Innovation Canada: A Call to Action

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Innovation Canada: A Call to Actionto conduct the review announced in theBudget.This report records our advice to thegovernment on how federal programs thatsupport business and commercially orientedR&D can make an even stronger contribution toa more innovative and prosperous Canada.What We Heard andLearnedDuring our extensive consultations, we learnedabout many Canadian success stories and heardfrom numerous entrepreneurs who said thatfederal programs have served them well. Wealso heard that there is opportunity to enhancethe impact of programs to make them evenbetter. We heard that the government shouldbe more focussed on helping innovative firms togrow and, particularly, on serving the needs ofsmall and medium-sized enterprises (SMEs). Weheard that programs need to be more outcomeoriented as well as more visible and easy toaccess. We heard that whole-of-governmentcoordination must be improved and that thereshould be greater cooperation with provincialprograms, which often share similar objectivesand users. We also learned that innovationsupport is too narrowly focussed on R&D —more support is needed for other activitiesalong the continuum from ideas to commerciallyuseful innovation. This extensive feedback,supplemented by research and analysis andinterpreted in the course of the Panel’s internaldialogue, forms the basis of our advice.A Framework for ActionOur work has been guided by a long-term visionof a Canadian business sector that standsshoulder-to-shoulder with the world’sinnovation leaders — ultimately, this meansa more productive and internationallycompetitive economy that supports rising livingstandards for Canadians. To transform thisvision into reality, we believe that thegovernment must focus its efforts on the goalof growing innovative firms into largerenterprises, rooted in Canada but facingoutward to the world and equipped to competewith the best.Achieving the Panel’s vision requires publicpolicy action on a number of fronts, includingongoing efforts to refine and enhancemarketplace and regulatory policies thatinfluence the climate for private sectorcompetition and investment. While theseframework policies are not within the scope ofthis review, we would emphasize that theimpact of our advice depends ultimately oncomplementary efforts to strengthen thosepolicies — especially as they relate toencouraging the competitive intensity that is acentral motivator of innovation.The core of our advice can be summarized in sixbroad recommendations, the details of whichare elaborated subsequently. Taken together,they provide a framework for action.Industrial Research and Innovation CouncilWe envisage a new, whole-of-governmentprogram delivery vehicle — the IndustrialResearch and Innovation Council (IRIC) —that would be the centrepiece of the federalgovernment’s efforts to help entrepreneursbring their innovative ideas to the marketplaceand grow their companies into internationallysuccessful businesses. To this end, the IRICshould take on at least the following industryfacingactivities:deliver an expanded Industrial ResearchAssistance Program (IRAP) and acommercialization vouchers pilot programthat connects SMEs to providers ofcommercialization supportE-2
Executive Summaryprovide a national “concierge” service andassociated website to help firms find andaccess the support tools they needwork with partners to develop a federalbusiness innovation talent strategy.Moreover, the IRIC could assume the followingresponsibilities: in partnership with the federalgranting agencies, joint oversight of appropriatebusiness-facing programs administered by thoseagencies; technical assessment of the innovationelement of project proposals submitted to theregional development agencies; and oversightof federal support for business-orientedcollaborative research institutes evolved fromthe current institutes of the National ResearchCouncil, as further discussed below.Scientific Research and ExperimentalDevelopment (SR&ED) Tax CreditIn line with feedback from stakeholders, we arerecommending that the SR&ED program shouldbe simplified. Specifically, for SMEs, the base forthe tax credit should be labour-related costs, andthe tax credit rate should be adjusted upward.The current base, which is wider than that usedby many other countries, includes non-labourcosts, such as materials and capital equipment,the calculation of which can be highly complex.This complexity results in excessive compliancecosts for claimants and dissipates a portion ofthe program’s benefit in fees for third-partyconsultants hired to prepare claims.Canada’s program mix is heavily weightedtoward the SR&ED program and, during ourconsultations, we heard many calls for increaseddirect expenditure support. As well, manyleading countries in innovation rely much lessthan Canada on indirect tax incentives asopposed to direct measures. That is why we arerecommending other improvements to theSR&ED program that will generate savingsfor the government. The savings should beredeployed to fund direct support measures forSMEs, as proposed in our otherrecommendations. Specifically, to ensure agreater focus on promoting the growth of firms,the portion of the credit (claimed by SMEs) thatis refundable — that is, paid regardless ofwhether the firm generates taxable income —should be reduced, such that part of the benefitwould depend on the company beingprofitable. Given the central importance of theSR&ED program to firms across the country, ourrecommended changes should be phased inover several years to allow time for adjustment.Risk CapitalInnovative, growing firms require risk capital, yettoo many innovation-based Canadian firms thathave the potential for high growth are unable toaccess the funding needed to realize theirpotential. The government can play animportant role by facilitating access by suchfirms to an increased supply of risk capital atboth the start-up and later stages of theirgrowth. We therefore recommend measures toestablish risk capital funds that target theseareas. The federal government’s contributionto the funds would be delivered through theBusiness Development Bank of Canada (BDC),with incentives and governance designed toensure strong private sector participationand leadership.Collaborative R&D InstitutesCanada needs a fundamentally new approachto building public–private researchcollaborations in areas of strategic importanceand opportunity for the economy. Accordingly,we recommend that the business-orientedinstitutes of the National Research Council(NRC) should become independent collaborativeresearch organizations, intended to be focalpoints for sectoral research and innovationstrategies with the private sector. Those NRCinstitutes that perform primarily fundamentalresearch would become affiliates of universities,E-3
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Vision and PrinciplesChapterVision
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Vision and Principlesout in Chapter
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Program EffectivenessChapterProgram
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Program Effectivenessand processes.
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Program Effectivenessfull spectrum
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Program Mix and DesignChapterProgra
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Program Mix and Designcapital costs
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Filling the GapsChapterFilling the
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Filling the GapsBox 7.1 Use of Proc
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Filling the Gapscompetitive levels,
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Filling the GapsThe budgetary impli
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Filling the GapsSuch concerns are i
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Filling the GapsAngel InvestmentAt
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Leadership for InnovationChapterLea
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Leadership for InnovationThe approp
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Leadership for Innovationinnovation
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ConclusionChapterConclusion9We are
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Programs in the ReviewAnnexPrograms
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