October 2, 2017

$1.26-billion Strategic Innovation Fund questioned by industry groups

The Liberal government’s billion-dollar Strategic Innovation Fund, a pool of funding companies can tap for business-related investments, is an “acceptable vehicle” of spurring innovation, but it’s “washed out” by contradictions in tax policy and the “failure to manage programs effectively,” according to an advocacy group for high-tech businesses.

John Reid, president and CEO of Canadian Advanced Technology Alliance, warns that the Strategic Innovation Fund may be rendered ineffective if it’s too difficult to secure funding and if high taxes take too much money from businesses that require those resources to bankroll crucial improvements, citing the Liberals’ proposed tax reforms.

“You really need to look at all the levers,” he told The Hill Times.

“I’m not being critical of the fund, but you need better co-ordination amongst the agencies and you can’t have contradictory tax policies at the same time you have supportive funds.”

Flushed out in the 2017 budget, the Strategic Innovation Fund provides $1.26-billion in funding over five years to companies of any size in an effort to expand “high-potential” firms, increase research and development and product commercialization, and attract greater investment to the country.

Managed by Innovation, Science, and Economic Development Canada, it consolidates several existing funds available for aerospace and defence, space, and automotive sectors, and is open to businesses in all economic sectors. Companies can apply for repayable and non-repayable funding for a variety of different projects including improving used technologies.

Innovation Minister Navdeep Bains (Mississauga-Malton, Ont.) announced in July that the federal government had begun accepting applications.

The Strategic Innovation Fund also provides funding for collaborative projects between colleges and universities, non-profit organizations, and private companies. The fund’s stated objectives include simplifying and accelerating processes, and providing more responsive assistance.

Although Mr. Reid said he believes the Strategic Innovation Fund has value because it provides funding for all industries and shares private and public costs, he cautions that the existing Scientific Research and Experimental Development (SRED) tax incentive program could be more effective than the fund if that program’s application process can be streamlined.

The decades-old program provides tax credits to corporations, partnerships or individuals who conduct research or experimental development, dishing out $4-billion worth of tax incentives annually by 2009.

Mr. Reid cited an independent study conducted by CATA that found the Canada Revenue Agency, the department administering SRED, had revised practices and policies for the tax program that made it difficult for companies to receive funding. In particular, definitions used in the criteria for funding became unclear, Mr. Reid said.

The study also found that innovation funding dropped by $5.3-billion between 2009 and 2016 due to a steady reduction in the number of tax credits issued through the SRED program. The CRA disagreed with the math of the study. The federal government said it would re-evaluate the SRED program in the 2017 budget.

“Sometimes, it’s better to work with what you already have on the table,” Mr. Reid said.

Aaron Wudrick, federal director of the Canadian Taxpayers Federation, said the Strategic Innovation Fund amounted to a “corporate welfare fund” that gives select companies special preference. He said there are venture capitalist firms and bank loans that could otherwise support innovation projects.

“If they want business A, then that puts business B at a disadvantage. That’s not really a fair business plan,” he told The Hill Times.

“Let them sink or swim on their own merit.”

Mr. Wudrick said the federal government has a bad track record of squandering money on undeserving firms, citing the Bombardier as an example.

But asked about how the government would ensure funding decisions won’t be influenced by political considerations, Mr. Bains told The Hill Times that “projects are evaluated internally and/or by third-party organizations.”

“All proposed projects will be evaluated according to a rigorous assessment process. Due diligence is conducted to ensure that the applicant has the capacity to successfully complete the project,” he said.

Meanwhile, the consolidation of several industry-sector innovation funds may produce more funding opportunities that otherwise weren’t there for some businesses, one auto industry group said.

Jean-François Champagne, president of the Automotive Industries Association of Canada, which represents the aftermarket automotive industry, says the Automotive Innovation Fund had been tailored more to manufacturers.

“The move to the Strategic Innovation Fund may provide more opportunities for our members to tap into this resource,” he said in an interview.

“When you think about innovation, you want to make sure that the innovation fund really benefit all aspects of the industry.”

However, NDP MP Brian Masse (Windsor West, Ont.) has voiced concern that the overall amount of funding for the automotive industry may decrease by folding the automotive fund into the new program.

“How can I feel confident that auto innovation will not be diluted more?” Mr. Masse asked Minister Bains during a meeting of the House Industry, Science, and Technology Committee in May.

“We had specific funds following a long-fought battle to get separate funds, and now they’re lumped back in together with other things.”

In his response, Mr. Bains pointed to robust automotive sector investments made by the government, while arguing that although the Strategic Innovation Fund is open to all sectors, it “also means the automotive sector has more money to tap into.”

“If there are better projects that they come forward with, if they have R & D, if they can create jobs, if they can increase their footprint in Canada, if they can invest in building the cars of the future and invest in that kind of technology, our door will always remain open,” he added.

PUBLISHED in the Hill Times : Monday, Oct. 2, 2017 12:00 AM
jlim@hilltimes.com

The Hill Times

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