Report of the Expert Panel Examining Ontarios

Business Support Programs

Message from the Chair

June 30th, 2014

Dear Minister Sousa and Minister Duguid:

It is my pleasure to present you with this examination of Ontarios business support
programs. I was honoured to be invited to Chair the Expert Panel, and to be joined by
David Wolfe and Douglas Cumming, my co-panelists, in the creation of this report.
David and Douglas are experienced and insightful individuals, and they brought their
extensive knowledge and sharp intellects to this work.
Business support programs can make a critical difference in the ability of entrepreneurs
to launch and grow companies, and in the ability of managers to address the
opportunities and challenges presented by evolving business paradigms and global
competition.
To serve Ontario enterprises well, the provinces business support programs need to be
fair, informed, and transformative. Only then will they be effective in helping the
provinces companies increase innovation, productivity, and competitiveness. At the
same time, we must all be sensitive to fiscal realities. Opportunities for investing are
infinite, but opportunities for investing well are limited. Evaluation of the effects of
business support programs is the key to differentiating between investing, and investing
well.
Our broad objective is to enrich the quality of the discussion on government support of
business amongst all stakeholders including Ontarians, businesses, government
ministries, universities, and elected officials. Specifically, our goals are to enrich the
understanding, management, and evaluation of the provinces business support
programs, and to this end we provide 26 recommendations.
As a first step we recommend the creation of a Business Support Programs
Subcommittee of Treasury Board to oversee the implementation of our
recommendations, and to be responsible for evaluation and ensuring the continuation of
the excellent work of the Ministry of Finance, which created the Business Support
Program dataset that made our analysis possible.

My co-panelists and I would like to thank the many people from across the Ontario
Public Service and beyond who contributed to this report. In particular, we would like to
thank Deputy Minister of Finance, Steve Orsini; Assistant Deputy Minister, Taxation
Policy Division, Sriram Subrahmanyan; and the talented and dedicated team at the
Ministry of Finance who worked closely with us throughout this journey. This team
includes Michele Anderson, Margaret Cappa, Colin Graham, Ann Langleben, Lynn
Lawson, Charles Whitfield, and Cheryl Whittam.

Sincerely,

Margaret Dalziel
Chair, Business Support Programs Expert Panel

Executive Summary
The Expert Panel Examining Ontarios Business Support Programs (Panel) is
pleased to present its report to the Minister of Finance and the Minister of Economic
Development, Employment and Infrastructure. Our report provides a sound basis for
understanding, managing, and evaluating Ontarios business support programs in such a
way as to support the strengthening and renewal of Ontarios industries, while achieving the
levels of transparency and efficiency associated with good governance.
Ontarios business people and entrepreneurs are creating the companies and jobs
that assure our future. They face intense global competition, and increasing costs, and
must be both highly efficient and highly innovative to stay in the game. Well-designed
business support programs can help companies address such challenges by supporting
knowledge acquisition and relationship building, and by providing incentives for investment
and catalytic amounts of funding.
Our report follows the Commission on the Reform of Ontario Public Service (the
Drummond Report) and the report of the Jobs and Prosperity Council (JPC) titled
Advantage Ontario. Both of these reports argued for the need for a clearer rationale for,
and cohesive structure to, Ontarios complex and sometimes confusing mix of tax credits
and direct subsidy programs. According to the Drummond Report, (c)urrently Ontario has
a hodgepodge of direct and indirect programs scattered across a variety of ministries with
various economic development mandates. . . Many firms, especially small ones, have
difficulty navigating this complex program landscape. . . Business support programs are
fragmented and lack clear and coherent objectives. This creates significant challenges for
tracking program costs against outcomes. This view was strongly reinforced in the JPC
report that argued (g)overnment business support programs should focus public dollars on
enhancing productivity, innovation and exports, and do so efficiently. The current mix of
programs does not. Simply put, the current design is cumbersome, drives up administrative
costs and complicates access for firms.
Business Support and the Ontario Economy
We begin our report with a discussion of the arguments for and against government
intervention. Adherents to economic theory identify market failure as the sole justification
for government support. While we recognize that interventions undertaken for reasons
other than market failure may reduce net social welfare in the short term, there are
legitimate social equity, innovation system, and competitive arguments for government
support. We consider the innovation system argument from evolutionary economics to be
especially important. It takes into consideration the full range of actors, institutions, and
interactions that comprise the economy, and is historically sensitive, recognizing the
importance of capabilities, created as a consequence of past investments and activities, on
current and future possibilities. This implies a broad view of the nature of business support
that encompasses the full range of innovation-related activities. But we also recognize the

limits to government support, both in terms of its costs, and in terms of its ability to generate
benefits.
The JPC report recommended that Ontario business support focus on increasing
innovation, productivity, and exports and we suggest that this must be done in a way that is
informed by differences across sectors and regions. The development of capabilities is
conditioned by a firms ability to absorb new knowledge and by the sophistication of the
knowledge assets in the sector or region in which the firm participates. Business support
should aim to increase the frequency and intensity of knowledge-generating and
knowledge-sharing engagements amongst firms and between firms and universities,
colleges, and relevant non-profit and government organizations, with a view to developing
the firm capabilities upon which increases in innovation, productivity, and exports depend.
Business support may be delivered through transfers - either direct transfers to
companies or transfers to intermediaries who provide services or funding to companies - or
indirectly through tax credits. Of all OECD countries, Canada, which delivers 84% of its
R&D support through tax credits, relies most heavily on indirect support.1 Ontario, which
delivers 67% of its business support through tax credits, exhibits similar tendencies. The
Panel believes the province should complement the federal reliance on tax credits with a
greater use of transfers, particularly those delivered through intermediaries.
Innovation intermediaries are an important element of innovation systems. They
provide funding and services to companies, entrepreneurs, and researchers, including the
provision of information and advice, promotional opportunities, events and platforms to
support networking and relationship building, and training. Several pay particular attention
to ventures, helping entrepreneurs establish their companies and raise equity financing. An
important feature of innovation intermediaries is that they are integrated into the sectors and
regions they serve, and leverage government funding with the contributions of business
people who serve on boards of directors and as coaches to young entrepreneurs.
Our recognition of the importance of innovation systems and the development of
capabilities, the distinctiveness of sectors and regions, and the usefulness of innovation
intermediaries leads us to reject the one-window approach to business support advocated
by the JPC. Ontarios business support programs must reflect the diversity of Ontarios
business support needs. To be effective, the client-facing side of business support
programs should be highly knowledgeable of and integrated with the targeted community.
We do support the idea of a single back-office, as recommended by both the Drummond
and JPC reports. We suggest the government creates a Business Support Programs
Subcommittee of Treasury Board that would be responsible for the implementation of our

OECD, Measuring R&D Tax Incentives, Direct government funding of business R&D and tax incentives
for R&D, 2011. Available at: http://www.oecd.org/sti/rd-tax-stats.htm#government.

recommendations and for the ongoing review and evaluation of Ontarios business support
programs.
Review of Ontarios Business Support Programs
When Don Drummond examined Ontarios business support programs he had
difficulty extracting the list of 44 programs names. Considerable progress has been made
since that time. Our review was made possible by the creation of the Business Support
Program (BSP) dataset provided by the Ministry of Finance (MOF). Using Ontario
corporate income tax returns and other tax data, the MOF provided profiles for the universe
of Ontario corporations and recipients based on revenue, number of employees, industrial
sector, age, and R&D spending. Tax data were linked to data from the Ontario
governments Integrated Financial Information System (IFIS), which records all Ontario
government payments to provide similar profiles for selected transfer payment programs
and total Ontario business support. The data cover the years 2005-06 to 2011-12,
inclusive, and allowed the Panel to examine how support has varied by the attributes of
recipient companies, both on a program basis, and in terms of total support.
Sixty-five programs were presented to the Panel for review. These programs are, or
have been, offered by the following nine ministries: Ministry of Economic Development,
Employment and Infrastructure (MEDEI), Ministry of Agriculture, Food and Rural Affairs
(OMAFRA), Ministry of Energy (ENERGY), Ministry of Northern Development and Mines
(MNDM), Ministry of Natural Resources and Forestry (MNRF), Ministry of Tourism, Culture
and Sport (MTCS), Ministry of Training, Colleges and Universities (MTCU), Ministry of
Agricultural Affairs (MAA), and MOF. In 2011-12, the last year for which data are available,
the Ontario government provided $4.1 billion in support. Almost half this support ($2.0
billion, 48%) was provided in the form of non-refundable tax credits, $829 million (20%) was
delivered by intermediaries, $7092 million (17%) was provided in the form of refundable tax
credits, $532 million (13%) was transferred directly to companies, and $77 million (2%) was
allocated to four programs whose intent was not business support. The Panel analyzed
recipient data for all but two tax credit programs, and all but 10 direct transfer programs.
The total 2011-12 budget of these 27 programs was $3.2 billion, or 78% of the total
business support envelope.
The Panel had incomplete data on programs delivered by intermediaries, and as a
consequence, these programs were not formally analyzed. While intermediaries keep
records of their spending, these records were generally not in a format that was compatible
with the BSP dataset created to support this review. The lack of data on companies served
by intermediaries is a reflection of the fact that the Ontario government is in the early stages
of organizing its data on business support programs. It is not a reflection of the value of
these programs.
2

This figure does not include the Ontario Media Development Corporation backlog estimate (media tax
credits not processed) that was included in 2011-12 Tax Expenditure Report and is found in 2013 Budget.

The findings for the 27 programs analyzed by the Panel are summarized in Figures 1
and 2 below. Figure 1 shows average support, across companies that received support, by
revenue. It shows that in 2011-12, average support for companies with less than $0.5
million in revenue was $4,333, while average support for companies with more than $20
million in revenue was $231,255. Business support in Ontario is highly skewed towards
large companies. Currently, over 200 companies receive more than $1 million annually in
total Ontario business support. These companies, which represent 0.1% of all companies
receiving Ontario business support, account for 30% of total Ontario business support.
While large companies may be better able to utilize large amounts of support, small
companies may be in greater need of support. Figure 2 shows total support by company
age. It shows that in 2011-12, total support for companies less than 2 years of age was
about $0.2 billion, while total support for companies 10 years old of age or older was $1.9
billion.

Figure 1 Average support by revenue ($)

Figure 2 Total support by company age ($)

The conclusion of our review is that Ontarios business support programs favours the
largest and oldest companies, the companies least likely to be in need of support. Further
research is required to determine the consequences of this pattern of support, and how it
compares to the allocation of business support in other jurisdictions. It may be that support
for small and young companies, relative to support for large and old companies, should be
increased, or it may be that small and young companies have a limited ability to usefully
absorb support. As background we note that Ontario ranks 18th out of 20 peer jurisdictions
in the availability of risk capital3, based on venture capital investments on a per capita basis
in 2011. Access to financing is consistently cited as a key business challenge by
entrepreneurs.4
Support for high potential young companies is especially important because such
companies may grow to be critical to the provinces economic performance and quality of
life. So its troubling that the prospects of Ontarios young corporations have deteriorated
significantly over the seven years from 2005-06 to 2011-12. Figure 3, below, shows how
companies that are less than 10 years old have performed relative to all Ontario
corporations. While our data show that the decline in the proportion of young corporations
in the population has been modest, the decline in the proportion of revenue earned by
young corporations and the proportion of employment accounted for by young corporations
has been dramatic.
3

Jobs & Prosperity Council, Advantage Ontario (2012), page 13,

http://docs.files.ontario.ca/documents/340/jpc-advantageontarioenglish.pdf.
4
Business Development Bank of Canada, SMEs at a Glance (August 2013), page 2,
http://www.bdc.ca/Documents/sbw2013/docs/SMEsAtAGlance_summer_2013_EN.pdf.

We also observe that fewer young corporations are conducting R&D and their share
of R&D spending has fallen dramatically. Those who believe investment in R&D is a reliable
indicator of company innovativeness will find further cause for concern in these data,
because the drop in R&D spending may indicate that Ontarios young corporations will be
less likely to develop sustainable competitive advantages in the future. When we consider
Ontarios R&D support, we find that R&D support as a proportion of R&D spending is higher
for both small and young companies than it is for large and established companies. That is,
the decline in the proportion of R&D spending accounted for by young companies occurs
despite the fact that by this measure of R&D support, R&D support is greater for young
companies than for old companies.
70.0%
60.0%
50.0%

% Companies, companies <

10 years

40.0%

% Total revenues, companies

< 10 years

30.0%

% Total employees,
companies < 10 years

20.0%

% Total R&D spending,

companies < 10 years

10.0%

% Companies conducting
R&D, companies < 10 years

0.0%

Figure 3 Young Corporations as a Proportion of All Ontario Corporations

Evaluation of Ontarios Business Support Programs

We distinguish between the review of program design and the evaluation of program
effectiveness. While the BSP data allowed us to conduct a review of many of the provinces
business support programs, it was insufficient for the purposes of evaluation. Upon its
creation, the Panel proposed conducting a survey to gather the data required for an
evaluation, but the government decided against it. Instead we have created a framework
for conducting an evaluation and urge the government to do so at its earliest opportunity.

Evaluations are essential to good governance. Companies, politicians, and

academics all get regular feedback on their performance and business support programs
are just as likely to vary in their effectiveness. Evaluations help decision makers determine
which programs should be sustained, and which programs should be cancelled. In addition,
they provide important feedback that allows program managers to improve program
delivery.
When governments make investments to support businesses, they hope to see
economy-wide payoffs in terms of growth in GDP per capita, productivity, and exports. So
its natural for policy makers to ask evaluators to measure the impact of investments in
terms of macro effects. But government investments do not have a direct effect on sectors,
regions, or economies. Business support programs have a direct effect only on firm
inputsresources and capabilities including financial resources, knowledge, perspectives,
networks, and opportunities. Managers then employ these enhanced resources and
capabilities to improve company performance in terms of better prospects for survival, more
innovative products and services, or increased size, productivity, or profitability. Only when
managers succeed in improving company performance, does the performance of the
economy improve as a result.
Evaluators can consider the extent to which business support programs impact
company resources and capabilities, the extent to which they impact company performance,
or the extent to which they impact the sectors and regions that comprise the economy. The
choice of the level of analysis depends on the purpose of the evaluation, the availability of
data, and the requirement for reliable results. We recommend that the government begin by
focusing on the measurement of impacts on company performance.
The greatest challenge in evaluating business support programs is data. We
recommend that the government conduct a baseline comparative evaluation survey at its
earliest opportunity, and complement this with the BSP dataset and data from Statistics
Canadas Survey of Innovation and Business Strategy (SIBS) released in 2014. Other
sources of data include the individual business support programs, which are well positioned
to collect data on applicants to programs, both successful and unsuccessful, and data on
the use of services and the amount of funding received by client companies. The use of a
unique company identifier, such as the Business Number assigned by the Canada Revenue
Agency, will facilitate the matching of multiple records that pertain to a single company.
While measures of the effectiveness of specific programs are valuable, government
decision-making will be best served by the ability to compare the performance of a portfolio
of business support programs. By using the same methodology to measure the impact of
multiple programs, governments can benchmark programs against one another and over
time. While early efforts should be focused on learning what works and gaining familiarity
with measurement instruments, the ability to compare the performance of programs can
serve to create a competitive market in which business support programs compete for
government funding. We recommend that the government benchmark the performance of
10

the Ontario economy against peer jurisdictions, and should similarly benchmark the
performance of its business support programs against peer business support programs.

Priority Recommendations
Our list of 26 recommendations for the Government of Ontario follows this executive
summary. Here we identify our top five areas of concern and associated
recommendations. We believe business support in Ontario should be fair, informed,
transformative, effective, and responsible.
Fair (Recommendations 2.1, 2.2)
Business support should be fair to the companies that do and do not receive
support. This can be achieved by offering catalytic amounts of funding that do not distort
the marketplace, by funding activities that generate spillover benefits to other companies,
and by providing business support services that assist multiple companies simultaneously.
Our review found that support is going primarily to large and old companies. Approximately
200 companies, or 0.1% of Ontario businesses, receive 30% of total Ontario business
support, and this does not include the significant incentive packages provided to companies
like Cisco and OpenText. While we are not advocating for equal support, we believe the
Government of Ontario should ensure that business support is fair.
Informed (Recommendations 1.4, 1.5, 1.8, 1.9)
Judicious business assistance requires knowledge. Business support in Ontario
should be informed by and responsive to the needs of companies at different stages of
development, and in different sectors, regions, and clusters. Of greatest concern are the
diminishing prospects of young corporations in Ontario. Given the paucity of risk capital in
Ontario compared to peer jurisdictions, the fact that access to capital is frequently cited as a
major obstacle by entrepreneurs, and our finding that young companies receive less
support from the Ontario government than companies that are more than 10 years old, we
think it urgent that the Government of Ontario reform its business support programs to
ensure that young companies, particularly high-growth young companies, are getting the
support they need.
Transformative (Recommendations 1.6, 1.7, 1.10, 1.11, 2.3, 3.3)
The Ontario economy needs transformative increases in innovation, productivity, and
exports. But transformation is hard. Generally available tax credits may be easy to
administer, but they are limited as agents of transformation. The government needs to
support, and in some cases create, intermediary organizations that assist companies in
adopting new business mindsets and methodologies. Intermediaries need to be embedded
within the specific sectors, regions, and clusters they support, and to work with business
people to create and deliver programs that provide companies with the incentives,
11

knowledge, resources, and capabilities they need to compete with global leaders. The
Government of Ontario needs to provide business support that is transformative.
Effective (Recommendations 3.1, 3.2, 3.4, 3.7, 3.8, 3.9)
Business support that is not effective serves no purpose. Only rigorous evaluations
can determine whether or not programs are effective. The government needs to commit to
evaluation and recognize that the downsides of occasional negative evaluations are far
outweighed by the benefits of positive evaluations and, most importantly, improved
business support programs. The Panel recommends that the government conduct a
baseline evaluation survey of the effectiveness of its business support programs at its
earliest opportunity. This will allow it to benchmark the outcomes of specific programs
against one another in the interests of learning how to improve program design and
delivery. The Government of Ontario should commit to regular and rigorous evaluations of
the effectiveness of its business support programs.
Responsible (Recommendations 1.12, 3.5, 3.6)
The Panel recommends the creation of a Business Support Programs Subcommittee
of Treasury Board that would be responsible for implementing our recommendations and for
the ongoing review and evaluation of Ontarios business support programs. The MOF
made significant progress in data collection and analysis during the Panels tenure. The
Panel recommends that work on the BSP dataset be continued and that, to facilitate this
work, all business support programs be required to collect data on all applicants for support,
both successful and unsuccessful applicants. The Government of Ontario should establish
the policies and procedures to achieve responsible business support.
Conclusion
Our examination of business support has provided a basis for understanding the
circumstances under which business support is appropriate, the sectoral and regional
lenses through which it should be designed, and the alternatives for its delivery. Our review
of Ontarios direct transfers and tax credits showed that companies that are established or
large are more likely to receive support than companies that are new or small. Our final
chapter provides a framework for how to evaluate the provinces business support
programs.
We have refrained from identifying specific programs that should be sustained,
modified, or canceled. This is in contrast to the Drummond report, which recommended the
elimination of all direct business support programsthose delivered through intermediaries
and direct transfers. Decisions about which programs to cancel and which to retain should
wait until additional knowledge is obtained regarding which programs are effective and
which are not. Programs delivered by intermediaries are particularly vulnerable because
the government has the least access to information on recipient companies. But because
these programs offer value-added services in addition to funding, they have the greatest
12

potential for transformative change. Relative to peer jurisdictions, Canada and Ontario
already rely heavily on R&D tax credits, and yet exhibit low levels of business expenditures
on R&D.
Our objective has been to provide the insights and information required to improve
the dialogue on business support in Ontario. Citizens, business people, government
officials, and politicians will benefit from an improved understanding of what the government
is doing, why it is doing it, the effects of its investments, and the alternatives. We should
aspire to business support that is transformational, that helps entrepreneurs launch
companies, and helps executives imagine and create bold new futures for their enterprises.
We hope our recommendations, which follow, help create that better future. Ontario has
many advantages. Business support should be one of them.

13

Biographies of Panel Members

Dr. Margaret Dalziel (Chair) is an Associate Professor with the Conrad Centre for
Business, Entrepreneurship and Technology at the University of Waterloo, and VP
Research, The Evidence Network. The Evidence Network, co-founded with Brian Barge,
evaluates, explains, communicates, and benchmarks the impact of organizations that
support business, research, innovation, and entrepreneurship.
Previous experience includes 12 years with the Telfer School of Management at the
University of Ottawa, and 15 years experience in technology development and research
management in the private sector, with the Canadian Space Agency, and with the Faculty of
Engineering at McGill University.
Dr. Dalziel teaches technology entrepreneurship, and conducts research on
innovation and entrepreneurship. She has received four grants from the Social Sciences
and Humanities Research Council, has produced over 100 articles, and has served on
expert panels sponsored by the Council of Canadian Academies, the Prime Ministers
Advisory Council on Science and Technology, and Statistics Canada.
Dr. Dalziel holds degrees in business (PhD, UQAM; MBA, McGill), computer science
(BSc, McGill), and music (ARCT, Royal Conservatory of Music of Toronto).

Dr. Douglas Cumming, J.D., Ph.D., CFA, is a Professor of Finance and Entrepreneurship
and the Ontario Research Chair at the Schulich School of Business, York University. His
research interests include venture capital, private equity, hedge funds, entrepreneurship,
and law and finance. He is a Co-Editor of Entrepreneurship Theory and Practice, and has
been a guest editor for 12 special issues of top journals.
He has published over 110 articles in leading refereed academic journals in finance,
management, and law and economics, such as the Journal of Financial Economics, Review
of Financial Studies, Journal of International Business Studies and the Journal of Empirical
Legal Studies. He is the coauthor of Venture Capital and Private Equity Contracting
(Elsevier Academic Press, 2nd Edition, 2013), and Hedge Fund Structure, Regulation and
Performance around the World (Oxford University Press, 2013).
Dr. Cumming is the Editor of the Oxford Handbook of Entrepreneurial Finance
(Oxford University Press, 2013), the Oxford Handbook of Private Equity (Oxford University
Press, 2013), and the Oxford Handbook of Venture Capital (Oxford University Press, 2013),
and 6 additional books published by Wiley, Springer and Palgrave MacMillan Press. His
work has been reviewed in numerous media outlets, including The Economist, The New
York Times, Canadian Business, the National Post, and The New Yorker, among others.

14

Dr. David A. Wolfe was the Royal Bank Chair in Public and Economic Policy at the
University of Toronto from 2009 - 2014 and is currently the Co-Director of the Innovation
Policy Lab at the Munk School of Global Affairs. He has been the Principal Investigator on
two Major Collaborative Research Initiatives funded by the Social Sciences and Humanities
Research Council of Canada, the first on Innovation Systems and Economic Development:
The Role of Local and Regional Clusters in Canada and the second on Social Dynamics of
Economic Performance: Innovation and Creativity in City-Regions.
Dr. Wolfe has published extensively on cluster dynamics and related knowledgebased economic development. Dr. Wolfe was also the CIBC Scholar-in-Residence at the
Conference Board of Canada in 2008-2009 and published 21st Century Cities in Canada:
The Geography of Innovation in that capacity. In addition, he is the editor or co-editor of ten
books and numerous scholarly articles, most recently Innovating in Urban Economies:
Economic Transformation in Canadian City-Regions.
Dr. Wolfe holds a BA and MA in political science from Carleton University, and a Ph.D.
from the University of Toronto.

15

Acknowledgements

The Panel would like to thank several individuals for their contributions to this report.
Deputy Minister (MOF) Steve Orsini and Assistant Deputy Minister (Taxation Policy
Division, MOF) Sriram Subrahmanyan provided steadfast support and wise counsel. The
report would not exist were it not for the contributions of the MOF staff who worked closely
with us throughout this journey. A big thank you to Michele Anderson, Margaret Cappa,
Colin Graham, Ann Langleben, Lynn Lawson, Charles Whitfield, and Cheryl Whittam for
your insights, dedication and attention to detail. We are also grateful to the others from the
MOF and other ministries who participated in data retrieval. Finally we would like to thank
the many people from across the Ontario Public Service and beyond who generously
shared their knowledge and insights. These people include Bev Dahlby, William Forward,
Arvind Gupta, John Lester, Jack Mintz, and Joe Rowsell.

16

Recommendations of the Panel

Chapter 1 Recommendations
The Government of Ontario should:
1.1 Provide a clear explanation of the economic, social, innovation system, or competitive
rationales that underlie its business support programs.
1.2 Address the arguments against government intervention where it chooses to provide
business support.
1.3 Establish explicit criteria for the launch and closure of business support programs.
1.4 Ensure that its business support programs provide effective support to young
companies.
1.5 Adopt a sectoral approach to the design of business support programs.
1.6 Evaluate incentives to attract or retain multinational corporations in terms of their
effects on the sector and region in which the firm operates.
1.7 Create an new intermediary organization to support innovation, efficiencies, and
exports in the manufacturing sector.
1.8 Focus regional development support on building institutional capacity to support
innovation within regions.
1.9 Adopt a cluster perspective to more effectively integrate business support programs,
and integrate the cluster perspective with sector strategies.
1.10 Adjust the mix of transfers and tax credits in favour of transfers.
1.11 Emphasize the role of intermediary organizations as necessarily diversified program
delivery agents.
1.12 Establish a Business Support Programs Subcommittee of Treasury Board to be
responsible the implementation of our recommendations and for the review and evaluation
of Ontarios business support programs and investments.
1.13 Seek effective alignment of provincial and federal business support programs.

17

Chapter 2 Recommendations
The Government of Ontario should:
2.1 Moderate the degree to which support increases with company size.
2.2 Moderate the degree to which support increases with company age.
2.3 Align its sector support with its sector strategies.
2.4 Conduct further research on the recipients and effects of its business support
programs. Many topics suggest themselves. One is the long-term implications of shortterm programs.

Chapter 3 Recommendations
The Government of Ontario should:
3.1 Commit to evaluation in the interests of increasing the effectiveness of its business
support.
3.2 Focus evaluation on effects on companies in the interests of reliability and learning.
3.3 Convene panels and provide them with data that will assist them in the judgment of the
impact of programs on sectors, regions, and clusters
3.4 Conduct a baseline comparative evaluation survey to develop knowledge of the relative
effectiveness of programs delivered by intermediaries and other targeted programs.
3.5 Continue its work on the Business Support Program dataset. To facilitate this work,
collect data from successful and unsuccessful applicants for support.
3.6 Use a unique company identifier, possibly the Business Number assigned by the
Canada Revenue Agency, to facilitate the matching of multiple records that pertain to a
single company.
3.7 Explore the use of the Business Support Programs dataset, in combination with the
Statistics Canada Survey of Innovation and Business Strategy, in evaluation.
3.8 Ensure that evaluations of the impact of business support programs distinguish
between changes in company performance that would happened in the absence of
government intervention, and those that are attributable to the intervention being evaluated.
3.9 Benchmark the performance of the Ontario economy against peer jurisdictions, and the
performance of Ontarios business support programs against peer business support
programs.
18

Table of Contents
Executive Summary................................................................................................................ 4
Biographies of Panel Members ..............................................................................................14
Acknowledgements ...............................................................................................................16
Recommendations of the Panel .............................................................................................17
Frequently Used Acronyms ...................................................................................................21
Introduction ...........................................................................................................................24
Chapter 1: Business Support Programs in the Ontario Economy ...........................................27
1.1 The Rationale for Business Support Programs ..............................................................27
1.1.1 Alternative Justifications for Business Support ........................................................28
1.1.2 Arguments Against Business Support .....................................................................34
1.2 Ontarios Economic Outlook and Future Challenges......................................................35
1.2.1 Ontarios Innovation, Productivity and Export Challenge .........................................36
1.2.2 The Challenge for Young Corporations ...................................................................41
1.3 The Changing Sectoral Composition of Ontarios Economy...........................................43
1.3.1 Ontarios Sectors .....................................................................................................44
1.3.2 Building Strategic Capacity across Sectors .............................................................47
1.3.3 The Need for a Focused Manufacturing Strategy ....................................................49
1.4 The Regional Dimension of Economic Development Policy ...........................................52
1.4.1 The Cluster Perspective ..........................................................................................54
1.5 The Choice of Policy Instruments ..................................................................................57
1.5.1 Direct Transfers versus Tax Credits ........................................................................57
1.5.2 The Impacts of R&D Tax Credits .............................................................................59
1.5.3 Programs Delivered by Intermediaries.....................................................................61
1.5.4 Centralization of Program Delivery and Evaluation ..................................................63
1.5.5 The Need for Policy Alignment ................................................................................64
Chapter 2: A Review of Ontarios Business Support Programs .............................................65
2.1. Total Government of Ontario Business Support, 2005-06 to 2011-12 .............................75
2.1.1 Total Government of Ontario Business Support by Company Revenue...75
2.1.2 Total Government of Ontario Business Support by Company Employees...77
2.1.3 Total Government of Ontario Business Support by Industry...79
2.1.4 Total Government of Ontario Business Support by Company Age81
2.2. Government of Ontario Refundable Tax Credits for Businesses, 2005-06 to 2011-12 ....82
19

2.3. Government of Ontario Non-Refundable Tax Credits for Businesses, 2005-06 to 2011-12
..............................................................................................................................................85
2.4. Government of Ontario 12 Direct Transfer Programs for Businesses, 2005-06 to 2011-12
..............................................................................................................................................88
2.5. Government of Ontario Research and Development Tax Credits, 2005-06 to 2011-12 ...92
Chapter 3 A Framework for Evaluating Ontarios Business Support Programs ...................94
3.1 Why Evaluate Ontarios Business Support Programs? ..................................................94
3.2 What to Measure? .........................................................................................................96
3.2.1 Understanding How Government Interventions Generate Effects ............................96
3.2.2 Measuring Effects on Company Resources and Capabilities ...................................98
3.2.3 Measuring Effects on Company Performance .........................................................99
3.2.4 Measuring Effects on the Economy .......................................................................100
3.3 Data Sources...............................................................................................................101
3.3.1 Primary Data Sources ...........................................................................................101
3.3.2 Secondary Data Sources.......................................................................................103
3.4 Programs by Data Source ...........................................................................................107
3.4.1 Programs to be Evaluated Using Primary Data .....................................................107
3.4.2 Programs to be Evaluated Using Secondary Data .................................................109
3.4.3 Programs for Later Evaluation ...............................................................................110
3.5 Methodologies for Analysis ..........................................................................................113
3.5.1 Identifying Effects on Companies ..........................................................................113
3.5.2 Identifying Macro Effects .......................................................................................115
3.6 Benchmarking Economic Performance ........................................................................117
3.6.1 Benchmarking the Economy Against Other Jurisdictions .......................................117
3.6.2 Benchmarking the Performance of Business Support Programs ...........................121
Conclusion ..........................................................................................................................123
Appendix A The Business Support Programs Dataset ......................................................126
Appendix B Size and R&D Spending of Ontario Sectors...................................................131
Appendix C Ontarios Business Support Programs ...........................................................135
Appendix D Graphical Analysis of Total Support ..............................................................147
Appendix E Graphical Analysis of Refundable Tax Credit Support ...................................160
Appendix F Graphical Analysis of Non-Refundable Tax Credit Support ............................166
Appendix G Graphical Analysis of Support by the 12 Direct Transfer Programs ...............172
Appendix H Graphical Analysis of R&D Support ...............................................................178
20

Frequently Used Acronyms

AMIS: Advanced Manufacturing Investment Strategy

ATTC: Apprenticeship and Training Tax Credit
BERD: Business Expenditure on Research and Development
BESF: Business Ecosystem Support Fund
BSPs: Business Support Programs
CCA: Council of Canadian Academies
CETA: Comprehensive Economic Trade Agreement
CETC: Ontario Co-operative Education Tax Credit
CINS: Commercialization and Innovation Network Support
CMA: Census Metropolitan Areas
CRA: Canada Revenue Agency
ENERGY: Ministry of Energy
EODF: Eastern Ontario Development Fund
EU: European Union
FDI: Foreign Direct Investment
GDP: Gross Domestic Product
GINs: Global Innovation Networks
GTAH: Greater Toronto Area and Hamilton
GVCs: Global Value Chains
IAF: Investment Accelerator Fund
ICT: Information & Communications Technology
IFIS: Integrated Financial Information System
IRAP: Industrial Research Assistance Program

21

JPC: Jobs and Prosperity Council

KBIs: Knowledge-based Industries
M&E: Machinery and Equipment
M&P: Manufacturing and processing
MAA: Ministry of Aboriginal Affairs
MaRS: Medical and Related Sciences5
MEDEI: Ministry of Economic Development, Employment and Infrastructure
MOF: Ministry of Finance
MNDM: Ministry of Northern Development and Mines
MNRF: Ministry of Natural Resources and Forestry
MTCS: Ministry of Tourism, Culture and Sport
NAICS: North American Industry Classification System
NIST: National Institute of Standards and Technologies
NIER: Northern Industrial Electricity Rate Program
NOHF: Northern Ontario Heritage Fund
OBRITC: Ontario Business Research Institute Tax Credit
OBPTC: Ontario Book Publishing Tax Credit
OCASE: Ontario Computer Animation and Special Effects Tax Credit
OCE: The Ontario Centres of Excellence
OCEB: Ontario Clean Energy Benefit
OCUTR: Ontario Credit Union Tax Reduction
OECD: The Organisation for Economic Co-operation and Development
OETF: Ontario Emerging Technologies Fund

MaRS was an acronym (Medical and Related Sciences) that summarized the organizations initial focus.
The scope has since widened to include cleantech, information and communications technology, and
health.

22

OFTTC: Ontario Film and Television Tax Credit

OIDMTC: Ontario Interactive Digital Media Tax Credit
OITC: Ontario Innovation Tax Credit
OMAFRA: The Ontario Ministry of Agriculture, Food and Rural Affairs
OMDC: The Ontario Media Development Corporation
ONE: The Ontario Network of Entrepreneurs
OPCTC: Ontario Political Contributions Tax Credit
OPSTC: Ontario Production Services Tax Credit
ORDTC: Ontario Research and Development Tax Credit
ORTC: Ontario Resource Tax Credit
OSBMTC: Ontario Small Beer Manufacturers Tax Credit
OSBTD: Ontario Small Business Tax Deduction
OSRTC: Ontario Sound Recording Tax Credit
OTEC: Ontario Tax Exemption for Commercialization
OTCMP: Ontario Tax Credit for Manufacturing and Processing
OVCF: Ontario Venture Capital Fund
R&D: Research & Development
R,D & I: Research, Development & Innovation
RICs: Regional Innovation Centres
ROI: Return on Investment
SIBS: Survey of Innovation and Business Strategy
SMEs: Small & Medium Enterprises
SR&ED: Scientific Research and Experimental Development
SWODF: Southwestern Ontario Development Fund
TSX: Toronto Stock Exchange
TSXV: TSX Venture Exchange

23

Introduction

A Tale of Two Entrepreneurs

Meet Ed Mateo.6 Ed is just the kind of entrepreneur Ontario needs. Soon to
graduate with a PhD from one of Ontarios leading universities, Ed has developed a
chemical analysis instrument and wants to patent, manufacture, and sell it. Laboratories
are clamouring for the technology and Ed has identified a large European company to help
with sales and marketing. All he needs to start production is $15,000 to purchase
equipment and supplies.
Ed has approached several of Ontarios business support organizations looking for
assistance, but wasnt eligible for some because he had already registered his company,
and couldn't raise the matching funds required by others. The result is that Ed has agreed
to license the technology to his European partner. Ed has lost the chance to pursue his
entrepreneurial dream and Ontario has lost a high potential new venture.
Contrast Eds story with that of John Baker. John is the CEO of Desire2Learn, a
provider of online learning management systems, an Ontario success story that employs
over 600 Ontarians and has over 1,100 customers in more than 20 countries. Back in 2000,
when Desire2Learn was just two people, Communitech, an Ontario Regional Innovation
Centre, put John on the stage at a conference, giving him an opportunity to make his case
to a key audience. Later, as John was deciding where to expand, Ontarios Next
Generation of Jobs Fund made a key investment that was critical to his choice to grow
locally. John credits these two Ontario business support programs with giving him the
chance to succeed and contribute to Ontarios prosperity.
Timely and appropriate business support is the key differentiating factor in these two
stories. Business support is about more than just money. It is also about contributions of
information and advice, promotional opportunities, events and platforms to support
networking and relationship building, and training. Both financial and service contributions
need to be informed by the business contextthe risks the company is facing, the industrial
sector in which it competes, and the region in which it operates. Focused and informed
business support can achieve transformational outcomes by working with Ontario
companies to address key challenges.
Background and Mandate of the Panel
The expert panel (Panel) tasked with the review and evaluation of Ontarios business
support programs is pleased to present its report to the Minister of Finance (MOF) and the
Minister of Economic Development, Employment and Infrastructure (MEDEI). We believe
our report provides a sound basis for understanding, managing, and evaluating Ontarios
6

Eds name is fictitious to protect his business interests.

