For finance ministers, the annual budget is the big chance to play Santa Claus, and Finance Minister Bill Morneau was no different in Budget 2018. But as we all learn, there is no Santa Claus. So when Morneau announced a big $700 million boost for the Industrial Research Assistance Programme (IRAP) that has done so much to help small and midsize companies develop new technologies, it seemed like a great gift. But is it?
IRAP has been a significant source of funding for many high-tech companies, especially those just starting or still scaling up. Just go to the great tech hub of Kitchener-Waterloo. Its earlier companies such as BlackBerry, Open Text, DALSA and Sandvine, all used IRAP dollars to help develop their products. More recently, young tech companies in the region, such as ClearPath Robotics, Thalmic Laboratories, Miovision Technologies, Axonify, Snapsort, Mappedin and Shinydocs, are all being helped by IRAP.
In fact, companies using IRAP support to build their tech capacities can be found from one end of Canada to the other. Over the past two years, 2016-17, more than 3,000 companies have benefited from IRAP help, some with as little as $10,000-$20,000 and a few as much as $1 million.
Despite its successes, IRAP has been consistently underfunded – measured by the gap between businesses that qualify for help and its capacity to help. Despite the Trudeau government’s claimed goal of making Canada a world leader in innovation, for its first two years in office, it froze IRAP’s budget. The amount of funding for companies in the current fiscal year is $157.8 million, compared to two years earlier, when it was $168.5 million.
So when Morneau announced in Budget 2018 that IRAP would get a $700 million boost over five years, that seemed like a big shot in the arm. It would mean that IRAPs’ overall budget, which includes grants for companies, would go up by $100 million in the coming fiscal year, beginning on April 1, bringing it to $378.1 million, then rise by another $50 million in fiscal year 2019-20, bringing it to $428.1 million, and be sustained at that level in the years that followed. In addition, IRAP would be mandated to make grants of up to $10 million – much higher than the $1 million ceiling that it had set for itself (in part because of lack of funding).
But there’s a catch. As the Budget 2018 plan acknowledged, the Trudeau government was also shifting new responsibilities onto IRAP. It was to take over all the grant programmes for projects of $10 million or less that had previously been handled by the government’s Strategic Innovation Fund, which had been launched in Budget 2017. This fund, run by Innovation, Science and Economic Development, was an amalgamation of a number of earlier funds, including those serving the aerospace and the automotive and auto parts industries. But it was expanded to other industries, including information technologies. This means that the extra money going to IRAP will also have to fund companies seeking much larger support than IRAP had provided in the past.
This could take a significant bite out of IRAP’s promised new funding. In the latter part of last year, the Strategic Innovation Fund allocated $41 million to 11 auto parts companies, with projects ranging from $1.1 million to $9 million. These kinds of projects are to be funded by IRAP in the future from its expanded budget.
Where does this leave the small and midsize tech businesses that IRAP has served so well? Not much further ahead. We don’t know how much of IRAP’s promised new funding will go to support the new responsibility it has been assigned. But 10 projects averaging $5 million apiece would eat up half the new money, and any $10 million awards would eat up more. At the same time, IRAP will have to add staff to handle its new mandate. So one possibility is that IRAP’s level of funding for up to $1 million for small and midsize businesses could end up being no higher (after inflation) than it was in 2015-16, the year the Liberals came to office.
IRAP is the single most important programme of the federal government to help build innovative businesses. Its network of officials across the country is able to deliver speedy approvals to businesses seeking funds, in contrast to the inordinate waiting period for approvals from government departments. Its record in helping companies progress by developing new products, including software and digital applications, is unmatched by any other government programme. It has managed to do this despite often finding itself a low priority at the National Research Council, where it is housed, and without champions in Parliament. It contributes much more to innovation and job creation than ongoing cuts to the small business tax rate, where the latest cut, to 9 per cent, will cost about $3 billion over the next six years. The priorities are wrong. But Budget 2018 doesn’t seem to do much to change that.
David Crane can be reached at email@example.com.