Government axes industry advisory group for Canada's largest R&D program

Lack of industry input raises concerns

The demise of a key industry advisory committee for the scientific research and experimental development (SR&ED) tax credit program is raising concerns that the government is losing access to a valuable source of expertise for Canada's largest R&D assistance program. The SR&ED Partnership Committee (PC) was abruptly disbanded last fall in the midst of an internal review when the Canada Revenue Agency (CRA) was directed to eliminate all advisory committees as part of a larger effort to reduce program expenditures.

Documents obtained by RE$EARCH MONEY and secured through Access to Information show that the CRA questioned whether the $60,000 annual cost of the PC justified the value of its advice. They also reveal that CRA had been "negotiating a more limited mandate for this committee" prior to its cancellation.

With the demise of the PC, CRA will rely on ad hoc measures for gathering and gauging industry views. These include so-called "no-cost options" such as ministerial correspondence and objections and appeals, as well as low- to medium-cost options including outreach sessions, networking groups, client surveys and focus group testing. Many in industry dispute the cost savings of the ad hoc approach, as several of the measures are more costly than the expense of administering the PC.

"The cost of the advisory structure is trivial compared to the benefits being delivered," says Robert Crow, VP industry, university and government relations with Research in Motion Ltd, and a PC member until 2004. "Ad hoc measures are expensive and won't save money. The long term delivery of the program is day-to-day, region-to-region and requires consistency in delivery. I can't see how that can be addressed effectively by ad hoc measures."

The PC was comprised of several high-level industry representatives and tax practitioners who volunteered their time to ensure that the program operated with consistency and fairness while evolving along with changes in industry.

"The committee was a high-profile group known to all major industry associations and had their support ... There was a high recognition factor," says Crow. "These are the best-known people in the country in all areas of industry. It's surprising that the cost of losing people of this calibre was not part of the equation (in the decision to cancel)."

Industry groups have been lobbying government to enhance and modify the SR&ED program, which accounts for a projected $3.3 billion in foregone revenue in 2007, rising to $3.6 billion in 2008. The recent federal Budget announced that the government "will identify opportunities to improve the SR&ED program, including its administration" in the coming year.

The SR&ED program has had an industry advisory body since the 1990s. Revenue Canada (CRA's predecessor) established a steering committee in 1998 following a particularly acrimonious period in which relations with the user community were poisonous. Attempts to resolve differences and grievances led to a landmark 1998 conference in Vancouver entitled Building Partnerships and an action plan that included the creation of an industry-government steering committee to oversee its implementation.

Then RevCan minister Herb Dhaliwal closed the workshop by announcing that SR&ED would become a self-contained national program with its own DG — moves that were hailed as positive initiatives by industry (R$, June 17 & July 8/98).

The implementation of the conference initiatives gave industry direct involvement in SR&ED for the first time. The steering committee and the PC which succeeded it in 2002 ushered in a period in which relations between government and industry were productive and relatively harmonious. With the PC's cancellation, many fear that the era of partnership will devolve into two solitudes.

Karen Wensley, a partner at Ernst & Young and head of human resources, was a member of the advisory committee and is intimately aware of SR&ED legislation and its administration. She argues that without continuous discussion, SR&ED won't evolve to serve industry as it adjusts practices to remain competitive in an increasingly flat world.

"The more discussion and consultation between stakeholders and Finance and the CRA, the better the program. The private sector brought a good perspective to the table," she says. "There's a real incentive to make the program as effective as possible."

Wensley says she is concerned about the demise of the PC and doubts that the proposed alternatives will be as effective.

"The CRA had a strong mandate of outreach and a big focus on client services. Now it's going back to being a group that administers a tax program and not outreach. With an ad hoc approach, there's no accountability that initiatives will be followed up on."

The government's stated position that the PC was being disbanded due to its cost and preference for an ad hoc approach also rings hollow. According to internal CRA documents, the CRA had already made the decision to dissolve the committee by August/06, in part due to disagreement over the scope of the PC's activities, the level at which it reported to and its input on the selection of new members. These ongoing disagreements led to antagonism between PC members and CRA.

A report for the Information Technology Association of Canada last year urging changes to the SR&ED program referred to the dissension and the concerns it raised within industry (R$, July 28/06).

"Industry representatives ... expressed their concerns about recent changes within CRA that will reduce or eliminate the mandate of the SR&ED Partnership Committee," stated the report. "The recent changes by CRA may be directly motivated by that Agency's wish to eliminate the perception that benefits may be derived primarily by the small group who participate in discussions with CRA and who are also either direct or indirect users ."

More revelations are contained in a questionnaire circulated last summer to gauge the impression of the PC's importance and relevance among CRA managers. It shows that CRA managers believed community awareness of the PC was moderate and that the committee process had little support. Managers believed that the dissolution of the PC would be met with indifference and that the committee held little relevance for the CRA.

"For the SR&ED program, preference is for ad hoc targeted or thematic consultations or working groups with specific associations/stakeholders as well as a range of focus groups, surveys and regional inputs," state the documents. "An advisory committee, by design, contains too few members trying to represent too many interests."

When Treasury Board and the Finance department announced in late September/06 that all of CRA's advisory committees were being eliminated, the PC review was effectively terminated. Staff moved quickly to remove key information from the departmental website and prepare the official response to anticipated queries from the media and stakeholder community. Scripted responses were then drafted stressing the cost savings associated with dissolving all CRA advisory committees ($1.4 million) and using the word "streamlining" instead of cancellation.

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