24

business support programs in such a way as to support the strengthening and renewal of
Ontarios industries, while achieving the levels of transparency and efficiency associated
with good governance.
Our report follows the Drummond report on the reform of Ontarios Public Services
and the Advantage Ontario report of the Jobs and Prosperity Council (JPC). Both reports
argued for the need for a clearer rationale for, and cohesive structure to, Ontarios complex
and sometimes confusing mix of tax credits and direct subsidy programs. According to
Drummond, [c]urrently Ontario has a hodgepodge of direct and indirect programs scattered
across a variety of ministries with various economic development mandates. . . Many firms,
especially small ones, have difficulty navigating this complex program landscape. . .
Business support programs are fragmented and lack clear and coherent objectives. This
creates significant challenges for tracking program costs against outcomes. This view was
strongly reinforced in the JPC report that argued [g]overnment business support programs
should focus public dollars on enhancing productivity, innovation and exports, and do so
efficiently. The current mix of programs does not. Simply put, the current design is
cumbersome, drives up administrative costs and complicates access for firms.
Our objective is to help Ontarios citizens, business people, government officials, and
politicians understand, manage, and improve their business support programs. Rather
than counsel on the future of specific programs, we have provided the basis for an improved
dialogue regarding the nature and recipients of support. Ontarios business support
programs are necessarily diverse because meaningful assistance is based on contextspecific knowledge. But if we understand the rationales that underlie their design, develop
systems that allow us to responsibly and transparently manage their delivery, and evaluate
them with a view to measuring and improving upon their effectiveness, we can create the
programs we need to help Ontarios business people and entrepreneurs address the many
opportunities and challenges they face.
Data are key to this transformation. We distinguish between the review of program
design and the evaluation of program effectiveness, but both are reliant on data.
Our review was made possible by the creation of the Business Support Program
(BSP) dataset provided by the Ministry of Finance (MOF). Using Ontario corporate income
tax returns and other data, MOF officials provided profiles of the universe of Ontario
corporations and recipients of Ontario business support based on revenue, number of
employees, industrial sector, age, and R&D spending. The data cover the years 2005-06 to
2011-12, inclusive, and allow us to examine how support has varied by the attributes of
recipient companies. The BSP dataset provides information on the recipients of 27 of the
65 programs, which collectively represent 78% of the total business support envelope.
More information on the BSP dataset is available in Appendix A.
While the BSP dataset allowed us to conduct a review of many of the provinces
business support programs, it was insufficient for the purposes of evaluation. Evaluation is
25

essential to the determination of which programs are effective and which are not.
Reasonable people can disagree on whether support should go to large or small
companies, old or young companies, or high or low growth sectors. But nobody wants to
spend money where it is not having an effect. Upon its creation, the Panel proposed
conducting a survey to gather the data required for an evaluation, but the government
decided against it. Instead we provide an evaluation framework and urge the government
to conduct an evaluation at its earliest opportunity.
Outline of the Report
Chapter 1 addresses the question of how business support programs should be
designed. We first consider the arguments for and against government intervention and
adopt an innovation system perspective that sees the Ontario economy not as a multitude
of independent businesses, but as a diverse group of sectors, regions, and clusters
comprised of interdependent actors. We then describe the Ontario economy and the need
for increased innovation, productivity, and exports. We present new data that shows that
young companies in Ontario, like young companies across Canada and throughout the
OECD, have struggled in recent years. Subsequent sections of Chapter 1 consider
Ontarios sectors, focusing on the manufacturing section, and Ontarios regions and
clusters. The chapter concludes with a consideration of policy alternatives regarding how
business support is delivered.
Chapter 2 presents our findings from the analysis of the BSP dataset. We find that
business support in Ontario goes primarily to large, established companies. This pattern
holds across total support and the three types of support that we analyzed: non-refundable
tax credits, refundable tax credits, and direct transfers. We also find that cultural industries
receive a disproportionate amount of support. Appendices to Chapter 2 describe the 65
business support programs and present details on the numbers and attributes of companies
that do and do not receive support.
Chapter 3 begins by describing the merits of rigorous evaluations. It then describes
alternatives measures of program effectiveness identifying impacts on company resources,
capabilities, and performance as the most reliable and informative measures. We then
consider alterative data sources, identifying 36 priority programs that are suitable for
evaluation using one or more of the proposed evaluation survey, the BSP dataset, and the
results of the most recent Statistics Canada Survey of Innovation and Business Strategy.
We conclude the chapter with a consideration of the benchmarks that are suitable for
comparing the performance of both the provinces economy and its business support
programs.

26

Chapter 1: Business Support Programs in the Ontario Economy

A key challenge in examining government policies and programs that provide
support to business is the question of the desired change in behaviour that the intervention
is trying to achieve. One approach to understanding differences in the nature of these
policies and programs distinguishes between three different goals: innovation, adaptation,
and defense. Innovative programs are designed to promote growth and development,
primarily by fostering the adoption and diffusion of new product and process technologies,
particularly in industries with expanding demand, in other words, those with the greatest
potential for future growth. Adaptive programs are designed to facilitate the process of
economic adjustment by easing the transition of economic activity and human resources out
of declining economic sectors or activities towards those with a more sustainable future.
Defensive programs are primarily intended to protect firms, sectors or regions against the
negative effects of broad economic changes.7 Both the report of the Commission on the
Reform of Ontarios Public Services (hereafter, Drummond report) and the report of the
Jobs and Prosperity Council (JPC) observed that Ontarios business support programs
appear to be designed to protect Ontario companies, sectors, and regions from change,
rather than to help them embrace it. The Panels view is that change-embracing innovation
should be the primary objective of Ontarios business support programs, but assistance with
adaption will be appropriate in some circumstances, and there are situations, the
automotive industry being the prime example, where a defensive orientation is required. In
the case of the automotive industry, the objective of the defensive orientation is to preserve
the provinces manufacturing capabilities.
Chapter 1 presents the background required for the design of innovation-based
business support programs. Section 1.1 begins by considering alternative rationales for
business support, the market-failure argument of neo-classical economics, the social equity
argument, the increasingly important innovation systems arguments of evolutionary
economics, and the competitive argument. It concludes with a discussion of the arguments
that have been put forward against business support. In Section 1.2 we provide an
overview of the Ontario economy focusing on the innovation, productivity, and export
challenge, and the prospects of the young companies that are critical to our economic
future. In Sections 1.3 and 1.4 we consider sectors and regions, respectively, and in
Section 1.5 we describe alternative policy instruments and the need for effective alignment
with federal programs.

1.1 The Rationale for Business Support Programs

This chapter begins with the question of the underlying rationale for business support
programs and proceeds with a review of a number of widely accepted frameworks for
7

P. Davenport, C. Green, W.J. Milne, R. Saunders and W. Watson, Industrial Policy in Ontario and
Quebec, Discussion Paper Series (Ontario Economic Council, 1982), 1-2.

27

designing business support programs. It is import to begin from this conceptual reference
point, as the Panel believes that there is a role for each rationale in the design of Ontarios
business support programs.

1.1.1 Alternative Justifications for Business Support

Economic Justifications
Market failure is the most commonly accepted rationale for publicly-funded business
support programs. Interventions designed to address market failure are justifiable, insofar
as they seek to reduce impediments to the proper functioning of markets. According to this
rationale, where interventions are not designed to reduce market failures, they risk
allocating resources less efficiently than markets, and thereby reducing net social welfare.
Among the various conditions that can result in market failure, the most notable are:
imperfect information (information asymmetries), imperfectly competitive markets (such as
in the case of natural monopolies), liquidity constraints or lack of access to capital markets,
which can restrict the level of investment in certain kinds of activities, significant
discrepancies between the social and the private rates of return (knowledge spillovers) and
the presence of public and indivisible goods. Another issue that has received inadequate
attention in most analyses of business support programs is the unique challenge faced by
small, open trading economies, where the size of the domestic market may generate
insufficient demand to sustain firms and industries in leading edge technologies or products
targeted to the unique conditions of the domestic society. While this is a market condition
that has been successfully overcome through the judicious use of policy instruments in
some jurisdictions, the discussion below suggests that it continues to be an issue for
Canada in general, and Ontario in particular. These market failures tend to increase
transaction costs for economic agents, interfering with the efficient functioning of markets,
and thus resulting in suboptimal outcomes. In these situations, interventions by government
to stimulate or constrain business behaviour are justified in order to achieve a more optimal
social outcome and a better distribution of economic welfare for society as a whole.
One of the most frequently cited cases of market failure exists in the area of
research and development spending. The source of the failure originates with the public
nature of new knowledge and the difficulties encountered by private agents in capturing the
full returns from their investments in basic research. The cumulative nature of research in
which some firms may introduce new products that build on the research investments of
their competitors, and the likelihood of knowledge spillovers from one firm to another,
constitute the most commonly accepted rationale for government intervention to stimulate
spending on R&D. The potential for leakage or knowledge spillovers from firms that invest in
leading edge research to competing firms involves a high level of risk taking and creates a
considerable degree of uncertainty for those firms. This uncertainty has led to the
conclusion that rational economic behaviour may result in a socially suboptimal level of
28

investment in R&D and has thus provided one of the most important rationales for
government investment. One of the most important aims of modern government programs
is to stimulate higher levels of investment in research and innovation to counteract these
kinds of market failures and produce higher levels of private investment in situations where
the social rates of return are likely to be higher than the private rates.8

Social and Equity Justifications

As important as the economic lens is, it is not the only one used to rationalize the
provision of subsidies to increase citizen welfare. Government support for business has
also been justified on social or equity grounds, ranging from the need to maintain relatively
well paying jobs, often in manufacturing industries, to the need to maintain jobs in parts of
the province where the pace of economic development has lagged more advanced regions.
This justification has also been used to support firms or industries in cities and towns that
were excessively dependent on one employer or industry and where the loss of a major firm
could prove deleterious for the overall level of income or social well-being in that part of the
province.
In the latter case, the social rationale begins to blend with regional development or
territorial criteria to justify business support programs. Debates over the purpose and
validity of regional development programs have often been polarized between a more
market-oriented perspective and a more place-based or social equity perspective. The
former views government subsidies to attract or retain businesses in lagging regions as
generating sub-optimal economic outcomes by reducing the overall level of economic
welfare. As such, a more market-oriented approach favours forms of intervention that
facilitate a higher level of labour mobility to locations with higher demand, rather than
subsidizing the cost of business to produce in a more inefficient way in disadvantaged
regions. Business support programs to maintain employment levels in diverse regions of a
jurisdiction in order to sustain income from employment can thus be viewed as a
complement to, or extension of, a governments social equity programs, in addition to their
role as part of its portfolio of economic development programs.
Recent thinking, both in the European Union and in Canada, has begun to shift the
lens through which regional development policies are viewed and evaluated. The alternative
perspective maintains that government regional development programs should be targeted
at improving regional capabilities and promoting the ability of regions to upgrade and
enhance their technological and innovative capabilities, regardless of the starting point for
their respective level of technological development. Section 1.4 below provides a more
detailed discussion of this alternative perspective.

B. Hall, J. Mairesse, and P. Mohnen, Measuring the Returns to R&D, in Handbook of the Economics of
Innovation, Vol. 2, eds B. N. Hall and N. Rosenberg, (Elsevier 2010), pp. 1033-1082.

29

Innovation System Justifications

As the 21st century unfolds, there is a growing recognition that the globally
competitive economic landscape is altering the context for the consideration of business
support. This recognition was clearly reflected in the thinking of the JPC report. As this
landscape changes, both policy makers and business leaders see innovation-based
economic development as the fundamental basis for future economic growth, in traditional
and existing economic sectors as well as in new and emerging ones. This perspective also
highlights the link between innovation and productivity growth and the importance of
productivity growth for future income levels. The widespread adoption and use of
technology across broad sectors of the economy is the most important source of future
productivity growth;9 hence the need to focus on business support programs that will
contribute to innovation and technological upgrading across a wide array of economic
sectors.
This shift to a more innovation-based perspective requires a rethinking of the
rationale for business support programs. Governments concerned with promoting
technological upgrading are adopting a more integrated approach that sees research,
development and innovation (R,D&I) policies as part of a continuum to promote the
continuous upgrading of innovative capabilities in a national or regional economy. This
integrated focus on innovation policy recognizes that businesses innovate in the context of
a broad network of institutions in society and that a critical role for public policy is to provide
support not just for the individual firm, but rather for the complex mix of institutions that
make up the innovation system. The innovation system approach was recently adopted by
the Council of Canadian Academies (CCA) in its report for the Government of Ontario on
measuring and assessing the innovation impacts of government spending on research. 10
The key elements that comprise the national and regional innovation systems
include: the internal organization of firms; the network of inter-firm relationships; the role of
the public sector; the institutional set-up of the financial sector; and the degree of R&D
intensity and the nature of R&D organization in both the public and the private sector. The
interactions among these elements of the innovation system are influenced by a variety of
broader factors that include the macroeconomic and regulatory environment, the system of
corporate governance, the nature of the education and training system, the state of the
communications infrastructure, and prevailing conditions in individual factor and product
markets. Interactions among the various institutions and actors that comprise the innovation

G. Tassey, Beyond the Business Cycle: The Need for a Technology-Based Growth Strategy, Science
and Public Policy 40 (2013): 294.
10
Council of Canadian Academies, Innovation Impacts: Measurement and Assessment, Ottawa (2012);
N. Crafts and A. Hughes, Industrial Policy for the Medium to Long-Term, Centre for Business Research,
Working Paper No. 455, University of Cambridge, Cambridge (December 2013).

30

system often operate across multiple levels of jurisdiction, from the national to the local
level, and take a variety of different forms.11
The innovation systems perspective also differs from the prevailing economic
paradigm in that it is based on an evolutionary systems approach. The evolutionary systems
approach recognizes economic actors operate with bounded rationality and imperfect
information. In this context, innovation involves a constantly changing search process that is
constrained by both limits of scientific and technological knowledge, as well as the strategic
and managerial capabilities of the firms engaged in the search process. As such, the
innovation process tends to move along a technological trajectory where the range of new
possibilities is determined by the external knowledge base that firms can draw upon from
public and private research organizations, as well as the internal search techniques that
firms adopt to guide their innovation and new product development strategies. The result of
this pattern of interaction is that innovation tends to progress along a path dependent
trajectory, where past choices and past successes both limit and open up the possibilities
for future technological development.12 Adopting the innovation systems perspective allows
for the design of government interventions both to compensate for market failures, but also
to overcome more systematic shortcomings in specific national, regional or local innovation
systems. Adopting this perspective both shifts the lens through which business support
programs are assessed and allows for a broader range of programs in the overall mix of a
governments R,D&I strategy.13
A closely related argument that has been used to justify government support for
certain businesses and industries is one that acknowledges the relative size of the market
opportunities that may exist for products in different industries. This form of intervention has
been justified on the basis of the different elasticities of demand that are associated with
various industries and the implications that shifting the developmental trajectory of a
national or regional economy can have for its long-term growth rates and the trend in per
capita incomes. The potential benefits that flow from an individual set of technology and
production choices are strongly conditioned by the potential demand for those technologies
or products in world markets or the income elasticities of demand. The faster the

11

B.-. Lundvall, ed. National Systems of Innovation, (Pinter 1992); F. Malerba, Sectoral Systems of
Innovation, (Cambridge 2004); B.-. Lundvall, National Innovation SystemsAnalytical Concept and
Development Tool, Industry and Innovation 14:1 (February 2007): 95-119.
12
G. Dosi and R. Nelson, Technical Change and Industrial Dynamics as Evolutionary Processes,
Handbook of the Economics of Innovation, Vol. 1, eds B. N. Hall and N. Rosenberg (Elsevier, 2010); R.R.
Nelson and S.G. Winter, An Evolutionary Theory of Economic Change, (Belknap Press of Harvard U.P.,
1982).
13
Israel Science, Technology and Innovation Policy Institute, The Changing Paradigm in STI PolicyMaking, Working Paper (February 2012).

31

demand increases in world markets for a countrys products, the greater will be the net
benefit, in terms of growth, that flows to that country or region.14
The long-term significance of this trend is further accentuated by the emergence of
an increasing number of new technologies with the potential for exponential rates of growth.
Many of these emerging technologies in areas such as next generation ICTs, advanced
battery technologies and nano-materials that will sustain future economic growth are still at
the early stages of development. However, exponential growth from innovation will be a key
driver of future economic prosperity for those jurisdictions that are able to take advantage of
this trend. It is the benefits that can arise from the long-term growth potential of these kinds
of income elasticities that have been used to justify targeted government support for specific
sectors, historically, steel, autos, textiles or shipbuilding, and in the contemporary economy,
information technology, biotechnology or nanotechnology.
In the Canadian case, an additional rationale for business support programs was
provided in the context of the consideration of the benefits of trade liberalization in a study
undertaken for the Macdonald Royal Commission. While the study provided broad support
for free trade, it argued that unrestricted free trade introduced into a small, open trading
economy such as Canadas, posed significant innovation challenges for small, indigenous
companies.15 Theories that link international trade with technological innovation argue that
shifts in leadership are not randomly distributed across industrial sectors or between
countries. Reflecting the innovation systems perspective, it recognizes that technological
competition tends to be cumulative and that the nature of that competition contains a large
degree of irreversibility. Countries and regions gain substantial advantages from being first
in new and emerging technologies. Even the most successful of the rapidly developing
emerging economies are rapidly moving up the technology learning curve to gain
competitive advantages in the development of a unique set of manufacturing capabilities. 16
The initial advantages that accrue to the technological leader in an area allow it to retain
that lead for a period of time and to undermine the efforts of its competitors. The benefits of
technological leadership allow a firm to recover its research and development costs, as well

14

G. Dosi, L. Tyson and J. Zysman, Trade, Technologies and Development: A Framework for Discussing
Japan, Politics and Productivity, eds. C. Johson, L.D. Tyson and J. Zysman (Ballinger, 1989), 15.; N.
Crafts and A. Hughes, Industrial Policy for the Medium to Long-Term, Centre for Business Research,
Working Paper No. 455, University of Cambridge, Cambridge (December 2013).
15
For a discussion of the concept and relevance of indigenous firms for the provincial economy, see
Ontario Premiers Council, Competing in the New Global Economy, Vol. 1 (Queens Printer for Ontario,
1988): 66-71.
16
D. Breznitz and M. Murphree, Run of the Red Queen: Government, Innovation, Globalization and
Economic Growth in China (Yale University Press, 2011); A. Segal, Digital Dragon: High Technology
Enterprises in China (Cornell University Press, 2003); D. Breznitz and J. Zysman, eds, The Third
Globalization: Can Wealthy Nations Stay Rich in the Twenty-First Century (Oxford University Press,
2013).

32

as realize a higher than average return on its investment. In effect, success breeds
success or being successful today raises the probability of success in the future.17
This perspective suggests that there is a disadvantage in small, open economies,
such as Canada, against technology-based industries. The entry barriers associated with
technological innovation affect smaller firms to a greater extent than large ones. To the
degree that smaller economies are characterized by a greater proportion of small firms, this
places the entire economy at a relative disadvantage with respect to technological
competition. As a consequence, there is a greater social incentive or justification for
providing business support to technologically intensive industries in a small open economy
than is the case with larger, more self-contained economies.18 The reason is that the relative
size of firms in the smaller economy leads to a suboptimal industrial structure with respect
to competing in innovation-based industries. Subsidizing small firms to engage in greater
levels of R&D spending alone does not automatically ensure that the firm will grow to
sufficient size in order to overcome the barriers to entry in world markets. As a result, the
full array of business support programs must include ones that are targeted at supporting
firms as they grow beyond the start-up phase and face more intense competition in
continental and global markets.
The innovation systems perspective has steadily been gaining broader acceptance
among a wide range of international and domestic policy organizations. The OECD, a
number of leading policy organizations in the U.S., Canadas Science, Technology and
Innovation Council and the Council of Canadian Academies have all used the innovation
systems perspective as a basis for considering business support programs. Its application
allows policy-makers to identify sources of success and failure within the broader mix of
institutions that facilitate or inhibit the process of innovation, as well as specific structural
gaps in the broader innovation system. The results of this analysis may also prescribe a
different perspective on the existing mix of policies, one which focuses attention on
networks and linkages in the innovation system, rather than just the level of support
provided to individual firms.

Competitive Justifications
A final rationale for business support programs is the competitive pressure to keep
up with the rapid proliferation of such incentive and subsidy programs, especially at the
state and local level in the U.S., as well as in competing jurisdictions in Canada. Data
presented to the Panel by the Ministries of Economic Development, Trade and Employment
and Tourism, Culture and Sport document the extensive subsidies used by provincial
governments in Canada, and state and local governments in the U.S. to attract and retain
investment in key sectors which compete directly with Ontario firms, such as automotive
17
18

R. Harris, Trade, Industrial Policy and International Competition (University of Toronto Press, 1985), 89.
Harris, 105.

33

assembly, auto parts and the entertainment and creative sectors. Widely cited research by
the New York Times documents the extensive use of tax incentives by state and local
governments across the U.S. and the degree to which the benefits of these incentives have
gone to some of the largest corporations in the U.S.19 The Panel recognizes that, on
occasion, there will be competitive pressures for Ontario to match such incentives. Such
incentives should be used sparingly and judiciously. The province needs to be sensitive to
the winners curse phenomenon. When competitive bidding is characterized by
incomplete information, winners tend to overpay. The province may be successful in
attracting or retaining large enterprises, but it may pay so much in incentives that the effect
on net welfare is negative.
PANEL RECOMMENDATION
1.1 The Government of Ontario should provide a clear explanation of the economic, social,
innovation system, or competitive rationales that underlie its business support programs.

1.1.2 Arguments Against Business Support

There are also arguments against providing business support. The first is that it may
dampen market incentives and thereby, over the long term, make companies and sectors
less fit for global competition than they would be without support. Companies that would
otherwise be obliged to innovate, to become more productive, or to export to generate
demand for their products or services may find it possible to escape these pressures in the
short term, given sufficient government support. But this government support only sets
them up for failure in the long term. This argument is directed primarily at old and large
companies in established industries, but there are those that say that young ventures will
achieve success more quickly if they are focused on finding early customers, rather than
applying to government programs for support.
The second argument is that there are alternative, and sometimes better, uses for
the funds. These alternative uses of funds include paying down government debt (or
reducing the deficit), investing in transportation, health care, or education, or leaving the
money in the hands of the taxpayers and companies that earn it. And the cost of business
support programs is not limited to the value of the transfer or tax credit. Additional costs
include the governments cost of administering and evaluating the program, and the costs
incurred by both successful and unsuccessful applicants to the program. The higher taxes
required by business support programs reduces economic efficiency by reducing the
rewards to citizens from working, saving, and investing.

19

New York Times, Explore Government Subsidies, (2012),

http://nytimes.com/interactive/2012/12/01/us/government-incentives.

34

A third argument is that public investments may crowd out private investments. It
has been shown that public investments in high potential technology-based companies
raise the cost of investment for private sector venture capital investors and thereby crowd
them out of the market.
The above arguments against business support must be considered even when
business support focused on the youngest and smallest companies in the most challenged
sectors and regions. When business support focused on the most established and largest
companies, an important equity argument comes into play. Should young and small
companies pay taxes to support established and large companies? Should domestic
companies pay taxes to support foreign companies? Should Ontario workers earning low
wages pay taxes to support high-wage jobs? When business support is targeted at older,
more established companies, it is harder to justify.
Where there is an economic, social, innovation system, or competitive rationale for
support, and where the above arguments against business support have been addressed,
the government may decide to fund a business support program; but both the initial and the
recurring rationale for funding the program need to be provided. If the conditions that led to
the decision to offer support have changed, it may be that the program should be cancelled.
PANEL RECOMMENDATIONS
1.2 The Government of Ontario should address the arguments against government
intervention where it chooses to provide business support.
1.3 The Government of Ontario should establish explicit criteria for the launch and closure
of business support programs.

1.2 Ontarios Economic Outlook and Future Challenges

While Ontario has recovered from the worst depths of the 2008-09 recession, the
economy faces significant challenges going forward. According to the latest forecasts in
Ontarios Long-Term Report on the Economy, the provincial economy is growing at a slower
pace than has been experienced in previous recoveries and continues to face a highly
competitive global environment. The governments budget proposed on May 1, 2014
forecasts that stronger growth in the U.S. economy and the recent decline in the value of
the Canadian dollar will help boost Ontario exports and stimulate higher levels of business
spending.
While the economic recovery has been slow since the recession, employment gains
have been steady and the overall level of employment is now higher than it was at the prerecession peak. In May 2014, Ontario had a total of 226,100 more jobs than it had at the
prerecession peak in September 2008 and the unemployment rate has declined from
35

9.4% at the peak of the recession in June 200920 to 7.3% in May 2014.21 The Ministry of
Finance is forecasting that real GDP is expected to increase by 2.1% in 2014, 2.5% in
2015 and 2016, and 2.6% in 2017.22
TABLE 1.1 Ontario Economic Outlook
2011 2012

2013

2014p

2015p

2016p

2017p

Real GDP Growth (%)

2.2

1.3

1.3

2.1

2.5

2.5

2.6

Nominal GDP Growth (%)

4.0

3.0

2.7

3.5

4.4

4.4

4.6

Employment Growth (%)

1.8

0.8

1.4

1.1

1.5

1.6

1.4

CPI Inflation (%)

3.1

1.4

1.0

1.5

1.9

2.0

2.0

Source: Statistics Canada and Ontario Ministry of Finance

p refers to projected

Despite this moderately optimistic outlook, there is no doubt that the external
economic environment has changed dramatically over the past decade and a half; it is
becoming clear that Ontario cannot thrive in the future by doing the same things it has
done successfully in the past. Ontario firms operate in a continental and global
environment where R&D, innovation and exports are all essential for economic success.
While some firms and sectors are responding well to this heightened challenge, others are
doing less well. Just as individual firms must adjust their strategy to compete more
effectively in this changed environment, so too must provincial policy, especially with
respect to business support programs. The next sections explore these challenges in
more detail.

1.2.1 Ontarios Innovation, Productivity and Export Challenge

As the report of the JPC noted, improved performance in R&D and innovation are
critical for future economic success. At the same time, there is evidence that Ontario
continues to underperform on these indicators. The recent report from the Ministry of
Finance on Ontarios long-term economic outlook provides an interesting perspective on the
source of this dilemma. The report cites the series of studies undertaken by the Council of
Canadian Academies as providing a possible explanation for Ontarios chronic and
20

Hon. Charles Sousa, Minister of Finance, Ontario Budget 2014: Building Opportunity, Securing Our
Future (Queens Printer for Ontario, 2014), 193.
21
Statistics Canada, Labour Force Survey, May 2014, (2014), http://www.statcan.gc.ca/dailyquotidien/140606/dq140606a-eng.htm?HPA.
22
Hon. Charles Sousa, 206.

36

deteriorating performance. It highlights the disparity between the considerable research

strengths that Canada (and Ontario) display on the supply side of the innovation system,
which is not surprising in light of the considerable public resources that have been poured
into the research system over the past three decades, and the uptake of those investments
on the demand side. The paradox lies in the continuing weakness of Canadas business
innovation performance, which the Council attributes to the relative weakness (and
declining share) of the manufacturing sector in the national economy, particularly since the
end of the tech boom in the early 2000s; the lack of specialization of Canada in high
technology, R&D-intensive industries, compared to other industrial economies, such as the
U.S.; the slower pace of adoption of digital technologies throughout the manufacturing and
service sectors, and the lack of emphasis by Canadian firms on innovation-focused
business strategies.23
The Council attributes these problems to Canadas continuing reliance on imported
technology from the U.S., the relatively smaller size of the domestic market in Canada and
the commercial success achieved by Canadian businesses in their chosen niches. Both the
overall analysis by the Council and its concluding comment raise a critical issue with the
potential to undermine Ontarios long-term economic prospects: With little motivation to
change a successful formula, many firms have settled into a low-innovation equilibrium that
has conditioned Canadian business habits and ambitions. Canadian business behaviour
cannot be expected to change unless the conditions that have sustained its profitable, lowinnovation equilibrium change first.24
Both the JPC report and Ontarios Long-Term Report on the Economy noted that
international and interprovincial trade remain important sources of growth for the Ontario
economy. The data on Ontarios exports provide a clear indication of the extent of the
challenge that Ontario faces on this front. Exports of Ontario companies as a percentage of
the value of Canadian exports have decreased. Industry Canada data show that between
1999 and 2009 Ontarios share of Canadian exports decreased by 18% for small
companies, 15% for medium-sized companies, and 33% for large companies.25
The report on Ontarios long-term economic outlook recognizes the extent of the
challenges that Ontario exporters face, especially in their principal market, the U.S. The
23

Council of Canadian Academies, Paradox Lost: Explaining Canadas Research Strength and
Innovation Weakness (Ottawa, 2013). A similar point was made in the Ontario Innovation Economy
Scorecard 2010 prepared for the Ministry of Research and Innovation. The scorecard noted that Ontario
enjoys a strong research system, but it does not translate into equally strong technology development,
technology transfer and commercialization. As a result, the province lags behind comparator regions in a
number of key innovation indicators in the scorecard. A notable finding was that there had been a net
decline in the number of firms in virtually all technology-intensive and manufacturing sectors.
24
CCA, 7; Ministry of Finance, Ontarios Long-Term Report on the Economy (Queens Printer for Ontario,
2014), 132.
25
Industry Canada, Canadian Small Business Exporters, Special Edition: Key Small Business Statistics
(June 2011), http://www.bdc.ca/EN/Documents/other/KSBS_June2011.pdf. This information is not
included in the 2013 report.

37

combination of the high Canadian dollar and increasing competition from emerging markets,
especially China, caused a substantial decline in Ontarios share of all goods imported into
the U.S. Although the U.S. still represented the destination for 78% of Ontarios exports, the
overall value of those exports declined from $153 billion in 2003 to $129 billion in 2013 and
from 8.7% of U.S. merchandise imports to 5.5%. Ontario exporters have been adapting to
these changes by diversifying into other markets over this same period, including both
traditional markets, such as the European Union (3.8% to 9.5% of Ontario exports) and
rapidly expanding ones, such as China and India (1.8% to 6.4% of Ontario exports). 26
Globalization and the rise of global value chains (GVCs) are changing the face of
international trade. An increasing share of goods and services exports are integrated into
the production of other goods and services, as opposed to being sold directly to final
consumers. These exports include knowledge-intensive, innovative Ontario products that
are incorporated into higher value-added products. Within global value chains, emerging
Asian economies are increasing their role as the worlds major manufacturing assembly
location. The rapid growth of higher-income consumers, who will demand more high-quality
goods and services, will be an important driving factor in world manufacturing and a major
contributor to regional economic growth.
This growth will both create opportunities for Ontario companies to increase their
participation in GVCs, but also pose competitive challenges for them. The hard reality is that
Ontario exporters will face increased competition in the future from firms in the U.S. and
other developed economies, as well as those in emerging market economies. As the
developed economies experience a period of slower growth, emerging market economies in
Asia, Africa, South America and the Middle East will expand at a relatively rapid pace. This
presents Ontario with an opportunity to diversify its exports to take advantage of these
rapidly growing markets. However, there is a dual risk that as emerging markets mature,
their domestic firms will provide more sophisticated competition for Ontario producers in
international markets and that they will focus most of their growing trade among
themselves, particularly if Ontario firms fail to offer the goods and services these countries
want, at a competitive cost.27
Statistics Canada recent Survey of Innovation and Business Strategy (SIBS)
provides additional insight into the obstacles to exporting.28 The table below shows the
ranking of obstacles of high importance for Ontario companies. The two obstacles most
frequently cited are meeting the cost requirements of customers and meeting the quality
requirements of customers. The proportion of survey respondents that indicated these
obstacles were of high importance increased by 49.8% and 44.9% over the three years

26

Ministry of Finance, Long-Term Report, 76-77.

Ministry of Finance, Long-Term Report, 37, 58-59,
28
The recent Survey of Innovation and Business Strategy was conducted between 2010 and 2012. Early
results were released in April 2014.
27

38

since the preceding survey. Obstacles that are more readily addressed by governments,
such as Border security issues are of lower and decreasing importance.

Table 1.2 Ontario, All enterprises, High importance obstacles to exporting goods or
providing services outside Canada
2010/2012 Change from
2007/2009
(%)
(%)
Meeting cost requirements of customers

36.4

49.8

Meeting quality requirements of customers

15.5

44.9

Distance to customers

14.6

9.8

Border security issues

-75.5

Foreign tariffs or trade barriers

8.8

-32.3

Canadian export taxes or trade obstacles

8.4

-40.0

Access to financing

7.6

-8.4

Canadian legal or administrative obstacles

7.2

-23.4

Uncertainty of international standards

6.3

-16.0

Customer requirements to use specific

technologies/systems

5.6

-5.1

Concern of violation of patents and/or intellectual

property rights

4.5

-16.7

Linguistic or cultural obstacles

4.4

-58.9

Other obstacles

0.7

-76.7

Source: Statistics Canada. Table 358-0225 - Survey of innovation and business strategy, obstacles to
exporting goods or providing services outside Canada, by North American Industry Classification System
(NAICS), enterprise size and degree of importance, occasional (percent), CANSIM (database).

While the government is not well positioned to address the issues of customer cost
and quality requirements for Ontario companies, it is worth noting that the insistence that
business support programs should support innovation, productivity, and exports, is
39

consistent with the need for products and services that are simultaneously less expensive to
produce and of higher quality.

The Link between R&D, Innovation and Productivity

The Ministry of Finance Long-Term Report on the Economy provides a helpful
analysis of the linkage between innovation and productivity. Among the factors that have
been identified as contributing to Ontarios relatively weak productivity performance are the
overall decline of the manufacturing sector, low investments in machinery and equipment,
especially information & communications technology (ICT), underinvestment in important
innovation drivers, such as R&D, a slower pace of adoption of the latest innovations and
technology by Ontario business, and the impact of interprovincial regulatory barriers. 29
Of the factors identified above, two in particular are seen as critical. Weak capital
investment in machinery and equipment (M&E), especially in ICT, has contributed to
Ontarios lagging productivity performance. Machinery and equipment investment matters
critically for labour productivity growth because it brings new technology to the workplace.
Rapid adoption of new technologies spurs innovation, efficiency gains, and increased
competitiveness, which lead to higher output. Ontarios M&E investment relative to the size
of the economy has remained consistently below that of the United States since 1980 and
has declined significantly since 1998. This gap is especially pronounced in ICT investments,
particularly in software.30 Economic analyses suggest that a significant portion of the
Canada-U.S. productivity gap is attributable to firm size, given that Canada has a higher
proportion of SMEs than the U.S. Larger firms have higher rates of productivity because of
their capacity to invest more in productivity driving factors, such as technology, research,
and skills development. Further confirmation for this point is provided by the data from the
latest SIBS survey. Overall, large enterprises were the most likely to use at least one
advanced technology in 2012 at 48.7%, followed by medium-sized enterprises (43.6%) and
small enterprises (34.7%). For large enterprises, the top three most important advanced
technologies used were communication (30.2%); computerized design and engineering
(27.2%) and information integration and control (24.3%).31 Additional evidence on the
relative contribution of small and large firms to productivity found that the combined effect of
the greater importance of small firms and the relative productivity of small compared to
large firms in Canada accounted for most of the gap in labour productivity levels between

29

Ministry of Finance, Long-Term Report, 124; CCA, Innovation Impacts.

Ministry of Finance, Long-Term Report, 129-31.
31
Statistics Canada, Survey of Innovation and Business Strategy, (2012),
http://www.statcan.gc.ca/daily-quotidien/140214/dq140214b-eng.htm.
30

40

Canada and the United States in 2002. However, the relative contribution of the small-firm
sector fell in the period after 2002.32
One other factor that has been consistently singled out in relation to Ontarios poor
productivity performance is the relatively low rate of R&D spending. Despite university R&D
spending in Ontario being above average, the business sector R&D investment gap is
widening, mirroring a Canada-wide trend analyzed in greater detail by the CCA in several of
its recent reports and summarized in Paradox Lost. Data from Statistics Canada indicates
that R&D performed by business in Ontario declined by $1.7 billion in constant (2007)
dollars between 2001 and 2011. Much of the decline took place in Ontarios manufacturing
sector, in particular in firms that produce communications equipment such as Nortel. The
investment gap between U.S. business and Ontario firms in machinery and equipment is
also widest in R&D. The declining level of business spending on R&D is a continuing
challenge for Ontarios economic performance in general and its productivity performance in
particular. While the causes of this decline are varied and complex, addressing it is critical
to the future economic well-being of the province and should be a central priority for the
provinces business support programs.

1.2.2 The Challenge for Young Corporations

Data from the Ontario Business Support Program (BSP) dataset created by the
Ministry of Finance reveal another significant challenge for Ontarios future economic
performance. Figure 1.1, below, shows how Ontario corporations that are less than 10
years old have performed relative to all Ontario corporations. As the figure shows, the
prospects of Ontarios young corporations have deteriorated significantly over the past eight
years. While the decline in the number of young corporations has been modest, the decline
in the proportion of revenue earned by young corporations and the proportion of
employment accounted for by young corporations has been dramatic. As background we
note that Ontario ranks 18th out of 20 peer jurisdictions in the availability of risk capital33,
based on venture capital investments on a per capita basis in 2011, and that access to
financing is consistently cited as a key business challenge by entrepreneurs.34

32

Statistics Canada, Canada United States Labour Productivity Gap Across Firm Size Classes, (2014)
http://www.statcan.gc.ca/pub/15-206-x/15-206-x2014033-eng.pdf.
33
Jobs & Prosperity Council, Advantage Ontario (2012), page 13,
http://docs.files.ontario.ca/documents/340/jpc-advantageontarioenglish.pdf.
34
Business Development Bank of Canada, SMEs at a Glance (August 2013), page 2,
http://www.bdc.ca/Documents/sbw2013/docs/SMEsAtAGlance_summer_2013_EN.pdf.

41

70.0%
60.0%
50.0%

% Companies, companies <

10 years

40.0%

% Total revenues, companies

< 10 years

30.0%

% Total employees,
companies < 10 years

20.0%

% Total R&D spending,

companies < 10 years

10.0%

% Companies conducting
R&D, companies < 10 years

0.0%

Figure 1.1 Young Ontario Corporations as a Proportion of All Ontario Corporations

The share of R&D spending by young corporations has fallen dramatically. In 200506 young corporations accounted for 60% of R&D spending, while in 2011-12 they
represented 18% of the total. But there is some good news here as the number of mature
companies conducting R&D has increased (from 4,894 to 6,191, an increase of 26%), and
their spending on R&D increased from $5 billion to $9.1 billion, an increase of over 80%.35
Those who believe investment in R&D is a reliable indicator of company innovativeness will
find cause for concern in these data, because the drop in R&D spending may indicate that
Ontarios young corporations will be less likely to develop sustainable competitive
advantages in the future.
These findings from the BSP dataset are reinforced by the findings in recent reports
from the Brookings Institution for the US, by the Business Development Bank of Canada
(BDC), and by the OECD. The Brookings report notes that business dynamism as
measured by firm entry and job reallocation has declined in the US over the past three and
half decades. The firm entry rate, that is the firms less than one year old as a percentage of
all firms, fell by almost 50% between 1978 and 2011, with a particularly significant drop

35

Data for 2011-12 are not complete.

42

since 2006.36 The authors observe that this is a troubling trend for which they currently lack
a clear explanation. The BDC has created an index of entrepreneurial activity for Canada.
Since the last recession, the BDC Index shows a reduced intensity of new entrepreneurial
activity in the country, both at the national level and in all regions.37 While the drop is less
precipitous than that noted in the Brookings study for the US, the trend reinforces the
findings from the Panels analysis of the BSP dataset and represents a troubling trend for
Ontarios future economic prosperity. The OECD report shows young companies create a
disproportionately high number of new jobs, diminished business dynamism across
industrialized countries, and that the Great Recession had a disproportionate effect on
young companies.38

PANEL RECOMMENDATION
1.4 The Government of Ontario should ensure that its business support programs provide
effective support to young companies.

