Provincial Budgets take starkly different approaches to stimulating innovation

Ontario focuses on commercialization

The Budgets of three of Canada's largest provinces provide a startling contrast in how each approaches the complex task of stimulating increased research and innovation. Ontario, Quebec and Alberta brought down their respective Budgets last week, with Ontario demonstrating the greatest willingness to use public funds aimed at establishing a workable and fruitful innovation agenda. The McGuinty government committed $160 million over four years to implementing its emerging commercialization agenda, created four new research awards programs and sunk $100 million into quantum computing and theoretical physics.

In contrast, the Quebec government announced a paltry $75 million over three years to R&D and innovation initiatives, ignored post-secondary education and continued to pick away at the complex web of tax credits and innovation incentives created by the previous Parti Quebecois administration (see page 3)

In Alberta, relatively small investments in commercialization, life sciences and energy and the Alberta Research Council were accompanied by major investments in post secondary education ($350 million) and cancer prevention ($500 million) (see page 3).

The Budgets of the three provinces also contained measures designed to lure businesses to their respective jurisdictions, with Alberta emerging as the most attractive in terms of corporate and personal tax rates. The small business tax rate in Alberta now stands at 3%, compared to 5.5% in Ontario and in Quebec, down 0.5% to 8%, effective March 24th. Alberta also took the added step of reducing its general corporate tax rate from 11.5% to 10% - the lowest in the country - facilitated by record-high energy royalties that pushed the province into a strong surplus position. Ontario is also well on its way to eliminating its deficit by FY07-08 if its $1-billion reserve is not needed. Quebec, meanwhile, produced a balanced Budget but debt remains stubbornly high at $118.2 billion or 43% of GDP.

ONTARIO BUDGET HIGHLIGHTS COMMERCIALIZATION

For targeted and quantifiable S&T and innovation measures, Ontario is the hand-down winner, allocating hundreds of millions of dollars to programs within its new Ministry of Research and Innovation (MRI). Particularly welcome by innovation-focused and R&D-intensive businesses is a suite of commercialization measures.

That includes $46 million to help make start-ups more investor-ready and $90 million to create new pools of early-stage venture capital (VC) in conjunction with VC and pensions funds and the federal government. The latter is intended to tap into federal commercialization funds such as the long-awaited $50-million seed-stage fund currently being finalized by the Business Development Bank of Canada.

"It's not enough but it's a good start to get some programs launched," says Jeffrey Dale, president and CEO of the Ottawa Centre for Research and Innovation "We're particularly interested in the $46 million for mentoring and entrepreneurship, which was not allowed under the old Ontario Research and Commercialization Program."

The venture capital community is also pleased with the decision to allocate funding for commercialization, particularly the $90 million targeting early-stage, public-private investments. The Ontario VC industry was rocked last year by the government's decision to phase out Labour-Sponsored Investment Funds (LSIFs) (R$, September 2/05). It has been in discussions with MRI since last fall to make the case for public intervention now that the LSIF tax credit incentive is being withdrawn.

"We're very pleased to see the government recognize the importance of the venture capital industry and financial capital being allocated," says Rick Nathan, president of the Canadian Venture Capital Association (CVCA) and managing director of the Goodmans Venture Group. "We're now looking at real policy options."

Nathan hopes the government will consider making assistance available to the full spectrum of funding opportunities, rather than limiting it to firms seeking initial rounds of VC funding. The CVCA has proposed that later-stage funding also be included in the new program. Its proposal says that if a VC firm is successful in raising a minimum of $40 million in the marketplace, it should be eligible for 30% in government assistance in the form of non-participating loan guarantees. "Government is more interested in early-stage but we need help in the later rounds of $40 million and $50 million so we don't lose companies to the US," says Nathan. "The gap appears to be greatest in later-stage funding."

In addition to its support for commercialization measures, the Budget includes substantial support for basic research, awards programs and the second phase of the MaRS Discovery District. Together they help to flesh out the McGuinty administration's overhaul of Ontario's innovation agenda, placing its primary focus on moving knowledge and discovery into the marketplace. Dr Tim McTiernan has marshalled the innovation and commercialization agenda over the past several years. He says that while considerable progress is being made, there's more to come once the recently created Ontario Research and Innovation Council is up and running.

"The research and innovation strategy is a terrific balance between sustaining the research base and beginning to focus quite sharply on getting ideas into the marketplace. We've worked hard with the community broadly to build support systems for innovation," says McTiernan, MRI's assistant DM and COO. "It's been an evolving agenda over the last number of years and now we have the Research and Innovation Council. They will look at the broad innovation strategy, working with the minister and stakeholders on a strategic plan.

In the area of basic research, the Budget announced $100 million in funding to be divided equally between the Perimeter Institute for Theoretical Physics and the Univ of Waterloo's Institute for Quantum Computing.

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