The federal Liberal government is said to be looking at overhauling how it spends about $5 billion annually on business innovation funding programs. Any changes to funding could come as soon as tomorrow (March 22nd) – when the 2017 Federal Budget is announced. At this time, it is unclear if the SR&ED tax credit program will be affected and to what degree.
In March 2016, Finance Minister Bill Morneau appointed a 14-member Advisory Council on Economic Growth, headed by Dominic Barton, McKinsey & Company’s global managing partner. Any changes made to innovation spending will be the result of a report authored by the council.
In their February report titled “Unlocking Innovation to Drive Scale and Growth”, the Council made the following recommendation to:
Review and rationalize government innovation programs, then scale up those that have proven impact, (and) review regulatory barriers and remove or re-tool those that would impede (the) development of priority sectors and innovation marketplaces.
This means the SR&ED tax credit could potentially be affected in some form or another, even though the Council did acknowledge “the difficulty of closing programs that have been in existence for decades.” Thus, the federal government does not seem to be interested in closing down the SR&ED tax credit program entirely — at least, not right away.
Is There Time to Decide?
In fact, while the report does not recommend reducing the amount of innovation funding, it does rather seek to “improve the outcomes of innovation programs.” How it will do so may take some time, as the Council reports “Canada lacks the data about program effectiveness to make evidence-based policy choices about how to allocate funding.”
Still, it seems that some level of change is inevitable. The report calls on the government to examine current programs, eliminate ineffective ones, redirect resources and adopt the analytical framework “to create effective innovation programs and manage them using data.”
The report adds that “to help Canada compete globally, Canada must fund innovation programs that relevant in a changing context and that support a coherent, agile, and data-driven innovation system.”
That might not bode well for the SR&ED program in its current state, which does not have clear success metrics.
This means the SR&ED program could either be slightly modified or removed altogether – but until the budget is revealed, it is unclear how much the SR&ED tax credit program will be affected.
A Shift from Research and Development to “Innovation”
The overall conclusion to be drawn from this report is that the current federal Liberal government is shifting its focus from funding research and development to an innovation-driven approach, likely based on calls from some groups for a new innovation-based tax credit. There are dangers in this approach, however, as innovation and research and development are two very different things.
Still, the report at least notes that innovation is “a broad term that includes categories (such as) product, process, marketing, and organization.” It even goes further to say that “the ‘recipe’ for innovation is elusive. The innovation ecosystem is complex and this Council has not identified any silver-bullet solution.”
This means that more time is needed to examine what innovation offers vis-a-vis research and development. It is hopeful that the government makes a rational, sober conclusion about the effectiveness of the SR&ED tax credit program and does not go too far in pursuing an innovation agenda that ignores the previously-established area of research and development entirely.