David B. Watters

February 18, 2014
David B. Watters
News Source: 
President & CEO
Global Advantage Consulting Group
The 2014 Federal Budget: "Where's the beef?

What are the implications of the 2014 Federal Budget for Canada's S&T/Innovation community? This commentary will argue that the implications are minimal, and do not address either declining expenditures in Canadian R&D, or Canada's below average ranking ("D" grade) in both domestic and international assessments of innovation performance. In an Olympic year, not only are we not on the winners' podium, but Canada's S&T/Innovation community can barely see the podium over the heads of our competitors in other countries.

In introducing the Federal Budget 2014, even the Minister of Finance characterized it as "boring". In this regard, it appears that the Government’s primary objective is to contain current federal expenditures so that Budget 2015 will have the fiscal room to offer Canadians a pre-election bonanza of initiatives. But herein lies a potential opportunity for Canada's S&T/Innovation community - namely, can we articulate a compelling federal strategy and targets to strengthen the performance of our S&T/Innovation stakeholders, and include these in Budget 2015?

What foundation has been established in Budget 2014 for the S&T/Innovation community? Budget 2014 introduces nine initiatives under the theme of "Supporting Advanced Research and Innovation". They are noted below along with the specific commitment of funds for the next two years taken from page 135 of the Budget Plan (note that Budget commitments beyond two years are speculative, and are frequently adjusted by governments).

Table 3.2.1

Fostering Job Creation, Innovation and Trade

millions of dollars
  2014–15 2015–16 Total
Keeping Taxes Low for Job-Creating Businesses
Reducing the Tax Compliance Burden
  Revising Remittance Thresholds for Employer Source Deductions 5 15 20
Subtotal—Keeping Taxes Low for Job-Creating Businesses 5 15 20
Fostering Trade and Canadian Entrepreneurship
Windsor-Detroit International Crossing 195 302 497
Subtotal—Fostering Trade and Canadian Entrepreneurship 195 302 497
Supporting Advanced Research and Innovation
Securing International Leadership in Science and Innovation 50 50
Supporting Leading-Edge Research Through the Granting Councils 46 46 92
Enhancing Industry-Relevant Research Training 3 5 8
Fostering Social Innovation Through
Research at Colleges and Polytechnics
5 5 10
Enabling World-Class Physics Research 44 44
Supporting Atomic Energy of Canada Limited 113 4 117
Fostering Canadian Leadership in Quantum Research and Technologies 5 5 10
Seizing the Opportunities of Open Data 1 1 2
Securing a Competitive and Innovative Automotive Sector 250 250 500
Subtotal—Supporting Advanced Research and Innovation 423 410 833
Promoting Canada’s Financial Sector Advantage
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime
1 2 3
Subtotal—Promoting Canada's Financial Sector Advantage 1 2 3
Total—Fostering Job Creation, Innovation and Trade 624 729 1,354
Less funds existing in the fiscal framework 100 175 275
Less funds sourced from internal reallocations 98 85 183
Net fiscal cost 427 469 896
Note: Totals may not add due to rounding.

The first thing to note in Table 3.2.1 is the total amount of new funding allocated to "advanced research and innovation" of $833M over two years. Is this enough to improve Canada's S&T/Innovation performance?

Let's examine this figure of $833M. The first thing to note is that, as described at the bottom of Table 3.2.1 not all of this money is new. The last two lines of Table 3.2.1 tell us that over one-third of this funding comes from "existing" funds in the fiscal framework and "internal allocations" (including reductions in expenditures from federal S&T departments and agencies). As a result the "new" expenditures for advanced research and innovation are more in the order of $550M over two years.

But is this still not a large investment? To answer this question we have to compare the new investment to the size of the Canadian economy. Fortunately the Budget can help us here. Page 50 of the Budget tells us that the size of Canada's economy is forecast in the Budget to be $1,932,000M in 2014, and $2,020,000M in 2015 for a total of $3,952,000M over two years. As a result, the new expenditures of $550M for S&T/Innovation amount to a humble investment of 0.01% of Canada's GDP. In this context we then have to ask ourselves, will this investment move Canada's research and innovation performance from a "D" grade to a higher level? Is it enough to help transform Canada into a more innovative nation? Will it help Canada climb onto the S&T/Innovation podium?

