An Evaluation of the Industrial Research Assistance Program

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 per cent 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 two per cent.

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, 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 subsidy’s fiscal cost. It does not measure the program’s net social benefit. An analysis of the social costs and benefits demonstrates that IRAP is not fulfilling its mandate.

Analyzed 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 Scientific Research and Experimental Development (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 scale-up in Canada.