Investing in Canada’s Future: Strengthening the Foundations of Canadian Research
A report presented to the federal government by Canada’s Fundamental Science Review panel in April 2017, warned that the state of university-based research and development (R&D) in Canada is diminishing in stature.
Investing in Canada’s Future: Strengthening the Foundations of Canadian Research – The Naylor Report
The federal government now says it is going to implement a few of the key recommendations in the Investing in Canada’s Future: Strengthening the Foundations of Canadian Research report.1 (It is also called the final Report of the Advisory Panel on Federal Support for Fundamental Science and is known colloquially as the Naylor Report. The report’s primary author is David Naylor, the former president of the University of Toronto. The report was commissioned by federal Science Minister Kristy Duncan, and it marks the first review of fundamental science by the federal government in roughly 40 years.)
Some critics, however, argue that the federal government is not going far enough, and should implement all of the recommendations. The report found that the per capita federal investment in fundamental science has decreased over the decades, and offers a set of 35 recommendations to make “sweeping changes” to how scientific research is funded in Canada.2
Some Change is On the Way
On August 17, the government uploaded a YouTube video featuring Duncan and Kate Young, parliamentary secretary for science, that is three-and-a-half minutes long.3 In the video and as reported by Sorensen and Robinson in the University of Toronto News, Duncan says the government is moving forward on some of the report’s recommendations,4 such as:
- Establishing through an Act of Parliament a new National Advisory Council on Research and Innovation (NACRI). It would report to both Duncan and Navdeep Bains, federal minister of the Department of Innovation, Science and Economic Development Canada.
- Improving the harmonization and sustainability of federal research funding granting councils such as the Canada Foundation for Innovation (CFI), Canadian Institutes of Health Research (CIHR), the Social Sciences and Humanities Research Council (SSHRC) and the Natural Science and Engineering Research Council (NSERC). This would be done by creating a new coordinating board to make it easier for researchers to apply for funding grants.
- Separating the governance and management roles at CIHR so that the CIHR’s CEO will no longer chair the governing council – a move that requires the assistance of Jane Philpott, the federal health minister, because this means amending CIHR’s founding legislation.
Is that Enough Change?
Despite these changes, some feel that the government should be doing more. According to an opinion article by three authors with credentials at Montreal-area universities, morale is currently low among young researchers. The authors note that the Naylor panel was told by one up-and-coming student that he felt the chance of having a career in research in Canada was on par with the likelihood that a young hockey prospect will eventually play in the National Hockey League. (That is to say, the chance is not very good.) 5
The authors from Toronto University also noted that they are disappointed that the government is not enacting all of the report’s key recommendations right away, and is not giving “a $1.3-billion boost in federal research funding over four years.” 6
The State of Research Funding in Canada
The Naylor Report is 280 pages long, but starting at page 30 it offers a bleak view of the state of research funding in Canada. The report looks at three key metrics of research funding: GERD, HERD, and BERD.
The report examines the Gross Domestic Expenditure on Research and Development (GERD) “from all sources” and notes that “Canada’s GERD intensity (which is defined as being GERD divided by the Gross Domestic Product) has been declining slowly over the last 15 years, as contrasted with [Canada’s] G7 peers and key east Asian nations.” 7
In comparison, GERD intensity is growing in all G7 countries, except for the United Kingdom, where it remains relatively stable. In the 2014-15 year specifically, Canada was “below the average and median” of the Organization for Economic Cooperation and Development (OECD) countries when GERD intensity was measured. At that time, the report says Canada’s GERD’s intensity was 1.61%, whereas the average figure for OECD countries was 2.38%.8
The report adds that, worldwide, even when non-OECD nations were included, Canada has “fallen out of the top 30 nations in total research spending.” 9
The report then notes that the GERD from the federal government is “also low compared with most countries.” 10 The report states that this is due to two policy issues:
- Canadian businesses receive indirect funding from the government through tax credits, such as the SR&ED tax incentive.
- Many other countries either provide direct funding to industry for R&D or directly support research institutes conducting military and industrial research, and – in Germany’s case, especially – basic research.
The Naylor Report also looks at the metric of Higher Education Research and Development (HERD), which, in 2012, Statistics Canada said was a third of Canadian GERD.11 The report says that Canada was ranked fourth among the 41 OECD nations in 2007 for HERD, but fell to seventh place in 2014 “as federal research funding flat-lined.” 12 However, among G7 countries, Canada is ranked first, and the report attributes this to Canada’s reliance, more so than most nations, on the higher-education sector to conduct research. The report also states that “50% of HERD comes from universities subsidizing the national research effort, while the federal government’s share of HERD is less than 25% and falling.” 13
Or, Canada’s SR&ED Tax Credit Program is to Blame (According to the Naylor Report)
The third metric to measure Canada’s research success or lack thereof is Business Enterprise Research and Development (BERD) spending, however, as the report focuses on research at academic institutions, it relegates any discussion of this to its third appendix. It shouldn’t come as a big surprise that this is where the report makes mention of the SR&ED program. According to the report: 14
Canada remains an outlier in its extent of reliance on SR&ED tax credits or indirect supports rather than direct funding of industry-facing or industry-friendly R&D programming. The changes recommended by the 2011 federal review (in the Jenkins Report) have led to a drop in tax revenues foregone through the SR&ED program. However, the concomitant growth in direct supports has been minimal. Given the relative profitability of Canadian business, and the consistent record of low R&D spending associated with indirect support through SR&ED tax credits, it is unsurprising that the Growth Council (formally known as the federal government’s Advisory Council on Economic Growth) has recommended experimentation with measures that provide more direct supports, and that would promote a “demand-pull” model wherein industry is incented to actively seek R&D collaborations, especially for pre-competitive research.
In the Appendix of the report it is made clear that the authors favour more investment in direct support and less to indirect support such as the SR&ED program. In addition to this, the report adds that “SR&ED tax credits are associated with some $3 billion of foregone tax revenue.” It then states that “having spent a number of months reviewing the extramural research funding system, the Panel is left in little doubt that similar scrutiny would be worthwhile to examine […] the SR&ED program.” 15
It is unknown whether the report will be used as justification to eliminate the SR&ED tax credit, however, much like the Jenkins Report in 2011, it may lead to some drastic changes in the SR&ED program.
Other Key Report Recommendations
It is difficult to summarize all 35 recommendations in the report. Some of the recommendations are related to research grants, and the report suggests perusing the following funding goals (all of which have yet to be enacted by the federal government):
- NACRI should be asked to review the current allocation of funding across the four grant councils – CFI, CIHR, NSERC and SSHRC.16
- Multi-agency strategies should be mandated by the federal government that supports international research collaborations and funding should be modified to achieve that goal.17
- Councils overseeing grant funding should be mandated by the federal government to allocate money to riskier areas of research.18
Although the federal government has yet to enact all of the recommendations, the 2018 federal budget is just a few months away, and it is unknown whether all or any of the Naylor Report’s recommendations will be included in the budget.
Conclusion – What Impact Will The Naylor Report Have?
Could the Naylor Report have as much of an impact on next year’s federal budget in the same way that the Jenkins Report impacted 2012’s budget? The federal, Liberal, government is much more amiable to pursuing an agenda of innovation, compared to the former Conservative government, which focused on austerity measures. This could mean that the government will retain existing measures that enable innovation, such as the SR&ED tax credit.
It is, however, yet to be determined if the federal government will follow the recommendations set out in the report. Replacing the SR&ED tax incentive program with a direct funding model has been criticized in the past, by both academics and industry leaders, however, issues affecting direct funding models were ignored by the report.