Let's now consider each of these nine initiatives that are designed to support "Advanced Research and Innovation".

1. Budget 2014 proposes to create the Canada First Research Excellence Fund with $1.5B in funding over the next ten years. It is intended to help Canadian post-secondary institutions "leverage their key strengths into world leading capabilities". While expenditures are intended to ramp up over time, note that the Budget commitment is only to $50M in the first two years to 2015-16. For each of the U-15 universities that advocated the idea, this would amount to about $3.3M in new funding in 2015-16 to help make their universities more globally competitive.

Expressed slightly differently, the research budgets of Canada's top 15 research universities in 2011 totalled $5,314M (sourced from Research Money). If the entire $50M went to just these 15 universities (but remember all post-secondary institutions are eligible for funding, including colleges) then this would amount to an increase of 0.9% in their research budgets. While this addition is no doubt of benefit to the recipients - will it really transform Canada into global research leadership?

2. The Granting Councils will receive an extra $46M per year allocated as follows: NSERC ($15M), CIHR ($15M), SSHRC ($7M), Indirect Costs Program ($9M). Sounds like a lot - but let's consider this further. For example, NSERC has a current budget of $1,045M. Therefore the increase of $15M to its budget is an increase of 1.44%. But the Budget itself is predicting inflation over this period to be between 1.6% and 2.0%. As a result, NSERC's activities are actually being cut.

3. Budget 2014 proposes $8M over two years to MITACS to expand its support for industrial research and training of post-doctoral fellows. This investment is commendable, but note that it is less than the $13M invested in Budget 2013 and the $14M invested in Budget 2012. Is it enough?

4. Budget 2014 proposes to provide $10M over two years ($5M per year) in support of social innovation research projects at colleges and polytechnics targeting "the research needs of local community organizations". Recognizing that the colleges and polytechnics have facilities and operations in over 1000 Canadian communities - is this funding enough (if evenly spread it would amount to $5K per community per year). How much meaningful research can be conducted with $5,000?

5. Budget 2014 proposes to provide $222M over five years to the TRIUMF physics laboratory to support research and international partnerships. This is one of Canada's "big science" projects and is a continuing investment. Since its opening in 1969 TRIUMF has received over $1 billion in federal investment. Although welcome, this investment just maintains ongoing activities.

6. Budget 2014 proposes to provide $117M over two years to AECL to maintain its Chalk River Labs including the production of medical isotopes. Again there is nothing new here - Ottawa has invested billions in AECL over the decades prior to the recent sale of the reactor business to the private sector. The investment just keeps the labs going until a private sector contractor is found to run them.

7. Budget 2014 proposes to provide $15M over three years to support the University of Waterloo's Institute of Quantum Computing to commercialize research in quantum technologies. This is an important but very modest investment relative to the potential of quantum technologies.

8. Budget 2014 proposes to provide $3M over three years to Waterloo's Canadian Digital Media Network to create an Open Data Institute. Again while important to Canada, this investment is miniscule ($1M per year), and would not buy a third-line forward on any NHL team. Will this transform the Canadian economy?

9. Budget 2014 proposes to invest $500M over two years to the existing Automotive Innovation Fund to support research and investments in the auto sector. This initiative is not new and continues federal investments in the auto sector over the past six years.

These new investments are the main initiatives displayed in the Budget to support "Advanced Research and Innovation". However, there are a few other items of interest including, such as:

• $40M for 3,000 internships including for industrial research
• $40M over four years for mentorships to help entrepreneurs create new companies (linked to Canada's Accelerator and Incubator Program).

In summary, while these investments in new R&D/Innovation are extremely small, particularly in relation to Canada's 10 year decline in total R&D÷GDP from 2.08% to the current level of 1.74%, and our continuing and steady decline in international assessments of innovation performance - something more is needed to solve these structural problems.

In this regard, Budget 2015 may offer an opportunity for new thinking, fresh insights, concrete R&D and Innovation targets and innovative strategies to achieve them. But let's begin by acknowledging that our current performance is the problem.

Therefore, what ideas can Canada's S&T/Innovation community suggest to improve our performance? Do we in fact have the vision, courage and will to "own the podium"?