1.3 The Changing Sectoral Composition of Ontarios Economy

Recent Ontario government policy documents, including the Fall Economic Update
from the Minister of Finance, Ontarios Long-Term Report on the Economy and the
proposed provincial budget on May 1, have all emphasized the strategic importance of
critical sectors for Ontarios future economic prospects. Furthermore, the Advantage Ontario
report from the JPC drew particular attention to the critical role of the manufacturing sector
in Ontario (discussed in more detail below) and the need for the further development of the
Ring of Fire in Ontarios natural resource sector. These reports reflect the important work
undertaken by Ministries within the Ontario government on the current strengths, existing
challenges and future opportunities for key sectors of the Ontario economy.
This section of the Panels report provides a brief review of the current status of
Ontarios leading industry sectors as provided in the provinces long-term economic outlook
and their implications for the future evolution of the provincial economy. Subsection 1.3.1
describes Ontarios most important sectors, Subsection 1.3.2 shows how governments can
support the development of sector capabilities, and Subsection 1.3.3 explains why Ontario
needs a manufacturing strategy. This section is supported by Appendix B that presents
36

I. Hathaway and R. E. Litan, Declining Business Dynamism in the United States: A Look at States and
Metros (Brookings Institution, May 2014).
37
Business Development Bank of Canada, BDC Index of New Entrepeneurial Activity 2012 (Ottawa,
2014). The BDC study uses the ratio of self-employed workers with employees to the total labour force
as a measure of entrepreneurial activity.
38
C. Criscuolo, P. N. Gal and C. Menon, The Dynamics of Employment Growth: New Evidence from 18
Countries, OECD Science, Technology and Industry Policy Papers, no. 14 (OECD Publishing, 2014),
http://dx.doi.org/10.1787/5jz417hj6hg6-en.

43

data from the BSP dataset on Ontario sectors. Covering the years 2005-06 to 2011-12 it
shows significant differences in the size, R&D spending, and evolution of Ontario sectors.

1.3.1 Ontarios Sectors

According to Ontarios long-term economic outlook, the provincial economy has
undergone major restructuring over the past decade. Ontario is still the manufacturing
heartland of Canada, accounting for 45% of the nations manufacturing employment and
46% of manufacturing GDP. However, the biggest change has been the relative decline of
output and employment in the manufacturing sector. Ontario has also become less
competitive in some traditional labour- or energy-intensive industries. Part of this trend is
explained by the fact that manufacturing is a highly productive activity, and improvements in
technology have allowed a smaller number of people to produce greater quantities of
goods. The nominal value of manufacturing sales increased 84.2% between 1992 and
2012, which is a compound annual growth rate of 3.1%. The report shows that the decline
in manufacturings share of output and employment has been offset by gains in a variety of
private and public service sectors, including knowledge-intensive industries such as
professional, scientific and technical services, health care and financial services.

Automotive Sector
Within manufacturing, Ontario remains one of North Americas premier auto
manufacturing jurisdictions, despite the shift of vehicle production to lower-cost jurisdictions
such as Mexico and the southern U.S. states. However, going forward, the province will
face continued pressure both from the traditional U.S. states that comprise Auto Alley, as
well as from the rapid upgrading that is occurring in both the educational qualifications and
technological capabilities of Mexicos key automotive clusters.39 As the recent report from
the Manufacturing Competitiveness Committee of the Canadian Automotive Partnership
Council notes, the Canadian industry has experienced significant upheaval over the past
decade. While production in the sector has recovered to levels comparable to those before
the financial crisis, this encouraging development hides worrying trends below the surface.
Most notable is the steady decline in levels of capital spending in the sector to those
comparable to levels that existed in the 1980s. Furthermore, only 3% of the anticipated
increase of 3.5 million units of additional assembly capacity installed in North America
between 2011 and 2015 will be located in Canada. The long-term threat to Ontario is that
prolonged underinvestment in automotive productive capacity will make it more difficult for

39

T. Klier and J. M. Rubenstein, Restructuring of the U.S. Auto Industry in the 2008-2009 Recession,
Economic Development Quarterly 27, no. 2 (2013): 144-159.

44

the sector to obtain future needed capital investment, thus undermining the competitiveness
of a key component of our manufacturing sector.40

ICT Sector
Information and communications technologies (ICT) are key enabling or platform
technologies. The increasing reliance on ICT in many industries, and in industrialized as
well as fast-growing emerging nations, will continue to drive the sectors growth over the
coming decades. The ICT sectors share of total employment in Ontario increased from
3.3% in 1993 to 4.0% in 2013. This reflects continued innovation and the spread of new ICT
technologies, including the digitization of a vast array of content and information enabled by
mobile phones and other consumer and business devices. Computer software accounts for
almost half of the sectors employment and will continue to grow in the future. Ontarios
growing ICT sector is underpinned by much competitive strength, including a strong R&D
base and skilled talent pool.41 A rapidly growing ICT sector, and the increasing adoption and
diffusion of digital technologies across other industry sectors, will be critical for Ontarios
ability to maintain its competitive position at the technological frontier, as well as improve its
overall innovation and productivity performance.

Business and Financial Services Sector

The business and financial services sector is a good example of how Ontario is
adapting and transforming. Led by the Greater Toronto and Hamilton Area, Ontario
continues to thrive as the leading business and financial services head-office centre of
Canada. Business and financial services are also the provinces largest internationally
traded industries, based on employment, interconnecting with and serving other global cities
and markets both domestically and globally. This sectors share of total employment
increased from 12.8% in 1993 to 16.4% in 2013. The share of employment in business
services, including professional services, such as architecture and engineering, and a wide
range of other support services, grew from 7.8% in 1993 to 10.8% in 2013.
The financial services sector, which includes banking, insurance and securities
activities, is a major engine of growth for the Ontario economy. In 2013, it was also the
economys second-largest sector after manufacturing, directly accounting for 9.2% of GDP
and 5.6% of employment. Its share of economy-wide output is almost twice as large as its
share of jobs, indicating its above-average productivity. From 1997 to 2012, real output in
the financial services sector grew faster than the economy as a whole. Output growth will
continue to be led by growing domestic and foreign demand, as well as innovative new
technologies such as electronic and mobile payments. According to the Conference Board
40

Manufacturing Competitiveness Committee of the Canadian Automotive Partnership Council, A Call for
Action: II, A Report, (November 2013), 1.
41
Ministry of Finance, Long-Term Report, 84-85.

45

of Canada, Canadian exports of financial services have more than doubled over the past 10
years, the best growth performance of any sector over this period. 42 Financial services
foreign direct investment (FDI) to other countries is currently the largest sector for outward
FDI in Canada, with 40% of the total, followed by manufacturing and mining.43

Life Sciences
Life sciences industries, which include pharmaceutical research and production,
medical devices, and scientific and laboratory services, continue working to advance the
frontier for research, and products and services that help maintain and improve health and
fight disease. Life sciences industries account for around 3% of Ontario business-sector
employment and play an important role in the economy. The industries employment grew
significantly from 1993 to 2013.
The scientific and laboratory services sector leads in employment growth.
Employment in the sector increased by 127% from 1993 to 2013, including a 41% increase
in medical devices and equipment and a 70% increase in pharmaceutical production.
Globally, the pharmaceutical sector is undergoing a structural change and consolidation of
operations in the face of declining research productivity, rising cost-containment pressures
and increased competition.44

Entertainment and Creative Sector

Based on continuous investments in original creative content, the cultural, arts and
entertainment industries (collectively referred to as the Entertainment and Creative Cluster
or ECC) are a key component of Ontarios transition to a knowledge-based economy. The
ECC, valued at $12.4 billion,45 is one of the fastest growing sectors of the Ontario economy.
In addition to employing over 300,000 Ontarians46, the ECC represents a significant
opportunity for future economic growth, given that the global entertainment and& media
market is forecast to reach $2.1 trillion by 2016.47 In addition to growth, the cluster
exemplifies Ontario economic objectives including productivity and innovation. A 2011
Cabinet Office Productivity Paper highlights the higher productivity growth in the broader
Ontario ECC sector since 2005 than the average for the general economy in Ontario and or
Canadian economies.48 The ECC also plays an important role in attracting highly qualified

42

K. Audet, M. Burt and G. Sutherland, Ensuring the Future: Understanding the Importance of Torontos
Financial Services Sector, (Conference Board of Canada, November 2013).
43
Ministry of Finance, Long-Term Report, 80-82.
44
Ibid., 85-86.
45
Derived by MTCS from Statistics Canada, Ontario GDP by Industry 2010.
46
Per Ministry of Finance 2011 Budget Papers.
47
PriceWaterhouseCoopers. Global Entertainment and Media Outlook 2012-16.
48
Cabinet Office, Productivity: Policy Context Paper (Government of Ontario 2011).

46

talent to work in the sector, which plays an important role in improving the quality of life and
attractiveness of Ontario cities.

Mining Sector
Ontario is notable as Canadas leading jurisdiction for mineral exploration and
production as well as a major global player in mining finance. Ontario is a global centre for
mining finance, with the Toronto Stock Exchange and TSX Venture Exchange having more
than half the worlds listed mining companies. The Long-Term Report on the Economy
expects that continuing high prices for mineral resources will support the growth in mineral
exploration and development over coming decades. The Ring of Fire area in Northern
Ontario is rich in known chromite and nickel deposits, valued at up to $50 billion. The
development of these mineral resources will stimulate business and growth opportunities for
local mining and supporting industries in the province.49

Forestry Sector
The forestry sector in Ontario has faced serious challenges in recent years, arising
from both structural changes in the demand for its products as well as the cyclical effects of
the global recession and the ensuing weak U.S. housing market. The economic recovery in
the U.S. is boosting demand for Ontarios lumber products and stronger global demand for
pulp are creating new opportunities for Ontario companies. Additional opportunities for the
sector are expected to arise from technological upgrading in terms of higher value added
products, such as rayon fibre made from wood. These emerging opportunities are expected
to stimulate the growth of the sector in the future.50

1.3.2 Building Strategic Capacity across Sectors

The innovation systems perspective outlined in Section 1.1 suggests a need to
situate public support for individual firms in the broader institutional context in which the firm
operates. Analyzing the firm in this broader context involves looking at how the innovative
performance of the firm is conditioned by its sectoral, cluster or urban environment.
Sectors, clusters and urban regions are the building blocks of provincial and national
economies. Effective business support strategies need to strengthen industrial sectors and
build on the capabilities of local and regional innovation clusters.
Recent economic reports and policy documents from the Ontario government
indicate a growing recognition of the need to focus its economic development strategies
around key sectors in the provincial economy. Ontarios economic development approach
49
50

Ministry of Finance, Long-Term Report, 87.

Ibid.

47

has placed strong emphasis on creating an enabling, business-friendly provincial

environment that provides a strong foundation for the success of all sectors. However, the
province has also recognized that additional opportunities are inherent in adopting sectorspecific policy. Not all sectors have the same issues, needs or opportunities. By taking a
sector-specific approach, the goal of provincial economic development policy is to identify
local and global trends for that sector, as well as how to best deploy public policy levers to
meet sector-specific needs and to leverage emerging opportunities.
By adopting this policy lens, Ontario has identified a suite of priority sectors that
meet one or more of the following criteria: existing provincial strength; scope/scale of impact
on Ontarios economy (e.g. employment, GDP); tradable sector; growing global market
opportunity (e.g. clean tech/water sector); an integral enabler to the competitiveness of
multiple sectors (e.g. financial services sector, information and communications technology
sector); and/or located within or associated with vulnerable communities (not an
overarching criterion however, the ministry may consider this as a supportive rationale). In
addition, adopting a sector approach supports deep analysis of specific value-chain and/or
sub-sector leadership opportunities for Ontario. Targeted global niche market opportunities
can be better identified and leveraged as a result.
Current priority sectors are included in the Fall Economic Statement, the Long-Term
Report on Ontarios Economic and the proposed May 1, 2014 Budget, but are not intended
to be exhaustive, nor does the provincial government prioritize between them. Provincial
leads on specific sectors are shared between the Ministry of Economic Development, Trade
and Employment, Ministry of Agriculture and Food, Ministry of Northern Development and
Mines, and Ministry of Tourism, Culture and Sport. The Panel believes that this sectoral
focus adopted in recent policy documents represents an important step in the right direction;
but too wide a cross section of the current portfolio of business support programs are not
integrated into this sectoral approach and the province continues to make major
investments in individual companies, especially in the ICT and automotive sectors, without
any reference to this broader sectoral approach. Nor has the provincial government
articulated an integrated vision of how these strategies provide the overarching context for
business support programs as a whole. In contrast to the suggestion that has been made
for the creation of one large fund for all business support programs, the Panel believes that
rationalizing and integrating both existing business support programs and individual firm
level investments into a clearly articulated set of sector strategies would go a long way
towards remedying the current situation. From this perspective, investments in individual
firms must be justified not only in terms of the direct benefits they provide to the firm in
question, but also in terms of the indirect benefits they can deliver in terms of raising the
innovation capabilities, export potential and productivity of a broader cross section of firms
in the sector, especially small and medium-sized enterprises.

48

PANEL RECOMMENDATIONS
1.5 The Government of Ontario should adopt a sectoral approach to the design of business
support programs.
1.6 The Government of Ontario should evaluate incentives to attract or retain multinational
corporations in terms of their effects on the sector and region in which the firm operates.

1.3.3 The Need for a Focused Manufacturing Strategy

Overall, Ontarios share of manufacturing employment declined from slightly above
the OECD average in 2006, before the onset of the recession, to slightly below the average
in 2012.51 The relative decline in Ontarios manufacturing sector is comparable to the
decline in the U.S. manufacturing sector. Factors including the low Canadian dollar helped
to arrest Ontarios manufacturing sectors relative decline from the mid-1990s to around
2002, but provided less of a cushion for the sector as the dollar moved to parity and beyond
after that point. On the positive side, the higher exchange rate of the dollar should have
provided a stronger incentive for Ontario firms to invest in upgrading machinery and
equipment, as much of it is imported.
Within the context of this broad need to adopt a sectoral approach to the delivery of
business support programs, the Panel endorses the emphasis placed by the JPC on the
manufacturing sector. Despite some of the positive signs noted in Ontarios Long-Term
Report on the Economy, there are a number of reasons to be concerned about the
prospects for Ontarios manufacturing sector. These include the historical role that the
sector has played in accounting for a significant share of provincial GDP, the relatively high
level of income associated with jobs in the sector, and the traditionally large share of
provincial exports accounted for by the sector. However, most closely linked to the mandate
of the Panel is the disproportionate share of R&D that is conducted by manufacturing firms
in most industrial economies and the long-term implications of a decline in both
manufacturings share of GDP and R&D performed for productivity levels in the provincial
economy.52
Focusing on a sectoral strategy for manufacturing is also linked to the need to build
regional and provincial capacity to support new technology platforms in areas such as
alternative fuel technologies for the automotive industry or the adoption and integration of
digital technologies to create the next generation of manufacturing processes, such as
additive manufacturing or 3D printing. Recognizing the strategic significance of technology
platforms as opposed to the R&D spending at the levels of individual firms has two critical
implications for the design of business support programs:

51
52

Ministry of Finance, Long-Term Report, 69-77.

Suzanne Berger, Making in America: From Innovation to Market (MIT Press, 2013).

49

1. It requires a broader and deeper integration of the links between provincial

programs designed to support the research and development capabilities of
research institutions, especially in the public sector, and the integration of those
research capabilities with the absorptive capacity of the provinces manufacturing
firms;
2. It also requires that the effectiveness of provincial support programs be assessed
within a broader context of the competitiveness status of Ontario firms in the global
economy, their strategic position in rapidly evolving global value chains and
innovation networks and the capacity of provincial interventions for enhancing the
export performance of Ontario-based producers and suppliers.

The rationale for adopting this approach has recently been highlighted in a number
of policy reports for different government agencies and academic programs in the U.S. They
concur on the need for strong support for the public good portions of emerging technologies
and new technology platforms, especially those with long-term strategic implications for the
growth prospects of the economy. They view government as a partner in supporting the
public good components of these technology platforms with distinctive sectoral
characteristics and long-term implications for the growth prospects of the economy. They
recognize that programs to develop strategic technologies in critical sectors are needed to
ensure the viability of manufacturing capabilities essential for the next generation of
innovative manufacturing products and processes. Numerous examples exist of the role
played by government investments in developing revolutionary breakthrough technologies,
particularly U.S. government investments in a wide range of computer technologies that
underlay the emergence of the IT revolution and the Internet economy. 53
Recent U.S. reports in particular have emphasized the critical link between
manufacturing and innovation:
(m)anufacturing is integral to new product development. Production lines are links in
an iterative innovation chain that includes pre-competitive R&D, prototyping, product
refinement, early production, and full scale production. In many high technology
industries, however, design is not so easily separated from manufacturing.
Production processes for advanced solar cells, lithium ion vehicle batteries, and
next-generation solid-state lighting devices are highly proprietary to the producing
company and often constitute a competitive advantage. If new US companies lack
the domestic capability to scale up, Intel founder Andy Grove warns, we dont just
lose jobs we lose our hold on new technologies. Losing the ability to scale will
ultimately damage our capacity to innovate.54

53

C. Wessner, ed. Rising to the Challenge: U.S. Innovation policy for the Global Economy,
(The National Academies Press, 2012); M. Mazzucato, The Entrepreneurial State (Anthem Press, 2013).
54
C. Wessner, ed. Rising to the Challenge: U.S. Innovation policy for the Global Economy, 84.

50

Another policy report from the Connect Innovation Institute at the University of
California San Diego drew attention to the central role played by the manufacturing sector in
process and incremental innovation. Process innovation serves as both an input to product
innovation and incremental innovation and is thus a key factor in maintaining a high level of
production and employment opportunities in the domestic economy. As the production of a
wide range of manufactured goods has become increasingly globalized, production has
become more fragmented and organized in global value chains. As a consequence,
companies involved in these value chains have become more specialized from the R&D
they undertake to the design, manufacturing and assembly of their components or final
products. Production is an increasingly networked activity, as companies share
responsibilities with other partners in their global production and innovation networks. As a
consequence, the key to supporting domestic manufacturing capability is the adoption of
policies designed to solve what the report refers to as semi-public good supply problems.
The report recommends a reorientation of innovation policy to address a set of four
interrelated problems frequently encountered by SMEs in global value chains: inadequate
common assets to complement firm-specific assets; strong networking institutions to foster
sharing of know-how and build trust among potential partners; removal of legal obstacles to
networking and partnering among SMEs; and enhanced financial institutions with the proper
business models and risk assessment capability to make judgements and investment
decisions in production-oriented SMEs. The main policy recommendation the report makes
is to establish regional production platforms as quasi-public institutions to support the
incremental and process innovation capabilities of SMEs in the manufacturing sector. The
second main recommendation is the adoption of a more sophisticated institutional model
along the lines of what is practiced in Germany, Korea or Taiwan to improve the capacity for
technology adoption and upgrading by SMEs.55
There is evidence that the US government is rapidly moving in the direction of
establishing new institutions along the lines recommended by these reports. The
government has announced the establishment of a National Network for Manufacturing
Innovation (NNMI), which is being set up as a private-public partnership program aimed at
commercializing and improving the manufacturing capabilities for technologies developed in
the U.S. The NNMI consists of Institutes for Manufacturing Innovation (IMIs), each of which
is comprised of a consortium of industry, academic and government representatives
working collaboratively to leverage existing resources and co-invest in order to drive
manufacturing innovation and accelerate commercialization. In 2012, a pilot institute in
Youngstown, Ohio the National Additive Manufacturing Innovation Institute (NAMII) was
launched, and as of February 2014, three additional Institutes for Manufacturing Innovation
have been established: Lightweight and Modern Metals and Manufacturing Institute (LM3I)
55

D. Breznitz and P.Cowhey, Americas Two Systems of Innovation: Recommendations for Policy
Changes to Support Innovation, Production and Job Creation (University of California San Diego, 2011);
see also Berger 2013.

51

in Detroit; Digital Manufacturing and Design Innovation Institute (DMDI) in Chicago; and
Next Generation Power Electronics National Manufacturing Innovation Institute in North
Carolina. IMIs encourage SME participation through direct outreach to partners and
intermediaries that work closely with SMEs; information and services tailored specifically to
SMEs; tiered fee structures and allowance of in-kind contributions to facilitate access to
small companies; and, staged licensing of intellectual property, and similar arrangements.56
The NNMI model and the new institutes that are being established have significant
bearing for Ontarios competitive standing in a range of technologies and industries in the
manufacturing sector. They are both located near Ontario and they are being established in
industrial sectors in which U.S. states compete directly with Ontario for investment and
product mandates. The U.S. model is loosely based on the German Fraunhofer Institutes,
two of which have already been established in the province, while others are being actively
discussed. While the full U.S. or German model may not be wholly transferable to Ontario,
the rationale for its adoption applies as much to the manufacturing sector in the province as
it does to those of the Border States in the U.S. The province may also want to consider
the successful features of its own technology transfer centres that existed in the 1980s and
played a critical role in upgrading the technological capabilities of some of the Ontarios key
manufacturing sectors, especially the auto parts sector.

PANEL RECOMMENDATION
1.7 The Government of Ontario should create a new intermediary organization to support
innovation, efficiencies, and exports in the manufacturing sector.

1.4 The Regional Dimension of Economic Development Policy

In addition to adopting sectors as a means for leveraging the impact of provincial
spending on business support, the regional dimension provides another useful lens for
assessing the impact of Ontarios business support programs on economic development
and growth. This section situates the provinces current approach to regional economic
development in the context of recent policy thinking about the most effective means to
promote innovative capacity at the regional level. We then proceed to discuss the
relevance of using industry clusters as an additional policy tool in the design of business
support programs.
56

National Network for Manufacturing Innovation, Frequently Asked Questions, (2013), 8,

http://manufacturing.gov/docs/nnmi_faq.pdf; The White House Office of the Press Secretary, President
Obama Announces Two New Public-Private Manufacturing Innovation Institutes and Launches the First
of Four New Manufacturing Innovation Institute Competitions, (2014), http://www.whitehouse.gov/thepress-office/2014/02/25/president-obama-announces-two-new-public-private-manufacturing-innovatio; J.
F. Sargeant Jr., The Obama Administrations Proposal to Establish a National Network for Manufacturing
Innovation, Congressional Research Service Report No. R42625 (2014).

52

The research and the policy literature suggest a number of reasons for the focus on
sectors, clusters and urban regions that we have adopted. The importance attached to
sectors and clusters is derived from the growing recognition that individual firms can derive
competitive advantages from the ability to draw upon common assets or institutional
resources that support a broad cross section of firms. The development of innovative
capabilities in a regional economy frequently generates technological spillovers from one
firm to another in the same sector and sometimes across firms in related sectors in the local
or regional economy. These spillovers are shared among firms or transferred from firm to
firm through various forms of networks, such as user-producer relationships, strategic
alliances, R&D consortia, collaborative training and marketing schemes, and supportive
public infrastructure, such as educational and focused research institutions. They may also
derive from other institutional arrangements, such as the particular norms and rules
governing the functioning of local labour markets or specialized training programs that
provide a group of firms in the sector with unique assets in terms of the highly qualified
labour pool. These in turn create a unique set of capabilities and competitive strengths in a
provincial or regional economy, which become valuable regional and sectoral assets.
The Panel believes that Ontarios approach to regional development could be
strengthened by adopting a more place-based approach that focuses on building regional
institutional capacity to support innovation. The most significant change in regional
development policy in recent years has been to integrate innovation more centrally into its
goals and objectives, while simultaneously designing the policy interventions to correct for
both market and innovation system failures that arise from inadequate sharing of knowledge
among key actors and existing institutions at the regional level. Regional development
programs that reflect this approach adopt a regional innovation systems perspective, aimed
at building or enhancing the local links between firms, institutions and other knowledge
actors, such as universities . . . This often involves supporting innovative small firms with
technical facilities, linking them to sources of finance and helping to create networks
between firms.57
This perspective, also referred to as the place-based approach, starts from the
assumption that local contextual knowledge is critical as an effective guide to policy
interventions. The central precept of a place-based approach is to foster economic
development in all places where economic efficiency exists through the provision of public
goods and services. The goals of such an approach include building institutional capacity,
improving accessibility to goods, services and information in the region, and promoting
innovation and entrepreneurship. Policy interventions must be tailored to the prevailing

57

P. McCann and R. Ortega-Argils, Modern Regional Innovation Policy, Cambridge Journal of

Regions, Economy and Society, 6, no. 2 (July 2013): 198; D. A. Wolfe, From Entanglement to Alignment:
A Review of International Practice in Regional Economic Development (Mowat Centre for Policy
Innovation, June 2010).

53

reality of specific regional contexts and based on the input, experience and local
knowledge of key regional actors.58
While recognizing the degree to which there are institution-building components of
Ontarios existing regional development programs, the adoption of a place-based approach
to regional development would be enhanced by linking the activities of the regional
development funds more closely to those of the recently expanded Ontario Network of
Entrepreneurs (ONE). The ONE is designed to reflect many of the principles set out in the
place-based approach, particularly in terms of building institutional capacity at the local
level, enhancing knowledge and innovative capabilities among entrepreneurs and start-up
firms and promoting more effective linkages among provincial research and educational
institutions and local firms, in other words in supporting the growth of local innovation
ecosystems. A more effective place-based approach would also incorporate a multi-level
governance perspective and build upon the important role already being played by a wide
range of federal agencies across the province, especially FedDev Ontario. 59

PANEL RECOMMENDATION
1.8 The Government of Ontario should focus regional development support on building
institutional capacity to support innovation within regions.

1.4.1 The Cluster Perspective

The regional lens is also associated with the growing recognition of the role of
clusters as an effective lens for economic development policy. While many sectors are
broadly distributed across Ontario and globally, some (or specific sub-sectors) are
geographically concentrated in specific cities and regions (e.g. Torontos financial services
sector; Guelphs agri-food sector; Kitchener-Waterloos ICT sector, etc.). Location-specific
attributes are, therefore, an important consideration in fostering sector/sub-sector market
opportunity and require that Ontario look beyond direct business supports and incorporate
broader policy levers (e.g. infrastructure; transportation) and partnership opportunities (e.g.
with municipalities, post-secondary research institutions, federal agencies and local industry
or technology associations) to facilitate a regional and cluster-based economic development
approach.
This perspective draws upon the recognition that companies clustered together in
geographic locales with a dense concentration of firms in the same and related industries
benefit from a series of agglomeration economies derived from their ability to use common
58

F. Barca, An Agenda for Reformed Cohesion Policy: A place-based approach to meeting European
Union challenges and expectations (European Commission, 2009), 4-5.
59
N. Bradford and D. A. Wolfe, Governing regional economic development: innovation challenges and
policy learning in Canada, Cambridge Journal of Regions, Economy and Society 6:2 (July 2013), 331-47.

54

resources, including local research and technical institutes, education and training
institutions, a dense or thick labour market that provides ready access to the skilled
personnel they require, a common supplier base and specialized support services in the
fields of legal services, accounting and finance. Recent empirical research indicates that
the presence of regional clusters with strong location quotients is positively correlated with a
wide range of performance indicators that include employment, average wage levels, new
firm formation and patenting. The evidence confirms that a firms presence in a cluster
means that its productivity tends to be higher than that of similar firms located elsewhere.
Firms located in clusters also tend to be more inventive and innovative than those that are
not; clusters also play a critical role in promoting new firm formation and entrepreneurship
industries in regions with strong clusters experience higher rates of new business start-ups
and employment growth; and city-regions with a higher percentage of employment in
clusters perform better overall in terms of income levels and employment growth than
places with a lower concentration of cluster-based employment.60
The Cabinet Office paper on productivity noted the critical link between clustering
and productivity growth. Since the 1980s, many knowledge-based industries (KBIs) have
exhibited higher productivity growth than other industries across the OECD. KBI firms have
a greater tendency to form clusters in large, diversified urban areas, such as the Waterloo
tech and Toronto media clusters. Clusters increase productivity and innovation as they
typically sell to markets beyond their local region. The prosperity increases for these
clusters can also have a spillover effect by generating increased opportunities throughout
the supply chain and related success for their local economies. 61
This shift to a cluster orientation is even stronger at the national level in Europe as
reflected in Norways Centres of Excellence program or Frances Poles de Competivite
program and in the numerous new initiatives being launched at the state and regional level
in the U.S.62 Initiatives being undertaken by state and regional authorities are based on the
formation of public-private partnerships in which corporations, universities, and
governments are allocating resources to establish R&D centers, improve training
opportunities for the workforce, enhance supply and support industries, and provide risk

60

M. Muro and B. Katz, The New Cluster Moment: How Regional Innovation Clusters Can Foster the
Next Economy. Brookings Institution, Washington, D.C.: Brookings Institution; G. Spencer, T. Vinodrai, M.
S. Gertler, and D. A. Wolfe, Do Clusters Make a Difference? Defining and Assessing Their Economic
Performance. Regional Studies 44:6 (July 2010): 697-715; M. Delgado, M. E. Porter, and S. Stern,
Clusters, Convergence and Economic Performance. Institute for Strategy and Competitiveness, Harvard
Business School. Cambridge, Mass., August, 2010. Http://www.isc.hbs.edu/econ-clusters.htm. C. Ketels,
Recent research on competitiveness and clusters: what are the implications for regional policy?
Cambridge Journal of Regions Economy and Society 6:2 (2013): 269-284.
61
Cabinet Office, Productivity: Policy Context Paper (Government of Ontario 2011).
62
OECD, Competitive Regional Clusters: National Policy Approaches, Reviews of Regional Innovation,
(OECD, 2007).

55

capital greater start-ups where there is a lack of alternative sources of funding. 63 The value
of this approach has been further underlined in recent reports for Ontario by the Institute for
Prosperity and Competitiveness, by the studies of industrial clusters conducted by the
nationally funded Innovation Systems Research Network and most recently by the Toronto
Region Board of Trade.64
The adoption of a cluster perspective does not require the introduction of new
spending programs by the province, but rather the implementation of an additional policy
lens through which to review and evaluate a wide range of existing programs, both within
the business support portfolio and beyond it. The need for greater coordination across
different policy areas and for more effective policy alignment across levels of government
was a central theme in the OECDs report Competitive Regional Clusters in 2007. 65 The
report noted that the current wave of policies designed to support clustering has emerged
from the intersection of three more traditional policy families: regional policy, science and
technology policy, and industrial/enterprise policy. The range of programs and instruments
employed are designed to foster improved linkages among firms and research institutes.
Cluster policies do not necessarily require new policy initiatives, but frequently
represent an effective means to synthesize an existing range of policy instruments that cut
across the three fields. The advantage of adopting a cluster approach is to use existing
policy instruments in a more focused and coordinated way to facilitate coordination,
dialogue and interaction among the constituent elements especially firms that comprise
the cluster. Clusters are effective as a policy instrument because they can promote linkages
between firms, universities and research institutes and provide a basis for firms to take
better advantage of market opportunities. They also afford the opportunity for small and
medium-sized firms to establish connections with larger partners and multinational firms. A
cluster focus provides an effective mechanism for achieving this at the level of the local and
regional economy. It also requires a greater degree of coordination between all three levels
of government and their respective economic development agencies.

63

C. Wessner, ed. Rising to the Challenge: U.S. Innovation policy for the Global Economy, 116; C.
Wessner, Growing Innovation Clusters for American Prosperity: Summary of a Symposium (National
Academies Press, 2011).
64
Institute for Competitiveness and Prosperity, A View of Ontario: Ontarios Clusters of Innovation (ICP,
2002); D.A. Wolfe, Cluster Policies And Cluster Strategies: Lessons From The ISRN National Study, A
Report prepared for the Ministry of Research and Innovation, Munk School of Global Affairs, University of
Toronto (2008); Toronto Region Board of Trade, Towards a Toronto Region Economic Strategy (2014),
http://www.bot.com/advocacy/reports/Pages/Toronto-Region-Economic-Strategy.aspx.
65
OECD, Competitive Regional Clusters: National Policy Approaches, 40-41.

56

PANEL RECOMMENDATION
1.9 The Government of Ontario should adopt a cluster perspective to more effectively
integrate business support programs, and coordinate the cluster perspective with its sector
strategies.

1.5 The Choice of Policy Instruments

A substantial body of work in the policy literature examines the relative merits of
different policy instruments, particularly tax incentives versus direct support. While the
broader literature refers to a number of other policy instruments, the mandate of the Panel
focuses on the role of three alternative delivery mechanisms: direct transfers to business,
both refundable and non-refundable credits delivered to business through the tax system,
and business support delivered through intermediary organizations.66

1.5.1 Direct Transfers versus Tax Credits

There are a number of advantages and criticisms of delivering business support by
means of direct spending programs. Direct spending amounts for specific programs can be
established within the parameters of the fiscal framework and grants can be awarded on the
basis of selective criteria that can be applied to individual firms or intermediary
organizations within specific sectors who meet the specified criteria for individual programs.
For the most part, grants are more open and transparent due to the absence of the
confidentiality provisions that apply to the administration of the tax code, and therefore both
the legislature and the voting public are assured of more specific information about who
benefits from the program.67 The disadvantage of direct grants is the higher compliance
costs involved for the firms who must apply to government administrators for the grants and
undergo a stringent due diligence process before being awarded the funds. A further
limitation is that the budget envelope can be expended before the applications of all eligible
firms have been evaluated, as has happened in recent years with some federal programs,
such as the grants available under the Industrial Research Assistance Program of the
National Research Council. While this may constitute effective program management from
the perspective of the fiscal framework, it generally undermines the effectiveness of a
specific program in achieving its goals.

66

Government of Canada, Department of Finance, Why and How Governments Support Research and
Development (December, 1997). The broader literature also considers the role of government sponsored
R&D and direct government procurement of new technologies, but these lie outside the mandate of the
Panel.
67
In the case of several of the programs in the Panels mandate to review, there are explicit provisions in
the agreement between the federal and provincial government that keep this information confidential.

57

The advantage of using tax policy instruments is their ease of use for firms in terms
of the lower cost of compliance and administration given that they are applied through the
existing tax administration system and the higher degree of predictability of the results,
although this can vary with the complexity of the tax administration process involved with a
particular set of tax incentives. Another advantage is their wide applicability across a broad
range of industrial sectors, firms or investments. Criticisms of the use of tax policy
instruments focus on the lack of detailed information on who benefits from specific
incentives due to the confidentiality provisions of the Income Tax Act and the consequent
lack of accountability at a firm level. Both the federal and provincial governments partially
offset this problem by publishing an annual tax expenditure report, but this only provides
data on the aggregate level of spending under the individual tax incentives. Furthermore,
under the Public Sector Accounting Board (PSAB) standard for tax revenue, certain
refundable tax credits are now treated as expenses subject to appropriation in both the
Ontario Public Accounts and the Ontario Estimates. One other criticism made of both
refundable and non-refundable tax credits is the open ended nature of expenditures
involved due to the fact that all firms that comply with the provisions of the tax code are
eligible for the incentive. This makes it more difficult for the Ministry of Finance to forecast
the total level of revenue that will be foregone and introduces a greater degree of
unpredictability into the fiscal framework.
Canada, and Ontario, are notable for the extent to which they rely on the use of tax
policy instruments to stimulate increased research and development spending. This point
has been noted by the federal governments Science, Technology and Innovation Council
(STIC) in their 2012 report on the State of the Nation. According to the report, the balance
between direct and indirect government support for business R&D is substantially different
in Canada than other countries. It noted that federal government indirect support was the
second highest after France among available countries in 2010. In the opinion of the
members of the Council, the low level of direct support in Canada [relative to indirect
support] handicaps the competitiveness of Canadian business R&D on a global basis.68
Ontario, which delivers 67% of its business support through tax credits,69 exhibits similar
tendencies. The Panel believes the province should complement the federal reliance on tax
credits with a greater use of transfers, particularly those delivered through intermediaries.

68

Science, Technology and Innovation Council, State of the Nation 2012, Canadas Science, Technology
and Innovation System: Aspiring to Global Leadership, (Science, Technology and Innovation Council
Secretariat, 2013), 34; cf. also Expert Panel on Federal Support to Research and Development,
Innovation Canada: A Call to Action (Public Works and Government Services Canada 2011).
69
As per the analysis shown in Chapter 2 of this report.

58

PANEL RECOMMENDATION
1.10 The Government of Ontario should adjust the mix of transfers and tax credits in
favour of transfers.

1.5.2 The Impacts of R&D Tax Credits

Partially because of the availability of data at a macroeconomic scale, there have
been a large number of studies in recent years evaluating different aspects of tax incentives
to stimulate higher levels of spending on R&D. The OECD and NESTA in the UK have
published several comprehensive reviews of these studies, which we draw upon for a brief
survey of their major findings.
The majority of studies focus on the impact of R&D incentives on input additionality,
i.e. the increase in levels of R&D spending that can be attributed to the effect of the tax
incentive. In general, the studies reviewed find positive effects for different types of R&D tax
incentives. A number of U.S. studies evaluate the effect of the tax credit that was
introduced in 1981 and has been modified several times since then. The studies offer widely
differing results with respect to the additionality effects, ranging from a low of $.29 to a high
of $2.00. Generally, the results indicate a positive and significant effect for the tax credit in
terms of increasing R&D expenditure in the U.S. by $1 for every $1 of foregone revenue. 70
Canada has also been a fruitful source of research on the additionality effects of
R&D tax incentives. According to the results summarized by Parsons and Phillips, R&D tax
incentives raise private R&D expenditure by an average of $.98 for every $1 of revenue
foregone.71 A survey conducted by the Manchester Business School for NESTA in the UK
summarizes a range of other studies conducted with data for Norway, the Netherlands,
France, Italy, Spain and Austria. As program design varies across countries, the results
differ.72
More recent studies have also looked at the impact of tax incentives on output
additionality and have found positive effects in terms of increases in the probability of firms
introducing new products and new processes. A widely cited Canadian study finds a
positive correlation between the R&D tax credit and the frequency of new product
development, the introduction of products that are new to the market and the share of sales
70

C. Khler, P. Lardo and C. Rammer, The Impact and Effectiveness of Fiscal Incentives for R&D,
Compendium of Evidence on the Effectiveness of Innovation Policy Intervention, Manchester Institute of
Innovation Research (University of Manchester, 2012), 18; OECD, R&D Tax Incentives: Rationale,
Design, Evaluation (2010).
71
M. Parsons and N. Phillips, An Evaluation of the Federal Tax Credit for Scientific and Experimental
Research and Development, Working Paper No. 2007-08 (Department of Finance, 2007); Khler et al.,
19-20.
72
Khler et al., The Impact and Effectiveness of Fiscal Incentives for R&D

59

derived from new products, but did not find positive impacts on firm profitability or market
share.73 An Austrian study also found positive impacts of the R&D tax credit on the
probability of introducing products that were new to the market.74
While less common in the literature, a number of papers have also examined the
cross instrument effects of combining R&D subsidies with R&D tax credits. One study using
micro data from the Canadian Innovation Survey in 2005 examined whether firms that
received both R&D grants and R&D tax credits were more likely to perform better across
several innovation measures covered when compared to firms that only received R&D tax
credits. The results indicate that combining direct grants and tax credits is more effective
than receiving credits alone. Firms that combined both forms of support introduced more
innovations and made more world-first innovations in particular. These are the type of
innovations more likely to generate higher positive externalities and long-term income
elasticities to growth.75
The comprehensive review of the literature by the OECD as well as studies
undertaken by the OECD Economics Directorate have looked at the effect of R&D tax
credits on total factor productivity. The economic analysis shows that tax credits increase
productivity in OECD countries and that they do stimulate growth, however they found
relatively modest effects. The analysis also showed that the positive effects are greater for
those industries that are structurally more R&D intensive. The results tend to support a
greater targeting of R&D tax incentives at firms that are more highly innovative and industry
sectors with a higher propensity to conduct R&D.76
This point is reinforced in recent policy studies from the U.S. A critical issue in
evaluating the effectiveness of government incentives targeted at stimulating higher levels
of investment in R&D is that R&D is not a homogenous investment, as is often assumed by
the models that judge the rationale for tax incentives. In fact, R&D is a highly complex form
of economic activity that varies considerably across different sectors of the economy and
different types of research and development. As a result, an effective set of policies to
support R,D&I must be targeted not only at increasing the overall level of R&D in the
economy, but also at the sectoral composition of the R&D spending and the efficiency with
which these two activities are managed.77
Innovative firms in Canada consistently rank R&D tax credits as the most critical
business support program. In the most recent survey of Innovation and Business Strategy,
73

D. Czarnitzki, P. Hanel and J.M. Rosa, Evaluating the impact of R&D tax credits on innovation: A
microeconomic study on Canadian firms, Research Policy 40 (2011): 217-229.
74
Khler et al., 15.
75
C. Berube and P. Mohnen, Are Firms that Received R&D Subsidies More Innovative?, UNU-MERIT
Working Paper #2007-015 (University of Maastricht, 2007).
76
P. Palazzi, Taxation and Innovation, OECD Taxation Working Papers No. 9 (OECD, 2011), 47.
77
Tassey, 297.

