Budgetary constraints slowing implementation of federal innovation and skills strategy

With Budget 2017, the Liberal government is kicking major components of its much-vaunted Innovation Agenda down the road as ambitious plans run up against an increasingly constrained fiscal environment. Under the Innovation Agenda – retitled the Innovation and Skills Plan - the launch of many new initiatives are deferred for a year or more while unfettered new support for fundamental science is absent – a development anticipated due to the delay in releasing a government-commissioned report delivered three months ago.

The Budget draws heavily from the report from the Advisory Council on Economic Growth led by Dominic Barton with an emphasis on clean tech and agriculture, talent and skills training and investment in promising firms with high scale-up potential.

Spending under the umbrella of “Skills, Innovation and Middle Class Jobs” totals $8.2 billion between FY16-17 and FY21-22.  Slightly less than half ($4 billion) is new money, augmented by funds within the existing fiscal framework ($2.8 billion) and anticipated revenues ($1.4 billion).

In FY17-18, the lion’s share of new funding ($753 million) is devoted to skills, followed by innovation ($323 million) and sector support ($104 million).

Plans to restructure federal support for innovation also appears to be moving far more slowly than anticipated, with the announcement of more studies and planning. Over the next year, the government will establish new structures designed to coordinate future investment and activities such as Innovation Canada, a Strategic Innovation Fund and an Impact Canada Fund.

Innovation Canada will examine current government business innovation programs with a view towards simplification and rationalization.  It will also establish Economic Strategy Tables to guide the government in providing “relevant and effective programs for Canada’s innovators” in designated sectors also being supported through a new clusters initiative (see below).

An initial consolidation was announced with the formation of a $1.26 billion, five-year Strategic Innovation Fund to “consolidate and simplify existing business innovation programming, in particular the Strategic Aerospace and Defence Initiative, Technology Demonstration Program, Automotive Innovation Fund and Automotive Supplier Innovation Program”.

The Impact Canada Fund is divided into a clean technology stream ($75 million over two years,starting in FY17–18) and a smart cities stream ($300 million spread over 11 years) to support a Smart Cities Challenge Fund modeled on a US initiative of the same name.

Any changes to the Scientific Research & Experimental Development (SR&ED) tax credit program will have to wait until the government launches and completes a review to determine “its continued effectiveness and efficiency”.

Some key files are moving forward with significant funding. The Budget delivers largely repurposed funding for venture capital ($400 million), artificial intelligence ($125 million) and the National Research Council ($60 million), but other organizations received more modest sums, reflective of the fiscal constraints the government is operating under. The Stem Cell Network, Institute for Quantum Computing and social innovation received $10 million or less.

Last Budget’s Cluster Funding

Budget 2017 moves the yardsticks for last year’s biggest innovation-related initiative – $800 million for clusters and networking – with the announcement it will be augmented with $150 million from public transit and green infrastructure funding announced in the 2016 Fall Economic Statement.  A competition will be launched this year to fund a few “superclusters” led by business and focused on industry sectors such as

• advanced manufacturing
• agri-food
• clean technology
• digital technology
• health/bio-sciences
• clean resources
• infrastructure and transportation.

Venture Capital

The Business Development Bank of Canada (BDC) will receive $400 million over the next three years to establish and implement a new Venture Capital Catalyst Initiative, a late-stage fund to support scaling by young, established businesses.

CIFAR

The Canadian Institute for Advanced Research (CIFAR) scored twice in the Budget. It has been tapped to administer funding for a new Pan-Canadian Artificial Intelligence Strategy, which received $125 million in FY16-17 to expand the talent pipeline, promote collaboration between the main centres of expertise in Montreal, Toronto-Waterloo and Edmonton and attract foreign investment in the field. The Budget cites CIFAR's Learning in Machines & Brains program, which has made pioneering contributions to the emerging field of deep learning.

In addition, CIFAR is being renewed with $35 million over five years starting in FY17-18 – a boost of $2 million annually over historical federal support levels.

Clean Tech

Clean tech is a major beneficiary with new funding commitments of $1.1 billion over five years for technology demonstration, access to financing, R&D, tax credits, and a Clean Technology Data and Clean Growth Hub.

In contrast, agriculture – another sector cited in the Barton report as having major growth potential – receives just $70 million over six years to “further support agricultural discovery science and innovation, with a focus on addressing emerging priorities, such as climate change and soil and water conservation”. In addition, a portion of the $200 million Clean Growth in the Natural Resources program will flow through Agriculture and Agri-Food Canada.

 MITACS

A significant portion of new skills funding will flow through MITACS, which receives $221 million over five years starting in FY17-18 to achieve its goal of “providing 10,000 work-integrated learning placements … each year – up from the current level of around 3,750”. The funding signals a major boost for MITACS, which has become the go-to organization for industry-focused skills training and a potent source for new talent.

Universities

While the granting councils did not receive an increase to their A-bases, there were several initiatives that engage the Natural Sciences and Engineering Research Council (NSERC) and the Canadian Institutes of Health Research (CIHR).

NSERC will continue to administer the renewed PromoScience Program with $10.8 million over five years, starting in FY17–18 to “introduce diverse groups of young Canadians (to STEM studies) through hands-on learning experiences, such as space camps and conservation projects”.

CIHR will share $47 million over five years with Health Canada to develop and implement a national action plan that responds to health risks caused by climate change. It will also share $100 million over five years with Health Canada and the Public Health Agency of Canada to develop and implement a Canadian Drug Substances Strategy to respond to the opioid crisis and implement an Opioid Action Plan. The Budget provides $35 million, with the remaining $65 million previously announced in February.

Canadian Space Agency

Canadian Space Agency will receive $80.9 million “on a cash basis” over five years for new projects that demonstrate and utilize Canadian innovations in space, including in the field of quantum technology and Mars surface observation, enabling Canada to join the National Aeronautics and Space Administration’s (NASA’s) next Mars Orbiter Mission.

Click here to see a breakdown of the Budget 2017 Innovation Measures

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