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Chrystia Freeland, Minister of Finance, speaks at a meeting of federal, provincial, and territorial finance ministers in Toronto on Dec. 15, 2023.Nathan Denette/The Canadian Press

The federal government is punting a flagship innovation funding scheme – possibly to beyond the next election – and launching a long-promised review of its biggest single spending initiative for research and development funding.

The Finance and Innovation, Science and Economic Development departments said in a joint statement Tuesday they would delay the implementation of Canada Innovation Corp., a funding agency announced in the 2022 budget, to “no later than 2026-27.” The CIC was supposed to be up and running this year, the government said in February.

The delay would potentially take the launch of the CIC to after the next federal election, which is slated to happen in October, 2025, meaning it might not materialize at all if there is a change in government. A senior government official said the delay owes to the challenge in building an agency from scratch and difficulty finding the right people from the private sector to run the agency. The Globe and Mail is not identifying the source as they are not authorized to speak about the matter.

The government also said it will launch consultations next month on a “cost-neutral modernization” of the Scientific Research and Experimental Development tax incentive program, which provides roughly $3-billion a year in tax credits to companies that employ knowledge workers across Canada. The review was also promised in the 2022 budget.

In addition, the departments said they would implement recommended improvements to the Business Development Bank of Canada, the government’s small-business-financing Crown corporation, after a recent legislative review of the agency. The review concluded BDC should review its risk appetite, particularly for “equity-deserving groups, underserved regions and sectors” and new businesses after several stakeholders complained the agency was too risk-averse and limited funding for small and medium-sized enterprises.

The CIC was to have received $2.6-billion over four years, and be funded each year after, according to last February’s budget. At the time, Finance Minister Chrystia Freeland and Innovation Minister François-Philippe Champagne said in a forward to a blueprint document that CIC wouldn’t be just “another funding agency” but an organization with a clear mandate to help Canadian businesses across all sectors and regions be more innovative and productive.

One of the aims was to put Canadian companies in a position to play a bigger role in the United States as the U.S. shifts its trading focus away from China.

CIC was also set to take over the Industrial Research Assistance Program, launched more than seven decades ago and managed by the National Research Council. Under the new plan, that transfer would only happen once the CIC is fully implemented, with the assistance program staying put at the council until then.

Benjamin Bergen, president of the Council of Canadian Innovators, a lobby group representing domestic technology companies, said the announcement is disappointing for members of the innovation economy. His group had applauded the formation of the corporation, and its potential to drive productivity gains along with higher wages and more prosperity.

“Nearly two years later we now hear that it will be delayed by a further two years, and in reality it is unlikely to ever be fully established in the way we had hoped,” Mr. Bergen said.

He said he hopes the Scientific Research and Experimental Development program review “will bring real transparency to the recipients of this $3-billion tax incentive, and put Canadian-headquartered innovators front and centre,” as the organization has recommended. Under that program, both domestic and foreign-based companies operating in Canada receive tax credits partially covering the cost of employing research and development staff.

The Canada Innovation Corporation Act received royal assent in June and the government promised it would be up and running this year with a board and chief executive in place. But the government had still not announced who will run it by this week and the Finance Minister’s fall economic statement made no mention of it.

CIC was set to be the latest in a long line of big programs from the Trudeau government to spur innovation and boost productivity, including the superclusters program, that have failed to make a meaningful impact on Canada’s chronically lacking productivity performance.

“In order to accomplish anything, you need to do things that take risk, have a spine and at least as importantly excel in operations,” said University of Toronto academic Dan Breznitz, the main proponent for CIC.

Prof. Breznitz, co-director of the Innovation Policy Lab at the University of Toronto’s Munk School of Global Affairs and Public Policy and who advised the Finance Department as a visiting economist prior to the last budget, said he was unimpressed by the delay of CIC.

“We are running out of time. Canada’s economic competitiveness and productivity continue their decline hurting the middle class. It is high time we act more and talk less. Taking risks and bold actions are the necessary ingredients for innovation. We need our leaders to be brave and believe that if given the opportunity Canadian will excel.”

Ottawa’s funding of early-stage technology has also come under scrutiny after an investigation into another agency – Sustainable Development Technology Canada – uncovered evidence of inappropriate funding and conflict-of-interest breaches.

In the House of Commons and in parliamentary committee hearings, opposition Conservative MPs have seized on the controversy, referring to the agency as a “billion-dollar Liberal green slush fund.” Conservative Leader Pierre Poilievre has said he would shut it down if he could.

The agency, established more than two decades ago, has been unable to fulfill its role as Canada’s largest funder of green technology since early October. Mr. Champagne suspended it after receiving the report into the probe, which was triggered early this year by whistle-blower complaints. He ordered the agency to implement a series of corrective measures, and a review of its human-resources practices. The agency’s ability to provide grants will be frozen until those are completed to his satisfaction, he said.

Since the report was released, chief executive Leah Lawrence and board chair Annette Verschuren have resigned, and the federal Auditor-General has launched her own investigation.

The government had initially announced the formation of CIC along with the $15-billion Canada Growth Fund last year. The arm’s-length fund is now operating, and recently announced its first investment: $90-million for a Calgary-based geothermal energy company.

The growth fund is set up to deploy a combination of financial instruments, including equity, debt, contracts for difference and offtake agreements, to reduce investment risks for the private sector and help meet climate targets.

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