Budget launches revival of research and innovation with promise of more to come

New innovation agenda in development

The Liberal government has partially opened the taps on science, technology and innovation (STI) after nearly a decade of stagnant support. The 2016 Budget delivered March 22 by Finance minister Bill Morneau commits new money for university research infrastructure, the granting councils and Genome Canada, contributing to a higher-than-expected budget deficit of $29.4 billion for FY16-17. The Liberals also strongly hinted at significantly more funding next year, guided by a new innovation agenda and a review of federally supported fundamental science.

By far the Budget's largest STI initiative is the Post-Secondary Institutions Strategic Investment Fund. It will allocate $2 billion over three years to support up to 50% of eligible costs for research infrastructure projects with an emphasis on "enhancing and modernizing research and commercialization facilities (and) industry-relevant training facilities" at university and college campuses. Projects that reduce greenhouse gas emissions and improve environmental sustainability will also be considered.

The department of Innovation, Science and Economic Development (ISED) will be the fund lead, similar to the $2-billion, university-targeted Knowledge Infrastructure Program following the 2008 recession. That stimulus funding was administered by ISED's predecessor, Industry Canada (R$, March 16/09). The Budget earmarks $500 million from the fund for FY16-17, ramping up to $1,250 million in FY17-18.

The Budget also ends the decade-long pattern of targeted, cost-of-inflation increases to the granting councils with a $95-million boost starting in FY16-17 — $30 million each for the Natural Sciences and Engineering Research Council (NSERC) and the Canadian Institutes of Health Research (CIHR), and $16 million for the Social Sciences and Humanities Research Council (SSHRC). The SSHRC-administered Research Support Fund that covers some of the indirect costs of research receives an ongoing $19 million.

Granting Councils

The new granting council funding is further enhanced by Budget 2015's $46-million commitment to the councils which was delayed one year, meaning that the budgets of the councils will increase by $141 million in the next FY. Perhaps as important as the amount is the nature of the increase, which is directed only to "investigator-led discovery research", ending the previous government's controversial practice of providing targeted funding for more applied research.

Beginning in FY16-17, NSERC's budget increases to approximately $1.1 billion, followed by CIHR ($1 billion) and SSHRC ($713 million including the Research Support Fund).

"The amount is encouraging and is a step towards returning to globally competitive levels … This Budget is a real recognition that science and the intellectual and creative capacity of Canadians will drive innovation," says Paul Davidson, president of Universities Canada. "There's a need to build the knowledge base and the tools to do this, and the granting councils can address this in the short term … 10 years of relentless incrementalism is over. This is a new era."

Genome Canada

Genome Canada will have $237.2 million at its disposal over the next four years. The agency is officially "delighted" with the Budget announcement and says it will use the funding to "to promptly launch new programs, in collaboration with partners, to expand large-scale genomic science and its applications across sectors". Yet the award is substantially less than Genome Canada's pre-Budget request for $513.5 million over five years which it planned to devote to funding large-scale science ($191 million), providing researchers with access to leading-edge technologies ($157 million) and translation of genomics into applications ($105 million) (R$, September 24/15).

"The science community is very happy with what the government is doing in the Budget," says Paul Dufour, former senior advisor for international science at the short-lived Office of the National Science Advisor and principal of PaulicyWorks. "It looks like there are sunnier days ahead and hopefully the research community will appreciate it fully."

Government Science

Dufour notes that the Budget made targeted investments in several science-based departments, notably Natural Resources Canada ($197.1 million for several clean tech initiatives), Fisheries and Oceans Canada ($197.1 million for science, monitoring and research activities including the Experimental Lakes Area), Indigenous & Northern Affairs Canada ($19 million for Arctic research) and Agriculture & Agri-Food Canada ($20 million for genomics).

"Public interest science around climate change, food security and other areas is getting a lot more money which is a good thing. There's a signal that the government was looking at science and innovation in a broader framework including the third leg which is government," says Dufour. "There's been a darkness across the country especially in government. A veil has been lifted."

Innovation Agenda

In the coming months, the government will develop and release an Innovation Agenda led by Innovation minister Navdeep Bains that will expand beyond the STI priorities contained in the Budget.

"Through 2016, the Government will redesign and redefine how it supports innovation and growth, in partnership and coordination with the private sector, provinces, territories and municipalities, universities and colleges, and the not for-profit sector. The Innovation Agenda will define clear outcomes — objectives and metrics to measure progress towards this vision," states the Budget Plan.

