Analysis: Ron Freedman, CEO, Research Infosource Inc.

Emerging trends in federal S&T spending

By Ron Freedman

In late May, Statistics Canada released its most recent data on federal government S&T spending. There was plenty to chew on and one clear paradox emerged.

The Big Picture

The first thing to note (Table 1) is that, in current dollars, total federal program spending varied between $250.8 billion and $227.6 billion in the 2011-2015 period. Also, total federal program spending in FY 2015-16 is below its FY 2011-12 peak. Federal spending on S&T as a portion of all federal program spending in the 5-year period ranged between 4.91% of the total and 4.49%. The government's spending on the R&D component of S&T varied from 3.12% to 2.80% of the total, whereas related scientific activity (RSA) spending varied from 1.81% to 1.64%.

Conclusion: Federal S&T spending declined, but so did overall spending. Broadly speaking S&T spending maintained its share of total spending in the period.

Winners and Losers

S&T: A different picture emerges when examining federal spending in constant 2011 dollars (Table 2). On average, all federal spending on S&T fell by 4% from 2011-2015, when adjusted for inflation (CPI). Federal government intramural spending fell by about 2%, which was less than the overall drop. But federal spending on S&T performed by business fell by about 9%. In comparison, the higher education sector saw federal spending decline by an adjusted 2%.

R&D: The R&D component of federal funding of S&T declined from nearly $2.76 billion in 2013 to about $2.70 billion in 2015. Federal funding of R&D performed by business declined at a faster rate; from a peak of $990 million in 2013 to $769 million projected in 2015.

Surprises

The biggest surprise in the StatCan data is the steep (11%) decline in federal spending for R&D performed in the business sector. This result runs completely counter to a key recommendation (the key recommendation?) of the report by the Tom Jenkins-led Independent Panel on Federal Support to Research and Development, namely:

"…the Panel believes the government should rebalance the mix of direct and indirect funding by decreasing spending through the SR&ED program and directing the savings to complementary initiatives strategically focussed on serving the needs of innovative Canadian firms."

Putting the squeeze on business support

What's going on here? As indicated in Table 2, Federal funds directed to R&D in the business sector leapt from $857 million to $990 million in the aftermath of the Jenkins report. Presumably, in large part this reflects a $100 million increase to IRAP's budget. Seemingly, the government had taken Jenkins' recommendation to heart. But only one year later (FY 2014-15) spending on business-performed R&D fell to $785 million, which was even less than the $860 million of spending in 2011-12. The estimated figure for 2015-16 ($769 million) is even less.

The second major surprise is that while overall federal government intramural spending on S&T declined by .02% between 2011-2012, in constant dollars, intramural R&D spending actually posted a small .02% gain. From that standpoint there has been no "war" against federal R&D. However, to compensate for the overall drop in S&T spending, federal departments had to cut back more sharply on their intramural RSA spending (by 5%).

Finally, on a departmental level (Table 3) and on a constant dollar basis, some departments gained, some came out even and some lost S&T resources.

Ron Freedman is CEO of Research Infosource Inc.