Chapter 4
Investing for Sustainable Growth

Building a Solid and Sustainable Foundation for the Economy

In addition to becoming more focused and providing the incentives for people to achieve their full potential, governments must also play a leadership role by making investments to support sustainable growth. These investments provide the foundation for global success and an environment where people can achieve excellence.

These strategic investments include support for world-class research in our universities, which will spur innovation and improve our competitiveness. They also include investments to create a cleaner, healthier environment that will improve the quality of life of Canadians and help Canada become a leader in the development of environmental technologies. Finally, government investment is required to modernize Canada’s infrastructure to ensure that trade will occur as seamlessly and efficiently as possible both within our borders and with the rest of the world.

World-Class Research and Development

Business innovation truly distinguishes an economy. Yet business research and development (R&D) investments in Canada have been lower than in most OECD nations, despite very favourable targeted tax measures and substantial public investments in primary research (Chart 4.1).

Advantage Canada’s actions to transform Canada’s tax and business environment should be instrumental in helping to make Canada an R&D and innovation leader. More value can also be generated from the Government’s investments in public R&D. Since R&D is so important for modern economies, more needs to be done.

The Minister of Industry has been consulting with key stakeholders on a national science and technology strategy. Some of the key challenges that have emerged from this consultation are the need to:

• Maximize the impact of the Government’s investments in research.

• Create centres of research excellence that will be more responsive to business needs.

• Create a business environment conducive to innovation.

Maximizing the Impact of the Government’s Investments

Canada leads the G7 in public sector R&D investment as a share of GDP, and the public sector currently finances 85 per cent of primary research in Canada. The federal government funds research in a number of ways, including through investments in infrastructure, direct support for researchers and the indirect costs of research, resources to help universities attract and retain leading researchers, and support for graduate students. Given the significant public funds devoted to science and technology, Canadians have a right to expect that the greatest possible benefits are realized from these investments. Continued investments in primary research must focus on excellence and must be measured rigorously and objectively.

The Government anticipates spending close to $3 billion this year in support of research conducted in post-secondary institutions. Much of this money is provided through the federal granting councils. Industry Canada is undertaking a review of the federal granting councils, and will report on ways to allocate resources more effectively in support of research excellence and the translation of research outcomes into social and economic benefits for Canadians.

We must ensure that the public is getting value from these investments in research. This will require better measurement and reporting of results. The Government will get more value for research investments by:

• Consolidating the range of available funding mechanisms.

• Allocating funding to the highest priorities.

The Government also spends more than $2 billion each year on its own research activities. Some of this money supports health, safety and regulatory activities; other research has broader social and economic objectives. As the Government reinvests in its science capacity, it will explore opportunities to transfer the management of some federal laboratories to universities. This would increase coordination with proven scientific leaders in universities and also provide additional training opportunities for Canadian students.

Creating Centres of Excellence and Responding to Business Needs

The research undertaken at Canadian universities creates new ideas and technologies that enrich our economy and society. Internationally renowned Canadian research in fields such as health, information and communications technologies, energy and environmental technologies helps to solve social and environmental problems. As recent graduates enter the labour market, they transfer this new knowledge from universities to businesses. World-class Canadian research also creates exactly the kinds of jobs we need to be a leader in key economic sectors.

To strengthen the links between companies and our post-secondary educational institutions, the Government is considering new ways to help businesses get access to people, knowledge and ideas. In the auto sector, colleges and universities are already working with companies to deliver leading-edge research to businesses and provide enriched learning opportunities to students. Other sectors can benefit from a similar approach.

Along with private sector and provincial contributions, federal funding for collaborative leading-edge science initiatives and commercialization facilities, such as the MaRS (Medical and Related Sciences) Centre, have reinforced Canada’s leadership in important sectors. However, we need a more systematic approach to evaluate research and commercialization projects through a rigorous and competitive process. This will ensure that future investments reflect national priorities and deliver value for taxpayers’ dollars.

