts of regulatory and policy change. However, it does note that the government has to walk a fine line between changing policy in recognition of an evolving competitive landscape and the potential adverse economic impacts of that policy change. "In our view, a mechanism is needed that would require regulatory changes and government programs to be assessed in order to determine whether they will assist or hinder productivity and innovation within Canada," the committee writes. "From this perspective, the committee recommends that the federal government develop a mechanism by which existing and future policies and programs would be assessed to determine their impact on productivity and the incentive to undertake research and development in Canada. Particular attention should be paid to the impact of regulations in these areas," it writes.

Finance committee report recommends changes to R&D funding mechanisms

News | 12/09/2002 5:00 am EST

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