MONTREAL — Innovation Minister François-Philippe Champagne says innovation is still a priority for the Liberal government, but that the private sector needs to be driving R&D and the adoption of new technologies in pursuit of productivity.

As cabinet ministers gather in Montreal for three days of strategizing on the political year ahead, business groups and executives are questioning whether the government has lost focus, or at least momentum, on the file.

One reason: The late December decision to delay the launch of the Canada Innovation Corporation (CIC), an arm’s-length agency that would have advised and funded startups and larger firms pursuing R&D and commercialization projects. It was also due to absorb the National Research Council of Canada’s Industrial Research Assistance Program (IRAP). Originally proposed in the April 2022 budget, the agency’s full launch has now been pushed back to as late as 2026–27. 

That’s a missed opportunity to correct Ottawa’s current “spray-and-pray approach” to innovation policy, according to Benjamin Bergen, president of the Council of Canadian Innovators, a lobby group that represents more than 150 scale-ups. 

Bergen said it’s not just about more funding flowing to firms. “There’s a tremendous amount of money government is already spending [but] a lot of it is not being properly deployed.” To prioritize sectors where Canada has the best chance of competing, the CIC could have transplanted existing programs, while adding new initiatives such as a pooled collection of data or IP for AI or chips, he said. 

Postponing the CIC doesn’t signal “lack of ambition,” Champagne said in an interview on Monday, noting that there are “many ways for us to support innovation.” He cited existing initiatives like IRAP, the Canada Digital Adoption Program and national strategies to grow the AI and quantum-technology sectors. While the government can help create the enabling environment for innovation, he said, productivity growth is still constrained by business underinvestment in R&D and new technologies. “Innovation is about the private sector.”

Ottawa delayed the launch of the new innovation agency amid a government-wide push to curb spending, with departments and agencies required to cut three per cent by 2026–27. But business executives note that the Liberals have spent time and money on other economic priorities.

Over the last year, the federal government has committed tens of billions to build electric-vehicle battery plants and supply chains in Canada. “We’ve seen all the eggs put into the EV basket with heavy subsidies, but nothing else, really, in terms of domestic innovation plays,” said Robert Asselin, senior-vice president of policy at the Business Council of Canada, which represents the CEOs of the country’s largest firms.  

Much of that money is flowing through foreign multinationals—Volkswagen, Northvolt and an LG-Stellantis consortium are behind the battery factories. “You see them rolling back to old behaviour, which is, sadly, branch-plant economics,” Bergen said. “That is, the funding of foreign firms to come to this country and give us jobs.”

Champagne said there’s no need to pit multinationals against domestic scale-ups. “We should take it as a badge of honor as a country that not only do we have domestic firms that are growing and accessing new markets, but we even have global champions that see something in Canada,” he said. Foreign firms like Moderna that have placed big projects here have also made R&D commitments, which Champagne said will encourage the growth of local ecosystems around them. 

He also listed domestic companies that Ottawa has backed, like aerospace anchor CAE, biotech-boom firm AbCellera and quantum-computing scale-up Xanadu. “You’d say I’m their chief marketing officer or chief sales officer,” Champagne said, noting that he promotes homegrown champions abroad.

Over successive governments, Ottawa has launched a series of programs designed to cultivate cleantech, venture capital, artificial intelligence and other parts of the innovation ecosystem, as well as more general-purpose funds that back a limited number of firms.

There are benefits to Canada focusing on sectors of strategic advantage, according to Nicole Verkindt, a Canadian entrepreneur and angel investor. But Ottawa also needs to address the administrative cost of innovation programs that pick winners, and the burden they place on firms trying to access funding, she said. “It just takes so long and you’re just paying so many consultants by the end of it.”

The federal government should provide more of its innovation support through the tax system, Verkindt said. She called for new credits for angel investors, as well as changes to the scientific research and experimental development (SR&ED) incentive program.

On that last issue, at least, there’s movement. Even as it punted on the CIC, Ottawa announced it would launch consultations on a “cost-neutral modernization” of SR&ED. (The Liberals had promised a review in the 2022 budget.) Innovation-economy executives have long complained that too much of the program’s money flows to the Canadian subsidiaries of large foreign companies, or to “zombie” firms that would otherwise fail. 

Bergen said an overhaul of SR&ED is significantly overdue, calling the consultations a sop to the innovation economy to mitigate the CIC news. Still, he said the process could improve the program if Ottawa commits to reform. Both the council and Verkindt have said SR&ED should cover more of the cost of the commercialization and development work that comes after research.

Update: Nicole Verkindt’s title has been updated in this piece.