OTTAWA -- The federal government is taking a bite out of its most controversial corporate subsidy program, part of a broader effort to trim spending.

Ottawa announced yesterday that it will slice $42.2-million over the next two years from Technology Partnerships Canada. TPC's annual budget is $300-million.

Finance Minister Jim Flaherty told reporters he's anticipating criticism over the cuts, but that the government is sticking to its platform from the recent federal election campaign.

TPC, which was founded in 1996 to provide Canadian companies with much-needed venture capital for private research, has been plagued by a variety of problems such as an abysmal repayment rate and the involvement of unregistered lobbyists.

Government sources have said that Industry Minister Maxime Bernier, meanwhile, is looking closely at replacing all or part of TPC's effort to spur private sector research with some combination of more aggressive tax credits, changes to capital cost allowance provisions, and the allowance of flow-through shares for companies that conduct research.

Although he's facing resistance within the bureaucracy and may not get support from his colleagues, Mr. Bernier is expected to take the plan to cabinet within weeks. The revision may also include a special subsidy fund for the aerospace and defence industries or a clean technology fund.

TPC has been a magnet for criticism from those who believe corporate subsidy programs are inherently ineffective, particularly compared with simple tax cuts or other uses of public money.

When that research leads to a commercially successful product, the government collects a return through royalty payments on sales of the product.

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