An Evaluation of the Industrial Research Assistance Program
DOI:
https://doi.org/10.55016/ojs/sppp.v18i1.80996Abstract
The Industrial Research Assistance Program (IRAP) supports R&D performed by small and medium-sized enterprises (SMEs), financially assists not-for-profit organizations that provide innovation services to SMEs, and participates in the Youth Employment and Skills Strategy. IRAP funding is approximately $400 million for the 2024-25 fiscal year. About 90 percent of the funding supports R&D performed by SMEs, which is the focus of this paper.
IRAP support for R&D consists of non-repayable contributions and the provision of advice by industrial technology advisors (ITAs). Financial support for R&D is generous: over the seven years ending in 2022-23, excluding the pandemic year, financial assistance averaged almost 37 percent of approved project costs. Almost all firms receiving IRAP assistance also benefit from federal and provincial tax incentives for R&D, bringing the total subsidy to almost 64 percent of project costs.
IRAP provides financial support for numerous small projects, each of which requires a separate contribution agreement. In addition, IRAP provides intensive non-financial support in the form of technical and business advice to many firms. This approach results in high program delivery costs: in recent years operating costs amounted to 17.5 percent of financial assistance provided. Excluding advice provided by ITAs, which is another form of financial assistance to firms, the operating cost ratio was 15.5 per cent. In contrast, the operating cost ratio of the Strategic Innovation Fund, which supports large projects and offers a much lower level of client services, is around 2 percent.
IRAP documentation states that the ultimate objective of supporting R&D is wealth creation in Canada. The two most recent evaluations of IRAP (National Research Council of Canada 2017, National Research Council 2022) assess this objective using benefit-cost analysis, concluding that the program provides a net benefit to Canada. However, this analysis compares the private benefit (profits) of client firms with the fiscal cost of the subsidy. It does not measure the net social benefit of the program. An analysis of the social costs and benefits demonstrates that IRAP is not fulfilling its mandate.
Analysed as a separate program IRAP fails a benefit-cost test because of a high subsidy rate and high operating costs. However, IRAP subsidies are essentially a top-up for selected firms receiving the SR&ED tax credit, which also fails a benefit-cost test. Instead of excessively subsidizing R&D, IRAP funding would be more effectively deployed as repayable assistance for commercialization and scaleup in Canada.
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