Science Review

The larger Innovation Agenda initiative will be augmented by a review of fundamental science led by Science minister Kirsty Duncan. Focused on strengthening the granting councils and Canada's research ecosystem, the review will:

• Assess opportunities to increase the impact of federal support on Canada's research excellence and the benefits that flow from it;

• Examine the rationale for current targeting of granting council funding and bring greater coherence to the diverse range of federal R&D priorities and funding instruments;

• Assess the support for promising emerging research (early career) leaders; and,

• Ensure there is sufficient flexibility to respond to emerging research opportunities for Canada, including big science projects and other international collaborations.

In a related move, the Budget tasked the minister of Agriculture and Agri-Food Canada to develop an approach for additional investments in agricultural STI, informed by the Science minister's review of fundamental science to "allow for future investments in agricultural research to be well-positioned within Canada's broader research ecosystem".

Networks and Clusters

The most telling Budget measure pointing to the forthcoming Innovation Agenda is an $800-million, four-year investment in networks and clusters. Beginning in FY17-18 — after the projected completion of the Innovation Agenda — the fund will be augmented at the outset with a performance measurement framework for business accelerators and incubators, a Canadian Cluster Mapping Portal and a $50-million increase to the budget of the Industrial Research Assistance Program to expand its advisory services to more firms.

There are few details for how and where the money will be spent but observers have noted that the renewed emphasis on industry-based clusters revives a concept pioneered and partially implemented by Dr Carty during his 10-year term as president of the National Research Council (NRC).

"The Government's (Innovation Agenda) will be cross-government and coordinated across key departments. Whether it is clean technology, health sciences, advanced manufacturing, digital technology, resource development or agri-food, the Government's plan will work to align its support for the key ingredients of Innovation — helping to propel Canada's entrepreneurs and innovators from start-up and commercialization stages to global success." — Growing the Middle Class Budget Plan

"The new government seems fixated on the notion that you can replicate the Waterloo tech or Montreal pharma clusters with a theme-based approach," says Dufour. "It's not a new concept. It goes back to the old cluster program at the NRC."

There is speculation that the $800-million cluster and networking commitment will largely benefit the Waterloo region which is being positioned as a digital quantum tech hub.

The funding has also caught the attention of several sector-based organizations including the Canadian Stem Cell Foundation (CSCF), which is advocating for a 10-year, $1.5-billion private/public roadmap for Canada's stem cell sector. CSCF president James Price says the intent of the proposed funding dovetails with his group's strategy to capitalize on the rapid advances in stem cell science to develop a 21st Century, globally competitive industrial sector,

"The CSCF has been advocating for a strategy to drive the sector forward. It's up to ISED to explain but it appears they're looking at private sector-led initiatives and dynamism to establish critical mass," says Price. "A lot of groups or sectors will be going after this funding. We've been pushing for funding along these lines for two years now … It's time to seize Canada's moment and build an industrial space for stem cell technology. The international competition is fierce."

The network and cluster funding is complemented by a proposed High-Impact Firm initiative, which is scheduled to roll out in FY16-17. While no dollar amount has been announced, the program is designed to "help high-impact firms scale up and further their global competitiveness", initially targeting 1,000 companies but expanding as the program gears up. The initiative will support established firms experiencing rapid or exponential growth yet lacking exporting expertise or access to capital.

"Under this client-centric approach, firms will be able to access coordinated services tailored to their needs at crucial transition points, from key organizations starting with Innovation, Science and Economic Development Canada, the Business Development Bank of Canada, Export Development Canada, the National Research Council's Industrial Research Assistance Program, Global Affairs Canada's Trade Commissioner Service and the Regional Development Agencies," states Budget Plan.

Mitacs Globalinks

Firms that aspire to penetrate global markets will also be assisted by the renewal of the Mitacs Globalink program, which received $14 million over two years to facilitate the two-way flow of talent by gaining industrial experience.

Launched in 2009 as a pilot with funding from several provinces and regional development agencies, Globalink received $13 million over two years in the 2013 Budget. Rob Annan, Mitacs' chief research officer, says the latest funding will allow for further refinement of the program while the government works to develop a coherent innovation agenda.

"This will keep the program rolling. We now have two years to re-examine the overall processes and all the parts," says Annan. "There are a lot of facets to experiential education."

Co-op education also received a major boost with a new Post-Secondary Industry Partnership and Cooperative Placement Initiative. With funding of $73 million over four years, the program is open to all post-secondary institutions. Polytechnics Canada says the initiative echoes its Budget recommendations and "appears to have an inclusive definition of work integrated learning and is focused on employer demand."

Space Funding

The Budget responded to concerted advocacy by the Canadian space sector with $379 million over eight years to the Canadian Space Agency. The funding, which starts flowing in FY17–18, secures Canada's participation in the International Space Station. The CSA will "formalize negotiations with the National Aeronautics and Space Administration and undertake the necessary activities to extend Canada's participation (in the ISS) to 2024."