60

Tax credits: The most critical government program to support innovation, for the three-year
period from 2010 to 2012, half of all enterprises in surveyed industries determined that
government tax credits were the most critical public program in support of their innovation
activities. This is up from 34.9% in 2007 to 2009, when tax credits also led in importance of
government support programs. This pattern of importance of government tax credits as the
most critical public program in support of innovation activities occurred in all regions and
firm sizes.78 But it is not surprising because more firms benefit from R&D tax credits than
from any other program.
The importance of the dramatic variations in sectoral levels of business R&D
spending in Canada, and the implications of this variation for the innovation and productivity
performance of the Canadian economy have been driven home in recent reports by the
CCA. Both the studies by the CCA and analyses for the National Institute of Standards and
Technology (NIST) in the U.S. emphasize the long-term strategic importance of the
manufacturing sector in the domestic or provincial economy. The sector is important
because of the disproportionate share of R&D spending that it accounts for and the large
number of R&D personnel it employs.79 Continued declines in the level of R&D performed
in the sector signal a long-term fall in the innovative capacity of the economy as a whole.

1.5.3 Programs Delivered by Intermediaries

Intermediaries are typically non-profit organizations that perform functions that are
complementary to the activities of businesses and more specialized than the activities
undertaken by governments. While there are several types of intermediaries, those that
deliver business support programs are sometimes referred to as innovation intermediaries,
defined as organizations that enable innovation, either directly by enabling the
innovativeness of one or more firms, or indirectly by enhancing the innovative capacity of
regions, nations, or sectors.80 The Ontario government supports many such organizations,
the best known of which may be the Ontario Centres of Excellence (OCE), 17 Regional
Innovation Centres (one of which is MaRS), and the many Small Business Enterprise
Centres. They provide funding and services to companies, entrepreneurs, and researchers,
including the support of research projects and the provision of information and advice,
promotional opportunities, events and platforms to support networking, and training.
Several pay particular attention to ventures, helping entrepreneurs establish their
companies and raise equity financing. Services are usually available to all companies,
while funding is typically awarded only to companies that are successful in competitions.
78

Statistics Canada, Survey of Innovation and Business Strategy, (2012),

http://www.statcan.gc.ca/daily-quotidien/140214/dq140214b-eng.htm.
79
Tassey, 298.
80
M. Dalziel, Why do innovation intermediaries exist?, (2010) in 2010 DRUID Conference, http://www2.
druid.dk/conferences/viewabstract.php.

61

An important feature of intermediaries is that they are integrated into the sectors and
regions they serve, and leverage government funding with the contributions of business
people who serve on boards of directors and as coaches to young entrepreneurs.
Knowledge-based business support delivered through intermediaries has the
potential to have a greater effect on companies than purely financial support. Work done by
Statistics Canada for the Business Development Bank of Canada shows that providing
funding and advice in combination to companies has a greater impact on venture
performance than either funding or advice alone.81 While multiple rounds of financial
support may not improve outcomes, the duration of knowledge-based support may do so.
The non-cumulative nature of the impact of financial support is shown by two studies of the
highly regarded Small Business Research Innovation (SBIR) program in the US. One
shows that the number of SBIR awards a company receives has a negative effect on its
investment in R&D,82 while another shows that multiple awards do not increase venture
performance.83 But the duration of engagement with venture support organizations
improves impact on venture revenue and financing, 84 and over time, engagements with
research institutes intensify and become more productive. 85
The outcomes of knowledge-based interventions depend on company capabilities,
the coachability of entrepreneurs, and the region in which the company operates. 86 A
study of Canadian business support programs shows that there is a positive association
between the use of government support and the originality of the most profitable
innovation.87 Another study shows that innovative companies are more likely to collaborate
with university researchers than non-innovative companies.88 An entrepreneurs receptivity
to coaching influences the nature and extent of the social networks created by the

81

BDC Economic Research and Analysis Team, Measuring BDCs impact on its clients, (2013),
http://www.bdc.ca/EN/Documents/other/BDC_ECONOMIC_IMPACT.pdf.
82
Scott J. Wallsten, The R&D Boondoggle, Regulation 23 (2000): 12.
83
Josh Lerner, The government as venture capitalist: The long-run effects of the SBIR program, no.
w5753 (National Bureau of Economic Research, 1996).
84
Douglas J. Cumming and Eileen Fischer, Publicly funded business advisory services and
entrepreneurial outcomes, Research Policy 41 no. 2 (2012): 467-481.
85
Hiro Izushi, Impact of the length of relationships upon the use of research institutes by
SMEs, Research Policy 32, no. 5 (2003): 771-788.
86
Margaret Dalziel, Joe Rowsell, Tanita Noor Tahmina, and Xiao Zhao, Impact of Government
Investments in Research & Innovation: A Review of Academic Investigations, Available at SSRN
2166091 (2012).
87
Petr Hanel and Centre interuniversitaire de recherche sur la science et la technologie, Impact of
Government support programs on innovation by Canadian manufacturing firms (Centre interuniversitaire
de recherche sur la science et la technologie, 2003).
88
Boo-Young Eom and Keun Lee, Determinants of industryacademy linkages and, their impact on firm
performance: The case of Korea as a latecomer in knowledge industrialization, Research Policy 39, no. 5
(2010): 625-639.

62

entrepreneur,89 and the impact of advisory services on venture performance.90 Finally,

companies in regions with low levels of venture capital benefit less as a consequence of
government support for research than companies in regions with high levels of venture
capital.91
Increasing innovation, productivity, and exports requires transformative change.
Because of the capacities of intermediaries to assist companies with learning and change,
we believe the government should legitimize and leverage them as business support
delivery agents.

PANEL RECOMMENDATION
1.11 The Government of Ontario should emphasize the role of intermediary organizations
as necessarily diversified program delivery agents.

1.5.4 Centralization of Program Delivery and Evaluation

The report of the JPC remarks on the complex and fragmented nature of the Ontario
business support portfolio and recommends a one-window delivery model. The Panel
disagrees and views multiple points of entry as both consistent with a sectoral approach to
economic development strategy and essential to effective business support. We do support
the idea of single back-office, recommended by both the Drummond and JPC reports. We
suggest the government create a Business Support Programs subcommittee of Treasury
Board, comprised of senior officials from the Ministry of Finance and the Ministry of
Economic Development, Employment and Infrastructure that would be responsible for the
review and evaluation of Ontarios business support programs. The single back office will
be responsible for record keeping and evaluation, enabling comparative evaluations and
learning.
Ontarios portfolio of business support programs is indeed complex. But our view is
that Ontarios business support programs must reflect the diversity of Ontarios business
support needs and that to be effective, the client-facing side of business support programs
should be highly knowledgeable of and integrated with the targeted sectors and clusters.
Programs designed to mitigate the risks incurred by farmers serve very different
stakeholders than programs designed to serve start-ups or mining companies. This is not
89

Danny P. Soetanto and Sarah L. Jack, Business incubators and the networks of technology-based
firms, The Journal of Technology Transfer 38, no. 4 (2013): 432-453.
90
Douglas J. Cumming and Eileen Fischer, Publicly funded business advisory services and
entrepreneurial outcomes, Research Policy 41, no. 2 (2012): 467-481.
91
Josh Lerner, The government as venture capitalist: The long-run effects of the SBIR program, no.
w5753 (National Bureau of Economic Research, 1996).

63

to say that every sector of the economy needs a program of its own. But where there is a
strong case for investment, it may very well target a specific community and benefit from a
community-targeted delivery mechanism. While measurement is important, Ontarios
business support programs should be designed to be effective, not to be measurable. The
foregoing is not meant to suggest that the government should not maintain a website that
helps business people identify suitable programs.

PANEL RECOMMENDATION
1.12 The Government of Ontario should establish a Business Support Programs
Subcommittee of Treasury Board to be responsible for the implementation of our
recommendations and the ongoing review and evaluation of Ontarios business support
programs and investments.

1.5.5 The Need for Policy Alignment

A final point of consideration is the relative contribution to business support by the
federal and provincial governments. As significant as the level of spending by Ontario is for
research, development and innovation, it represents only part of the total government
spending on these programs in the province. Major federal investments in business support
programs in Ontario include industry support programs such as IRAP, programs targeted at
the aerospace sector (including the industrial regional benefits program), and the new suite
of four programs for FedDev Ontario announced in December 2013. In the prevailing
economic paradigm, the concept of incrementality is usually taken to describe the
incremental level of spending or economic activity undertaken by a firm in response to a tax
incentive or direct subsidy from government. However, from a public policy perspective,
incrementality also applies to the incremental impact of spending by different levels of
government on firm performance. In the pursuit of this objective, it is important to ensure
that Ontario government funding is leveraging available funding from the senior level of
government or is reduced in instances where there is a chance that provincial funds will be
stacked on top of federal funding that is already available.

PANEL RECOMMENDATION
1.13 The Government of Ontario should seek effective alignment of provincial and federal
business support programs.

64

Chapter 2: A Review of Ontarios Business Support Programs

This chapter reviews Ontarios Business Support Programs, identifying the nature of
the companies that received support between 2005-06 and 2011-12. Sixty-five programs
were identified for review by the Panel; these programs are, have been, or will be offered by
the following nine ministries: MEDEI, OMAFRA, ENERGY, MNDM, MNRF, MTCS, MTCU,
MAA, and MOF.
In 2011-12, the last year for which data are available, the Ontario government
provided $4.1 billion in support from the sixty-five programs. As is shown in Figure 2.1, $2.0
billion (48%), almost half this support was provided in the form of non-refundable tax
credits, $829 (20%) million was delivered by third-party intermediaries that provide funding
or support services to businesses, $70992 (17%) million was provided in the form of
refundable tax credits, and $532 (13%) million was transferred directly to companies.
Seventy-seven million dollars (2%) was allocated to four programs whose intent was not
business support, and which were therefore excluded from further consideration. Figure 2.1
also shows the spending on programs that were analyzed by the Panel. The Panel
analyzed recipient data for all but two tax credit programs, and all but 10 direct transfer
programs. The total 2011-12 budget of the 10 direct transfer programs that were not
analyzed was $32 million (less than 1% of total support)93. The Panel had incomplete data
on programs delivered by intermediaries and as a consequence, these programs were not
formally analyzed. While intermediaries keep records of their spending, these records were
generally not in a format that was compatible with the Business Support Program dataset
created to support this review.

92

This figure does not include the Ontario Media Development Corporation backlog estimate (media tax
credits not processed) that was included in the 2011-12 Tax Expenditure Report that is found in 2013
Budget.
93
Two of the 10 omitted direct transfer programs were launched in 2013 and were therefore too new to
be analyzed.

65

Figure 2.1 Ontario Business Support by Type of Delivery

Intermediaries are able to add value in program delivery in ways that direct transfers
and tax credits are not. Where direct transfer programs and tax credits benefit only one
company at a time, intermediaries can create efficiencies by serving multiple companies
simultaneously. More importantly, intermediaries can create communities for exchanging
knowledge and for collectively addressing challenges that cannot be addressed by
individual organizations. The lack of data on companies served by intermediaries is a
reflection of the fact that the Ontario government is in the early stages of organizing its data
on business support programs. It is not a reflection of the value of these programs.
Table 2.1 lists the 65 business support programs, 2011-12 and 2012-13 spending,
program end dates, and, where available, the number of recipient companies. It includes
22 programs delivered by intermediaries, 22 programs delivered directly, 11 refundable tax
credits, 6 non-refundable tax credits, and 4 programs that are not business support
programs. Programs for which recipient data are analyzed are indicated by an asterisk next
to the 2011-12 program spending figure. This includes all programs where spending
exceeded $10 million in 2011-12, except for programs delivered by intermediaries. The
selected programs total $3.2 billion in support in 2011-12, which represents approximately
78% of the $4.1 billion in support provided that year. Appendix C provides a description of
each program, the relevant websites, and for programs delivered by intermediaries, the
names of the intermediaries. There is additional information on the largest of the programs
delivered by intermediaries.

66

Table 2.1 List of Ontarios 65 Business Support Programs

NAME

2011-12
$M94

2012-13
#recipients95

$M1

START DATE

END DATE

#recipients2

Programs Delivered by Intermediaries

Business Ecosystem
Support Fund

14.7

15.5

2009

2014

111.3

133.7

n/a

Ongoing

65.8

76.2

2009

Ongoing

Communities in Transition
Initiatives

1.7

0.3

2006

Ongoing

Grants in Support of
Economic and Financial
Services Policy Research

0.7

0.7

2013-14

2015-16

Grants in Support of
Research and Innovation
(Grants in Support of
Innovation and
Commercialization)

0.6

0.4

N/A

N/A

Grants in Support of
Tourism Regions

64.5

59.8

2010-11

Ongoing

Northern Ontario Heritage

Fund

100

1988

March 2017

Business Risk
Management
(Federal/Provincial/Territo
rial Suite of Business Risk
Management Programs)
Commercialization and
Innovation Network
Support

97

901

100

96

~5,600

852

Ontario Clean Energy

Benefit (to farms)

40

35

2011

Ongoing

Ontario Clean Energy

Benefit (to small

225

170

2011

Ongoing

94

Amounts are per the Ontario Public Accounts and may include adjustments, accruals, and other costs
such as the administration of programs.
95
Information on recipients was gathered for business support programs that were selected for review by
the Panel.
96
This number is approximate and based on estimates from the Ministry of Economic Development,
Trade and Employment (MEDEI) for two sub-programs that are part of the CIN suite of programs. The
number is based on estimates of clients served through Regional Innovation Centres (RICs) and the
Ontario Centre of Excellence (OCE).
97
$100M represents spending for all of the programs available through the Northern Ontario Heritage
Fund; not just the two programs noted above.

67

NAME

2011-12
$M94

2012-13
#recipients95

$M1

START DATE

END DATE

2009

Program is
98
paused

2000

Ongoing

#recipients2

businesses)
Ontario Emerging
Technologies Fund

27.4

Ontario Media
Development Corporation
Funding

25.8

14.5

280

24

285

Northleaf Venture
Catalyst Fund (Ontario
Venture Capital Fund II)

30

TBD

TBD

Ontario Wood Promotion

Program

1.1

0.6

2005

Ongoing

2011

Ongoing

Risk Management
Programs

124.2

Rural Connections

2007

2012

Sector Support Grants

(Grants in Support of
Business Development)

7.6

N/A

Ongoing

Sector Support Grants

(Grants in Support of
Economic Development)

7.7

0.4

N/A

Ongoing

Sector Support Grants

(Grants in Support of
Trade and Investment)

0.3

0.3

N/A

Ongoing

Sector Support Grants

(Ontario Small Brewers
Strategy Fund)

1.1

1.2

2004

2016

Sector Support Grants

(Ontario Wine Strategy
Fund)

3.3

2010

2015

0.3

1.7

2011

Ongoing

826.8

801.2

2.9

0.5

2005

2010

Water Technology
Acceleration Project
TOTAL

15,260

133.6

4,797

Direct Transfer Programs

Advanced Manufacturing
Investment Strategy

98

Only follow-on investment is occurring. No new investments.

* Asterisk indicates the programs analyzed (12 programs delivered directly and 15 tax credit programs).

68

NAME

2011-12

Eastern Ontario
Development Fund

2012-13

$M94

#recipients95

$M1

#recipients2

14.8*

75

7.5

53

START DATE

END DATE

2008

Ongoing

Forest Sector Prosperity

Fund

8.7

6.5

2005

2008

Forest Loan / Guarantee

Program (Bad Debt
Expense)

4.4

5.1

2005-06

2011

2009

Ongoing

2013

2016

2006

Ongoing
(currently
paused as of
Sept. 2013)

TBD

Fiscal
2015/16

Growing Forward
Horse Racing Transition
Assistance Program
Innovation Demonstration
Fund

Investment Ready:
Certified Site

36.5*

1,191

14.7*

32.5

729

23

11.4

22

Next Generation of Jobs

Fund
Biopharmaceutical
Investment Program

7.8*

2.0

2008

2010

Next Generation of Jobs

Fund Jobs and
Investment Program

93.8*

27

77

28

2008

2009

Northern Industrial
Electricity Rate Program

120.1*

18

120

16

2010

2016

Ontario Automotive
Investment Strategy

27.4*

0.2

2004

2009

Ontario Ethanol Growth

Fund

76.3*

72.3

2005

2017

Ontario Life Sciences

Commercialization
Strategy
Ontario Music Fund
Rural Economic
Development and Local
Foods

99

99

5.7

0.7

2010

Currently
March 31,
100
2015

2013

2016

2001/2013

Ongoing

27.4*

143

4.8

101

2011-12 recipient number includes one intermediary.

However agreement is being finalized to extend to March 31, 2016.

100

69

NAME

2011-12
$M94

Rural Summer Jobs

2012-13
#recipients95

$M1

START DATE

END DATE

#recipients2

2.7

2.8

2008

Ongoing

Sector Support Grants

(Ontario Craft Brewers
Opportunity Fund)

2008

2012

Sector Support Grants

(VQA Support Program)

2010

2015

Ongoing

Smart Grid Fund

101

1.8*

12

12

2011

0*

2.5

17

2012

Ongoing

Strategic Jobs and

Investment Fund

79.1*

27

61.1

22

2010

2017

TOTAL

532.1

Southwestern Ontario
Development Fund

102

424.9

Refundable Tax Credits

Ontario Apprenticeship
Training Tax Credit

228.6*

6,670

219.6

2004

Ongoing

Ontario Book Publishing

Tax Credit

1.9*

36

3.7

1997

Ongoing

Ontario Business
Research Institute Tax
Credit

12.3*

170

13.1

1997

Ongoing

Ontario Computer
Animation and Special
Effects Tax Credit

15.3*

40

50

1997

Ongoing

Ontario Co-operative
Education Tax Credit

31.6*

2,146

39.5

1996

Ongoing

Ontario Film and

Television Tax Credit

82.3*

330

212.5

1996

Ongoing

211.3*

8,637

249.8

1995

Ongoing

17.4*

64

88.1

1998

Ongoing

Ontario Production
Services Tax Credit

107.5*

130

222.1

1997

Ongoing

Ontario Small Beer

n/a

n/a

2010

Ongoing

Ontario Innovation Tax

Credit
Ontario Interactive Digital
Media Tax Credit

101
102

Scheduled to complete in 2016.

However this program has commitments that expire in 2018.

70

NAME

2011-12

2012-13

$M94

#recipients95

$M1

Ontario Sound Recording

Tax Credit

0.8*

11

1.2

TOTAL

709

START DATE

END DATE

1998

Ongoing

#recipients2

Manufacturers Tax Credit

1,099.6

Non-Refundable Tax Credits

Ontario Credit Union Tax
Reduction

5.3*

42

6.2

1985

Ongoing

Ontario Research and

Development Tax Credit

174.5*

5,791

245.5

2009

Ongoing

Ontario Resource Tax

Credit

44.6*

48

36.5

2009

Ongoing

Ontario Small Business

Tax Deduction

1,499.8*

200,419

1,558.8

1976

Ongoing

253.9*

1,839

154.7

1979

Ongoing

n/a

n/a

2008

2012/2022

1,978.1

2,001.7

3.5

2.1

2005

Ongoing

Forest Access Roads

58.8

59.9

2005

Ongoing

New Relationship Fund

incl. Economic
Development Funding

14.3

14.3

2008

Ongoing

Ontario Political
Contributions Tax Credit

0.4

0.3

2009

Ongoing

TOTAL

77

76.6

4,123

4,404

Ontario Tax Credit for

Manufacturing and
Processing
Ontario Tax Exemption
for Commercialization
TOTAL
Not Business Support
Aboriginal Community
Capital Grants Program

TOTAL ALL
PROGRAMS

71

The BSP dataset that supports this review was created by the Ministry of Finance.
Using Ontario corporate income tax returns and other tax data, profiles were provided for all
Ontario corporations and tax credit recipients based on revenue, employment, industrial
sector, R&D spending, and age of corporations. Tax data was linked to data from the
Ontario governments Integrated Financial Information System (IFIS), which records all
Ontario government payments, to provide similar profiles for selected transfer payment
programs and total Ontario business support. Further information on the dataset is
available in Appendix A.
Our findings are summarized in Figures 2.2 and 2.3 below. Figure 2.2 shows
average support, across companies that received support, by revenue. It shows that in
2011-12, average support for companies with less than $0.5 million in revenue was $4,333,
while average support for companies with more than $20 million in revenue was $231,255.
Business support in Ontario is highly skewed towards large companies. Currently, over 200
corporations receive more than $1 million annually in total Ontario business support. These
corporations, which represent 0.1% of all corporations receiving Ontario business support,
account for 30% of total Ontario business support. While large companies may be better
able to utilize large amounts of support, small companies may be in greater need of
support.
Figure 2.3 shows total support by company age. It shows that in 2011-12, total
support for companies under 2 years of age was about $0.2 billion, while total support for
companies 10 years of age and older was $1.9 billion. Business support in Ontario is highly
skewed towards old companies. This is especially troublesome given the data presented in
Chapter 1 that shows that the proportion of young companies and young companies that
perform R&D, and the proportion of young company revenue, employment, and R&D
spending all declined between 2005-06 and 2011-12. The Ontario government should
consider where, in terms of company size and age, support is likely to be most effective.

72

Figure 2.2 $ Average support by revenue

Figure 2.3 $ Total support by company age

At $1.5 billion in 2011-12, the Ontario Small Business Tax Deduction (OSBTD) is the
provinces largest business support program. Noting that the federal government and all
other provinces phase out the small business deduction for large companies, the
73

Drummond report recommends the Ontario government similarly restrict the OSBTD for
large companies. The government has announced its intention to implement this
recommendation and estimates that by doing so it will save approximately $50 million per
year.103 The savings are relatively modest because the vast majority of the OSBTD goes to
small companies. We support this change but think the government should go further. As
Chapter 1 describes, support should focus on increasing innovation, productivity, and
exports, and should be targeted and effective. Its unlikely that the OSBTD achieves these
objectives. We would have recommended the elimination of the OSBTD, or its
transformation into a tax deduction for young companies, but refrained from doing so
because support is already biased towards large companies. The province cannot reduce
its support for small companies before it moderates its support for large companies.
The remainder of Chapter 2 excludes the OSBTD from its analysis because the
OSBTD is so large that it overwhelms other programs. Excluding the OSBTD, the pattern of
support is similar to that shown in Figures 2.2 and 2.3. In almost every year for the period
of 2005-06 to 2011-12, the total Ontario business support, the probability of support, and
the amount of support per company is the greatest for companies with the most revenue
(over $20 million), and with the greatest number of employees (over 500). Over the same
period, the total Ontario business support and the probability of support are greatest for
companies that are the oldest (over 10 years). In each of the years reviewed, the level of
support per company and the probability of support directly decrease from larger to smaller
companies and from older to younger companies. We also show that companies in the
cultural, arts, entertainment and recreational industries sector, as well as the manufacturing
sector, have received the most support during the seven years considered, at about $1.5
billion each. Based our findings we provide the recommendations shown below. Once the
government has moderated the degree to which support increases with company age and
size, it should replace the OSBTD with more diversified and more targeted support for
young and small companies, particularly high growth young companies.

PANEL RECOMMENDATIONS
2.1 The Government of Ontario should moderate the degree to which support increases
with company size.
2.2 The Government of Ontario should moderate the degree to which support increases
with company age.
2.3 The Government of Ontario should align its sector support with its sector strategies.

103

Hon. Charles Sousa, 337.

74

2.4 The Government of Ontario should conduct further research on the recipients and
effects of its business support programs. Many topics suggest themselves. One is the
long-term implications of short-term programs.
The remainder of this chapter provides descriptive analyses of companies that
receive business support versus those that do not, as well as analyses by the type of
support received. In Sections 2.1 2.4 we provide analyses by the revenue of companies
that do and do not receive support as well as breakdowns by employees, industry, and by
company age. Section 2.1 considers the recipients of total support; Section 2.2 the
recipients of refundable tax credits; Section 2.3 the recipients of non-refundable tax credits;
and Section 2.4 the recipients of support from the 12 direct transfer programs. In Section
2.5 we consider the recipients of research and development support. A large number of
supplements in the forms of graphs are provided in Appendices D H. The graphs provide
the evidence upon which this description of government support in Ontario is based.

2.1. Total Government of Ontario Business Support, 2005-06 to 2011-12

We present the data by company revenue in Subsection 2.1.1, company employees
in Subsection 2.1.2, company industry in Subsection 2.1.3, and company age in Subsection
2.1.4. Summary observations are provided at the end of each subsection. In Subsections
2.1.1 to 2.1.4 total business support excludes the Ontario Small Business Tax Deduction.

2.1.1 Total Government of Ontario Business Support by Company Revenue

We begin by describing the total level of government support of businesses in
Ontario. Figures 2.1.1 to 2.1.7 in Appendix D present the data by company revenue ($0$0.49 million, $0.5-$1.9 million, $2-$4.9 million, $5-$9.9 million, $10-$19.9 million, and more
than $20 million). Figure 2.1.1 presents the percentage of companies receiving any form of
support from the Government of Ontario. The data for 2011-12 indicate that 1% of
companies with $0-$0.49 million receive support from the Government of Ontario, while 7%
of companies with $0.5-$1.9 million receive support, 12% of companies with $2-$4.9 million
receive support, 17% of companies with $5-$9.9 million receive support, 23% of companies
with $10-$19.9 million receive support, and 30% of companies with $20 million or more
receive support. In effect, Figure 2.1.1 clearly indicates that the likelihood of receiving
government support increases in direct proportion with company revenue, and these
patterns are stable and consistent over each of the years 2005-06 through 2011-12.
Figure 2.1.2 shows that in the most recent year (2011-12), 6,337 companies
received some form of support within the category of $0.5-$1.9 million in revenue. This
revenue category has consistently afforded the greatest number of companies supported
relative to each of the revenue categories in all of the years considered. This was followed
75

by the $0-$0.49 million category at 4,466 companies. By contrast, there were 2,582
companies receiving some form of support with more than $20 million in revenue in 201112, and 1,556 companies receiving some form of support with $10-$19.9 million in revenue.
Overall, Figure 2.1.2 shows there is variability in the number of companies receiving support
across different revenue categories, but this variability is not nearly as large as the
variability across the percentage of companies receiving support within the different
categories (Figure 2.1.1). Between the respective highest and lowest categories, in terms
of the number of companies, there are 4.1 times more companies in the highest category
than in the lowest category, while in terms of the percentage of companies, companies in
the highest category are 30 times more likely to receive support than those in the lowest
category. The reason for these differences is that there are substantially more companies
in the smaller revenue categories than in the large revenue categories (Figure 2.1.6).
Figure 2.1.3 presents the average amount of support by revenue categories, and
Figure 2.1.4 presents the total amount of support for each of the revenue categories.
Figure 2.1.3 shows that the average amount of support for companies receiving support
increases in relation to the revenue of the company. The average support received by
company for companies with more than $20 million in revenue in 2011-12 was $365,519.
The average amount of support for companies with less than $20 million in revenue in
2011-12 was $37,820. The average amount of support for companies with less than $0.5
million in revenue was $26,228.
Figure 2.1.4 shows that the total amount of support is quite consistent across each
of the revenue categories up to $19.9 million, between the range of $109 million for
companies in the $5-$9.9 million revenue category, up to $161 million for companies in the
$2-$4.9 million category. Interestingly, Figure 2.1.4 shows that companies with $20 million
or more in revenue receive a substantially larger amount of support: $944 million in 201112, and this amount has been increasing substantially over time from $349 million in 200506. For companies with less than $20 million or more in revenue, the total amount of
support in 2011-12 was $662 million.
Overall, Figures 2.1.1-2.1.6 show that larger companies as measured by company
revenue are substantially more likely to receive support, and substantially more likely to
receive more support per company. The data indicate companies with more than $20
million in revenue are 30 times more likely to receive government support than companies
with less than $0.5 million in revenue, and companies with more than $20 million in revenue
on average receive 14 times more dollars of support than those with less than $0.5 million
in revenue.
However, when support is considered as a percentage of revenue, companies with
the lowest revenue receive the most support. Figure 2.1.7 shows that in 2011-12, support
accounted for over 20% of revenue for companies with less than $0.5 million in revenue,
falling to 0.1% of revenue for companies with more than $20 million in revenue. This finding
does not invalidate the observation that support is biased towards large companies, but
76

demonstrates the importance of considering multiple measures when appraising support

allocation decisions.
PANEL OBSERVATION

While the smallest companies receive more business support as a percentage of

revenue than large companies, the distribution of companies receiving support is
skewed towards companies with revenue of more than $20 million both in terms of
the probability of receiving support and the amount of support per company. The
smallest companies are arguably the ones in greatest need of governmental
assistance, but the least likely to receive support.

2.1.2 Total Government of Ontario Business Support by Company Employees

Figures 2.1.8-2.1.14 in Appendix D present the total distribution of business support
by the number of company employees (fewer than 5, 5-49, 50-99, 100-249, 250-499, and
more than 500 employees). The data in Figure 2.1.8 indicate that in 2011-12, 31.2% of
companies with 100 or more employees received government support, while only 5.6% of
companies with fewer than 100 employees received support. The percentage of companies
receiving support increases directly with the number of employees, and is consistent each
year the data are available. In 2011-12, 40.6% of companies with 500 or more employees
received government support, 33.3% of companies with 250-499 employees received
support, 28.6% of companies with 100-249 employees received support, 23.1% of
companies with 50-99 employees received support, 10.2% of companies with 5-49
employees received support and 2.1% of companies with fewer than 5 employees received
support. Figure 2.1.9 shows that the largest number of companies receiving government
support are those with 5-49 employees, but the differences in the percentage of companies
across the employee categories is attributable to the fact that there is a much greater
number of companies with a small number of employees (see Figure 2.1.13). Figure 2.1.12
shows that companies are least likely to receive support if they have fewer than 5
employees, and most likely to receive support if they have more than 500 employees.
For corporations that received support, Figure 2.1.10 shows the average amount of
government support sorted by company employees. The data indicate that in 2011-12,
companies with 500 or more employees received on average 97.4 times the dollars of
support relative to companies with fewer than 5 employees. As with the probability of
receiving support in Figure 2.1.8, Figure 2.1.10 shows that the levels of support are
progressively increasing with employee numbers. Companies with more than 500
employees on average received $1.25 million in support, companies with 250-499
employees received on average $328,432 in support, companies with 100-249 employees
received $93,229 in support, companies with 50-99 employees received $65,279 in support,
77

companies with 5-49 employees received $27,425 in support, and companies with fewer
than 5 employees received $12,816 in support.
Similarly, Figure 2.1.11 shows that the total levels of support have been the highest
for companies with 500 or more employees in recent years. In 2011-12, companies with
more than 500 employees received $419.5 million in aggregate support, companies with 549 employees received in aggregate $243.9 million in support, companies with 250-499
employees received $110.4 million in support, companies with 50-99 employees received
$104.6 million in support, companies with 100-249 employees received $101.2 million in
support, and companies with fewer than 5 employees received $40.5 million in support. In
other words, in 2011-12, companies with more than 500 employees received 10.3 times
more dollars in total support than companies with fewer than 5 employees, even though
there are 182 times more companies with fewer than 5 employees than those with more
than 500 employees (in 2011-12, there were 150,645 companies in Ontario with fewer than
5 employees and 827 companies with more than 500 employees; see Figure 2.1.9)
Overall, consistent with the data sorted by company revenue presented in Figures
2.1.1-2.1.6, the data sorted by company employees show that the largest companies with
more than 500 employees are substantially more likely to receive support than their smaller
counterparts, and receive substantially more support overall and per company. These
differences are very pronounced. In 2011-12, over 40% of companies with 500 or more
employees received government support, while 2% of companies with less than 5
employees received government support, and companies with more than 500 employees on
average received $1.25 million in support, compared to $0.01 million support given on
average to companies with fewer than 5 employees.
Figure 2.1.14 presents total business support per employee. Similar to support as a
percentage of revenue shown in Figure 2.1.7, companies with the fewest employees tend to
receive the most support per employee. In 2011-12, the support per employee for
companies with less than 5 employees was $5,314, dropping to $1,554 for companies with
5 to 49 employees, and $588 for companies with 500 or more employees. Companies with
50 to 499 employees received between $619 and $962 per employee. Again, this does not
invalidate the observation that support is biased towards large companies, but
demonstrates the importance of considering multiple measures when appraising support
allocation decisions.
PANEL OBSERVATION

Small companies receive more business support per employee than large
companies. However, smaller companies based on employee counts are less likely
to receive support, and for those that do receive support, smaller companies receive
on average less support. Likewise, the total budget of support to smaller companies
is substantially less than that provided to larger companies.

78

2.1.3 Total Government of Ontario Business Support by Industry

The data are presented in Figures 2.1.15-2.1.20 by the following different industries:

Agriculture and Food [NAICS codes: 111, 112, 1151, 1152, 311, 312, 3253],
Forestry, Fishing and Hunting [113, 114, 1153],
Mining, Utilities, and Oil and Gas [21, 22],
Construction [23],
Manufacturing [31, 32, 33 Less 311, 312, 3253, 3254, 334, 336, 3391],
Transportation Equipment Manufacturing [336],
Wholesale and Retail Trade [41, 44, 45],
Transportation and Warehousing [48, 49],
Cultural, Arts, Entertainment and Recreation Industries [51, 71 LESS 5112,
517],
Information and Communication Technology [5112, 517, 334],
Financial, Insurance, Real Estate, and Rental/Leasing [52, 53],
Health Care and Social Assistance [62, 3254, 3391],
Professional, Scientific, and Technical Services [54],
Other Services (except Public Admin 91) [55, 56, 61, 72, 81].

Figure 2.1.15 indicates that companies in the Transportation Equipment

Manufacturing sector are most likely to receive support (in 2011-12, 26.2% of companies in
that sector were supported), followed by the Information and Communication Technology
sector (19.0%), Manufacturing (17.7%), Agriculture and Food (14.3%), Construction (5.6%),
with the remaining sectors each at less than 5% of the total number of companies within
their sectors. Figure 2.1.16 shows that the total number of companies receiving support is
greatest in the Manufacturing sector (in 2011-12, 3,519 companies), followed by
Construction (3,481 companies), Professional, Scientific, and Technical Services (2,816
companies), Wholesale and Retail Trade (2,564 companies), Other Services sector
excluding Public Administration (1,925 companies), and Agriculture and Food (1,842
companies). The fewest number of companies to receive support were in the Forestry,
Fishing and Hunting sector (21 companies), followed by Mining, Utilities, and Oil and Gas
sectors (93 companies), Transportation and Warehousing (221 companies) and
Transportation Equipment Manufacturing (286 companies). The reason for the differences
across Figure 2.1.15 and 2.1.16 is that there are large differences in the number of
companies in each industry. Figure 2.1.20 shows that the total number of companies is
smallest in the Transportation Equipment Manufacturing sector (in 2011-12, 1,093
companies) followed by forestry, fishing and hunting (1,328 companies), while the number
of companies is greatest in the Other Services sectors excluding Public Administration
(123,699 companies), followed by the Financial, Insurance, Real Estate and
Rental/Leasing sector (105,900 companies). Figure 2.1.19 shows the probability of not

79

receiving any form of support by industry, which is consistent with the information provided
in Figure 2.1.15.
For corporations that received support, Figure 2.1.17 shows the amount of support
per company by industry. In 2011-12, the greatest support per company was in the Mining,
Utilities, and Oil and Gas sector at $797,254 per company, followed by Transportation
Equipment Manufacturing ($446,040 per company), Cultural, Arts, Entertainment and
Recreation ($390,546 per company), Financial, Insurance, Real Estate and Rental/Leasing
($241,175 per company), and Information and Communication Technology ($228,016 per
company). The smallest level of support per company was provided to companies in
Forestry, Fishing and Hunting ($9,378 per company), followed by Construction ($25,267 per
company), and Agriculture and Food ($28,254 per company).
Figure 2.1.18 shows the total support provided to companies by industry. The top
four industries over 2005-06 through 2011-12 were the Cultural, Arts, Entertainment and
Recreational sector (a total of $1.51 billion in support was provided over these 7 years, or
an average of $215 million per year), followed by Manufacturing ($1.50 billion),
Professional, Scientific, and Technical services ($1.05 billion), and Information and
Communication Technology ($813 million). By contrast, the industries receiving the least
support were Forestry, Fishing and Hunting ($3.3 million over the 7 year period 2005-06
through 2011-12), followed by Transportation are Warehousing ($37.3 million), and Health
Care and Social Assistance ($202.5 million). Put differently, Cultural, Arts, Entertainment
and Recreational industries receive in total 456.8 times the amount of support received by
the Forestry, Fishing and Hunting industries, 7.4 times the government support received by
the Health Care and Social Assistance industries, and 1.9 times the support received by the
Information and Communication Technologies industries.
An advantage of differential support across different industry sectors is in the
creation of cluster effects. It is unclear as to whether or not the differential support provided
by the Government of Ontario facilitates such effects, at least based on the available data.
More data are needed that intersects the industry information with the regional and local
information. A potential disadvantage of differential support across different industry sectors
is that it may reflect differential lobbying efforts by sectors, which may result in inequitable
or inefficient resources allocated to different sectors, and inefficient use of resources spent
in engaging in lobbying. The Government of Ontarios sectorial strategies and sector data
discussed in Chapter 1 and Appendix B should be compared with the type of sector data
presented in this chapter and reviewed on a regular basis.
PANEL OBSERVATION

Companies in the cultural, arts, entertainment and recreational industries sector, as

well as the manufacturing sector, have received the most support during the seven
years considered, at about $1.5 billion each.
80

2.1.4 Total Government of Ontario Business Support by Company Age

The data are presented in Figures 2.1.21-2.1.26 by company age (under 2 years, 25 years, 6-9 years, and 10 years and over). Figure 2.1.21 indicates that the companies that
are 10 years or older are most likely to receive support (3.8% of companies were supported
in 2011-12), followed by companies that are from 6 to 9 years (2.2%), companies that are 2
to 5 years (1.9%) and companies that are under 2 years (1.3%). Similarly, Figure 2.1.25
shows consistent evidence of the probability of not receiving support by company age,
which is highest for the youngest companies less than 2 years old. Figure 2.1.22 shows
that the greatest number of companies receiving support were over 10 years old (2011-12,
12,947 companies over 10 years old received support), followed by companies that were 25 years old (3,276 companies), companies that were 6-9 years old (2,854 companies), and
companies that were under 2 years old (1,002 companies). Figure 2.1.26 shows that most
companies in Ontario are 10 years or older; however, these statistics are likely attributable
to survivorship bias.
For corporations that received support, Figure 2.1.23 shows the average dollar
support provided to companies of different ages. The largest amount of support per
company is provided to companies that are less than 2 years old ($146,781) (keeping in
mind the survivorship bias discussed immediately above), followed by companies that are
10 years and older ($88,637), 2-5 years old ($61,198), and 6-9 years old ($39,394). The
total dollars of support shown in Figure 2.1.24, however, reveals that over 2005-06 through
2011-12, $4.7 billion in support was provided to companies that are over 10 years of age,
followed by $1.4 for companies 6-9 years old, $1.2 billion for companies 2-5 years old, and
$916 million for companies less than 2 years old.
Overall, the data presented by company age in Figures 2.1.21-2.1.26 is consistent
with the data presented by employees in Subsection 2.1.3 and the data by company
revenue presented in Subsection 2.1.1. Over 2005-06 to 2011-12, companies that are 10
years old or more received 3.3 times the amount of support than companies that are 6-9
years old, 3.9 times the amount of total support than companies that are 2-5 years old, and
5.1 times the amount of support than companies that are under 2 years old. We noted that
some of these statistics are difficult to interpret due to possible survivorship bias. It is
possible that older companies receive more support due to the fact that the receipt of
government support increases the probability of company survival. It is also possible that
older companies are able to secure more government support. Further data and analyses
are warranted as to when exactly companies in the data received support, and whether or
not younger companies are more likely to fail in the absence of governmental support.

