If innovation was measured by how much you study something, Canada would have the world’s most cutting-edge economy.
Now, the Harper government is preparing to ponder some more. It has formed a six-member panel of “eminent Canadians,” headed by Thomas Jenkins, chairman of software maker Open Text Corp., to review the roughly $7-billion a year the government spends on business research and development. The group is expected to focus its attention on the $3-billion Scientific Research and Experimental Development tax credit program – the centrepiece of Ottawa’s R&D policy.
The government announced in its March budget that it was reviewing its R&D efforts. It took seven months just to pick six people to sit on the panel. Now it will take another 12 months to come up with recommendations, which history suggests will quickly be put on a shelf and left there.
In case anyone is counting, this marks at least the fifth time in less four years the government has launched a review of some aspect of the program. And almost nothing, innovative or otherwise, has yet come of it all.
What fresh insights the government expects to get from this latest effort is unclear. The program has already been studied to death.
The Canada Revenue Agency has conducted at least two customer satisfaction surveys and has regularly reviewed its administration practices and benchmarked itself to programs in other countries.
Last year, federal Taxpayers’ Ombudsman Paul Dubé launched his own review, soliciting hundreds of private sector comments. But spokeswoman Kimberley Boyer said the file is so “huge” and detailed it’s now unclear when Mr. Dubé will finish his work. And finally, Montreal economist Paul Muller did an internal review last year that remains confidential.
In addition to these government efforts, several private-sector organizations have weighed in on what’s wrong with the program – including, most recently, the Coalition for Action on Innovation in Canada.
The bottom line is that no one is entirely satisfied with the program – not the government and not the many companies who tap its benefits.
The government isn’t happy because it has one of the most generous R&D incentive schemes in the world, but it isn’t convinced it’s getting good value. R&D tax breaks have been around since the Second World War. And today, after numerous changes, Canadian companies do a lot less innovating than most of their developed world peers.
Many companies complain that CRA’s administration of the program is uneven and needlessly adversarial, making the process costly, unpredictable and time-consuming. There have also been allegations of political interference and abuse, including credits flowing to investors rather than innovators.
In the face of government inaction, the program has become a battleground, with each stakeholder seeking to manipulate it for their own benefit.
Larger, public companies want access to the generous 35 per cent refundable tax credits that now go exclusively to private companies. Small and medium-sized companies worry that large public companies would quickly suck up most of the credits if the rules are loosened.
Then there are the provinces. They’re nervously watching as Ottawa commissions another review, which could affect provincial tax incentives that typically piggy-back on the federal tax breaks.
Even the accounting business has a lot riding on the review. The country’s major accounting firms earn steep “success fees” for securing credits for their clients. It is not unusual for an accountant to pocket $300,000, or 30 per cent, on a $1-million credit.
Is it any wonder Canada isn’t getting good innovation value for its $3-billion?
The sad part of the saga is that Canada has the makings of something really good here. Managed effectively, these R&D tax credits should give the country a competitive edge as it looks to attract and nurture the best ideas and brightest people in the world.
Ripping the program apart, or dramatically curtailing its benefits, could undo all that.
Managed well, with money steered to companies doing good work, the program could help make Canada the innovation leader that everyone so desperately wants it to be.