Life sciences

Neuroscience research and drug development and commercialization were targeted in the Budget, with $50 million for the Canada Brain Research Fund of the Brain Canada Foundation. Funding begins in FY17-18 for five years and will be matched by funding from other non-governmental organizations.

The Centre for Drug Research and Development will receive $32 million over two years starting in FY17-18 to help the hybrid drug development and commercialization organization add more promising drug candidates to its growing product pipeline. CDRD has been an influential success story since its launch in 2007.

In a post-Budget statement, CDRD says it has "incubated 209 early-stage technologies ... including the launch of seven new spin-off companies that have raised in excess of $60 million in seed funding. CDRD has also supported an additional 26 existing Canadian health sciences companies (SMEs) by providing over 9,000 hours in access to CDRD's scientific and commercial expertise and infrastructure."

The Stem Cell Network, a Network of Centre of Excellence, will receive $12 million over two years, effectively extending its mandate beyond the end of NCE funding which is slated to sunset next year.

Business Innovation

The Budget includes three key measures designed to stimulate business innovation and support the high-tech sector. Concerted lobbying by several tech-focused organizations appears to have convinced the government to reverse course on its commitment to impose a $100,000 annual cap on the amount of stock option gains that qualify for a 50% tax deduction.

Groups argued that the cap would constrain small, growing companies from attracting and retaining key talent. Morneau acknowledged that he was swayed after consulting with the business community which argued that the tax deduction was a key tool for emerging firms to attract top talent when they are typically short on cash as they scale up.

Less pleasing for the business sector was the government's decision to freeze the small business tax for revenues up to $500,000 at 10.5%. The original plan was to reduce the tax over the next three years to 9%.

The Budget also partially followed through on an election pledge to revive the 15% federal tax credit for Labour-Sponsored Venture Capital Corporations (LSVCCs) — a controversial incentive that the previous government had committed to phase out between 2015 and 2017. The 15% federal tax credit will be restored for the 2016 tax year but only for provincially registered LSVCCs. The phase-out will continue to apply to federally registered LSVCCs and the prohibition on new federally registered funds will be maintained.

"While significant funding to small and medium-sized businesses has been provided in a number of provinces through provincial LSVCC programs, the national LSVCC program has not had a similar impact," stated the Tax Measures Budget document.

Support of provincially registered LSVCC's will cost the federal treasury $115 million in foregone revenue in FY16-17 before reaching a steady state of $160 million in FY17-18.

Opposition to the phase-out came primarily from Quebec where several large LSVCCs have operated successfully for years. In 2013, the estimated cost to the treasury was about $140 million a year, 88% of which was claimed in Quebec.

Clean Tech

A key Liberal election campaign pledge, clean tech was prominently highlighted in the Budget with investments of $400 million in more than a dozen funding intiatives. These range from a $50-million top-up to Sustainable Development Technology Canada's SD Tech Fund to a doubling of clean tech investments through the regional development agencies to $100 million annually.

Even the Canada Excellence Research Chairs program was brushed with clean tech funding largesse. It secured $20 million over eight years to support two new chairs related to clean and sustainable technology as part of the next competition to be launched this spring.

Whether the new investments will help to propel Canada into the front ranks of clean tech nations remains to be seen. Although the diverse sector is generating healthy growth, other nations are growing even faster, particularly China whose global market share grew from 10% to 20% between 2006 and 2013. Over the same period, Canada's market share shrank from 2.2% to 1.3%.

Clean tech analyst and consultant Celine Bak has noted that Canada requires an integrated strategy that combines both innovation and a green economy. In an interview with RE$EARCH MONEY last year, Bak said clean tech is statistically not recognized as an industry sector. Nor is clean tech innovation effectively tied to regulation, trade and competition policy (R$, June 24/15).

The Budget acknowledged that the sector lacks policy coherence and included $2.1 million to NRCan to "enhance clean technology data" in conjunction with ISED and Statistics Canada.

Innovation must be linked to trade, exports

Clean tech's relative decline lends credence to the observations of many in the STI community that Canada needs an industrial strategy as well as an innovation strategy — complete with sectoral roadmaps — and an innovation strategy that is also an export strategy.

Observers also note that with the Budget's massive increase in social spending, adequate funding of a new innovation strategy will require additional resources. Rather than further ballooning the national debt, an increase in the GST is seen as the most effective means of supporting new and expanded innovation initiatives. Economists estimate that a 1% increase in the GST would generate at least $7 billion in new revenue, providing the government with the ability to fund innovation boldly.

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