81

PANEL OBSERVATIONS

The Government of Ontario should carry out further data collection and research that
enables the analysis of the timing of support over the life-cycle of a company, and
whether or not the receipt of support increases the likelihood of company survival.
Subject to the results from this type of analysis, the Government of Ontario should
reflect on whether or not the distribution of support should be a function of company
age.

2.2. Government of Ontario Refundable Tax Credits for Businesses, 2005-06 to

2011-12
In this section we present the data on refundable tax credit programs. The data are
summarized in Appendix E in Figures 2.2.1 2.2.12. We begin by summarizing the data by
specific program, and then for all programs together. We also segment the data by
company revenue, employees, industry, and age.
Figure 2.2.1 presents total dollars of support per year by type of refundable tax
program. From greatest to least support, the programs are:

The Ontario Innovation Tax Credit (OITC), which afforded the most support ($1.6
billion over 2005-06 through 2011-12, and $219 million in 2011-12)
The Ontario Film and Television Tax Credit (OFTTC) ($920 million over 2005-06
through 2011-12, and $120 million in 2011-12)
The Apprenticeship and Training Tax Credit (ATTC) ($769 million over 2005-06
through 2011-12, and $206 million in 2011-12)
The Ontario Production Services Tax Credit (OPSTC) ($469 million over 2005-06
through 2011-12, and $132 million in 2011-12)
The Ontario Interactive Digital Media Tax Credit (OIDMTC) ($173 million over
2005-06 through 2011-12, and $31 million in 2011-12)
The Co-operative Education Tax Credit (CETC) ($125 million over 2005-06
through 2011-12, and $37 million in 2011-12)
The Ontario Computer Animation and Special Effects Tax Credit (OCASE) ($113
million over 2005-06 through 2011-12, and $12 million in 2011-12)
The Ontario Business-Research Institute Tax Credit (OBRITC) ($55 million over
2005-06 through 2011-12, and $13 million in 2011-12)
The Ontario Book Publishing Tax Credit (OBPTC) ($17 million over 2005-06
through 2011-12, and $3 million in 2011-12), and
The Ontario Sound Recording Tax Credit (OSRTC) ($10 million over 2005-06
through 2011-12, and $0.5 million in 2011-12).
82

Figure 2.2.2 presents the data by the total number of companies that received
refundable tax credits. From those with the fewest to the greatest number of recipient
companies, the programs are:

OSRTC (11 companies in 2011-12)

OBPTC (36 companies)
OCASE (40 companies)
OIDMTC (64 companies)
OPSTC (130 companies)
OBRITC (170 companies)
OFTTC (330 companies)
CETC (2,146 companies)
ATTC (6,670 companies), and
OITC (8,637 companies).

Figure 2.2.3 presents the data by the median dollar benefit per company for each of
the different refundable tax credit programs. The data indicate that the smallest median
benefit accrues to the company in receipt of the CETC ($4,000 in 2011-12), followed by the
ATTC ($10,000), the OSRTC ($10,000), the OBRITC ($10,000), the OITC ($11,000), the
OBPTC ($40,000), the OFTTC ($129,000), the OCASE ($131,000), the OIDMTC
($169,000) and the OPSTC ($368,000). Figure 2.2.4 presents the data by the standard
deviation of the dollar benefit received by companies within each refundable tax credit
program, where a higher standard deviation implies greater inequality in the benefit
received by different companies. The smallest standard deviation in 2011-12 was
associated with the OITC ($44,000), followed by the OSRTC ($84,000), the CETC
($102,000), the OBPTC ($123,000), the OBRITC ($275,000), the ATTC ($293,000), the
OCASE ($557,000), the OFTTC ($777,000), the OIDMTC ($912,000), and the OPSTC
($2,021,000). These patterns and relative rankings are fairly stable across each of the
years 2005-06 through 2011-12 in Figures 2.2.1 through 2.2.4.
Figures 2.2.5 through 2.2.12 present the data for each of the different refundable tax
credit programs and for specific characteristics of the companies that benefit from the
programs. Figure 2.2.5 shows the percentage of companies that receive the program by
different revenue categories of the companies. The data indicate that companies with the
lowest revenues are least likely to receive refundable tax credits, and the percentage
increases in direct proportion to the revenue category in which the company falls within. In
2011-12, only 1.0% of companies with less than $0.5 million in revenue received refundable
tax credits, followed by 5.5% of companies with $0.5 million to $1.9 million in revenue,
10.1% of companies with $2 million to $4.9 million in revenue, 13.2% of companies with $5
million to $9.9 million in revenue, 16.7% of companies with $10 million to $19.9 million in
revenue, and 18.6% of companies with more than $20 million in revenue. The total number
of companies receiving refundable tax credits by year is presented in Figure 2.2.6. The
83

relative ranking is different than that presented in Figure 2.2.5 due to the differing number of
companies within each category such that the higher the revenue category the fewer the
number of companies (as presented in Figure 2.1.6 in Appendix D and discussed above).
The data in Figure 2.2.6 show that the smallest number of companies to benefit are those
within the range of revenue of $10 million to $19.9 million (1,145 companies in 2011-12),
followed by companies with $5 million to $9.9 million in revenue (1,487 companies),
companies with more than $20 million in revenue (1,604 companies), companies with $2
million to $4.9 million in revenue (2,723 companies), companies with $0 to $0.49 million in
revenue (4,980 companies), and companies with $0.5 million to $1.9 million in revenue
(5,248 companies).
Figure 2.2.7 presents the data by the number of employees working at companies
receiving refundable tax credits as a percentage of the total number of companies within
each revenue category and by year. The data indicate that companies with the fewest
number of employees are the least likely to receive refundable tax credits, consistent with
the sorting of the data by revenue in Figure 2.2.5 as discussed above. Figure 2.2.7 shows
that 1.9% of companies with fewer than 5 employees received refundable tax credits in
2011-12, followed by companies with 5-49 employees (9.1%), companies with 50-99
employees (18.0%), companies with 100-249 employees (20.0%), companies with 250-499
employees (20.9%), and companies with more than 500 employees (32.3%). Figure 2.2.8
shows the total number of recipient companies by employees without accounting for the
different numbers of total companies within each category (previously presented in Figure
2.1.12, which showed that there are generally substantially fewer companies with more
employees). Figure 2.2.8 shows that the total number of recipient refundable tax credit
companies with 250-499 employees was 211 companies in 2011-12 followed by companies
with 500 or more employees (267 companies), companies with 100-249 employees (759
companies), companies with 50-99 employees (1,249 companies), companies with fewer
than 5 employees (2,904 companies), and companies with 5-49 employees (7,952
companies).
Figure 2.2.9 presents the data on recipients of refundable tax credits by industry and
year. The data indicate that companies in the Financial, Insurance, Real Estate and
Rental/Leasing sectors are least likely to receive refundable tax credits (0.3% of companies
in that industry in 2011-12), followed by Transportation and Warehousing (0.7%), Other
Services (except Public Admin) (1.4%). Forestry, Fishing and Hunting (1.3%), Health Care
and Social Assistance (2.0%), Mining, Utilities, and Oil and Gas (2.5%), Wholesale and
Retail Trade (2.8%), Professional, Scientific, and Technical Services (2.8%), Cultural, Arts,
Entertainment and Recreation Industries (3.6%), Construction (5.5%), Agriculture and
Food (9.7%), Manufacturing (13.2%), Information and Communication Technology (16.7%),
and Transportation Equipment Manufacturing (20.1%). Figure 2.2.10 presents the total
number of recipients of refundable tax credits by industry and year. The data indicate that
the fewest recipients were in the Forestry, Fishing and Hunting sectors (17 companies in
2011-12), followed by Mining, Utilities, and Oil and Gas (50 companies), Transportation and
84

Warehousing (198 companies), Transportation Equipment Manufacturing (220 companies),

Financial, Insurance, Real Estate and Rental/Leasing (277 companies), Health Care and
Social Assistance (463 companies), Information and Communication Technology (608
companies), Cultural, Arts, Entertainment and Recreation Industries (635 companies),
Agriculture and Food (1,244 companies), Other Services (except Public Admin) (1,739
companies), Wholesale and Retail Trade (2,133 companies), Professional, Scientific, and
Technical Services (2,592 companies), Manufacturing (2,617 companies), and Construction
(3,432 companies). The different number of companies in each industry was presented in
Figure 2.1.20 in Appendix D and discussed above.
Figure 2.2.11 presents the percentage of recipients by age and year. The data indicate that
companies that are under 2 years old are least likely to receive refundable tax credits (1.2%
companies in that age group in 2011-12), followed by companies within 2 to 5 years (1.7%),
from 6 to 9 years (1.9% companies), and companies that are 10 years and over (3.2%).
The total number of companies by age was presented in Figure 2.1.22 in Appendix D as
discussed above, where it was shown that there are substantially more companies in
Ontario that are older, and the fewest number of companies are under 2 years old. The
total number of recipients within each age category is presented in Figure 2.2.12. The data
presented in Figure 2.2.12 indicate that the fewest number of refundable tax credit recipient
companies are those that are under 2 years old (926 companies in 2011-12), followed by
companies that are 6-9 years old (2,525 companies), companies that are 2-5 years old
(2,974 companies), and companies that are 10 years and over (10,770 companies).
PANEL OBSERVATIONS

Refundable tax credits are least likely to be allocated to the youngest companies,
and those that have the least revenue and fewest employees. The oldest
companies with the most revenue are most likely to receive refundable tax credits.
Of the 11 refundable tax credit programs, 5 are targeted towards the Cultural, Arts,
Entertainment and Recreation Industries (OSRTC, OBPTC, OCASE, OPSTC, and
OFTTC). These programs comprise a total of $268 million in 2011-12 and $1.5
billion over 2005-06 through 2011-12, which was 36% of the total amount spent on
refundable tax credits through 2005-06 to 2011-12 and 35% in 2011-12. These
programs benefitted 3% of the total number of companies that receive refundable tax
credits.

2.3. Government of Ontario Non-Refundable Tax Credits for Businesses,

2005-06 to 2011-12
This section describes the data for non-refundable tax credits over the years 200506 through 2011-12. The data are graphically depicted in Appendix F in Figures 2.3.185

2.3.12. We first show the data in Figures 2.3.1-2.3.4 by the different programs, including
the OSBTD (Ontario Small Business Tax Deduction), the OTCMP (Ontario Tax Credit for
Manufacturing and Processing (M&P)), the ORDTC (Ontario Research and Development
(R&D) Tax Credit), the ORTC (Ontario Resource Tax Credit), and the OCUTR (Ontario
Credit Union Tax Credit). Thereafter, we present the data in Figures 2.3.5-2.3.14 by
company revenue, employees, industry, and age.
Non-refundable tax credits, excluding the OSBTD, comprised a total of $2.8 billion in
business support over 2005-06 through 2011-12, and $422 million in 2011-12. The OSBTD
comprised $1.5 billion in 2011-12, and $8.5 billion in 2005-06 through 2011-12.
The data in Figure 2.3.1 show that the OSBTD is by far the largest program. This
program affords tax credits to all Canadian-controlled private corporations on the first
$500,000 of taxable income. The data in Figure 2.3.1 further indicate that the second
largest program is the OTCMP, which had $201 million in claims in 2011-12, and $1.4 billion
in claims over the 2005-06 through 2011-12 period, followed by the ORDTC ($189 million in
2011-12, and $1.2 billion over the 2005-06 through 2011-12 period), the ORTC ($26 million
in 2011-12, and $127 million over the 2005-06 through 2011-12 period), and the OCUTR
($6 million in 2011-12, and $40 million over the 2005-06 through 2011-12 period).
Figure 2.3.2 indicates the total number of companies claiming under each program.
The OCUTR had 42 claimants in 2011-12, followed by the ORTC which had 48 in 2011-12.
The OTCMP had 1,839 companies claim in 2011-12. The ORDTC had 5,791 claimants in
2011-12. The OSBTD had 200,419 claimants. Figure 2.3.3 shows the median amounts
claimed, which were in 2011-12, $3,000 for the OSBTD and the ORDTC, $5,000 for the
ORTC, $17,000 for the OTCMP, and $46,000 for the OCUTR. The standard deviations of
the amounts claimed in 2011-12 are presented in Figure 2.3.4 and were $10,000 for the
OSBTD, $233,000 for the OCUTR, $482,000 for the ORDTC, $690,000 for the OTCMP,
and $2,200,000 for the ORTC.
Figures 2.3.5-2.3.12 presents the data for the OCUTR, OTCMP, ORDTC, and the
ORTC. Figure 2.3.5 shows the data by different revenue categories of the recipient
companies. The data indicate that for companies with 0 to $0.49 million in revenue, 0.2% of
companies received one of the non-refundable tax credits in 2011-12 (relative to the total
number of companies in Ontario within this revenue category; see Figure 2.1.2 in Appendix
D), followed by 2.0% for companies with $0.5 to $1.9 million in revenue, 4.3% for
companies with $2 million to $4.9 million in revenue, 7.5% for companies with $5 million to
$9.9 million in revenue, 10.3% for companies with $10 million to $19.9 million in revenue,
and 16.7% for companies with over $20 million in revenue. Figure 2.3.6 shows the total
number of recipient companies, and in 2011-12 there were 704 companies with revenue
between $10 million and $19.9 million, 840 companies with $5 million to $9.9 million, 1,026
companies with under $0.5 million, 1,171 companies with $2 million to $4.9 million, 1,435
companies with over $20 million, and 1,890 companies with $0.5 million to $1.9 million.
86

Figures 2.3.7 and 2.3.8 present the non-refundable tax credit data by the number of
employees of the recipient companies. The data in Figure 2.3.7 indicate that 0.8% of
companies with fewer than 5 employees were recipients in 2011-12, followed by 3.2% of
companies with 5-49 employees, 9.3% of companies with 50-99 employees, 13.8% of
companies with 100-249 employees, 20.2% of companies with 250-499 employees, and
23.1% of companies with 500 or more employees. The total number of companies by
employees in Ontario was presented in Figure 2.1.13 in Appendix D and discussed above.
There are clearly fewer companies with more employees. Figure 2.3.8 shows the data by
the total number of recipients of the non-refundable tax credits. The data indicate that 191
companies with 500 or more employees were recipients of non-refundable tax credits in
2011-12, followed by 204 companies with 250-499 employees, 526 companies with 100 to
249 employees, 648 companies with 50-99 employees, 1,170 companies with fewer than 5
employees, and 2,745 companies with 5-49 employees.
Figure 2.3.9 and 2.3.10 present the data on non-refundable tax credits by industry.
The data in Figure 2.3.9 indicate that 0.2% of companies in the Financial, Insurance, Real
Estate and Rental/Leasing sectors, as well as the Transportation and Warehousing sectors
received non-refundable tax credits in 2011-12, followed 0.3% for the Construction and
Other Services (except Public Admin) sectors, 0.6% for the Cultural, Arts, Entertainment
and Recreation Industries, 1.0% for the Wholesale and Retail Trade sectors,1.2% for the
Professional, Scientific, and Technical Services, 1.9% for the Health Care and Social
Assistance, 2.8% for the Mining, Utilities, and Oil and Gas sectors. 7.7% for the Agriculture
and Food sectors, 8.5% for the Information and Communication Technology, 10.2% for the
Manufacturing sectors, and 15.2% for the Transportation Equipment Manufacturing sectors.
Forestry, Fishing and Hunting sector data is suppressed due to taxpayer confidentiality.
The total number of companies by sector in Ontario was presented in Figure 2.1.16
in Appendix D and discussed above. Figure 2.3.10 shows the total number of recipient
companies for each sector, which was the lowest in 2011-12 for the Transportation and
Warehousing (53 companies), followed by Mining, Utilities, and Oil and Gas (56
companies), Cultural, Arts, Entertainment and Recreation Industries (105 companies),
Transportation Equipment Manufacturing (166 companies), Financial, Insurance, Real
Estate and Rental/Leasing (174 companies), Construction (195 companies), Information
and Communication Technology (309 companies), Other Services (except Public
Admin) (398 companies), Health Care and Social Assistance (427 companies),
Wholesale and Retail Trade (765 companies), Agriculture and Food (995 companies),
Professional, Scientific, and Technical Services (1,091 companies), and Manufacturing
(2,035 companies). Forestry, Fishing and Hunting sector data is suppressed due to
taxpayer confidentiality.
Figures 2.3.11 and 2.3.12 present the non-refundable tax credit data by company
age. The data in Figure 2.3.11 indicates that 0.3% of companies under 2 years received
non-refundable tax credits in 2011-12, followed by 0.6% for companies that were 2-5 years
87

old, 0.7% for companies 6-9 years old, and 1.4% for companies that were over 10 years
old. The total number of companies by age in Ontario were presented in Figure 2.1.26 and
discussed above. Figure 2.3.12 shows the total number of companies that received nonrefundable tax credits. For 2011-12, the figures were 219 for companies under 2 years old,
followed by 918 companies 6-9 years old, 1,098 companies 2-5 years old, and 4,831
companies over 10 years old.
PANEL OBSERVATION

Setting aside the OSBTD, companies are least likely to receive non-refundable tax
credits in Ontario when they have the least revenue (less than 0.5 million), the
fewest number of employees (fewer than 5), and are the youngest (less than 2 years
old).

2.4. Government of Ontario 12 Direct Transfer Programs for Businesses,

2005-06 to 2011-12
This section describes data that are presented in Appendix G for the following 12
direct transfer programs: MEDEI (Ontario Automotive Investment Strategy), MEDEI (Next
Generation of Jobs Fund - Biopharmaceutical Investment Program), MEDEI (Southwestern
Ontario Development Fund (including Interest Incentives)), OMAFRA (Rural Economic
Development and Local Foods), MEDEI (Eastern Ontario Development Fund (including
Interest Incentives)), MEDEI (Innovation Demonstration Fund (including Interest
Incentives)), ENERGY (Smart Grid Fund), OMAFRA (Growing Forward), MEDEI (Strategic
Jobs and Investment Fund (including Interest Incentives and Ford Investment)), OMAFRA
(Ontario Ethanol Growth Fund), MEDEI (Next Generation of Jobs Fund - Jobs and
Investment Program (including Interest Incentives)), and the MNDM (Northern Industrial
Electricity Rate Program).
The amount provided to companies through the 12 direct transfer programs totalled
$466 million in 2011-12, and $1.35 billion from 2005-06 through 2011-12. There is high
variability in the business expenditure programs over time: 10 of 12 of these programs did
not exist in 2005-06. The long term consequences of short term programs are unclear, and
worthy of further study in years to come.
Figure 2.4.1 presents a graphical analysis of the total transfer payments by program.
The data indicate that for the MEDEI Ontario Automotive Investment Strategy program
there were expenditures of $24.6 million in 2011-12 and $0.2 million in 2012-13. For the
MEDEI Next Generation of Jobs Fund - Biopharmaceutical Investment Program there were
expenditures of $7.6 million in 2011-12 and $2.0 million in 2012-13. The MEDEI
Southwestern Ontario Development Fund started in 2012-13, and there were expenditures
of $2.5 million that year. For the OMAFRA Rural Economic Development and Local Foods
88

program there were expenditures of $24.1 million in 2011-12 and $8.3 million in 2012-13.
For the MEDEI Eastern Ontario Development Fund there were expenditures of $13.5 million
in 2011-12 and $7.4 million in 2012-13. For the MEDEI Innovation Demonstration Fund
there were expenditures of $14.6 million in 2011-12 and $11.4 million in 2012-13. For the
ENERGY Smart Grid Fund there were expenditures of $3.9 million in 2012-13. For the
OMAFRA Growing Forward there were expenditures of $10.6 million in 2011-12 and $7.4
million in 2012-13. For the MEDEI Strategic Jobs and Investment Fund there were
expenditures of $79.1 million in 2011-12 and $59.8 million in 2012-13. For the OMAFRA
Ontario Ethanol Growth Fund there were expenditures of $76.3 million in 2011-12 and
$72.3 million in 2012-13. For the MEDEI Next Generation of Jobs Fund - Jobs and
Investment Program there were expenditures of $93.8 million in 2011-12 and $77.0 million
in 2012-13. For the MNDM Northern Industrial Electricity Rate Program there were
expenditures of $119.9 million in 2011-12 and $120.0 million in 2012-13.
Figure 2.4.2 presents the number of incorporated recipients by program 104. The data
indicate high variability in the number of recipients over time; for example, there were 53
recipients in 2006-07, 1,500 in 2011-12, and 993 in 2012-13. There are unclear long term
consequences of such highly variable programs and further research on the topic is
warranted. The data in Figure 2.4.2 indicate that for the MEDEI Ontario Automotive
Investment Strategy program there were 6 recipients in 2011-12 and 1 in 2012-13. For the
MEDEI Next Generation of Jobs Fund - Biopharmaceutical Investment Program there were
4 recipients in 2011-12 and 3 in 2012-13. For the OMAFRA | Ontario Ethanol Growth Fund
there were 6 recipients in 2011-12 and 6 in 2012-13. For the ENERGY Smart Grid Fund
there were 0 recipients in 2011-12 and 10 in 2012-13. For the MNDM Northern Industrial
Electricity Rate Program there were 18 recipients in 2011-12 and 16 in 2012-13. For the
MEDEI Southwestern Ontario Development Fund there were 17 recipients in 2012-13. For
the MEDEI Innovation Demonstration Fund there were 22 recipients in 2011-12 and 22 in
2012-13. For the MEDEI Strategic Jobs and Investment Fund there were 27 recipients in
2011-12 and 22 in 2012-13. For the MEDEI Next Generation of Jobs Fund - Jobs and
Investment Program there were 27 recipients in 2011-12 and 28 in 2012-13. For the
MEDEI Eastern Ontario Development Fund there were 71 recipients in 2011-12 and 52 in
2012-13. For the OMAFRA Rural Economic Development and Local Foods there were 142
recipients in 2011-12 and 101 in 2012-13. For the OMAFRA Growing Forward there were
1,177 recipients in 2011-12 and 715 in 2012-13.
Figure 2.4.3 indicates the median dollars received per program. The data indicate
that for the OMAFRA Growing Forward the median recipient award was $8,000 in 2011-12
and $9,000 in 2012-13. For the OMAFRA Rural Economic Development and Local Foods
the median recipient award was $50,000 in 2011-12 and $37,000 in 2012-13. For the
MEDEI Eastern Ontario Development Fund the median recipient award was $109,000 in
104

Several programs also benefit unincorporated businesses. These businesses are not included in our
data.

89

2011-12 and $97,000 in 2012-13. For the MEDEI Southwestern Ontario Development Fund
the median recipient award was $127,000 in 2012-13. For the MEDEI Ontario Automotive
Investment Strategy the median recipient award was $3.7 million in 2011-12 and $0.2
million in 2012-13. For the ENERGY Smart Grid Fund the median recipient award was $0.2
million in 2012-13. For the MEDEI Innovation Demonstration Fund the median recipient
award was $0.3 million in 2011-12 and 2012-13. For the MEDEI Next Generation of Jobs
Fund - Biopharmaceutical Investment Program the median recipient award was $1.9 million
in 2011-12 and $0.6 million in 2012-13. For the MEDEI Strategic Jobs and Investment
Fund the median recipient award was $0.7 million in 2011-12 and $0.9 million in 2012-13.
For the MEDEI Next Generation of Jobs Fund - Jobs and Investment Program the median
recipient award was $2.7 million in 2011-12 and $1.5 million in 2012-13. For the MNDM
Northern Industrial Electricity Rate Program the median recipient award was $2.0 million in
2011-12 and $3.2 million in 2012-13. For the OMAFRA Ontario Ethanol Growth Fund the
median recipient award was $12.8 million in 2011-12 and $12.7 million in 2012-13.
Figure 2.4.4 shows the standard deviation of the dollar awards across recipients
each year for the 12 direct transfer programs. The data indicate that for the MEDEI Ontario
Automotive Investment Strategy the standard deviation was $4.0 million in 2011-12. For the
MEDEI Eastern Ontario Development Fund the standard deviation was $0.2 million in 201112 and $0.1 million in 2012-13. For the MEDEI Next Generation of Jobs Fund Biopharmaceutical Investment Program the standard deviation was $1.2 million in 2011-12
and $0.2 million in 2012-13. For the MEDEI Southwestern Ontario Development Fund the
standard deviation was $0.3 million in 2012-13. For the OMAFRA Rural Economic
Development and Local Foods the standard deviation was $0.4 million in 2011-12 and $0.4
million in 2012-13. For the OMAFRA Growing Forward the standard deviation was $7,000
in 2011-12 and $41,000 in 2012-13. For the MEDEI Innovation Demonstration Fund the
standard deviation was $0.7 million in 2011-12 and $0.6 million in 2012-13. For the
ENERGY Smart Grid Fund the standard deviation was $0.4 million in 2012-13. For the
MEDEI Next Generation of Jobs Fund - Jobs and Investment Program the standard
deviation was $4.0 million in 2011-12 and $2.7 million in 2012-13. For the MEDEI Strategic
Jobs and Investment Fund the standard deviation was $7.2 million in 2011-12 and $6.2
million in 2012-13. For the MNDM Northern Industrial Electricity Rate Program the standard
deviation was $14.1 million in 2011-12 and $7.5 million in 2012-13. For the OMAFRA
Ontario Ethanol Growth Fund the standard deviation was $9.2 million in 2011-12 and $9.8
million in 2012-13.
Figures 2.4.5-2.4.12 show the data for all 12 direct transfer programs and for
different characteristics of the recipient companies. Figure 2.4.5 presents the percentage of
companies that received support from one of the direct transfer programs each year by the
revenue of the recipient company. The data indicate that companies with lower revenue are
less likely to receive support. For example, in 2011-12, only 0.02% of companies with
revenue between $0 to $0.49 million received support, followed by 0.3% for companies with
$0.5 million to $1.9 million in revenue, 0.5% for companies with $2 million to $4.9 million in
90

revenue, 0.6% for companies with $5 million to $9.9 million in revenue, 0.7% for companies
with $10 million to $19.9 million in revenue, and 1.5% for companies with over $20M in
revenue. The total number of companies within each of the revenue categories were
presented in Figure 2.1.2 in Appendix D and discussed above. The total number of
companies within the different revenue categories and in receipt of funding from one of the
12 direct transfer programs is presented in Figure 2.4.6. Figure 2.4.6 indicates that in 201112, 51 companies with revenue from $10 million to $19.9 received support, followed by 63
companies with revenue of $5 million to $9.9 million, 115 companies with revenue of $0 to
$0.49 million, 131 companies with revenue of $20 million and over, 141 companies with
revenue of $2 million to $4.9 million and 287 companies with revenue of $0.5 million to $1.9
million.
Figure 2.4.7 presents the percentage of recipient companies by employees relative
to the total number of companies within each employee category (where Figure 2.1.9 had
presented the total number of companies in Ontario by employees). The data indicate that
in 2011-12, 0.09% of recipient companies had fewer than 5 employees, 0.29% recipient
companies had 5 to 49 employees, 0.78% had 50-99 employees, 1.24% had 100-249
employees, 3.07% had 250 to 499 employees, and 5.68% had more than 500 employees.
Figure 2.4.8 presents the total number of recipient companies by employees. The data
indicate that in 2011-12, 31 recipient companies had 250 to 499 employees, 47 recipient
companies had 100-249 employees as well as 500 or more employees, 54 companies had
50-99 employees, 137 companies had fewer than 5 employees, and 251 companies had 5
to 49 employees.
Figure 2.4.9 presents the data on 12 direct transfer program recipient companies by
industry as a percentage of the total number of companies within each industry. The data
indicate that in 2011-12, this ratio was 0.01% for Construction, and for Financial, Insurance,
Real Estate and Rental/Leasing, 0.02% for Cultural, Arts, Entertainment and Recreation
Industries , for Transportation and Warehousing as well as for Other Services, 0.03% for
Professional, Scientific, and Technical Services, 0.04% for Health Care and Social
Assistance, 0.08% for Forestry, Fishing and Hunting, 0.13% for Wholesale and Retail
Trade, 0.30% for Manufacturing, 0.38% for Information and Communication Technology,
0.40% for Mining, Utilities, and Oil and Gas, 1.65% for Transportation Equipment
Manufacturing, and 3.69% for Agriculture and Food. Figure 2.4.10 presents the data by the
total number of recipient companies by industry. The data indicate that in 2011-12, 1
company was in Forestry, Fishing and Hunting, 3 companies were in Cultural, Arts,
Entertainment and Recreation Industries, 6 companies were in Transportation and
Warehousing, 7 companies were in Construction, 8 companies were in Mining, Utilities, and
Oil and Gas as well as Health Care and Social Assistance, 14 companies were in
Information and Communications Technology as well as Financial, Insurance, Real Estate
and Rental/Leasing,18 companies were in Transportation Equipment Manufacturing, 27
companies were in Other Services (except Public Admin), 28 companies were in
Professional, Scientific, and Technical Services, 60 companies were in Manufacturing, 98
91

companies were in Wholesale and Retail Trade, and 475 companies were in Agriculture
and Food.
Figure 2.4.11 presents the percentage of 12 direct transfer program companies by
age relative to the total number of companies in Ontario in each of the different categories.
The data indicate that in 2011-12 this ratio was, 0.03% for companies under 2 years old,
0.06% for companies 2 to 5 years old, 0.07% for companies 6 to 9 years old, and 0.17% for
companies 10 years old or over. Figure 2.4.12 presents the data by the total number of 12
direct transfer program companies within each age category. The data indicate that in
2011-12, 23 companies were under 2 years old, 97 companies were from 6 to 9 years old,
99 companies were from 2 to 5 years old, and 570 companies were 10 years old and over.
PANEL OBSERVATIONS

The data indicate that the 12 direct transfer programs are temporary short-term
programs that have highly variable recipient numbers and recipient amounts.
Further research is warranted on the long-term implications of short-term programs.
The data indicate that the 12 direct transfer programs are more likely to be utilized
by companies with higher revenue, those with more than 500 employees, those in
the agricultural sectors, and by companies that are more than 10 years old.

2.5. Government of Ontario Research and Development Tax Credits, 2005-06

to 2011-12
In the following we consider total R&D tax credit support as a percentage of total
R&D spending. Ontario has three R&D tax credit programs, the Ontario Business Research
Institute Tax Credit (OBRITC), the Ontario Innovation Tax Credit (OITC), and the Ontario
Research and Development Tax Credit (ORDTC) that collectively spent $420 million in
2011-12. The total spent in 2005-06 through 2011-12 on the three R&D tax credit programs
was $2.9 billion. The graphical evidence is provided in Appendix H.
By considering the sum of total support from these three programs as percentage of
total R&D spending, we eliminate variability in support that is a consequence of variability in
R&D spending. Overall, total support for R&D as a percentage of total R&D spending has
been increasing from 4% in 2005-06 to 5.3% in 2011-12. In the following, we examine how
this ratio has varied by company revenue, employees, industry, and age, and find that
younger and smaller companies receive greater support than older and larger companies.
We caution however that dividing total support by total R&D spending will result in a
distribution of support that appears more equitable than it would if R&D support were
divided by R&D spending on a company basis and then averaged. This is because the
effect of companies that invest large amounts in R&D but dont receive R&D support will
92

greater in the former case. There is however some unexplained variance in the distribution
of the credit by industry.
We first consider the breakdown by revenue. Figure 2.5.1 shows that the ratio of
R&D support to R&D spending is lowest and second lowest for companies whose revenue
are greater than $20 million, or between $10 and $19.9 million, respectively. This is likely
because the Ontario Business Research Institute Tax Credit and the Ontario Innovation Tax
Credit are both capped. The OBRITC is capped at $4 million annually and the OITC
maximum is $300,000 based on an expenditure limit of $3 million, and is not available to
companies whose federal taxable income exceeds $800,000 or whose taxable capital
exceeds $50 million. It is third lowest for companies whose revenues are less than
$500,000. These companies may not have the resources required to learn about and apply
for the credit. The R&D tax credits induce greater levels of R&D spending for large
companies than for small companies. This is by design. The OITC is designed to subsidize
the R&D efforts of small companies.
Variability by number of employees, shown in Figure 2.5.2, reveals a pattern that is
similar to the breakdown by revenue. Large companies receive a lower level of support
than small companies. This time the distribution is consistent, with the smallest companies
by employment receiving the greatest support.
When we consider the breakdown by industry, in Figure 2.5.3, we find that support is
lowest for the Mining, Utilities, and Oil and Gas, and the Transportation Equipment
Manufacturing industries, which may be a consequence of the propensity for companies in
these sectors to be large. Support is highest in the Construction, Other Services, and
Transportation and Warehousing Sectors. Support has been highly variable in the Forestry,
Fishing, and Hunting sector.
The breakdown by age, shown in Figure 2.5.4, shows that the R&D spending of
young companies is more highly subsidized than the R&D spending of older companies, as
is the intent of the OITC program.

93

Chapter 3 A Framework for Evaluating Ontarios Business Support Programs

Evaluation is essential to establishing program effectiveness, a key criterion for
determining which programs should be sustained, modified, or cancelled. In this chapter we
respond to the governments request for a framework to evaluate the provinces business
support programs. In developing the framework we drew on the 2013 Council of Canadian
Academies (CCA) report entitled Innovation Impacts: Measurement and Assessment, also
commissioned by the Ontario Government. We build on the CCAs work by considering the
data sources that will be required to implement recommendations for evaluation, thereby
more directly enabling action.
Section 3.1 begins by outlining the benefits of rigorous evaluation, which go far
beyond the sustain-modify-cancel decision to impacts on the behaviour of client companies
and program delivery personnel, learning that improves program effectiveness, and the
creation of a competitive market of alternative programs that seek government support. In
Section 3.2, we describe measures of program effectiveness, considering micro impacts on
individual companies and macro impacts on sectors, regions, and economies.
Section 3.3 considers alternative data sources. We recommend that the government
conduct a baseline comparative evaluation survey at its earliest opportunity, and
complement this with the Business Support Program dataset and data from Statistics
Canadas Survey of Innovation and Business Strategy. Section 3.4 identifies, for each of
Ontarios business support programs, the most appropriate data source, and Section 3.5
identifies alternative methodologies for analysis.
In Section 3.6 we consider the related topic of benchmarking. We first describe
common approaches to benchmarking the state of the economy against comparable
jurisdictions and then describe how the results that will be obtained by our proposed
approach to program evaluation will enable something that few governments have
achieved: the benchmarking of the impact of a portfolio of business support programs.

3.1 Why Evaluate Ontarios Business Support Programs?

All governments make investments in business support programs, but few conduct
rigorous evaluations of their impact. The reasons for this are varied, ranging from the
additional costs of conducting rigorous evaluations to the political risks of producing
evaluations that cast existing government policies and programs in a negative light.

94

Nevertheless, for governments that are committed to evidence-based policy making, there
are several benefits to conducting systematic evaluations, which we describe below. 105
Evidence-based investment decisions
Governments that evaluate program effectiveness and efficiency have the
opportunity to make evidence-based investment decisions. Academic research provides
guidance on what types of programs are likely to be effective, but because there are so
many factors that contribute to effectiveness, or lack thereof, regular evaluations are
necessary for determining whether or not a specific program has been effective. When
program effectiveness is measured consistently across a portfolio of programs, the relative
effectiveness of programs is more easily established.
To respond to demands for transparency and accountability
Citizens want to understand where money is being spent, the criteria by which
investment decisions are made, and the outcomes of investments. If government does not
assume the responsibility for rigorous evaluation, beliefs about the impact of programs can
be influenced by private parties to serve their own ends. 106
To save company managers time and aggravation
To benefit from the services of business support organizations companies must
invest time and energy into locating a potentially suitable organization and developing
relationships with its personnel. It would be helpful for managers to know which
organizations have a track record of providing effective support before determining where to
invest their energies.
To provide incentives for managers to undertake high potential projects
Governments should invest in high potential projects that lead to higher levels of
innovation, productivity, exports, and profitable growth. Evaluations incent companies to
propose such high potential projects because when programs are evaluated for impact, high
potential projects are more likely to be selected for support.

