Pre-Budget Analysis

Tasseographers and loose tea leaves are in short supply in Ottawa these days as speculation over the most important federal Budget in a decade reaches a fevered pitch. Fuelled by the prospect of severe cost cutting measures to rein in a massive deficit and tempered by vague, reassuring statements from the political hierarchy about the importance of R&D and innovation (RDI), the only given is the near certainty that support for Canada's research enterprise is about to experience a major shake-up.

Whether the field of research endeavour is health, advanced materials, engineering or innovation policy, there will likely be less to go around as the mantra of spending smarter and collaboration overwhelms calls to modestly increase or merely maintain support. The Harper government has pledged to eliminate the annual deficit by FY14-15. The latest data indicate that a resilient economy is providing a helping hand. For the first eight months of FY11-12, the deficit stood at $17.3 billion at the end of November/11, setting a pace that should allow the full-year deficit to beat the estimate of $32.3 billion.

To achieve its fiscal objectives, the federal government has asked departments and agencies to prepare for cuts of between 5% and 10%. It has made clear that reductions will not be applied uniformly and has sent encouraging signals to the research community through a series of statements emphasizing the importance of RDI.

The recommendations of the Expert Panel Report on Federal Support for Business R&D (the Jenkins Panel) will also play a major role in the fate of federal RDI support. Dr Gary Goodyear, minister of state for science and technology, says his government agrees with its diagnosis of the key challenges facing Canadian innovation, but adds that the full slate of the panel's recommendations likely won't be implemented.

In an address earlier this month to The Economic Club of Canada, Goodyear said the government "may not adopt all of its recommendations as prescribed". But it's almost certain that major changes will be made to the scientific research and experimental development (SR&ED) tax credit program, making it simpler and therefore less costly for companies to apply. Whether the tax credit will be changed to apply only to the cost of labour is an open question, as many have argued that such an alteration will negatively impact R&D activities outside the realm of information and communication technology, where labour comprises the bulk of eligible activity.

A shake-up at the venerable National Research Council (NRC) is also looking increasingly certain. A major transformation is already being implemented under the leadership of president John McDougall. The nature of the changes are different from those prescribed by the Jenkins Panel and Goodyear has indicated that the pending changes will likely be McDougall's, not those of the expert panel.

"Almost two years ago, our government appointed John McDougall as the NRC president ... Since that time, our government has been taking steps to help refocus the NRC on areas where it can make the most effective contributions," Goodyear told The Economic Club. "The model being developed will be built on proven approaches used by successful global innovation players, carefully adapted to the Canadian reality."

Any basic research conducted by NRC researchers will likely be in support of its business-focused initiatives, with discovery research left to universities — a point Goodyear made in a March 8 interview on CBC English radio. Left unsaid, however, is the increasingly targeted nature of granting council funding, with less devoted to programs that support curiosity-driven research.

The NRC is also not immune from the cost-cutting measures planned for federal departments and agencies. Reports on the elimination of 30,000 civil service positions suggest that RDI in government will not emerge unscathed.

In an interview with the CBC, Gary Corbett, president and CEO of the The Professional Institute of the Public Service of Canada, was not optimistic.

"The whole model (government/academia/private sector) has to be working together in support of innovation," he said. "There is an imbalance and that is not what's being addressed by this government."

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