The Government also supports university-led research collaboration with the private sector through the Networks of Centres of Excellence program. Introducing research networks managed and led by the private sector and focused on addressing the practical needs of businesses will create more value from business-university collaboration. As there may be insufficient economic incentives for the private sector alone to support this type of partnership, there may be a limited role for government support. The Government can also help businesses, including small and medium-sized enterprises, become more innovative by accessing the technology development and application capacity residing in community colleges.

Creating a Business Environment Conducive to Innovation

Canadian firms invest less than many of their OECD counterparts in research, development, and machinery and equipment, possibly missing out on opportunities to grow and succeed in lucrative areas. As a country, we must translate our strong primary research base into innovative new products, services and technologies. The private sector must be the leader in turning research and knowledge into innovation that benefits Canadians and people around the world. Improving the business environment (as discussed in Chapter 5) will help create conditions more favourable to business innovation.

A Cleaner, Healthier Environment

Protecting Canada’s environment is central to the Advantage Canada plan and an important source of long-term economic strength for Canada. Here’s why:

• A healthier and cleaner environment enriches the quality of life in Canada, and attracts and retains the highly skilled and mobile people we need to succeed in the global economy.

• Responsible development of our natural resources ensures future jobs and wealth creation across the country.

• Energy efficiency and environmentally sustainable business practices are increasingly important competitive advantages for our businesses.

• Canada has the potential to be a leader in the rapidly emerging business of environmental technology.

Canada’s New Government is focused on outcomes and achievable results to create a healthier environment for ourselves and future generations.

Through strong, clear environmental laws and regulations coupled with market forces, governments can create incentives and conditions in which businesses and people protect our natural environment and respond to environmental challenges with entrepreneurial innovation. For Canada, strong environmental protection laws are not costs—they are benefits that preserve our natural beauty, attract "new economy" firms and entrepreneurs, and incubate world-leading environmental protection industries.

Environmental Regulation: Creating the Right Circumstances for Private Investment

Canada’s New Government has introduced Canada’s Clean Air Act and will begin to regulate emissions from transportation, industry, and consumer and commercial products.

The Government has established a long-term target to reduce greenhouse gas emissions by between 45 and 65 per cent from 2003 levels by 2050. The National Roundtable on the Environment and the Economy will provide advice to the Government on the long-term target and how it can be achieved. The Minister of the Environment is also consulting with industries on realistic short-term targets to reduce air pollution and greenhouse gas emissions, with a view to establishing targets by early 2007.

Action will also be taken to improve standards and labelling for energy efficiency and address indoor air quality concerns. The clean air agenda moves Canada away from weak voluntary approaches and a patchwork of regulatory processes across the country to mandatory national standards that will deliver results.

The Government will work with industry, provinces and territories, and other stakeholders to establish a performance-based, efficient environmental regulatory regime that:

• Supports the development and deployment of new environmental and energy technologies.

• Maintains Canada’s competitiveness through:

• The pursuit of market-based approaches.
• Coordination of actions on reducing pollutants.
• Long-term targets that provide clarity and predictability to industry.
• Harmonization across jurisdictions.

• Ensures that no sector bears a disproportionate cost.

• Reflects the opportunities offered by the capital investment cycle in Canadian industries.

The Government is also working with provinces and territories on tougher, more stringent regulations and controls to address municipal waste water effluents, which are the most significant contributor to water pollution.

Finally, Canada’s New Government will work to implement a more streamlined environmental assessment process based on greater coordination both within the federal government and with provincial and territorial governments to ensure that projects can proceed in a timely fashion, while safeguarding the environment.

Accelerating Environmental Progress Through Targeted Initiatives

In addition to tough and appropriate regulatory measures, the Government will also find ways to:

• Promote a cleaner, renewable energy supply.

• Encourage greater energy efficiency in Canadian homes, buildings and businesses.

• Increase Canada’s capacity to adapt to a changing climate.