105

Where evaluations are rigorous, government cannot be assured of positive results. A review of 50
studies of the impact of government investments to support research and innovation showed that only
63% of specifications find a positive impact. Margaret Dalziel, Tanita Noor Tahmina and Xiao Zhao, The
Impact of Investments in Research and Innovation: A Literature Review, Danish Research Institute for
Industrial Dynamics, Summer Conference, (June 2013). Available at
http://druid8.sit.aau.dk/acc_papers/frnm6m5o0lmf0easrnsivfvet4vo.pdf.
106

For example, when the Ontario government announced the repeal of the Labour Sponsored Venture
Capital Corporation tax credit, the beneficiaries of the tax credit established the Canadian Retail Venture
Capital Association, which had a mandate of providing one-sided evidence showing the benefits
associated with the tax credit. The association was successful in delaying the removal of the tax credit.

95

To ensure program delivery personnel have a clear understanding of objectives

When the performance of programs and program delivery personnel are measured
against criteria that reflect program objectives, those criteria and the corresponding
objectives will be addressed on an ongoing basis. This will shift attention from ensuring that
program rules are being followed, to ensuring programs are achieving their objectives.
Also, when results are measured, there is increased scope for autonomy in activities,
because the activities undertaken become less important than the results achieved.
Program delivery personnel need the freedom required to make minor adjustments in how
programs are delivered, to be able to maximize program results.
To learn about the effectiveness of alternative interventions
The history of government investment in business support is long, but evaluation is
an emerging science. To develop a capability for informed investment, governments need
to develop a capability in evaluation.
To create a market for business support funding
Finally, and most importantly, governments should conduct regular evaluations of
business support programs to create a competitive market in which only the best business
support programs continue to receive funding.

PANEL RECOMMENDATION
3.1 The Government of Ontario should commit to evaluation in the interests of increasing
the effectiveness of its business support.

3.2 What to Measure?

3.2.1 Understanding How Government Interventions Generate Effects
When governments make investments to support businesses, they hope to see
economy-wide payoffs in terms of growth in GDP per capita, productivity, and exports. And
in Chapter 1, we suggest that policy makers consider the opportunities and challenges
facing sectors and regions when designing business support programs. So its natural for
policy makers to ask evaluators to measure the impact of investments in terms of macro
effects. But government investments to support businesses do not have a direct effect on
sectors, regions, or economies. The effect is indirect, and relies on the decisions and
actions of the many entrepreneurs and business people that populate the provinces
companies and other organizations. The design of effective interventions, and the
determination of the degree to which they are working, requires an understanding of how
government interventions generate micro effects at the organizational level that ultimately
result in macro effects at the level of the economy.
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Figure 3.1 is a logic model that has been bent into a U-shaped curve to illustrate the
relationships between the economy-wide and organizational levels of analysis. As shown
on the left side of the figure, government policies lead to programs, which result in the
provision of funding and services. As indicated by the horizontal arrow, these services,
transfers, and tax credits have a direct effect only on firm inputsresources and capabilities
including financial resources, knowledge, perspectives, networks, and opportunities. As
shown on the right side of the figure, managers then employ these enhanced resources and
capabilities to improve company performance in terms of better prospects for survival, more
innovative products and services, or increased size, productivity, or profitability. When
managers succeed in improving company performance, the performance of the economy
improves as a result.

Figure 3.1: How Government Interventions Impact the Economy

As implied by Figure 3.1, there are three opportunities to measure the impact of
government investments. Evaluators can consider the extent to which business support
programs impact company resources and capabilities, the extent to which they impact
company performance, and the extent to which they impact the sectors and regions that
comprise the economy. The choice of the level of analysis depends on the purpose of the
evaluation, the availability of data, and the requirement for reliable results. We consider
97

each of the three levels of analysis in the following, and recommend that the government
focus its energies on measuring impacts on company performance.

3.2.2 Measuring Effects on Company Resources and Capabilities

Because interventions have the most direct effect on company resources and
capabilities, evaluations that seek to understand behavioural additionality, or the
mechanisms by which impacts do or do not occur, benefit from fine-grained data on these
direct effects. This level of analysis is particularly useful in circumstances where
interventions are not expected to have an impact on company performance measures for
several years. This is the case for pre-revenue ventures, and for investments in biomedical
research, which take an average of 17-24 years before being reflected in the introduction of
new molecular entities.107
The difficulty is that there are no commonly accepted measures of company
resources and capabilities, so there is little in the way of secondary data available. The
exceptions are patents, venture capital financings, and data from Statistics Canada
innovation surveys. Patent data is publicly available and data on venture capital financing
can be procured. As a consequence of their availability, these two measures have been
used to assess the impact of business support programs, generally finding positive
effects.108 The shortcoming of these measures is that they are narrow measures of
performance that are not generally suitable for measuring the impact of government policy
on the vast majority of companies.
Statistics Canadas innovation surveys collect data on company resources and
capabilities allowing researchers to examine the effect of specific programs on these
company attributes, providing the surveys also collect data on the use of specific programs.
Such data has been used to show that industry associations are more frequently cited as
important sources of ideas than either universities or government research organizations,109
and to compare the performance of companies that have used the Scientific Research and
Experimental Development (SR&ED) tax credit to a matched sample of companies that had
not.110

107

Andrew A. Toole, The Impact of Public Basic Research on Industrial Innovation: Evidence from the
Pharmaceutical Industry," Research Policy 41, no. 1 (2012): 1-12.
108
Lee G. Branstetter and Mariko Sakakibara,"When Do Research Consortia Work Well and Why?
Evidence from Japanese Panel Data, American Economic Review 92, no. 1 (2002): 143- 159.
M. P. Feldman and M. R. Kelley, The Ex Ante Assessment of Knowledge Spillovers: Government R&D;
Policy, Economic Incentives and Private Firm Behavior, Research Policy 35, no. 10 (2006): 1509-1521.
109
Margaret Dalziel, The Impact of Industry Associations, Innovation: Management, Policy & Practice 8,
no. 3 (2006): 296-306.
110
Dirk Czarnitzki, Petr Hanel and Julio Miguel Rosa, "Evaluating the impact of R&D Tax Credits on
Innovation: A Microeconometric Study on Canadian Firms," Research Policy 40, no.2 (2011): 217-229.

98

An alternative is to collect primary data. One study uses unique survey data to show
that collaborative R&D programs provide second-order benefits of identification with a
community of practice that facilitate learning outcomes,111 and another illustrates a general
approach for measuring the impact of business support programs on company resources
and capabilities.112

3.2.3 Measuring Effects on Company Performance

Most evaluations of business support programs consider the effects on company
performance. At this level of analysis evaluators can choose from amongst several widely
accepted measures of company performance and several alternative data sources. The
chief difficulties are selecting the appropriate set of measures, which we discuss below, and
differentiating between changes in performance that would have occurred in the absence of
support from changes in performance that are attributable to support, which we discuss in
Section 3.5.
The proper measure of performance depends on the market failure that the program
is trying to address, the type of program that is offered, and the nature of the companies
being served. Alternative performance metrics include survival, growth in revenue, jobs,
exports, productivity, innovation (new products and services, patents, R&D expenses),
profitability, and valuation. Measures that are suitable for established corporations may not
be suitable for measuring the performance of new ventures. For example, profitability, in its
many variations, is commonly used to measure corporate performance, but most new
ventures are not profitable.
The time dimension also needs to be considered. While it takes many years for
biomedical inventions to reach the market, in internet-related industries there are cases
where the elapsed time between venture launch and transformation into large international
enterprise is very brief. The business environment may also have an effect. In poor current
market conditions it takes venture capital-backed companies an average of five years to
come to fruition, while in stronger market conditions it can take an average of three years.113
With experience, governments and program evaluators will gain knowledge of the types of
effects programs are likely to generate.
111

E. Autio, S. Kanninen, and R. Gustafsson,First and Second-Order Additionality and Learning

Outcomes in Collaborative R&D Programs, Research Policy 37 no. 1 (2008): 59-76.
112
Margaret Dalziel and Satu Parjanen, Measuring the Impact of Innovation Intermediaries: A case study
of Tekes, in V. Harmaakorpi & H. Melkas (Eds.) Practice-Based Innovation: Insights, Applications, and
Policy Implications. (Springer-Verlag Berlin Heidelberg, 2012), 117-132.

113

Douglas J. Cumming, and Sofia A. Johan, Venture Capital and Private Equity Contracting: An
International Perspective, 2nd Edition (Elsevier Science Academic Press, 2013),

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3.2.4 Measuring Effects on the Economy

It is the economy-wide level of analysis that is of greatest interest to governments
who would like to see the impact of their investments in economy-wide indicators,
particularly when the investments are significant and widespread, as is the case for tax
credits in Ontario. At the same time however, there are so many factors that affect the
performance of economies that the impact of business support programs will be discernible
at the economy-wide level only for the largest of programs. In the following we comment on
the state of the art of evaluations of economy-wide impacts and suggest that the
government convene expert panels to bring both evidence and judgement to bear on the
question of the impacts of business support on the provinces sectors, regions, and
economy.
Estimations of economy-wide effects are sensitive to both data and measurement
error. A recent study114 shows that different economy-wide datasets may give rise to
completely different conclusions with respect to the impact of government policy on
economic outcomes. The study considers the impact of entrepreneurship on economic
growth and shows that data from Compendia and the World Bank data give rise to similar
conclusions, while OECD data give rise to the exact opposite conclusions. The World Bank
and Compendia data show a positive effect of business starts on GDP/capita, exports/GDP
and patents per population, and a negative effect of business starts on unemployment,
while the OECD data show the exact opposite. Also, the paper shows that the effect of
entrepreneurship on economic outcomes is mitigated by legal and institutional barriers to
risk taking, but enhanced by incentives that stimulate risk taking. Countries with stronger
creditor rights make costs of borrowing relatively higher for entrepreneurs, thereby reducing
entrepreneurial risk taking. Similarly, countries with higher uncertainty avoidance indices, or
less cultural acceptance of risk, similarly have a smaller impact of entrepreneurship.
Because of the limitations of economy-wide studies of the impact of business
support programs, we advise a qualitative approach to examining the effects of government
interventions on sectors, regions, and economies. Panels that combine context-related
expertise on the sector or region in question, and evaluation expertise, can consider the
effects of support on specific ecosystems. These panels should be equipped with data on
the performance of the sector or region in question and, where possible, data on the
performance of comparable sectors or regions. They should also be provided with
information on the nature and company-level impacts of the relevant business support
programs, both federal and provincial and, where available, studies of their macro impacts
on the sector or region. By combining evidence and judgement such panels will be able to
provide advice on likely macro impacts and their implications for adjustments to government
interventions.
114

Douglas J. Cumming, Sofia A. Johan, and Minjie Zhang, The Impact of Entrepreneurship: Comparing
International Datasets, Corporate Governance: An International Review 22, no. 2(2014): 162-178.

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PANEL RECOMMENDATIONS
3.2 The Government of Ontario should focus evaluation on the effects on companies in the
interests of reliability and learning.
3.3 The Government of Ontario should convene panels and provide them with data that will
assist them in the judgment of the impact of programs on sectors, regions, and clusters.

3.3 Data Sources

The greatest challenge in evaluating business support programs is data. There are
two types of data that can be used: primary and secondary data. Primary data refers to
data collected for the specific purpose at hand. Secondary data refers to data that were
generated for some purpose other than the one being considered. In Section 3.3.1, we
consider opportunities for the collection of primary data via surveys and other means. We
recommend that the Government of Ontario conduct a survey to support a baseline
comparative evaluation of its key business support programs at its earliest opportunity. In
Section 3.3.2, we describe available secondary datasets, the most important of which is the
Business Support Programs dataset that was created to support the review of Ontarios
business support programs presented in Chapter 2.
We assume that all business support programs are intended to have an effect on the
performance of companies, and our consideration of data sources adopts this level of
analysis. Business support programs may also yield benefits for people, communities,
sectors, regions, or the environment. But considering all of these effects makes the
measurement challenge intractable, and so we suggest that the Ontario government begins
by limiting the analysis to the effects on company performance.

3.3.1 Primary Data Sources

Proposed Baseline Evaluation Survey
The Council of Canadian Academies identifies properly designed client surveys as
the best approach for evaluating the short-term impacts of innovation investments.115 The
Panel suggests that the government conduct a survey to support a baseline comparative
evaluation of its business support programs at its earliest opportunity.
A web-based survey could be sent to all companies that have benefited from one or
more Ontario business support programs in the past two years. Email addresses of
companies should be available from the ministry or intermediary that delivers the program.
115

Council of Canadian Academies, Innovation Impacts: Measurement and Assessment, (2013),

http://www.scienceadvice.ca/en/assessments/completed/inno-investments.aspx.

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The survey should be designed to capture information about the company, its past and
current performance, the impact of the program in question on its performance, and the
companys use of other programs and their relative impact. The performance of companies
can be measured in several ways and we suggest that six measures of performance be
considered: revenues, number of employees, exports, new products or services,
investments in R&D, and equity financing. The first four measures are broadly applicable.
The last two measures are more specialized, but are included because of their objectivity
and their relevance to innovative companies and high growth ventures.
To measure the impact of a program on company performance, the respondent can
be asked about the degree to which the program of interest has impacted specific measures
of company performance. Three steps can be taken to minimize and control for respondent
bias. First, respondents can be asked to judge specific concrete measures of impact, such
as impact on revenues. Research has shown that specific, concrete measures are less
susceptible to bias than general measures.116 Second, the impact question can be
preceded by a question about the recent change in company performance on the same
measure, to focus the respondent on an objective criterion for judging impact. Third, bias
can be controlled for during the analysis phase by including measures of company growth
rates and the degree to which the respondent views business support programs favourably
as control variables in models of impact on company performance. Both of these are
measures of phenomena that will tend to increase the likelihood of favourable assessments
of impact.
This approach to assessing the impact of business support programs eliminates the
need for a control group because it measures the treatment effect directly, rather than
inferring it from a comparison of the performance of treated companies and the
performance of companies in the control group. This increases the efficiency of evaluation;
control group responses to surveys are so low that researchers have had to resort to
exceptional measures, including payments, to elicit responses. 117
Because the survey relies on the ability of respondents to judge the impact of a
program on the recent change in their companys performance, it is best suited for the
evaluation of programs whose impacts can be distinguished from the many other factors
that impact company performance. This is most likely to be the case when the intermediary
or program delivery agent delivers services, such as the provision of knowledge, advice, or
networking opportunities, with or without financial assistance. A respondent may be able to
trace the impact of a key insight or connection on their performance, and financial
116

J.A Cote and M.R Buckley, Estimating Trait, Method, and Error Variance: Generalizing Across 70
Construct Validation Studies, Journal of Marketing Research 24, no.3 (1987): 315318.
117
For example, NESTA, the UKs innovation agency, paid control group respondents 30 pounds each
to respond to a survey. Bakhshi, Hasan, et al. "Creative Credits: A Randomized Controlled Industrial
Policy Experiment," (2013): 45.

102

assistance may enable or expedite the transformation. But when the contributions of the
program are limited to financial contributions, as is the case for the R&D tax credit, it is likely
difficult for a survey respondent to gauge impact. For this reason, the survey data will best
enable the evaluation of business support programs that are delivered by intermediaries.
Ongoing Data Collection
Individual business support programs deal directly with clients and so are well
positioned to collect data on applicants to programs, both successful and unsuccessful, and
data on the use of services and the amount of funding received by client companies. An
evaluation of ventureLab in Markham was made possible by the detailed record keeping of
the officer in charge of the program, who collected data on the number of hours of advice
provided by program officers, the characteristics of the ventures, and many other factors (a
total of 42 variables were used in the models of venture performance).118
It is likely that many programs already collect this sort of data but partial
standardization will serve multiple purposes. First it will facilitate the consolidation of
multiple records that pertain to the same company, collected by multiple programs or over
multiple years. Second, it will facilitate the comparison of programs. And third, it is a step
towards efficiencies in the application process. Many different application procedures
increase the cost of applying to programs for both successful and unsuccessful applicants.

PANEL RECOMMENDATION
3.4 The Government of Ontario should conduct a baseline comparative evaluation survey
to develop knowledge of the relative effectiveness of programs delivered by intermediaries
and other targeted programs.

3.3.2 Secondary Data Sources

Secondary data sources include administrative data collected in the course of doing
business and data collected through surveys. We identify two sources of secondary data
that are likely to be particularly useful in the evaluation of Ontarios business support
programs, the BSP dataset and the most recent Statistics Canada Survey of Innovation and
Business Strategy. We also discuss additional sources of secondary data that are
commonly used by researchers.

118

Douglas J.Cumming and Eileen Fischer, Publicly Funded Business Advisory Services and
Entrepreneurial Outcomes, Research Policy 41, no. 2 (2012): 467-481.

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Ontario Ministry of Finance Business Support Program Dataset

The Ontario Ministry of Finances BSP dataset described in Appendix A makes it
possible to compare the performance of companies that have benefited from specific
programs to those that have not. It is (nearly) unique in this regard, because most
secondary data sources are silent on which companies have benefitted from support and
which have not. While knowledge of which companies have benefitted from assistance is
necessary for evaluation, it is not sufficient. In the absence of additional information, it
cannot be determined whether better performing companies availed themselves of support,
or if the support was the cause of the superior performance. Additional limitations of this
data source are that at present it contains no information on companies that are not
incorporated, making it unsuitable for the evaluation of programs that serve ventures.119 It
also has insufficient company-level information on the regions where companies operate,
and has no company-level information for most programs that are delivered through
intermediaries, as is the case for many of the provinces programs. In addition, the BSP
dataset has little information on support from other parties such as the federal government,
making it difficult to isolate the effects of provincial government support from the effects of
support provided by other levels of government. Finally, because much of the information is
confidential, it cannot be accessed easily by non-government researchers.
Notwithstanding these limitations, the BSP dataset has been invaluable in
understanding the nature of the recipients of tax credits and direct transfers. The
government should continue its work on the BSP dataset. To facilitate this work, all
business support programs should be required to collect data on all applicants for support,
both successful and unsuccessful applicants. This data should include information on
business locations, employment, and the email address of the key contact. A unique
company identifier, possibly the Business Number assigned by the Canada Revenue
Agency, should be used to facilitate the matching of multiple records that pertain to a single
company.

Statistics Canada Survey of Innovation and Business Strategy

The most recent Statistics Canada Survey of Innovation and Business Strategy
(SIBS) provides data on 2,714 companies in Ontario, 11% of the population of 25,197
Ontario companies included in the Business Register. The survey provides data on
business strategies and activities, including international and innovation activities, and on
the use and impact of government support programs. It considers nine broad classes of
government support programs: training, grants, tax credits, procurement, hiring for recent
grads, research facilities, export incentives and services, information and technical
assistance, and market information. Early results show that Ontario companies consider
119

It was a design decision to exclude information on unincorporated businesses in this first creation of
the dataset. Data on unincorporated businesses can be added at a later date.

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the following programs to be critical: tax credits (48%), grants (18%), and programs to
support the hiring of recent grads (18%). Less than 5% of Ontario companies considered
the remaining types of programs to be critical.
The SIBS results on the generally limited use of business support programs (outside
of tax credits, grants, and programs to support the hiring of recent grads) may be a
consequence of the unsuitability of stratified random sampling for the evaluation of business
support programs. Only a small proportion of the companies in any jurisdiction are likely to
have used all but the most widely used programs. The problem is exacerbated if
companies do not make the connection between the broad classes of programs identified in
the SIBS and the specific program from which they benefit, or if they do not make the
connection between the specific program from which they benefit, and the government
funder (i.e. if they believe the program is self-financing). An additional limitation of the SIBS
data is that it is restricted to companies with at least 20 employees and with more than
$250,000 in revenue.
Nevertheless, because it contains such detailed data on the innovation practices and
business strategies of 2,714 Ontario companies, in may be useful in better understanding
differences between companies that do and do not make use of widely-used programs such
as R&D tax credits. The utility of the SIBS data will be augmented if it can be matched with
data on company performance from the BSP dataset.

Additional Sources of Secondary Data

Data on publicly-traded companies are widely available because publicly-traded
companies have mandatory reporting requirements. A rather complete set of information is
available on each listed companys financial records, resources and activities, governance
structure, boards of directors, insider activities, managerial qualifications, among other
things. Unfortunately, most firms in Ontario (and around the world) are not listed on stock
exchanges. Less than 1% of firms in Canada are listed on the TSX or TSX-V.120
Moreover, the firms that are listed are amongst the largest and most stable firms in Canada
given they have to maintain listing standards and legal obligations associated with
continuous disclosure requirements. Put differently, publicly listed companies are amongst
the least in need of government business support. Nevertheless, government support
programs may have an impact on publicly listed companies, and given the easily and
readily accessible data, possible impacts can be evaluated, provided that the companies
that receive support can be identified. For example, an evaluation of the effect of
120

Cumming and Johan (2013) report an average of 1560 (2333) firms listed on the TSX (TSX-V) over the
2005-2011 period; see Douglas J. Cumming and Sofia Johan, Listing Standards and Fraud, Managerial
and Decision Economics 34, no. 7-8 (2013): 451-470.
By contrast, as at December 2011, there were 2.4 million business locations in Canada (and roughly half
of these businesses have at least 1 employee registered with the CRA), and roughly one-third of these
businesses are based in Ontario. See http://www.ic.gc.ca/eic/site/061.nsf/eng/02715.html

105

government venture capital backing prior to listing on the performance of newly publicly
listed companies has been conducted.121
Patent filings constitute another secondary data source. By matching patent filing
data with other information or other datasets, one can learn about the effectiveness of
government programs on patents (as an imperfect proxy for innovation). For example,
scholars have matched patent data with venture capital data to ascertain the impact of
venture capital on patents.122 A final source of secondary data are the data vendors to
which firms voluntarily report information. For example, there are data vendors that sell
venture capital and private equity data, such as Thompson Reuters123 and Pitchbook.124
These datasets enable evaluation of the venture capital and equity financing industries, as
has been done in Ontario125 and Canada,126 among other jurisdictions around the world.127
However, even in the U.S., the largest and most successful venture capital market in the
world, venture capital-backed companies only comprise approximately 0.2% of all firms in

121

In Canada, the evidence shows the Labour Sponsored Venture Capital backing has either no effect or
a negative and significant effect on the performance of publicly listed companies; see Sofia Johan,
Listing Standards as a Signal of IPO Preparedness and Quality, International Review of Law and
Economics 30, no. 2 (2010): 128-144.
122
This evidence shows that venture capitalists have a strong positive effect on the ability of
entrepreneurs to obtain patents; see Samuel Kortum and Josh Lerner, Assessing the Contribution of
Venture Capital to Innovation, RAND Journal of Economics 31, no.4 (2000): 674-692. Canadian Labour
Sponsored Venture Capital backing, however, gives rise to significant underperformance in innovation;
see James A. Brander, Edward J. Egan and Thomas F. Hellmann, Government Sponsored Versus
Private Venture Capital: Canadian Evidence, in Josh Lerner and Antoinette Schoar, International
Differences in Entrepreneurship (Chicago Press, 2010), Chapter 9. See also Douglas J.Cumming,
Review Essay: Public Policy and the Creation of Active Venture Capital Markets, Venture Capital: An
International Journal of Entrepreneurial Finance 13, no.1 (2011): 75-94.
123
http://thomsonreuters.com/sdc-platinum/
124
http://www.pitchbook.com
125
Cumming, D. and S. Johan, 2010. Policy Discussion Paper on Venture Capital: The Role of
Government Support in Ontario, Report Prepared for the Ministry of Research and Innovation and Ontario
Capital Growth Corporation for Expert Advice on Venture Capital and Private Equity.
126
Douglas J. Cumming and Jeffrey MacIntosh, Crowding Out Private Equity: Canadian Evidence,
Journal of Business Venturing 21, (2006): 569-609.
127
Evidence from the Australian venture capital government program is perhaps the most interesting for
Ontario, since their program design is analogous to the recent introduction of the Ontario Venture Capital
Fund (OVCF), launched as part of a new innovation agenda in 2008. The Australian evidence indicates
very positive effects on governance and performance of companies that received government venture
capital backing; see Douglas J. Cumming, and Sofia A. Johan, Ventures Economic Impact in Australia,
Journal of Technology Transfer, (2014) forthcoming. Cumming, D.J., and S. Johan, 2009. Pre-Seed
Government Venture Capital Funds Journal of International Entrepreneurship 7, 26-56. Cumming, D.J.,
2007. Government Policy towards Entrepreneurial Finance: Innovation Investment Funds Journal of
Business Venturing 22, 193-235. For evidence from Europe, see Cumming, D.J., 2013. Public
Economics Gone Wild: Lessons from Venture Capital International Review of Financial Analysis,
forthcoming; see also Cumming, D.J., L. Grilli, and S. Murtinu, 2013. Government and Independent
Venture Capital Investments in Europe: A Firm-Level Performance Analysis Working paper, available at
http://ssrn.com/abstract=2294746.

106

the economy.128 Hence, by examining venture capital backed companies, one learns a lot
about the venture capital industry, but very little about private firms in general.

PANEL RECOMMENDATIONS
3.5 The Government of Ontario should continue its work on the Business Support Program
dataset. To facilitate this work, it should require the collection of data on both successful
and unsuccessful applicants for support.
3.6 The Government of Ontario should use a unique company identifier, possibly the
Business Number assigned by the Canada Revenue Agency, to facilitate the matching of
multiple records that pertain to a single company.
3.7 The Government of Ontario should explore the use of the Business Support Programs
dataset, in combination with the Statistics Canada Survey of Innovation and Business
Strategy, in evaluation.

3.4 Programs by Data Source

Having identified the most useful data sources, in the following we consider each of
the 65 business support programs in the provinces portfolio and match them to the data
sources that are appropriate to their evaluation. In some cases we suggest the use of
multiple data sources for the evaluation of a single program for the most complete picture.
We also identify several programs that should be excluded from the baseline evaluation
because they have objectives other than business support, or are otherwise unsuitable for
evaluation using the proposed methodology.

3.4.1 Programs to be Evaluated Using Primary Data

Table 3.1 lists the 30 programs for which the proposed evaluation survey will be
useful. For programs that are delivered through intermediaries it is the only viable data
source, given the limited information in the BSP dataset on the support to companies made
through intermediaries. Research has shown that companies do not associate R&D tax
credits with specific research projects, but instead as a means by which company-wide
resources for research are increased.129 For this reason, our survey, which requires
respondents to gauge the impact of support on specific outcomes, is not suitable for the
evaluation of R&D tax credits. However, it may be useful for the evaluation of project-based
128

Puri, M., and R. Zarutskie, 2012. "On the lifecycle dynamics of venture-capital and non-venture-capitalfinanced firms," Journal of Finance, 67(6), 2247-2293.
129
Neil M. Kay, Corporate Decision-making for Allocations to Research and Development, Research
Policy 8 (1) 1979: 46-69.

107

tax credits of the sort that the Ontario Media Development Corporation is involved in
administering.
There are 13 programs in Table 3.1 that are delivered by intermediaries. It is
important to note that most community-based economic development organizations are
independent, non-profit organizations that may receive funding from multiple levels of
government. This has implications for their evaluation, as it may be difficult to attribute the
impact of their services on companies to funding from a single level of government. These
include the 17 Regional Innovation Centres, and one Sector Innovation Centre (Bloom),
which are funded primarily by the Ontario government, but which may receive funding from
other levels of government as well. Table 3.1 also identifies nine direct transfer programs
and eight tax credits where recipients are sufficiently numerous to allow for evaluation, and
where support is sufficiently recent, substantial, and focused for impacts to be identifiable
by survey respondents.
Table 3.1 Business support programs suitable for the evaluation survey
To be Evaluated Using Primary Data

Intermediary Name(s)

Programs Delivered by Intermediaries

Business Ecosystem Support Fund
Business Risk Management (Federal/Provincial/Territorial Suite of Business
Risk Management Programs)
Commercialization and Innovation Network Support

Coral CEA, Green Centre Canada, Health Technology Exchange

and Communitech Hub
Agricorp

Grants in Support of Tourism Regions

Ontario Centre of Excellence, MaRS, Regional and Sector

Innovation Centres and the Network of Angel Organizations
13 Regional Tourism Organizations (not for profit organizations)

Northern Ontario Heritage Fund

Northern Ontario Heritage Fund Corporation

Ontario Emerging Technologies Fund

Ontario Capital Growth Corporation

Ontario Media Development Corporation Funding

Ontario Media Development Corporation

Northleaf Venture Catalyst Fund (Ontario Venture Capital Fund II)

Ontario Capital Growth Corporation

Ontario Wood Promotion Program

Canada Wood Council, FP Innovations, various post-secondary

institutions
Agricorp, supported 4,797 farm businesses in 2012-13, 1,410
incorporated, and 3,387 unincorporated
Canadian Youth Business Foundation (4m), Ontario Chamber of
Commerce Global Growth Fund (2.5m)
Ontario Centres of Excellence (5m), Ontario Genomics Institute
(2m)
WaterTAP

Risk Management Programs

Sector Support Grants (Grants in Support of Business Development)
Sector Support Grants (Grants in Support of Economic Development)
Water Technology Acceleration Project
Direct Transfer Programs
Eastern Ontario Development Fund
Forest Sector Prosperity Fund
Growing Forward
Innovation Demonstration Fund
Next Generation of Jobs Fund Jobs and Investment Program
Ontario Music Fund

New

Rural Economic Development and Local Foods

Southwestern Ontario Development Fund
Strategic Jobs and Investment Fund

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Tax Credits
Ontario Book Publishing Tax Credit
Ontario Business Research Institute Tax Credit

To encourage university-industry partnerships

Ontario Computer Animation and Special Effects Tax Credit

Ontario Co-operative Education Tax Credit
Ontario Film and Television Tax Credit
Ontario Interactive Digital Media Tax Credit
Ontario Production Services Tax Credit
Ontario Sound Recording Tax Credit

3.4.2 Programs to be Evaluated Using Secondary Data

Table 3.2 lists 20 programs to be evaluated using secondary data, specifically the
BSP dataset combined, where possible, with SIBS survey data. To be eligible for
evaluation using secondary data, programs need at least 30 beneficiaries, and support
needs to be sufficiently substantial for the effect to be discernable. Three of the tax credits
listed in Table 3.2 are sufficiently widely used that some their users may appear in the
Statistics Canada Survey of Innovation and Business Strategy (SIBS) dataset (the Ontario
Innovation Tax Credit, the Ontario Research and Development Tax Credit, and the Ontario
Tax Credit for Manufacturing and Processing). If evaluators can access company level data
in the SIBS dataset, and can match companies in the BSP dataset to companies in the
SIBS dataset, much will be learned. Some of programs in Table 3.2 also appear in Table
3.1, because the evaluation survey and the secondary datasets constitute, in some cases,
complementary data sources.

Table 3.2 Business support programs to be evaluated using secondary data

To be Evaluated Using Secondary Data
Direct Transfer Programs
Eastern Ontario Development Fund
Forest Sector Prosperity Fund
Growing Forward
Innovation Demonstration Fund
Next Generation of Jobs Fund Jobs and Investment Program
Rural Economic Development and Local Foods
Sector Support Grants (Ontario Craft Brewers Opportunity Fund)
Sector Support Grants (VQA Support Program)
Southwestern Ontario Development Fund
Strategic Jobs and Investment Fund
Tax Credits
Ontario Book Publishing Tax Credit
Ontario Business Research Institute Tax Credit
Ontario Computer Animation and Special Effects Tax Credit

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Ontario Co-operative Education Tax Credit

Ontario Film and Television Tax Credit
Ontario Innovation Tax Credit
Ontario Interactive Digital Media Tax Credit
Ontario Production Services Tax Credit
Ontario Sound Recording Tax Credit
Ontario Research and Development Tax Credit
Ontario Resource Tax Credit
Ontario Tax Credit for Manufacturing and Processing

3.4.3 Programs for Later Evaluation

Finally, there are 29 programs, listed in Table 3.3, with objectives other than
business support, that are unique, or that are too indirect or have too few beneficiaries to
support evaluation. While it will be worthwhile to evaluate some of these programs at a
later date, they fall outside the scope of a baseline comparative evaluation.

Table 3.3 Programs with objectives other than business support, that are unique, or
that are too indirect or have too few beneficiaries to support evaluation
To be Evaluated in the Future
Programs Delivered by Intermediaries
Communities in Transition Initiatives

Various Not for Profit Institutions, designed to benefit

communities and sectors

Grants in Support of Economic and Financial Services Policy

Research

Toronto Financial Services Alliance

Grants in Support of Research and Innovation (Grants in Support of

Innovation and Commercialization)

Various not for profit and post-secondary institutions

Ontario Clean Energy Benefit (to farms)

All Ontario Electricity Utility Providers

Ontario Clean Energy Benefit (to small businesses)

All Ontario Electricity Utility Providers

Rural Connections

Subsidies for broadband services to residents and

businesses

Sector Support Grants (Grants in Support of Trade and Investment)

Various Not For Profit Organizations, modest funding

Sector Support Grants (Ontario Small Brewers Strategy Fund)

Ontario Small Brewers Association

Sector Support Grants (Ontario Wine Strategy Fund)

Wine Council of Ontario

Direct Transfer Programs

Advanced Manufacturing Investment Strategy

Modest number of beneficiaries

Forest Loan / Guarantee Program (Bad Debt Expense)

Cost depends on the number of loans not repaid

Horse Racing Transition Assistance Program

New

Investment Ready: Certified Site

Designed to benefit investors and communities

110

Next Generation of Jobs Fund Biopharmaceutical Investment

Program

Modest number of beneficiaries

Northern Industrial Electricity Rate Program

To subsidize electricity costs in Northern Ontario

Ontario Automotive Investment Strategy

Modest number of beneficiaries

Ontario Ethanol Growth Fund

Environmental objective, modest number of beneficiaries

Ontario Life Sciences Commercialization Strategy

MaRS, Population Health Research Institute, Clinical

Trials Ontario, and seed investments to companies

Rural Summer Jobs

Designed to benefit students

Smart Grid Fund

Modest number of beneficiaries

Tax Credits
Ontario Apprenticeship Training Tax Credit

Designed to benefit tradespeople

Ontario Credit Union Tax Reduction

Subsidy for credit unions

Ontario Small Beer Manufacturers Tax Credit

Ontario Small Business Tax Deduction

Entitlement

Ontario Tax Exemption for Commercialization

Modest number of beneficiaries

Not Business Support

Aboriginal Community Capital Grants Program

Various non-profit institutions

Forest Access Roads

Infrastructure investment

New Relationship Fund Economic Development Funding

Designed to benefit communities

Ontario Political Contributions Tax Credit

Designed to encourage political participation

Programs with objectives other than business support include programs designed to
assist individuals and communities, and programs with environmental, infrastructure, and
equity objectives. These programs may also provide benefits to businesses, but their hybrid
objectives demand hybrid approaches to evaluation. Programs designed to assist both
individuals and businesses include:
Ontario Apprenticeship Training Tax Credit, designed to benefit apprentices
and their employer sponsors,
Rural Summer Jobs program, designed to benefit students looking for
employment in rural areas, and
Rural Connections program, designed to subsidize broadband services for
rural residents and businesses.
Programs designed to benefit communities and businesses include:
Communities in Transition Initiatives, and
Investment Ready: Certified Site.

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Programs with environmental or infrastructure objectives include:

Ontario Clean Energy Benefit (to farms),

Ontario Clean Energy Benefit (to small businesses),
Ontario Ethanol Growth Fund, and
Smart Grid Fund.

Programs with equity objectives include the following programs designed to help companies
in challenged sectors and regions:
Forest Load/Guarantee Program (Bad Debt Expense) covers the cost of
Ontario Government loans to forestry companies that cannot be repaid due to
challenges facing the sector,
Horse Racing Industry Transition Assistance Program, which helps Ontario
racetracks transition to a new business model (launched in 2013),
Northern Industrial Electricity Rate Program,
Ontario Credit Union Tax Reduction, designed to give credit unions the same
overall income tax rate as would be applicable under the Small Business Tax
Deduction (founded in 1985).
The Ontario Small Business Tax Deduction is a unique case. It is a large entitlement
program that will require a customized approach to evaluation. The following programs are
designed to support activities whose effects on businesses are likely too small or indirect to
be measurable:
Grants in Support of Economic and Financial Services Policy Research,
Grants in Support of Research and Innovation (Grants in Support of Innovation
and Commercialization),
Ontario Small Beer Manufacturers Tax Credit,
Sector Support Grants (Grants in Support of Trade and Investment),
Sector Support Grants (Ontario Craft Brewers Opportunity Fund),
Sector Support Grants (Ontario Small Brewers Strategy Fund),
Sector Support Grants (Ontario Wine Strategy Fund), and
Sector Support Grants (VQA Support Program).
There are programs that have benefitted too few companies to support an evaluation. In
addition to some of the programs mentioned above, such programs include:

Advanced Manufacturing Investment Strategy,

Next Generation of Jobs Fund Biopharmaceutical Investment Program,
Ontario Automotive Investment Strategy,
Ontario Life Sciences Commercialization Strategy, and
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 Ontario Tax Exemption for Commercialization.

Finally, there are four programs that the Panel considered to be outside scope:

Aboriginal Community Capital Grants Program,

Forest Access Roads,
New Relationship Fund Economic Development Funding, and
Ontario Political Contributions Tax Credit.

3.5 Methodologies for Analysis

3.5.1 Identifying Effects on Companies
Three approaches can used to determine the effect of Ontarios business support
programs on companies using data from the proposed survey. 130 The first uses data on
program impact provided directly by survey respondents. This approach obviates the need
to use econometrics to distinguish between treatment and selection effects, because the
proposed survey uses the judgement of respondents to isolate treatment effects. This
approach will yield results on the impact of Ontarios business support programs on
company revenues, employment, exports, new products or services, investments in R&D,
and the companys ability to attract equity financing.
The second approach uses data on changes in company performance obtained from
the survey, and econometrics to isolate changes in performance that are a consequence of
the business support program in question. This approach relies on the viability of the
instrumental variables created by using the survey questions designed to capture selection
effects. If successful, this approach will provide evidence of program effects on the same
six measures of performance. The third approach combines the survey data with firm level
data from the BSP dataset. Here econometrics is used to analyze longitudinal data on firm
revenues. Regardless of how the measure of impact on company performance is obtained,
survey data or data from the BSP dataset can be used to include explanatory variables
such as the amount of funding or services received, and control variables such as company
age, size, industry, region, growth rate, and R&D expenditures in models of impact.
In Chapter 2, we reported on the nature of recipients of business support in Ontario.
The Panel was only able to conduct simple analyses using the BSP dataset because we
had access only to summary tables. With access to the firm level panel data, much more
130

There is a fourth, albeit very rough, approach. A question that asks survey respondents to rank
programs in terms of impact, in cases where they have used multiple programs, can be used to develop a
crude measure of the relative impact of programs. This is the approach taken by Statistics Canada in its
SIBS survey.

