OTTAWA — The federal innovation department spent $1.17 billion less than it was authorized in the 2020–21 fiscal year, as its flagship fund did not pay out nearly as much as anticipated to scale-ups, industrial giants and multinationals for R&D and expansion projects, new figures show.

The disclosures also show the ministry lacks data to show whether it’s achieving many of its objectives.

Innovation, Science and Economic Development Canada (ISED) was authorized to spend up to $4.03 billion in the year ending March 31, 2021, according to the annual departmental results report tabled last week. But the department’s payouts and expenses totalled only $2.85 billion. That’s also less than the $3.05 billion that ISED originally planned to spend for the fiscal year, before Parliament approved additional funding.

The department hasn’t spent more than 90 per cent of its authorized budget in at least a decade, but the gap has been more significant in recent years.

The Liberal government is “very good on lofty promises, not as good on execution,” according to Ed Fast, the Conservative innovation critic. “The process to apply and qualify for support from these funding agencies is complex, byzantine and requires hordes of consultants to prepare these proposals,” he said, citing his conversations with industry stakeholders. “Many companies just throw up their hands in frustration and walk away.” Lengthy negotiations over contribution agreements have delayed the launch of major programs like the superclusters and IP collective. 

Governance and policy experts say underspending isn’t inherently a problem. “All departments lapse money,” noted Kevin Page, CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa. It’s a “structural feature” of the parliamentary system, where the government can only spend the amounts authorized by votes. 

But “a large lapse and a persistent tendency for large lapses should be scrutinized” by MPs at parliamentary committees, said Page, previously a longtime federal public servant. 

“The shortfall this year will probably look much larger because it was a pandemic budget,” said Viet Vu, a senior economist at Ryerson University’s Brookfield Institute for Innovation + Entrepreneurship. The government “probably did not know how much they needed to spend, and erred on the side of caution, which is not necessarily a bad thing.”

The Strategic Innovation Fund (SIF) accounted for the majority of ISED’s spending shortfall in the 2020–21 fiscal year, with the department paying out only $581.44 million of the $1.30 billion for which it had received approval. The now-$13.90-billion program, established in the March 2017 federal budget, provides loans to support R&D and expansion projects for scale-ups and major industrial firms as well as subsidies to multinationals’ foreign direct-investment projects. Companies incur eligible expenses, then file claims to ISED quarterly for reimbursement.

The SIF involves “complex, large-scale projects that take many years to roll out,” said ISED spokesperson Sean Benmor. “While the money is reserved, the timing of payment is dependent on how quickly the third parties implement their projects and request reimbursement.” That may come several years after the department starts negotiating with a firm, so “it is not unusual” for allocated funds within ISED’s budget to be deferred to future years, “to better match the timing of payouts to the expected requests for reimbursement.” Benmor said operational spending to cover internal departmental expenses is “quite predictable,” and a small surplus at the end of the fiscal year is normal. 

As with other departments and programs, Ottawa used the SIF “to mobilize a lot of money to fund COVID research,” noted Vu. In March 2020, the Liberal government added $792 million to the fund for clinical trials and manufacturing capacity. In the 2020–21 fiscal year, it announced a combined $1.31 billion for 12 life-sciences and biotech projects, according to The Logic’s ongoing analysis. Some of the program’s largest payouts over that period were to firms in the sector, including $101.20 million of a $173-million award to Medicago, a Quebec City-based vaccine developer, while Vancouver-based AbCellera received $46.46 million of the $175.60 million it was promised.

Lower-than-projected contributions under the Connect to Innovate broadband program ($120.37 million less than budgeted) and Canada Foundation for Innovation ($93.26 million less), which funds research infrastructure, made up much of the rest of ISED’s shortfall. The department has closed the gap on other programs. In past years, the superclusters initiative has contributed significantly to underspending. But in 2020–21, the department paid out $232.75 million to the five consortia, nearly 90 per cent of what it budgeted for at the start of the fiscal period. 

ISED is also facing challenges measuring the outcomes of its work. In plans published ahead of the start of the fiscal year, departments identify results they hope to achieve in their key areas of responsibility, designate indicators to measure, and set long-term targets; the departmental results reports provide progress updates. But for 19 of ISED’s 32 performance indicators for 2020–21, the report states data wasn’t available for that fiscal year, nor for 13 in the previous one. 

For example, one of the department’s objectives is to ensure “Canada’s entrepreneurs represent all segments of Canadian society” and the document lays out goals for the share of SMEs economy-wide that are majority-owned by women, Indigenous people, youth, visible minorities and persons with disabilities. But the report can’t say what the figures were for 2019–20 or 2020–21. It does, however, include the number of such firms ISED’s own programs supported. The department also hopes to see companies it backs grow revenues faster than the national average, but doesn’t know if that was the case for the last two fiscal years.

The report does note that much of the missing data will be available later, with some timelines extending to “early winter 2023.” Other indicators are drawn from Statistics Canada surveys that ISED states are published irregularly, or were delayed due to the pandemic. Vu isn’t surprised by the lag. “There’s really a single statistical agency in Canada that deals with all sorts of data [and] especially business data,” he said, noting as an example that StatCan typically publishes industrial R&D spending figures two years after the fact. 

Data meant for program evaluation shouldn’t necessarily have to meet the same very high—and time-consuming—quality and trustworthiness standards of economy-impacting figures like inflation or employment, Vu said. StatCan is working on a new Business Innovation and Growth Support database, which would compile information about firms backed by federal programs, but the project has been slowed by the pandemic. 

“The least we should expect is [that] the metrics that the government sets for itself are actually applied, [so] we know whether [it] is actually meeting its goals,” said Fast. “I don’t see that reflected in this report.” Properly tracking those indicators would allow the government to “very quickly find out where its innovation strategy is falling apart,” and improve it. Fast also said the government should be focused on metrics like private investment, noting that has recently declined.

ISED did not address The Logic’s questions about the lack of data for performance indicators in the report. 

“A department with a performance framework that has virtually no up to date data on performance metrics needs to be called to question by MPs” at House of Commons committees, said Page, noting that otherwise it’s difficult to ensure such ministries are delivering value for money. It may be appropriate for the auditor general to study the issue if the “problem is systemic.”