Budget announces series of modest initiatives to stimulate commercialization

Measures set the stage for next year

The federal Budget confirmed growing speculation that Ottawa’s innovation agenda and strategy for stimulating commercialization will emerge gradually, with major initiatives likely sidelined for at least another year. A smaller surplus, an insistence on balancing the books and less than mature proposals conspired to constrain the Martin administration’s ability to fully enact the 21st Century Economy plank of its platform, focusing instead on fiscal accountability as its best bet for winning the upcoming election.

Rather than unveiling any grand pronouncements on commercialization, the Budget opted instead to announce a series of modest yet targeted initiatives. These include two small pilot programs geared towards post-secondary research and federal laboratories, targeted funding for National Research Council’s (NRC) Industrial Research Assistance Program (IRAP) and an equity infusion of $250 million into the venture capital arm of the Business Development Bank.

“Commercialization is a complex issue and the role of government is tricky,” says a federal official. “We’re still developing a strategy but in the meantime we’re trying a few things ... We’re one Budget away from having some really good answers.”

That means turning aside several big-ticket proposals: Health Innovation Canada, Innovation Canada (I-Can), the Drug Development Accelerator Program, an initiative from the Association of Universities and Colleges of Canada and a bid by the NRC to establish an integrated network of so-called enterprise centres.

The Budget’s commercialization initiatives came with directives to establish several new advisory bodies to help determine their focus and criteria.

“(The Budget) is saying that the government is not exactly sure what the best action plan is to put in place a comprehensive and integrated strategy,” says Dr Arthur Carty, former NRC president and Canada’s new national science advisor. “The government is expressing that one needs to be careful putting together a plan of this sort. They’ll wait for a plan to be in place before they announce a whole lot of funding to go into it.”

The government received approximately 15 commercialization proposals requesting a total of $5.5 billion. Now that the government has responded with a series of interim funding measures, many say the task is to merge existing proposals and ensure that the all relevant players are at the table.

“The message of the Budget was ‘stay tuned’. The government kicked it off with a few bits and pieces while it figures out a strategy and come up with a plan and its components,” says Dr Michael Raymont, NRC’s VP technology and industry support, and its recently announced interim president. “We now have to work together to come up with a comprehensive proposal that takes the best from each, and has a shared governance structure so that we can put forward a gold star proposal.”

In addition to measures designed to enhance commercialization, the Budget directed significant new funding towards existing, established programs such as Genome Canada ($60 million), Sustainable Development Technology Canada (SDTC) ($200 million), the granting councils ($90 million) and the indirect costs of university research ($20 million) (see chart).

Given the short time frame and the fiscal pressures under which the Budget was prepared this year, the S&T community is generally pleased with the results.

The bulking up of the granting councils continues with $90 million in new A-base funding for the three agencies, an average 6.4% increase. The new money starts to flow in FY04-5, pushing the annual budgets of both the Natural Sciences and Engineering Research Council (NSERC) and the Canadian Institutes of Health Research (CIHR) from $615 million to $654 million, still far short of the $1 billion each has been seeking in recent years. The Social Sciences and Humanities Research Council (SSHRC) received an increase of $12 million, pushing its annual budget to $192 million. SSHRC also secured $15 million to continue with its Community-University Research Alliance (CURA) program, receiving $3 million annually for five years beginning in FY05-6.

“I take it both as a recognition of the need to maintain the growth (in university-based research funding) and as a statement of trust in NSERC being able to spend public money responsibly,” says NSERC president Dr Tom Brzustowski. “The new money will help us deal with several of our problems but by no means all … The momentum is being maintained that Mr Martin started as Finance minister back in the 1997 budget and then carried on until he left that portfolio. The momentum of measures to create and increase the volume of university research and attract more really good people to do it.”

In keeping with the overriding theme of commercialization, the boost to granting council A-bases is expected to be deployed to attract new talent and “promote the translation of knowledge into commercial and social benefits for Canadians”.

The indirect costs of university research were also given a modest boost, with $20 million added to the existing annual envelope of $225 million. The new money was provided with the caveat that the money is used to “enhance the commercialization of research discoveries”. Given the increase in A-base funding, the new money for indirect costs isn’t expected to increase the percentage. And once again, the funds are to be used primarily to enhance commercialization capacity.

“The percentage is still in the 20% to 25% range and the conventional wisdom is it should be 40%,” says Brzustowski. “We may get there some day but one has to see how the universities use the money in the first place.”

In a surprise move, the government announced the creation of a new Network of Centres of Excellence (NCE) with funding pegged at $5 million annually. For the first time, a specific research focus is being mandated, challenging policy makers to establish a process for establishing excellence previously determined through a competitive process (see page 4).

ICT capital cost allowance increased

Significant capital cost allowance (CCA) concessions were also provided to the information and communications technology (ICT) sector, increasing CCA rates for the first time in nearly 30 years. The fiscal cost over the next two years is estimated at $365 million. The measure boosts the rate for computer equipment from 30% to 45% and raises broadband and Internet infrastructure from 20% to 30%.

The Information Technology Association of Canada praised the moves, as well as the Budget’s investments in commercialization and health, which includes $100 million for Canada Health Infoway.It also noted that the government has yet to make any of the major changes to the scientific research and experimental development tax incentive program it had recommended.

R$