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informative analyses could be undertaken. First, analysts could compare supported

companies to unsupported companies using matched samples where companies are
matched on the basis of age, size, industry, and R&D spending. With a means of
controlling for selection effects, the cause and effect relationship between government
support and changes in company performance could be analyzed. If the BSP dataset can
be linked with the Statistics Canada Survey of Innovation and Business Strategies dataset,
additional analyses can be conducted. One approach is to use the CDM (Crepon, Duguet,
and Mairesse) model introduced in 1998.131,132 The CDM model has been applied in the
Canadian context using the Canadian Survey of Innovation and the Annual Survey of
Manufactures and Logging to study 5,355 Canadian firms during the 2002-2004 period.133
The authors found evidence that links government support to innovation activity, and
innovation activity to exports, intra-firm cooperation, sales, and labour productivity.
Distinguishing between cause and effect is the major difficulty in evaluating the
effects of business support programs on companies. The most commonly advocated
approach to addressing the challenge is to compare the performance of a treated group of
companies that benefited from the program, with a control group of companies that did not
benefit. To control for some of the differences between the treated companies and the
companies in the control group, matched samples can be used in which each treated
company is matched with an untreated company of the same size, age, industry, and
region, etc. This approach has been used to examine the effect of venture capital advice
and financing on company outcomes, showing that financing with advice yields better
results than either advice or financing alone.134
Unfortunately there are several challenges associated with the use of control groups.
First, it may be difficult to distinguish between treated and untreated companies in
secondary data. For example, companies that benefit from programs delivered by
intermediaries cannot be identified in the governments BSP dataset. Second, companies
may benefit from multiple programs. In particular, companies in the control group may
benefit from alternative programs, including federal programs that may be more generous
131

Crpon, B., Duguet, M., & Mairesse, J. (1998). Research, innovation, and productivity: An econometric
analysis at the firm level. Economics of Innovation and New Technology, 7, 115-158.
132
See, e.g., Hall, B., Mairesse, J., & Mohnen, P. (2010). Measuring the Returns to R&D. In B. Hall & N.
Rosenberg (Eds.), Handbook of Economics of Innovation. Amsterdam, the Netherlands: Elsevier.
133
Therrien, P. & Hanel, P. (2010). Innovation and Productivity in Canadian Manufacturing
Establishments. In D. Ciuriak (Ed.), Trade Policy Research 2010: Exporter Dynamics and Productivity.
Ottawa (ON): Foreign Affairs and International Trade Canada.
134
For evidence from Canada, see Kelly, R., and H. Kim. 2013. Venture Capital as a Catalyst for High
Growth Industry Canada Working Paper 2013-01. For evidence that compares government to nongovernmental venture capital backing in Australia, see Cumming, D. and S. Johan, 2014. Venture's
Economic Impact in Australia. Journal of Technology Transfer, Forthcoming. Available at SSRN:
http://ssrn.com/abstract=2354944, and for evidence from Europe see Cumming, D.J. L. Grilli, and S.
Murtinu, 2013. Governmental and Independent Venture Capital Investments in Europe: A Firm-Level
Performance Analysis. Available at SSRN: http://ssrn.com/abstract=2294746

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than the provincial program whose effect is being measured. Third, it is difficult to use a
control group when data are being collected via a survey as the response rates of control
group companies to surveys are poor.
Most importantly, the use of control groups and matched samples does not eliminate
the possibility that treated companies may be, in difficult to measure ways, different than
untreated companies. More sophisticated statistical techniques must be used address this
possibility of selection bias. These techniques, which include difference-in-difference
estimation and staged regressions with instrumental variables, have significant data and
analytical requirements.135 Additional techniques include the use of randomized control
trials, which significantly help to identify a causal link between policies and outcomes.136

PANEL RECOMMENDATION
3.8 The Government of Ontario should ensure that evaluations of the impact of business
support programs distinguish between changes in company performance that would have
happened in the absence of government intervention, and those that are attributable to the
intervention being evaluated.

3.5.2 Identifying Macro Effects

Innovation is critical because of its link to productivity. A simple comparison of
nations shows that there is a positive relationship between innovativeness (the share of
companies innovating in 2006-2008) and productivity (GDP per hours worked 2009).137 So
it is frustrating that despite R&D tax credits that are amongst the most generous in the
OECD, business expenditures on R&D in Canada as a proportion of GDP are amongst the
lowest in the OECD, and have been on a steady decline since 2001. 138

135

These statistical issues are reviewed in detail in Chapter 2 of Council of Canadian Academies 2013.
Innovation Impacts: Measurement and Assessment: The Expert Panel on the Scio-economic Impacts of
Innovation Investments. Ottawa: Council of Canadian Academies.
136
Ron Haskins and Jon Baron, Building the Connection between Policy and Evidence: The Obama
evidence-based initiatives, Nesta (2011): Available at
http://www.brookings.edu/~/media/research/files/reports/2011/9/07%20evidence%20based%20policy%20
haskins/0907_evidence_based_policy_haskins.pdf
137
Bronwyn H. Hall, Innovation and Productivity, Nordic Economic Policy Conference on Productivity
and Competitiveness, (April 2011). Available at
http://eml.berkeley.edu/~bhhall/papers/BHH11_Innovation_Productivity_NEPR.pdf
138
Science, Technology and Innovation Council, State of the Nation 2012: Chapter 3: Canadas Funding
for Research and Development in an International Context,(2012), http://www.stic-csti.ca/eic/site/sticcsti.nsf/eng/00064.html#busfund

115

The relationship between tax credits and R&D expenditures has been examined by
several researchers, in several jurisdictions, albeit with mixed results.139 Given the difficulty
of measuring widespread effects, researchers have developed methods of estimating these
effects. Based on the view that governments subsidize R&D because the social benefits of
R&D exceed the private benefits, resulting in suboptimal levels of private investment in R&D
from a social welfare perspective, researchers have estimated the benefits and costs of
R&D tax credits with a view to determining their net welfare contribution. A study by the
OECD (2003) suggests that a 0.1% increase in a nations BERD (Business Expenditures on
R&D) to GDP ratio would eventually translate into a 1.2% higher GDP per capita, other
things being equal.140 More recently (2012), Lester estimates a positive benefit-cost ratio for
the regular SR&ED tax credit in Canada, but not for the enhanced R&D tax credit for small
firms.141
Much attention over the years has been paid to the gap between U.S. and Canadian
productivity, which has been attributable to the faster growing multifactor productivity (MFP)
in the US.142 OECD data indicate that over 1990-2009, the average annual percentage
change in multifactor productivity in Canada has been 1.0%, compared to 1.8% for Finland,
4.0% for Korea, 2.2% for Sweden, and 1.2% for the United States.143 Other estimates for
Canada are similar for the 1961-2011 period: Diewert and Yu estimate MFP to be 1.03%,
while Statistics Canada estimates it to be 0.28%.144 Diewert and Yu explain that multifactor productivity levels in Canada have been reasonably satisfactory over the past 50
years, with the exception of two periods (1981-1989, and 2000-2008). They, like others145,
suggest that data from Statistics Canada on capital services needs additional
documentation and experimentation with respect to the measurement of land services, the

139

See, for example, Bloom, N., R. Griffith, and J. van Reenen, 2002. Do R&D Tax Credits Work?
Evidence from a Panel of Countries 1979-1997 Journal of Public Economics 85, 1-31.
140
OECD, 2003. The Sources of Economic Growth in OECD Countries. Paris: OECD.
141
John Lester, Benefit-Cost Analysis of R&D Support Programs, Canadian Tax Journal, 60:4, 793-836.
142
MFP measures changes in output per unit of combined inputs. See Someshwar Rao, Cracking
(2011),
Canadas Productivity Conundrum, IRPP Study no. 25
http://archive.irpp.org/pubs/IRPPstudy/IRPP_Study_no25.pdf.
143
Benoit Arnaud, Julien Dupont, Seung-Hee Koh, et al. Measuring Multi-factor Productivity by Industry:
Methodology and First Results from the OECD Productivity Database, The Statistics Newsletter for the
Extended OECD Statistical Network, no. 54 (2011): 3-6 available at
http://www.oecd.org/std/49230023.pdf.
144
W. Erwin Diewert and Emily Yu, New Estimates of Real Income and Multifactor Productivity Growth
for the Canadian Business Sector, 1961-2011, International Productivity Monitor, no. 24 (2012): 27-48,
available at http://www.accountingfornations.ca/pdf/IPM-24-Diewert-Yu.pdf.
145
Michael J.Harper, Alice O. Nakamura, and Lu Zhang, "Difficulties Assessing Multifactor Productivity for
Canada." International Productivity Monitor no. 24 (2012): 76-84, available at
http://www.csls.ca/ipm/24/IPM-24-Harper.pdf.

116

form of the user cost formula, the treatment of taxes, the determination of depreciation
rates, and the choice of a reference rate of return. 146
Many consultancies offer economic impact analysis services and these range in
quality. The least reliable are those that estimate the impact of a program on the basis of
program expenditures, or estimates of program impact provided by program managers.
More responsible approaches survey supported companies to gather data on their change
in performance. In the best studies, the effect of the program on the change in performance
is isolated, but in other studies analysts do not distinguish between change in performance
that is attributed to program support, and change that would have occurred in the absence
of the program.
The reliability of economic impact analysis studies is further compromised by efforts
to scale up the effects on supported companies with information on the effects on
companies in neighbouring industries, where inter-industry transactions are significant,
using industry multipliers. Such scale up efforts are required to estimate the contributions of
a program to a jurisdictional GDP, often at the behest of governments who want to
understand program impacts at this level of analysis. But while the use of multipliers yields
larger economic impact numbers, it requires many, usually idiosyncratic and unstated,
assumptions. For this reason, estimates of contributions to GDP are highly unreliable.
They are popular though, because from a communications perspective, a bigger number,
no matter how unreliable, is better.

3.6

Benchmarking Economic Performance

3.6.1 Benchmarking the Economy Against Other Jurisdictions

It is common to benchmark the economic performance and innovative capacity of a
jurisdiction so as to compare current performance to past performance, targeted
performance, or the performance of peer jurisdictions. While evaluations of business
support programs seek to determine the degree to which a government intervention has
resulted in a change in performance, benchmarks are designed to capture and compare the
current state. There are however, occasions where the same indicator is used both as a
measure of program impact and as an indicator of economic performance. For example,
the US Small Business Innovation Research (SBIR) program has been evaluated in terms
of its effect on company spending on R&D, and total company spending on R&D (BERD), is
an indicator that is commonly used to compare the innovative capacity of jurisdictions.147

146

W. Erwin Diewert and Emily Yu, New Estimates of Real Income and Multifactor Productivity Growth
for the Canadian Business Sector, 1961-2011, International Productivity Monitor, no. 24 (2012): 27-48,
available at http://www.accountingfornations.ca/pdf/IPM-24-Diewert-Yu.pdf.
147
Scott J. Wallsten, "R&D Boondoggle, The." Regulation 23 (2000): 12.

117

An indicator is only useful for comparative purposes if it is widely used. Widely used
economic indicators include Gross Domestic Product (GDP) per capita, the de facto
measure of standard of living148, although one which has come to be complemented with
broader measures of well-being such as the Human Development Index. 149 Multifactor
productivity is another widely used indicator. Jurisdictions with increasing MFP experience
increasing standards of living with constant inputs. Additional indicators include imports and
exports, especially in technology-intensive industries, and technology balance of
payments.150
Provincial statistics on multifactor productivity have been estimated by the Center for
the Study of Living Standards151 for each industry (2-digit NAICS codes) and province
including Ontario,152 and on a relative basis such as by comparison of Ontario to the
Canadian estimates.153 The data indicate that the following statistics for Ontario:

Table 3.4 A Comparison of Growth in Multifactor Productivity in Ontario and Canada

Average Annual Growth

Rate in Multifactor
Productivity in Ontario,
1997-2010

Absolute Percentage
Change in Relative
Multifactor Productivity in
Ontario (in Relative
Terms, Using the
Respective Industry for
Canada as a Whole as
the Base Value for Each
Respective Year)

Business sector
Agriculture, Forestry, Fishing, and
Hunting
Mining, and Oil and Gas Extraction

0.20%

4.60%

2.30%

-1.70%

-4.70%

0.40%

Utilities

-0.70%

-1.60%

Construction

0.50%

7.40%

Manufacturing

0.40%

-2.50%

Wholesale Trade

1.90%

4.40%

148

Benoit Godin, Measurement and Statistics on Science and Technology: 1920 to the present.
(Routledge Studies in History of Science, Technology and Medicine, 2005).
149
Human Development Reports, Human Development Index (HDI), http://hdr.undp.org/en/statistics/hdi.
150
See the Main Science and Technology Indicators of the OECD
OECD, Main Science and Technology Indicators, http://www.oecd.org/science/inno/41850880.pdf
151
Centre for the Study of Living Standards, Estimates of Labour, Capital and Multifactor Productivity by
Province and Industry, 1997-2010, (2012), http://www.csls.ca/data/mfp2012.asp.
152
Centre for the Study of Living Standards, Multifactor Productivity (2002=100), Ontario, by two-digit
NAICS industry, 1997-2010, http://www.csls.ca/data/mfp2012/5g.pdf.
153
Centre for the Study of Living Standards, Relative Multifactor Productivity (Canada=100), Ontario, by
two-digit NAICS Industry, 1997-2010, (Date), http://www.csls.ca/data/mfp2012/6f.pdf.

118

Retail Trade

1.10%

-5.10%

Transportation and Warehousing

-0.40%

-2.80%

Information and Cultural Industries

Finance, Insurance, Real Estate, and
Renting and Leasing
Professional, Scientific, and Technical
Services
Administrative and Support, Waste and
Remediation
Arts, Entertainment and Recreation

1.40%

0.70%

0.10%

12.20%

-0.20%

-14.70%

-1.20%

23.80%

-0.20%

20.30%

Accommodation and Food Services

Other Services except Public
Administration

0.60%

-32.20%

-1.20%

6.50%

These statistics show that Ontarios MFP average annual growth rate has been
largest in the agriculture, forestry, fishing and hunting sectors (2.3%), while the lowest
average annual growth rate has been in mining, and oil and gas extraction (-4.7%). But
relative to Canada, Ontario has made the greatest improvements in Arts, Entertainment and
Recreation (20.3%), Administrative and Support, Waste and Remediation (23.3%), and
Finance, Insurance, Real Estate, and Renting and Leasing (12.2%). The sharpest relative
to Canada declines in Ontario have been in the Professional, Scientific, and Technical
Services (-14.7%) and Accommodation and Food Services (-32.2%). Further research is
warranted to explain these industry-specific MFP differences in Ontario, and on a relative
basis in comparison to the rest of Canada.
The OECD Frascati and Oslo Manuals provide guidelines for the measurement of
R&D and innovation, respectively, that are used by OECD countries, including Canada. By
following these guidelines, Statistics Canada produces measures of national and provincial
innovative capacity that can be compared those of many nations. Such measures include
inputs such as full-time equivalent researchers, expenditures on R&D, and investments in
ICT, machinery and equipment, activities such as the nature and extent of collaboration,
and outputs such as patents and new products, processes, and services, etc. The most
recent Statistics Canada innovation survey considered business strategies in addition to
innovation.154 The OECD publishes an annual Science, Technology, and Industry
Scoreboard that ranks the 34 OECD nations on 260 indicators. 155 The World Economic
Forum publishes an annual Global Competitiveness Index that compares the
competiveness of nations using 114 indicators that collectively measure the factors,

154

2012 Survey of Innovation and Business Strategy

OECD, OECD Science, Technology and Industry Scoreboard 2013, (2013), http://www.oecdilibrary.org/docserver/download/9213051e.pdf?expires=1401302638&id=id&accname=guest&checksum=
3EF354CEDA66FE01A742507B468BA38A.
155

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policies, and institutions that determine national productivity. In 2013-2014 Canada ranked
14 of 148 nations.156
The 2014 How Canada Performs report published by the Conference Board of
Canada uses OECD and Statistics Canada data to compare the economic performance of
Canada and the 10 Canadian provinces and three territories to 15 peer countries. 157
Ontarios current performance relative to this peer group in terms of employment growth has
been excellent, but its relative performance in terms of GDP/capita and GDP growth has
slipped over recent decades.
Another group of indicators relates to entrepreneurship and measures new company
creation rates, the availability of financing, and the impact of young companies on the
economy. The Kauffman Foundation in the US has been working to advance the rigor of
entrepreneurship indicators by, for example, linking datasets to distinguish new company
creation from the creation of new establishments by existing businesses to avoid counting
new Starbucks locations as new businesses. The high propensity of immigrants to launch
businesses and to achieve business success has recently come to the attention of policy
makers,158 so we can expect benchmarks of immigrant entrepreneurs in the future.
Several organizations are benchmarking the Ontario and Canadian economies. In
addition to those mentioned above, these include the Science, Technology, and Innovation
Council (STIC) of Canada, which reports biannually on the state of the Canadian economy,
the Institute for Prosperity and Competitiveness, which has published several studies
comparing Ontario to peer U.S. states,159 and the Impact Group, a private company that
publishes an annual listing of the largest corporate R&D spenders in Canada. 160 Another
relevant exercise was the Ontario Innovation Economy Scorecard 2010 prepared for the
Ministry of Research and Innovation that used twenty-three selected indicators to
benchmark Ontarios innovation performance against eight other jurisdictions. 161

156

Klaus Schwab and Xavier Sala-i-Martin, The Global Competitiveness Report 2013-2014,World
Economic Forum (2013): http://www.weforum.org/issues/global-competitiveness
157
How Canada Preforms, A Report Card on Canada,(2014),
http://www.conferenceboard.ca/hcp/default.aspx.
158
Margaret Dalziel "Immigrants as Extraordinarily Successful Entrepreneurs: A Pilot Study of the
Canadian Experience," Journal of Small Business & Entrepreneurship 21, no. 1(2008): 23-36. The
economic case for welcoming immigrant entrepreneurs, The Kauffman Foundation. Available at
http://www.kauffman.org/what-we-do/resources/entrepreneurship-policy-digest/the-economic-case-forwelcoming-immigrant-entrepreneurs; Government of Canada, Backgrounder- The New Start-Up Visa
Program: An innovative Approach to Economic Immigration, (2013),
http://www.cic.gc.ca/english/department/media/backgrounders/2013/2013-01-24.asp.
159
http://www.competeprosper.ca/
160
Research Infosource Inc.: Canadas Source of R&D Intelligence, Canadas Top 100 R&D Spenders
2013, (2013), http://www.researchinfosource.com/pdf/2013Top%20100%20R&D.pdf.
161
Tijs Creutzberg and David A. Wolfe, Ontario Innovation Economy Scorecard 2010, Munk School of
Global Affairs, Toronto, November, 2010.

120

The Ontario Government may want to invest greater resources in data collection to
facilitate benchmarking the Ontario economy against other Canadian provinces, US states,
and European countries. This would allow it to better gauge the degree to which the
Ontario economy is similar to the economies of peer jurisdictions, and therefore the degree
to which interventions adopted or abandoned by other jurisdictions should be considered for
Ontario. Because new companies are so critical to innovation and employment, the priority
is collecting data on ventures.

3.6.2 Benchmarking the Performance of Business Support Programs

While measures of the effectiveness of specific programs are valuable, government
decision-making will be best served by the ability to compare the performance of a portfolio
of business support programs. By using the same methodology to measure the impact of
multiple programs, governments can benchmark programs against one another and over
time. While early efforts should be focused on learning what works and gaining familiarity
with measurement instruments, the ability to compare the performance of programs can
serve to create a competitive market in which business support programs compete for
government funding. The concept of performance-based funding of public services is
gaining adherents around the world, particularly in the US and UK. 162
Because the availability of data plays such a large role in evaluation, assessments of
multiple programs using the same methodology are rare. There are cases where the
activities or outputs of multiple programs have been compared, drawing on the relative ease
of obtaining activity and output data.163 But benchmarking on activities and outputs has the
undesirable effect of focusing efforts on processes rather than outcomes. Only by
benchmarking outcomes or impacts can attention be focused on maximizing effectiveness.
As stated in earlier sections of this chapter, we suggest the Ontario government
conduct a baseline comparative evaluation of the impact of its business support programs
at its earliest opportunity. The government can begin with the programs for which the
evaluation survey is suitable, where possible employing data from the BSP dataset. As
noted in Section 3.5, the fact that both data sources can be used for some programs may
be useful for calibration purposes. At present it is unclear what kind of results can be
achieved by analyzing the BSP data, and similarly unclear what kind of results can be
achieved through econometric analysis of the performance data collected through the
survey. But the straightforward compilation of the assessment of impact on multiple
dimensions (revenues, employment, exports, new products or services, investments in
R&D, equity financing) made by survey respondents will provide a basis for comparing the
effectiveness of the 30 programs for which the survey is suitable.
162

See, for example https://www.starmetrics.nih.gov/ and http://www.nesta.org.uk/

For example, several researchers have used data on patenting and licensing, collected by the
Association of University Technology Managers, to benchmarking university technology transfer offices
against one another.
163

121

It is important to recognize that no single measure is a definitive representation of

program effectiveness. As a consequence of this fact, and the difficulty of getting data,
researchers have used some 35 different measures of the impact of programs that support
research and innovation.164 Simplistic suggestions to measure all programs in terms of
monetary ROI (return on investment) are to be rejected. Another issue is timeframe. Some
impacts may appear quickly, but may not persist, while others may take a long time to
appear. In addition to several measures of effectiveness, evaluators need to consider a
host of factors regarding economic challenges and programs objectives, the nature and cost
of programs, and the number and nature of companies served, to make informed decisions
regarding which programs to support. Conducting a comparative evaluation is the first step
on this journey.

PANEL RECOMMENDATION
3.9 The Government of Ontario should benchmark the performance of the Ontario
economy against peer jurisdictions, and should similarly benchmark the performance of its
business support programs against peer business support programs.

164

Margaret Dalziel, Tanita Noor Tahmina and Xiao Zhao, The Impact of Investments in Research and
Innovation: A Literature Review, Danish Research Institute for Industrial Dynamics, Summer
Conference, (June 2013).

122

Conclusion

Our examination of business support has provided a basis for understanding the
circumstances under which business support is appropriate, the sectoral and regional
lenses through which it should be designed, and the alternatives for its delivery. Our review
of Ontarios direct transfers and tax credits showed that companies that are large or
established are more likely to receive support than companies that are small or new.
Finally, we provide a framework for conducting rigorous evaluations of program
effectiveness in the interests of ensuring that the provinces business support programs are
having the greatest possible impact on Ontario companies.
We have identified 26 recommendations for the Government of Ontario. Here we
present our top five areas of concern. We believe business support in Ontario should be
fair, informed, transformative, effective, and responsible.
Fair
Business support should be fair to the companies that do and do not receive
support. This can be achieved by offering catalytic amounts of funding that do not distort
the marketplace, by funding activities that generate spillover benefits to other companies,
and by providing business support services that assist multiple companies simultaneously.
Our review found that support is going primarily to large and old companies. Approximately
200 companies, or 0.1% of Ontario businesses, receive 30% of total Ontario business
support, and this does not include the significant incentive packages provided to companies
like Cisco and OpenText. While we are not advocating for equal support, we believe the
Government of Ontario should ensure that business support is fair.
Informed
Judicious business assistance requires knowledge. Business support in Ontario
should be informed by and responsive to the needs of companies at different stages of
development, and in different sectors, regions, and clusters. Of greatest concern are the
diminishing prospects of young corporations in Ontario. Given the paucity of risk capital in
Ontario compared to peer jurisdictions, the fact that access to capital is frequently cited as a
major obstacle by entrepreneurs, and our finding that young companies receive less
support from the Ontario government than companies that are more than 10 years old, we
think it urgent that the Government of Ontario reform its business support programs to
ensure that young companies, particularly high-growth young companies, are getting the
support they need.

123

Transformative
The Ontario economy needs transformative increases in innovation, productivity, and
exports. But transformation is hard. Generally available tax credits may be easy to
administer, but they are limited as agents of transformation. The government needs to
support, and in some cases create, intermediary organizations that assist companies in
adopting new business mindsets and methodologies. Intermediaries need to be embedded
within the specific sectors, regions, and clusters they support, and to work with business
people to create and deliver programs that provide companies with the incentives,
knowledge, resources, and capabilities they need to compete with global leaders. The
Government of Ontario needs to provide business support that is transformative.
Effective
Business support that is not effective serves no purpose. Only rigorous evaluations
can determine whether or not programs are effective. The government needs to commit to
evaluation and recognize that the downsides of occasional negative evaluations are far
outweighed by the benefits of positive evaluations and, most importantly, improved
business support programs. The Panel recommends that the government conduct a
baseline evaluation survey of the effectiveness of its business support programs at its
earliest opportunity. This will allow it to benchmark the outcomes of specific programs
against one another in the interests of learning how to improve program design and
delivery. The Government of Ontario should commit to regular and rigorous evaluations of
the effectiveness of its business support programs.
Responsible
The Panel recommends the creation of a Business Support Programs Subcommittee
of Treasury Board that would be responsible for the implementation of our
recommendations and the review and evaluation of Ontarios business support programs.
The MOF made significant progress in data collection and analysis during the Panels
tenure. The Panel recommends that work on the BSP dataset be continued and that, to
facilitate this work, all business support programs be required to collect data on all
applicants for support, both successful and unsuccessful applicants. This data should
include information on business locations, employment, and the email address of the key
contact. A unique company identifier, possibly the Business Number assigned by the
Canada Revenue Agency, should be used to facilitate the matching of multiple records that
pertain to a single company. The Government of Ontario should establish the policies and
procedures to achieve responsible business support.
We have refrained from identifying specific programs that should be sustained,
modified, or canceled. This is in contrast to the Drummond report, which recommended the
elimination of all direct business support programsthose delivered through intermediaries
and direct transfers. Decisions about which programs to cancel and which to retain should
124

wait until we know more about which programs are effective and which are not. Programs
delivered by intermediaries are particularly vulnerable because the government has the
least access to information on recipient companies. But because these programs offer
value-added services in addition to funding, they have the greatest potential for
transformative change. Relative to peer jurisdictions, Canada and Ontario already rely
heavily on R&D tax credits, and yet exhibit low levels of business expenditures on R&D.
Our objective has been to provide the insights and information required to improve
the dialogue on business support in Ontario. Citizens, business people, government
officials, and politicians will benefit from an improved understanding of what the government
is doing, why it is doing it, the effects of its investments, and the alternatives. We should
aspire to business support that is transformational, that helps entrepreneurs launch
companies, and helps executives imagine and create bold new futures for their enterprises.
We hope our 26 recommendations help create that better future. Ontario has many
advantages. Business support should be one of them.

125

Appendix A The Business Support Programs Dataset

Working in support of the Panel, the Ministry of Finance created the Business
Support Programs dataset. This consists of various tabulations and distributions relating to
corporations operating in Ontario and Ontario tax credit and transfer payment programs for
the years 2005-06 to 2011-12.
Using corporate income tax returns and other tax data, profiles were provided for the
universe of Ontario corporations and tax credit recipients based on revenue, employment,
industrial sector, R&D spending and age of corporations. 165 To provide similar profiles for
selected transfer payment programs and total Ontario business support, tax data was linked
to data from the Ontario governments Integrated Financial Information System (which
records all Ontario government payments) and to data from intermediaries that deliver
transfer payment programs.
Figures referenced in this report may not be comparable to data reported by
Statistics Canada. The data in the report is for corporations only, while Statistics Canada
may report on enterprises, companies, or business establishments.166 Second, the data
includes all Ontario corporations, even those with no employees. Statistics Canada
frequently considers only employer organizations. Other figures, such as those for
employment and R&D spending, may also differ from those reported by Statistics Canada.
The following describes the methodology and data used in preparing the profiles,
and limitations of the data.
Profiles for All Ontario Corporations and Tax Credit Recipients
Fiscal Years
A timing difference exists between tax credit data and transfer payment program
data. While tax credits are claimed based on a corporations taxation year, transfer
payment program data is based on fiscal years ending March 31. To convert tax credit data
to the same fiscal year basis as transfer payment program data, each corporation was
aligned to the fiscal year according to its taxation year end. For example, corporations with
a taxation year end between April 2009 and March 2010 were assigned to fiscal year 200910.

165

The geographic location of business operations was also examined, but was not included in the
analysis due to data limitations. The tax return provides the location of the head office, but no information
on all the regions of the province in which the corporation may operate.
166
Statistics Canada, Standard statistical units, Statistical units in business surveys,
http://www.statcan.gc.ca/concepts/units-unites-eng.htm.

126

The profiles generally used tax data that was available as of January/February 2014.
As a result, data for the 2012 taxation year is not as complete as for prior years. It is
estimated that the remaining corporate tax data for 2012 comprises about 3% of tax filers.
Similarly, T4 data, which is used to estimate employment, is incomplete for 2011-12. T4
data for 2012 is not available until July 2014, resulting in a 20 - 25% shortfall in the total
number of T4 slips for 2011-12. For these reasons, absolute amounts for 2011-12 cannot
generally be compared to prior years.
Tax Credits and Other Amounts
In converting tax credit and other data to a fiscal year, the amounts for some
corporations had to be aggregated. This occurred where corporations filed multiple returns
over the same fiscal period, or where corporations merged. Where it was possible to
determine that returns belonged to the same corporation, the data was aggregated. Where
it was not possible to identify that it was the same corporation, they were treated as
separate entities.
Also, in some instances one or more data items were not available for a corporation.
Where this occurred, that specific characteristic was added into the category of other or not
available. This ensured that totals were consistent for each of the distributions presented
and highlighted the extent of the unavailable data which in some cases was relatively large.
Prior to 2009-10, two non-refundable tax credits, the Ontario Research and
Development Tax Credit and the Ontario Resource Tax Credit were in the form of a tax
deduction, not a tax credit. To estimate the value of the deduction, the tax paid by the
corporation was compared with and without the deduction.
Since tax information is subject to taxpayer confidentiality, only aggregate data was
provided and low cell counts were suppressed.
Profiles
Revenue
A corporations revenue is Gross Revenue as reported on Schedule 125 (Income
Statement Information) of the corporate income tax return. This includes revenue from
outside Ontario.
Revenue can be negative since it is net of items such as income or losses from
subsidiaries or affiliates, and realized gains or losses on the disposal of assets and the sale
of investments.
Employment
Employment figures were based on the number of individuals issued a T4 slip by the
corporation. T4 slips were matched to employers using the corporations Business Number.
127

T4 slips reflect the number of individuals employed during the year by the
corporation, not the number of positions. For example, if person A leaves an employer and
is replaced by person B, both employees will receive a T4 slip from that employer for that
same position. Both would be counted as employees of that employer. This double
counting of positions will be greater the higher the staff turnover.
Where an individual had more than one employer during the year, each job was
allocated to the applicable employer.
Industrial Sector
Corporations were allocated into sectors using the North American Industry
Classification System (NAICS) code reported on corporate income tax returns. Where
multiple records were aggregated into a single record, the most recent NAICS code was
used.
Entities reporting a NAICS code of 91 (Public Administration) were excluded from all
profiles.
Age
A corporations age was estimated by subtracting its year of incorporation from its
taxation year end in the fiscal year. The age of the business may be greater than the age of
the corporation if the corporation was a continuation of an unincorporated business or a
previous corporation.
R&D Spending
Spending on R&D is the amount of Scientific Research and Experimental
Development (SR&ED) expenditures reported on Form T661 of the corporate income tax
return. This includes SR&ED expenditures incurred outside of Ontario.
Ontario Transfer Payment Programs
Direct Transfer Program Recipients
The Integrated Financial Information System (IFIS) contains limited information on
companies receiving direct transfers from a Ministry. Available information includes the
name, address and telephone number of the entity receiving the payment and the amount
of the payment. In order to present the same types of profiles that were prepared for tax
credit recipients, information was drawn from corporate income tax returns by linking tax
returns with IFIS records.
A unique common identifier for each corporation, such as the Business Number, was
not available for matching corporate income tax data with data from IFIS. Without a

128

common identifier, a matching routine was conducted that compared key company
information (name, components of the address, telephone number) across the datasets.
The profiles of direct transfer program recipients had similar issues as mentioned
above for the tax credit profiles. However, because of the matching routines required, it
was not always possible to match direct transfer program recipients with corporate tax data.
Where data could not be matched, amounts and counts were added to the other or not
available category.
Direct Transfer Program Amounts
The profiles presented direct transfer payments on an accrual basis to reconcile with
program expenditures published in the Ontario Public Accounts. IFIS data includes
payments to recipients which are associated with a specific recipient, plus
adjustments/accruals which are not associated with a specific recipient. In order to
capture the payments to a recipient, a manual step was required to align
adjustments/accruals to a recipient. In some cases adjustments/accruals could not be
aligned to a recipient.
Also, IFIS does not track historical changes to programs. For instance, where there
is a change to a program name or the Ministry administering the program, a manual step
was required to confirm data was aligned correctly year over year.
In IFIS, the type of recipient receiving support is categorized in the account code.
Since this review focussed on examining support to businesses, payments to business
sector were separated from payments to other entities such as individuals or non-profit
institutions. The account code can be inconsistent for a recipient between programs or from
year to year.
Programs Administered by an Intermediary Organization
Several transfer payment programs examined by the Panel are transferred from a
Ministry to an intermediary organization to administer payments. These programs were
treated separately since data is tracked in independent systems and often did not align
easily with IFIS or corporate income tax data. In some instances, amounts were on a cash
basis (adjustments and accruals were not available), and recipient amounts could not be
aligned to totals in the Public Accounts, in other cases, recipient data was not available.
Where recipient data was available, information was drawn from corporate income tax
returns using similar methods as mentioned above for direct transfer programs.
The information provided to the Panel aimed at isolating administration costs. In
general, for programs administered by a Ministry, costs related to program administration
are tracked separately from the payment to a business. However, for programs transferred
from a Ministry to an intermediary organization, a portion of the total transfer payment
allocation generally includes costs related to the salaries and wages, administration and
129

overhead costs of the intermediary. Incorporating these costs in the profiles was avoided
where payments to recipients were available.
The information provided to the Panel also aimed at distinguishing direct support to
recipients from indirect support, such as funding used to provide advisory services,
seminars or trade conferences.
Combining Direct Transfer Programs and Tax Credits
Direct transfer program data was matched with tax credit data in order to examine
combinations of direct transfer program and tax credit support. In combining direct transfer
program and tax credit data, only direct transfer payments identified in IFIS as to business
sector were aligned with tax credit amounts.
Aligning the different types of support provided to a recipient for a specific period
required that information be gathered and compiled from multiple sources. Differences in
formats and fields between systems, including the absence of a common unique identifier
such as the Business Number, limited the ability to align direct transfer program and tax
credit recipients.

130

Appendix B Size and R&D Spending of Ontario Sectors

Using data from the Business Support Program dataset described in Appendix A, in
the following we present a description of the size and R&D spending of Ontario corporations
between 2005-06 and 2011-12. While this is not the most recent description of the Ontario
economy, it benefits from a high level of detail. And because this appendix and our analysis
of business support programs in Chapter 2 are based on the same dataset, this appendix
provides relevant background information. The data paint a picture of an economy in the
midst of profound structural change as evidenced by changes in the relative sizes of
sectors, and in their levels of R&D spending.

The Relative Size of Ontario Sectors

Figure 1 below describes the size of Ontario sectors in 2011-12 using three
measures of size: number of companies, total sector revenue, and total sector
employment. Service sectors such as Wholesale and Retail Trade, Financial, Insurance,
Real Estate and Rental/Leasing (FIRE), and Other Services (except Public Administration)
comprise the highest number of companies, while primary resource sectors such as
Agriculture and Food, Forestry, Fishing and Hunting, and Mining, Utilities and Oil and Gas
comprise the lowest number of companies in the province.
In terms of revenue, the largest sectors are Wholesale and Retail Trade 167, FIRE,
and Manufacturing168. Companies are typically larger in some sectors than in others.
Average revenue per company was $113 million in Transportation Equipment
Manufacturing, $42 million in Mining, Utilities and Oil and Gas, $17 million in Information
and Communications Technologies (ICT), $11 million in Manufacturing (not including
Transportation Equipment Manufacturing), $9 million in Wholesale and Retail Trade, and $7
million in Agriculture and Food. Most other sectors had average revenue per company of
approximately $1-$4 million.
In terms of employment, the largest sectors are Other Services, which accounted for
26% of Ontario private sector employment169, followed by Wholesale and Retail Trade at
18%. Sectors that employed modest numbers of people include Mining, Utilities and Oil

167

As reported by the Council of Canadian Academies, the activities of the wholesale trade sector may be
inflated by the practice of assigning the activities of companies without manufacturing facilities in Canada
to the wholesale trade sector, rather than to the sector the company would be associated with if it had
manufacturing facilities in Canada. CCA, 2013, The State of Industrial R&D in Canada, p. 180. It should
also be noted that the Wholesale and Retail Trade sector experiences a high cost of goods sold.
168
We have distinguished between Transportation Equipment Manufacturing and other Manufacturing. If
these two sectors were combined, their joint 2011-12 revenue would have been approximately $324
billion.
169
While Other Services includes Sector 61 Educational Services, non-profit schools, colleges, and
universities are not included in the BSP dataset, and their employees are not included in the employment
figures.

131

and Gas and ICT, with each representing about 1.5% of total employment. Forestry,
Fishing and Hunting, had the smallest share of total employment at 0.2%.
Three sectors (Mining, Utilities and Oil and Gas, Transportation Equipment
Manufacturing and Wholesale and Retail Trade) generated an average of between
$600,000 and $1 million in annual revenue per employee. Another five sectors (Agriculture
and Food, Manufacturing, Transportation and Warehousing, ICT, and FIRE) generated an
average of between $400,000 and $600,000 in annual revenue per employee. The
remaining sectors generated an average of between $100,000 and $300,000 in annual
revenue per employee.

Figure 1 The Size of Ontario Sectors (Number of Companies, Sector Revenue,

Sector Employees), 2011-12

Side by side illustrations with different scales are used to show accurately the size of both
large and small sectors.
R&D Spending by Sector
Canadas ratio of Business Expenditures on Research and Development (BERD) to
GDP ranks well below the OECD. In 2011, BERD as a proportion of GDP was 0.89
percent, less than 22 of 41 other countries, and less than half the 2.0 percent average of the
top five countries (South Korea, Finland, Japan, Chinese Taipei, and Sweden).170

170

Council of Canadian Academies, 2013, The State of Industrial R&D in Canada, pp. 23, 96.

