Editorial - 26-17

You're damned if you do and damned if you don't. That appears to be the dilemma the federal government faces as it works to re-balance its support for business R&D between indirect (tax-based) incentives and direct program assistance. Following the publication of the Jenkins report and its recommendations for shifting the balance to direct support, the government in its last Budget announced a series of changes to its flagship R&D tax credit program.

The changes were made at the behest of a wide range of R&D performing sectors who lamented the government's cancellation of direct support mechanisms like Technology Partnerships Canada. In addition to reducing the rate that large corporations received for conducting R&D, it also proposed several other changes, including the elimination of capital spending as an eligible activity.

That's when the trouble started, with several industry lobby groups criticizing the changes, most recently Canadian Manufacturers & Exporters (see page 4). It didn't help matters that the government has been slow in reinvesting the $500 million in savings (the CME estimates $663 million) in direct support mechanisms. Other than doubling the budget of the Industrial Research Assistance Program, there's been little movement.

If industry could access programs designed to make it cheaper and more effective to conduct R&D in Canada, perhaps the criticism wouldn't be so loud. Direct support dominates most nations' corporate R&D assistance strategies and properly designed programs have a proven track record.