These initiatives will support an integrated, nationally consistent approach to protecting the health and environment of Canadians and will help spur businesses to develop and adopt the new technologies required to meet Canada’s environmental challenges.

Creating Business Opportunity Through Environmental Technologies

Canada is a world leader in research into many environmental technologies. We will build on this advantage. New investments in primary research will be targeted, including in the area of energy and environmental technology. The links between universities, colleges and the business sector will also be strengthened so that businesses have better access to the people, knowledge and ideas developed through federal investments in primary research.

Modern Infrastructure

High-quality, modern public infrastructure that allows goods and people to move freely and efficiently is essential to our long-term prosperity. Budget 2006 provided unprecedented infrastructure funding to help provinces, territories and municipalities meet their infrastructure needs.

Infrastructure matters. Its financing, construction and maintenance are important areas where government can—and must—play a leadership role. As a nation whose exports are so critical to our economic growth and prosperity, the infrastructure that provides gateways to foreign markets is especially important to Canada.

The Government understands how smarter, less costly project plans can be established when predictable, long-term, multi-year funding frameworks between governments are in place.

A core challenge is to ensure that federal spending has maximum impact. This can be achieved by taking advantage of innovative financing sources through public-private partnerships (P3s). Greater use of P3s will also provide opportunities for Canadian pension funds and other investors to participate in infrastructure projects here in Canada rather than being forced to look abroad, as is often the case now.

Experience around the world shows that properly designed P3s can preserve appropriate public control and deliver public infrastructure more efficiently than relying exclusively on government for the provision of infrastructure.

Some provinces are implementing P3 projects and have already started to put in place the structures that will allow them to harness the opportunities provided by P3s in helping to renew public infrastructure and improving the delivery of related public services. For example, in recent years public agencies, such as Partnerships British Columbia and L’agence des partenariats public-privé du Québec, were set up to provide expert services to public bodies in evaluating the feasibility of P3 projects and to facilitate the negotiation, conclusion and management of partnership contracts.

For its part, Canada’s New Government intends to establish a federal P3 office that will facilitate a broader use of P3s in Canadian infrastructure projects. The Government will also encourage the development and use of P3 best practices by requiring that P3s be given consideration in larger infrastructure investments that receive federal program funding.

Strategically located gateways and border crossings play a vital role in fostering Canada’s competitiveness. The bulk of our trade with the rest of the world flows through a number of key gateways and border crossings. For example, 28 per cent of merchandise shipments between Canada and the United States pass through the Windsor-Detroit Corridor. The Port of Vancouver is seeing rapidly growing container traffic with the Asia-Pacific region. The ports of Montreal, Saint John and Halifax are also important trade terminuses. Our national economy—and our ability to compete and succeed on the world stage—are highly dependent on the efficiency of these gateways to world markets.

Border Security

Today, we need to reduce the risk that security issues prevent our goods and services from reaching global markets. Canada’s economic success has its foundations in the North American market. In this regard, our land border represents a vital economic gateway to the world’s largest economy—next door in the United States. Enhancing the efficiency and security of our shared border with the U.S. is critical for ensuring that Canadian businesses can fully exploit the advantages of our North American Free Trade Agreement relationship.

The events of September 11th quite literally changed the world and created very legitimate and profound anxieties for people everywhere, but especially in the United States. The risk of terrorism remains a major threat to global stability and security.

To retain Canada’s critical access to the U.S. market, both security and border trade efficiency must be increased. The Prime Minister and the Presidents of the United States and Mexico have identified border issues as a priority under the work plan of the Security and Prosperity Partnership of North America. The three leaders have also called upon the newly established North American Competitiveness Council, a private-sector-led advisory group, to assist them in identifying priorities for enhancing North American competitiveness. Border security and efficiency will be a key part of their efforts, which will include seeking regulatory convergence. Regulatory convergence is critical, as it will help eliminate unnecessary barriers to the free flow of people, goods, services and investment.

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