132

Figure 2 shows R&D spending, R&D spending as a percentage of revenue, the

number of companies conducting R&D, and the number of companies conducting R&D as a
percentage of the number of companies in the sector for 2011-12. R&D spending and the
number of companies conducting R&D are measures of the magnitude of the R&D effort.
R&D spending as a percentage of revenue and the number of companies conducting R&D
as a percentage of the number of companies in the sector are measures of the intensity of
the R&D effort. Strong performers on one or both of these measures include
Manufacturing, Transportation Equipment Manufacturing, Wholesale and Retail Trade, ICT,
Health Care and Social Assistance (which includes pharmaceutical and medical equipment
manufacturing), and Professional, Scientific, and Technical Services.
Figure 2 R&D Spending by Sector, 2011-12

Evolution 2005-06 to 2010-11171

Figure 3 shows changes in the relative size of individual sectors and levels of R&D
investment between 2005-06 and 2010-11.

171

For time series purposes, 2011-12 is not included due to incomplete data for that year.

133

The Health Care and Social Assistance sector has seen the greatest increase in
both the number of companies (up by 82%) and revenue (up by 112%). The Cultural, Arts,
Entertainment, and Recreation Industries and the ICT sectors have also seen significant
increases in revenue, up 90% and 74%, respectively. Forestry, Fishing and Hunting has
seen a decline in revenue of approximately 80%.
Changes in employment are mixed. Employment increased by 42% in Mining,
Utilities and Oil and Gas, and by 25% in Health Care and Social Assistance. Large drops in
employment occurred in the Forestry, Fishing, and Hunting sector (45%), the Manufacturing
sector (31%), and the Transportation Equipment Manufacturing Sector (24%).
The change in R&D spending as a percentage of revenue is down in all sectors
except Construction, Wholesale and Retail Trade, Transportation and Warehousing, FIRE
and Other Services (except Public Administration). Especially large drops in R&D spending
as a percentage of revenue occurred in the Forestry, Fishing and Hunting sector (down by
84%), Mining, Utilities, and Oil and Gas (down by 61%), and the Health Care and Social
Assistance sector (down by 53%). On the other hand, all industries except for Agriculture
and Food and Mining, Utilities and Oil and Gas, had an increase in the percentage of firms
conducting R&D. The greatest increase in the percentage of companies conducting R&D
occurred in the Construction sector, which was up by 63%, followed by Forestry, Fishing,
and Hunting (up 62%), and Cultural, Arts, Entertainment, and Recreation (up 59%).
Figure 3 Change in Sector Size and R&D Spending 2005-06 to 2010-11

134

Appendix C Ontarios Business Support Programs

NAME

MINISTRY

DESCRIPTION

WEBSITE
(program or intermediary
website)

INTERMEDIARY
NAME(S)

http://www.investinontario.com/
Documents/English/Innovation_
Ecosystem_EN.pdf

Coral CEA: $2.3M (201112)

Programs Delivered by Intermediaries

Business
Ecosystem Support
Fund

MEDEI

To support industry-academic
partnerships that accelerate product
development and enable sales in
global markets - including green
chemistry solutions, communication
enabled applications, digital media
and mobile computing applications
and advanced medical assistive
technologies.

Green Centre Canada:

$4.5M (2011-12)
Health Technology
Exchange: $2.6M (201112)
Communitech Hub: $2.5M
(2011-12)

Business Risk
Management
(Federal/Provincial/
Territorial Suite of
Business Risk
Management
Programs)

OMAFRA

A comprehensive suite of federalprovincial-territorial Business Risk

Management (BRM) programs that
offer protection to farmers against
severe market volatility and disasters.
The core BRM programs in the suite
are AgriStability, AgriInsurance, and
AgriInvest. In Ontario, Agricorp, a
provincial agency, administers
AgriStability and AgriInsurance (also
known as Production Insurance).
AgriInvest is administered by the
federal government. These programs
are funded 40% provincially, 60%
federally.

http://www.agricorp.com/enca/Programs/AgriStability/Pages
/Overview.aspx

Agricorp

Agriculture and Agri-Food

Canada
http://www.agricorp.com/enca/Programs/ProductionInsuran
ce/Pages/Default.aspx

http://www.agricorp.com/enca/Programs/AgriInvest/Pages/
Overview.aspx

The information gathered on the

Business Risk Management
programs is confidential due to the
nature of the agreement with the
federal government. The application
form assures the applicant that
confidential information will not be
released and this confidentiality is
embedded in legislation.
The Province is constrained in its
ability to change or modify the
Business Risk Management program
since this a federal-provincialterritorial program.

135

NAME

MINISTRY

DESCRIPTION

WEBSITE
(program or intermediary
website)

INTERMEDIARY
NAME(S)

Commercialization
and Innovation
Network Support

MEDEI

To provide programs and services

which support technology-based
entrepreneurs and firms in order to
ensure that Ontario innovations have
every opportunity to generate new
business, companies and jobs within
the province. Also provides
educational and funding programs
which focus on strengthening
entrepreneurial talent, creating
globally competitive businesses and
support innovators throughout their
process.

Suite of programs websites

include:

Ontario Centre of
Excellence: $34M (201112)

Note: CINS is not a program but a

suite of programs (incl.: Investment
Accelerator Fund, Industry-Academic
Collaboration Program, Business
Acceleration Program, Regional and
Sectoral Innovation Centres)

http://www.marsdd.com/funding/
investment-accelerator-fund/

http://www.oceontario.org/programs/industryacademic-collaboration

http://www.marsdd.com/bap/

MaRS: $22M (2011-12)

Regional and Sector

Innovation Centres: $9M
(2011-12)
Network of Angel
Organizations: 0.5M
(2011-12)

http://www.oceontario.org/resourcespublications/links

Communities in
Transition
Initiatives

MEDEI

To assist communities and industry

sectors facing economic development
challenges, including plant closures,
significant job losses and industrywide restructuring. CiT is designed to
provide flexible, customized
assistance not available under other
Ontario programs.

http://www.ontario.ca/businessand-economy/economicdevelopment-funding-nonprofits-local-governmentscommunity

Various Not for Profit

Institutions

Grants in Support
of Economic and
Financial Services
Policy Research

MOF

A 3-year agreement with the Toronto

Financial Services Alliance (TFSA) to
support the implementation of a
Financial Services Sector Strategy
public-private partnership in order to
improve the competitiveness and
growth of the financial services
sector.

http://www.tfsa.ca/

Toronto Financial Services

Alliance

Grants in Support
of Research and
Innovation (Grants
in Support of
Innovation and
Commercialization)

MEDEI

To deliver approved
commercialization programs and
outreach and business development
programs, as well as to develop and
implement a venture capital strategy.
This funding source is not a program
but rather one-time support to
initiatives in Ontario.

Various not-for-profit and

post-secondary
institutions.

136

NAME

MINISTRY

DESCRIPTION

WEBSITE
(program or intermediary
website)

INTERMEDIARY
NAME(S)

Grants in Support
of Tourism Regions

MTCS

There are 13 Regional Tourism

Organizations (RTOs) that receive
funding. RTOs are independent,
industry-led and not-for-profit. Their
mandate is to enhance regional
tourism development by working in
collaboration with industry partners in
marketing, product development,
workforce development and
investment attractions. As a result,
each region is better equipped to
attract more visitors, generate more
economic activity, and create more
jobs across the province.

http://www.mtc.gov.on.ca/en/reg
ions/regions.shtml

13 Regional Tourism
Organizations (not-forprofit organizations)

1. The Northern Innovation Program

supports the development and
commercialization of new
technologies that will contribute to
future prosperity in Northern Ontario,
and by fostering collaboration and
partnerships among the private
sector, academic institutions and
research institutes.

http://nohfc.ca/en/programs

Northern Ontario Heritage

Fund Corporation

http://www.energy.gov.on.ca/en/
electricity-prices/clean-energybenefit/#wie

Ontario Electricity Vendors

Northern Ontario
Heritage Fund

MNDM

http://www.mtc.gov.on.ca/en/reg
ions/funding.shtml

2. The Northern Business Opportunity

Program encourages business
productivity and expansion, and
global investment in northern
communities.
There has been growth in the number
of private sector companies receiving
funds from the Northern Ontario
Heritage Fund, while the number of
public sector recipients has remained
relatively constant.
Ontario Clean
Energy Benefit (to
farms)

ENERGY

To help farmers manage rising

electricity prices. It is a 10% rebate off
total electricity bill, for the first 3,000
kilowatt hours per month of electricity
consumed, including: electricity,
delivery, regulatory, debt retirement
and related HST charges. As per
provincial legislation, the rebate will
be in effect until December 31, 2015.

137

NAME

MINISTRY

DESCRIPTION

WEBSITE
(program or intermediary
website)

INTERMEDIARY
NAME(S)

Ontario Clean
Energy Benefit (to
small businesses)

ENERGY

To help small businesses manage

rising electricity prices. It is a 10%
rebate off total electricity bill, for the
first 3,000 kilowatt hours per month of
electricity consumed, including:
electricity, delivery, regulatory, debt
retirement and related HST charges.
As per provincial legislation, the
rebate will be in effect until December
31, 2015.

http://www.energy.gov.on.ca/en/
electricity-prices/clean-energybenefit/#wie

Ontario Electricity Vendors

Ontario Emerging
Technologies Fund

MEDEI

To support innovation, high growth

companies in Ontario through venture
capital investments. Investments are
made in conjunction with qualified
investors. As of October 2012 the
Ontario Emerging Technologies Fund
had invested in 27 companies.

http://www.ocgc.gov.on.ca/site/e
n/funds/ontario-emergingtechnologies-fund/

Ontario Capital Growth

Corporation

Ontario Media
Development
Corporation
Funding

MTCS

To act as the central catalyst for

economic development in the
provinces cultural media cluster, by
promoting, enhancing and leveraging
investment, jobs and original content
creation in the provinces film and
television, interactive digital media,
music and book and magazine
publishing industries. Includes: Book
Fund, Film Fund, Export Fund,
Magazine Fund, Music Fund,
Interactive Digital Media Fund. The
majority of recipients of this funding
are in the cultural sector.

http://www.omdc.on.ca/about_u
s/Funding_Programs.htm

Ontario Media
Development Corporation

www.ocgc.gov.on.ca/

Ontario Capital Growth

Corporation

In addition to these direct business

support programs, the OMDC also
funds industry development activities
and services by the agency on behalf
of the province. Examples include
the Ontario Film Commission, Digital
Dialogue Conference, Trillium Book
Awards and support to the Toronto
International Film Festival. The
OMDC is also responsible for
administration of the provinces
cultural media tax credit certification
program.
Northleaf Venture
Catalyst Fund
(Ontario Venture
Capital Fund II)

MEDEI

To provide early-stage capital

investments to innovative and
emerging companies. The fund is
structured as a fund-of-funds that
invests in a portfolio of different
venture capital funds in partnership
with the federal government and
private sector institutional investors.

138

NAME

MINISTRY

DESCRIPTION

WEBSITE
(program or intermediary
website)

INTERMEDIARY
NAME(S)

Ontario Wood
Promotion Program

MNRF

To support not-for-profit organizations

and post-secondary institutions to
carry out activities, education and
research to expand markets for
Ontario's wood products, encourage
the development of value-added
wood products and increase public
awareness of sustainable forest
management practices in Ontario (as
per EA Declaration Order MNRF-71,
Condition 47a). The program is also
intended to foster a culture of wood
use in Ontario, through offering
training for architects, engineers and
building officials on innovative and
effective ways to use wood in
construction.

http://www.mnr.gov.on.ca/en/Bu
siness/Forests/2ColumnSubPag
e/STDPROD_091526.html

Various not-for-profit and

post-secondary institutions

Risk Management
Program

OMAFRA

The Risk Management Program

(RMP) works like insurance to help
Ontario producers offset losses
caused by factors outside farmers
control, such as low commodity prices
and rising production costs. The RMP
provides up to a total of $100 million
per year, including administrative
costs. The RMP complements rather
than replaces the existing suite of
business risk management programs
funded jointly by Ontario and the
federal government (see above).

http://www.agricorp.com/enca/Programs/RMP/Pages/Overv
iew.aspx

Agricorp

http://www.omafra.gov.on.ca/en
glish/about/rmp.htm

Spending for the Risk Management

Program increased significantly in
2011-12 with most of this spending
going to companies 10 years and
older. This increase was due to the
fact that cattle, hogs, sheep, veal and
horticulture became eligible for the
program. Prior to that only grains and
oilseeds were eligible.
Spending volatility for this program
year to year results from risks
affecting farmers that are out of their
control, such as fluctuating costs and
market prices.

139

NAME

MINISTRY

DESCRIPTION

WEBSITE
(program or intermediary
website)

INTERMEDIARY
NAME(S)

Rural Connections

OMAFRA

To expand broadband service for

rural residents and businesses.

http://www.omafra.gov.on.ca/en
glish/rural/ruralconnections/broa
dband.htm

Various
telecommunications
service providers

Sector Support
Grants (Grants inn
Support of
Business
Development)

MEDEI

To undertake work relevant to

supporting the ministry's mandate of
business development. This includes
support for the organization of a
conference or to conduct research
relevant for a particular industry
sector in relation to business
enhancement, as well as grants
provided to not-for-profit
organizations for sector support.

Suite of funding includes:

Various non-profit
institutions, municipal
governments and postsecondary institutions

Canada Youth Business

Foundation (now Futurpreneur)
http://www.futurpreneur.ca/en/p
artners/

Ontario Chamber of Commerce

Global Growth Fund
http://www.ontarioexporters.ca/

Sector Support
Grants (Grants in
Support of
Economic
Development)

MEDEI

To undertake work relevant to

supporting the ministry's mandate of
economic development and trade.
This includes research studies,
support for conferences, business
forums, networking events and other
activities promoting economic
development in Ontario, including
grants to not-for-profit organizations
for sector support.

Suite of funding includes:

Various non-profit
institutions

Ontario Centres of Excellence

http://www.oce-ontario.org/

Ontario Genomics Institute

http://www.ontariogenomics.ca/
Sector Support
Grants (Grants in
Support of Trade
and Investment)

MEDEI

To undertake work relevant for

supporting Ontario's trade
development. This includes research
studies, support for conferences,
business forums and other events
promoting trade with Ontario, as well
as funds provided to not-for-profit
organizations for sector support.

Suite of funding includes:

Various non-profit
institutions

Metropolitan Toronto
Convention Centre Corporation
http://www.mtccc.com/?m=0&t=
0&c=1
Ontario Chamber of Commerce
http://www.occ.ca/

140

NAME

MINISTRY

DESCRIPTION

WEBSITE
(program or intermediary
website)

INTERMEDIARY
NAME(S)

Sector Support
Grants (Ontario
Small Brewers
Strategy Fund)

MEDEI

To support the Ontario Microbrewery

Strategy, which promotes training,
promotion and marketing initiatives
identified in the Ontario Craft
Brewers' strategic growth plan by
working to raise awareness of locallymade craft beers through activities
such as advertising to increase
awareness; merchandising/sales in
LCBO to increase sales; training and
innovation; and research and
benchmarking. The program was
scheduled to end in March 2014, but
was extended for two additional years
by TB/MBC.

http://www.ontariocraftbrewers.c
om/

Ontario Small Brewers

Association

Sector Support
Grants (Ontario
Wine Strategy
Fund)

MEDEI

To support the growth of the wine and

grape industry with the goal of
ensuring that Ontario wines compete
successfully in domestic and select
export markets in the future.

http://www.sse.gov.on.ca/mcs/e
n/Pages/News_28Apr2010.aspx

Wine Council of Ontario

Water Technology
Acceleration
Project

MEDEI

To help Ontario-based water industry

entrepreneurs and emerging water
technology businesses grow to
become successful global
competitors. This program
champions and supports Ontario's
status as a world water technology
hub.

http://www.watertapontario.com/

WaterTAP

141

NAME

MINISTRY

DESCRIPTION

WEBSITE

Programs Delivered Directly

Advanced
Manufacturing
Investment Strategy

MEDEI

To encourage companies to invest in leading edge technologies and

processes that will increase their productivity and competitiveness.

Eastern Ontario
Development Fund

MEDEI

To support projects that create and retain jobs, encourage the

introduction of new technologies, assist private sector firms,
communities and sector groups to pursue growth in new markets,
improve their competitive position, and contribute to the
diversification of the economy of Eastern Ontario (through regional
and business streams).

Forest Sector
Prosperity Fund

MNRF

Program closed since 2008 no funds currently available. To target

and leverage new forest sector capital investments in energy
conservation and co-generation, energy generation from biomass,
load management, value-added manufacturing , improved wood fibre
efficiency, advanced materials handling and efficiencies and new
environmental technologies.

Forest Loan /
Guarantee Program
(Bad Debt Expense)

MNRF

Program closed since 2011 no funds currently available. To

support the forest sector revitalization initiative and to stimulate
private sector investment in capital projects.

Growing Forward

OMAFRA

To help farm, food and agri-product businesses/organizations build

their own plans and select opportunities to grow their profits, expand
their markets and manage risks.

Horse Racing
Transition Assistance
Program

OMAFRA

To help racetracks in Ontario transition from the ending of the SlotsAt-Racetrack Program to a new long term funding model.

Innovation
Demonstration Fund

MEDEI

To support emerging technology companies in Ontario at the pilot or

demonstration project stage, with a particular focus on new biobased, environmental and alternative technologies.

http://www.ontario.ca/businessand-economy/eastern-ontariodevelopment-fund

http://www.omafra.gov.on.ca/en
glish/about/growingforward/gf2index.htm

http://www.ontario.ca/businessand-economy/funding-cleantech-projects

Note - as of September 2013, the program has been put on hold and
is not accepting new applications.
Investment Ready:
Certified Site

MEDEI

To provide grant and marketing support to property owners who

complete a set of province-wide requirements regarding utilities
servicing, transportation and access and related due diligence.
These pre-qualified sites will enable Ontario to better compete
against other jurisdictions for globally mobile investment and
expansion projects.

Next Generation of
Jobs Fund
Biopharmaceutical
Investment Program

MEDEI

To encourage brand-name pharmaceutical firms and advanced-stage

human health biotech firms (e.g., vaccine manufacturers) to establish
and grow their research and development and/or their advanced
manufacturing investments in Ontario.

Next Generation of
Jobs Fund Jobs and
Investment Program

MEDEI

To support business expansion/retention and attract foreign

investment with a focus on green auto research, parts production and
assembly; clean fuel research, development and commercialization;
manufacturing, processing and environmental technologies; financial
services; anchor investments to support cluster development; clean
industries; health technology; digital media; pharmaceutical
industries; service sector; and other strategic investments.

http://www.ontario.ca/businessand-economy/investmentready-certified-site

142

Northern Industrial
Electricity Rate
Program

MNDM

To assist Northern Ontarios largest industrial electricity consumers

reduce their electricity costs, sustain jobs and maintain global
competitiveness.

Ontario Automotive
Investment Strategy

MEDEI

To support private-sector investments in automotive manufacturing

projects involving environmental technologies, improved energy
efficiencies, advanced skills training, public infrastructure and/or
corporate innovation.

Ontario Ethanol
Growth Fund

OMAFRA

To support the construction and operation of ethanol plants to help

meet the demand created by the government's ethanol regulation. It
has four components: Capital Assistance; Operating Grants;
Independent Gasoline Blenders' Transition Fund; and Alternative
Renewable Fuels Plus Fund.

http://www.checkmatepublicaffa
irs.com/bioproducts/attachments/22bc8ad
8aef0c358aff7fbbf1b8a6c61.pd
f

Ontario Life Sciences

Commercialization
Strategy

MEDEI

To combine existing and new Ontario life sciences initiatives into a

coordinated plan. Part of the Ontario Life Sciences Strategy supports
early-stage biotech firms, the coordination of clinical trials and the
creation of an industry association.

http://www.ontario.ca/businessand-economy/ontario-lifesciences-commercializationstrategy

Ontario Music Fund

MTCS

To help create jobs, build on opportunities for the growth of the music
industry and advance the governments Live Music Strategy to
position Ontario as a leading jurisdiction to record and perform
music.

http://www.omdc.on.ca/music/t
he_ontario_music_fund.htm

Rural Economic
Development and
Local Foods

OMAFRA

RED was established in 2001 to help diversify rural business

climates; create/retain long-term jobs; develop a coordinated
local/regional approach for economic development; foster the
creation of alliances and partnerships; and develop information, tools
and resources to enhance rural economic development.

http://www.omafra.gov.on.ca/en
glish/rural/red/

http://www.mndm.gov.on.ca/en/
northerndevelopment/businesssupport/northern-industrialelectricity-rate-program

http://www.omafra.gov.on.ca/en
glish/about/localfood.htm

Local Food was established in 2013 to promote local food as part of

a broader strategy to strengthen the agri-food industry in Ontario.
Rural Summer Jobs

OMAFRA

To help local employers create summer jobs that enhance the skills
and work experience of students in rural Ontario.

http://www.omafra.gov.on.ca/en
glish/rural/rsj/index.htm

Sector Support Grants

(Ontario Craft Brewers
Opportunity Fund)

MEDEI

To support the continued growth and development of craft beer

manufacturers in Ontario.

http://news.ontario.ca/medt/en/
2008/09/ontario-craft-brewersopportunity-fund.html

Sector Support Grants

(VQA Support
Program)

MEDEI

To encourage wineries to undertake new or expanded activities to

grow their VQA businesses and be more competitive in the wine and
grape industry. Specifically established to encourage the sale of
Ontario VQA table wines (containing 100% Ontario grapes) through
the LCBO.

143

Smart Grid Fund

ENERGY

The Smart Grid Fund has three objectives:

1. Developing and advancing the smart grid in Ontario by advancing
one or more of the smart grid objectives in the focus areas of
customer control, power system flexibility and adaptive infrastructure.

http://www.energy.gov.on.ca/en
/smart-grid-fund/

2. Creating economic development opportunities, including jobs, for

Ontario.
3. Reducing risk and uncertainty of electricity sector investments by
enabling utilities and other electricity industry stakeholders to
develop, test, and evaluate smart grid technologies and business
models.

Southwestern Ontario
Development Fund

MEDEI

To support projects that create and retain jobs, encourage the

introduction of new technologies, assist private sector firms,
communities and sector groups to pursue growth in new markets,
improve their competitive position, and contribute to the
diversification of the economy of southwestern Ontario (through
regional and business streams).

http://www.ontario.ca/businessand-economy/southwesternontario-development-fund

Strategic Jobs and

Investment Fund

MEDEI

To attract investment in leading-edge projects that will build strategic

capacity and create new, high-value-added jobs in Ontario.

Ontario
Apprenticeship
Training Tax Credit

MTCU

To increase the supply of skilled tradespeople in Ontario by

offering an incentive to employers that hire and train apprentices
in the construction, industrial, motive power, and certain service
sector trades.

http://www.fin.gov.on.ca/en/credit/
attc/

Ontario Book
Publishing Tax Credit

MTCS

To maintain and grow the publishing industry in Ontario, stimulate

job creation and investment in the province and support Canadian
authors and the telling of Canadian stories, by providing a
financial incentive to Canadian-controlled book publishing
companies to publish books by Canadian authors in both print
and electronic format for both domestic and export markets.

http://www.omdc.on.ca/book/tax_c
redits/OBPTC.htm

Ontario Business
Research Institute Tax
Credit

MEDEI

To foster world-class research institutes in Ontario and promote

partnerships between business and Ontario post-secondary
research institutions.

http://www.fin.gov.on.ca/en/credit/
obritc/

Ontario Computer
Animation and Special
Effects Tax Credit

MTCS

To maintain and grow the computer animation and special effects

sector in Ontario, maintain and create jobs in the animation and
film industry and attract investment in the province, by providing a
financial incentive to companies to undertake computer animation
and special effects activities in Ontario.

http://www.omdc.on.ca/film_and_tv
/tax_credits/OCASE.htm

Ontario Co-operative
Education Tax Credit

MTCU

To encourage employers to hire and train students enrolled in a

co-operative education program at an Ontario university or
college.

http://www.fin.gov.on.ca/en/credit/c
etc/index.html

Ontario Film and

Television Tax Credit

MTCS

To maintain and grow the domestic film and television production

sector in Ontario, maintain and create jobs and attract investment
in the province (including outside the Greater Toronto Area) and
support the telling of Canadian stories, by providing a financial
incentive for Canadian production companies to produce film and
television productions in Ontario. An enriched tax credit is
available for first-time producers and regional productions with
location days outside the Greater Toronto Area.

http://www.omdc.on.ca/film_and_tv
/tax_credits/OFTTC.htm

Refundable Tax Credits

144

Ontario Innovation
Tax Credit

MEDEI

To encourage business investment in scientific research and

experimental development (SR&ED) by small- to medium-sized
corporations in Ontario.

http://www.fin.gov.on.ca/en/credit/
oitc/index.html

http://www.fin.gov.on.ca/en/credit/
oitc/faq.html

Ontario Interactive
Digital Media Tax
Credit

MTCS

To develop and grow the interactive digital media industry in

Ontario, including the fast-growing video gaming industry, attract
investment and support job creation by providing a financial
incentive to companies to develop interactive digital media
products in Ontario for both proprietary intellectual property and
under fee-for-service arrangements.

http://www.omdc.on.ca/interactive/
Tax_Credits/OIDMTC.htm

Ontario Production
Services Tax Credit

MTCS

To develop and grow the foreign production services industry,

attract investment, increase job creation, and help build a highvalue domestic film and television production sector in Ontario by
providing a financial incentive for foreign-controlled or Canadian
production companies to produce big-budget film and television
productions in Ontario.

http://www.omdc.on.ca/film_and_tv
/tax_credits/opstc.htm

Ontario Small Beer

Manufacturers Tax
Credit

MEDEI

To support small beer manufacturers in Ontario.

http://www.fin.gov.on.ca/en/tax/bwt
/faq_beer.html

Ontario Sound
Recording Tax Credit

MTCS

To maintain and grow the music recording sector in Ontario,

stimulate job creation and investment in the province and support
Canadian artists and music, by providing a financial incentive to
Canadian companies in Ontario to produce music recordings of
emerging Canadian artists or groups.

http://www.omdc.on.ca/music/Tax_
Credits/OSRTC.htm

Non-Refundable Tax Credits

Ontario Credit Union
Tax Reduction

MOF

Credit unions are allowed a special deduction that extends the

small business corporate income tax rate (4.5%) to all taxable
income (i.e., income in excess of the $500,000 income limit for
the small business deduction). Supports credit unions which have
limited access to capital markets, but instead build capital
primarily from retained earnings.

http://www.craarc.gc.ca/tx/bsnss/tpcs/crprtns/prv/
on/crdtnn-eng.html

Ontario Research and

Development Tax
Credit

MOF

To promote scientific research and experimental development

(SR&ED) by corporations in Ontario.

http://www.craarc.gc.ca/txcrdt/sred-rsde/prvcrdts-eng.html#ntr

http://www.fin.gov.on.ca/en/credit/
ordtc/
Ontario Resource Tax
Credit

MOF

To provide support to resource corporations with permanent

establishments in Ontario through a non-refundable tax credit that
offsets Ontario corporate income tax otherwise payable. The
credit is based on a notional resource allowance (25% of a
corporations adjusted resource profits).

http://www.craarc.gc.ca/tx/bsnss/tpcs/crprtns/prv/
on/rsrc-eng.html

Ontario Small
Business Tax
Deduction

MOF

To support small businesses and entrepreneurship in Ontario.

http://www.craarc.gc.ca/tx/bsnss/tpcs/crprtns/prv/
on/smllbsnssddctn-eng.html

Ontario Tax Credit for

Manufacturing and
Processing

MOF

To support Ontario's manufacturing and processing and resource

sectors.

http://www.craarc.gc.ca/tx/bsnss/tpcs/crprtns/prv/
on/mnfctrng-eng.html

145

Ontario Tax
Exemption for
Commercialization

MOF

To support innovation in the economy by supporting new

corporations that commercialize intellectual property developed at
a Canadian university or college.

http://www.ontario.ca/businessand-economy/ontario-taxexemption-commercialization

Aboriginal Community
Capital Grants
Program

MAA

To support small business centres that help Aboriginal

businesses grow, as well as assist community Friendship Centres
that promote healthy lifestyles and provide skills training,
especially among Aboriginal children and youth. Funding goes to
First Nations, Aboriginal non-profits and chartered communities of
the Metis Nation of Ontario.

http://www.ontario.ca/businessand-economy/aboriginalcommunities-capital-grants

Forest Access Roads

MNRF

To share costs incurred by the forestry industry to construct and

maintain public forest access roads that are also used by mining
companies, tourist operators, Aboriginal communities, utility and
railway companies, hunters, anglers, campers, trappers, cottagers
and the general public. Funding goes to Aboriginal communities
and organizations.

http://www.mnr.gov.on.ca/en/Busin
ess/Forests/2ColumnSubPage/ST
DPROD_091592.html

New Relationship
Fund incl. Economic
Development Funding

MAA

To support First Nations, Mtis communities and Aboriginal

organizations build capacity, create jobs, develop business
partnerships and improve economic opportunities.

http://www.ontario.ca/businessand-economy/new-relationshipfund

Ontario Political
Contributions Tax
Credit

MOF

To encourage greater participation in the political process.

http://www.fin.gov.on.ca/en/bulletin
s/ct/4013.html

Not Business Support

146

Appendix D Graphical Analysis of Total Support

Figure 2.1.1 Percentage of Ontario Companies Receiving any form of Ontario Government
Support based on Company Revenues
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the revenue categories.

Figure 2.1.2 Total Number of Ontario Companies Receiving Any form of Ontario Government
Support Sorted by Company Revenue

147

Figure 2.1.3 Total $ Support / Number of Receiving Ontario Companies for All Forms of Ontario
Government Support, by Company Revenue

Figure 2.1.4 Total Dollars of Support for Ontario Companies in Ontario Sorted by Company
Revenue

148

Figure 2.1.5 Percentage of Ontario Companies Not Receiving any form of Ontario Government
Support based on Company Revenue
Note: Percentages are calculated as the number of Ontario companies not receiving support / the total
number of companies within each of the revenue categories.

Figure 2.1.6 Total Number of Companies in Ontario Sorted by Company Revenue

149

Figure 2.1.7 Total support excluding the small business deduction as a percentage of revenue

22.00%
20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
0 to $0.49M *
$0.5M to $1.99M
$2M to $4.99M
$5M to $9.99M
$10M to $19.99M
$20M and Over

4.00%
2.00%
0.00%
2005-06 2006-07

2007-08 2008-09
2009-10

2010-11

2011-12

* The 0 to $0.49M revenue category is suppressed for 2010-11 because revenue is negative. See Appendix A for the
definition of revenue.

Figure 2.1.8 Percentage of Ontario Companies Receiving any form of Ontario Government
Support based on Company Employees
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the employee categories.

150

Figure 2.1.9 Total Number of Ontario Companies Receiving Any form of Ontario Government
Support Sorted by Company Employees

Figure 2.1.10 Total $ Support / Number of Receiving Ontario Companies for All Forms of
Ontario Government Support, by Company Employees

151

Figure 2.1.11 Total Dollars of Support for Companies in Ontario Sorted by Company Employees

Figure 2.1.12 Percentage of Ontario Companies Not Receiving any form of Ontario Government
Support based on Company Employees
Note: Percentages are calculated as the number of Ontario companies not receiving support / the total
number of companies within each of the employee categories.

152

Figure 2.1.13 Total Number of Companies in Ontario Sorted by Company Employees

Figure 2.1.14 Total support per employee, excluding the small business tax deduction

$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0

Fewer than 5 Employees

5 to 49 Employees
50 to 99 Employees
100 to 249 Employees
250 to 499 Employees
500 or More Employees

153

Figure 2.1.15 Percentage of Ontario Companies Receiving any form of Ontario Government
Support based on Company Industry
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the sector categories.

Figure 2.1.16 Total Number of Ontario Companies Receiving Any form of Ontario Government
Support Sorted by Company Industry

154

Figure 2.1.17 Total $ Support / Number of Receiving Ontario Companies for All Forms of
Ontario Government Support, by Company Industry

Figure 2.1.18 Total Dollars of Support for Companies in Ontario Sorted by Company Industries

155

Figure 2.1.19 Percentage of Ontario Companies Not Receiving any form of Ontario Government
Support based on Company Industry
Note: Percentages are calculated as the number of Ontario companies not receiving support / the total
number of companies within each of the sector categories.

Figure 2.1.20 Total Number of Companies in Ontario Sorted by Company Industry

156

Figure 2.1.21 Percentage of Ontario Companies Receiving any form of Ontario Government
Support based on Company Age
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the age categories.

Figure 2.1.22 Total Number of Ontario Companies Receiving Any form of Ontario Government
Support Sorted by Company Age

157

Figure 2.1.23 Total $ Support / Number of Receiving Ontario Companies for All Forms of
Ontario Government Support, by Company Age

Figure 2.1.24 Total Dollars of Support for Companies in Ontario Sorted by Company Age

158

Figure 2.1.25 Percentage of Ontario Companies Not Receiving any form of Ontario Government
Support based on Company Age
Note: Percentages are calculated as the number of Ontario companies not receiving support / the total
number of companies within each of the age categories.

Figure 2.1.26 Total Number of Companies in Ontario Sorted by Company Age

159

Appendix E Graphical Analysis of Refundable Tax Credit Support

Figure 2.2.1 Total Dollars of Support for Companies in Ontario Receiving Refundable Tax
Credits Sorted by Program

Figure 2.2.2 Total Number of Companies in Ontario Receiving Refundable Tax Credits Sorted
by Program

160

Figure 2.2.3 Median Dollars of Support for Companies in Ontario Receiving Refundable Tax
Credits Sorted by Program

Figure 2.2.4 Standard Deviation of Dollars of Support for Companies in Ontario Receiving
Refundable Tax Credits Sorted by Program

161

Figure 2.2.5 Percentage of Ontario Companies Receiving Refundable Tax Credits based on
Company Revenue
Note: Percentages are calculated as the number of companies receiving support / the total number of
companies within each of the revenue categories.

Figure 2.2.6 Total Number of Companies in Ontario Receiving Refundable Tax Credits Sorted
by Company Revenue

162

Figure 2.2.7 Percentage of Ontario Companies Receiving Refundable Tax Credits based on
Company Employees
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the employee categories.

Figure 2.2.8 Total Number of Companies in Ontario Receiving Refundable Tax Credits Sorted
by Company Employees

163

Figure 2.2.9 Percentage of Ontario Companies Receiving Refundable Tax Credits based on
Company Industry
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the industries.

Figure 2.2.10 Total Number of Companies in Ontario Receiving Refundable Tax Credits Sorted
by Company Industry

164

Figure 2.2.11 Percentage of Ontario Companies Receiving Refundable Tax Credits based on
Company Age
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the age categories.

Figure 2.2.12 Total Number of Companies in Ontario Receiving Refundable Tax Credits Sorted
by Company Age

165

Appendix F Graphical Analysis of Non-Refundable Tax Credit Support

Figure 2.3.1 Total Dollars of Support for Companies in Ontario Receiving Non-Refundable Tax
Credits Sorted by Program

Figure 2.3.2 Total Number of Companies in Ontario Receiving Non-Refundable Tax Credits
Sorted by Program

166

Figure 2.3.3 Median Dollars of Support for Companies in Ontario Receiving Non-Refundable
Tax Credits Sorted by Program

Figure 2.3.4 Standard Deviation of Dollars of Support for Companies in Ontario Receiving NonRefundable Tax Credits Sorted by Program

167

Figure 2.3.5 Percentage of Ontario Companies Receiving Non-Refundable Tax Credits based on
Company Revenue
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the revenue categories.

Figure 2.3.6 Total Number of Companies in Ontario Receiving Non-Refundable Tax Credits
Sorted by Company Revenue

168

Figure 2.3.7 Percentage of Ontario Companies Receiving Non-Refundable Tax Credits based on
Company Employees
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the employee categories.

Figure 2.3.8 Total Number of Companies in Ontario Receiving Non-Refundable Tax Credits
Sorted by Company Employees

169

Figure 2.3.9 Percentage of Ontario Companies Receiving Non-Refundable Tax Credits based on
Company Industry
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the industries.

Figure 2.3.10 Total Number of Companies in Ontario Receiving Non-Refundable Tax Credits
Sorted by Company Industry

170

Figure 2.3.11 Percentage of Ontario Companies Receiving Non-Refundable Tax Credits based
on Company Age
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the age categories.

Figure 2.3.12 Total Number of Companies in Ontario Receiving Non-Refundable Tax Credits
Sorted by Company Age

171

Appendix G Graphical Analysis of Support by the 12 Direct Transfer Programs

Figure 2.4.1 Total Dollars of Support for Companies in Ontario Receiving One or More of the
Select Government Business Support Programs

Figure 2.4.2 Total Number of Companies Supported in Ontario by One or More of the Select
Government Business Support Programs

172

Figure 2.4.3 Median Dollars of Support for Companies in Ontario Receiving One or More of the
Select Government Business Support Programs

Figure 2.4.4 Standard Deviation of Dollars of Support for Companies in Ontario Receiving One
or More of the Select Government Business Support Programs

173

Figure 2.4.5 Percentage of Ontario Companies Receiving Support from one of the 12 Direct
Transfer Programs by Company Revenue
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the revenue categories.

Figure 2.4.6 Total Number of Ontario Companies Receiving Support from one of the 12 Direct
Transfer Programs by Company Revenue

174

Figure 2.4.7 Percentage of Ontario Companies Receiving Support from one of the 12 Direct
Transfer Programs by Company Employees
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the employee categories.

Figure 2.4.8 Total Number of Ontario Companies Receiving Support from one of the 12 Direct
Transfer Programs by Company Employees

175

Figure 2.4.9 Percentage of Ontario Companies Receiving Support from one of the 12 Direct
Transfer Programs by Company Industry
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the industries.

Figure 2.4.10 Total Number of Ontario Companies Receiving Support from one of the 12 Direct
Transfer Programs by Company Industry

176

Figure 2.4.11 Percentage of Ontario Companies Receiving Support from one of the 12 Direct
Transfer Programs by Company Age
Note: Percentages are calculated as the number of Ontario companies receiving support / the total
number of companies within each of the age categories.

Figure 2.4.12 Total Number of Ontario Companies Receiving Support from one of the 12 Direct
Transfer Programs by Company Age

177

Appendix H Graphical Analysis of R&D Support

Figure 2.5.1 Ratio of R&D Tax Credit Support / R&D Spending, by Revenue

Figure 2.5.2 Ratio of R&D Tax Credit Support / R&D Spending, by Number of Employees

178

Figure 2.5.3 Ratio of R&D Tax Credit Support / R&D Spending, Industry

Figure 2.5.4 Ratio of R&D Tax Credit Support / R&D Spending, by Company Age

179