Federal spending on science and technology research is expected to drop by $200 million to $9.5 billion in the fiscal year 2007/2008, according to Statistics Canada.

The two-per-cent decline will occur in scientific and general data collection and information services, which will receive $3.5 billion, the agency said in a report released Tuesday. Research and development will hold steady and receive about $6 billion, bringing Canada's total science and technology spending to 4.5 per cent of the total federal budget, down from 4.9 per cent a year ago and 5.1 per cent two years ago.

Almost half of federal science and technology investment will be performed outside the government, with about 80 per cent going toward natural sciences and engineering, Statistics Canada said.

The bulk of the funding will go toward the higher education sector will receive $2.9 billion and business enterprises $1.1 billion to fund science and technology activities. Education facilities will also receive $2.6 billion while federal government departments and agencies will get $2.3 billion to conduct research and development.

Intentions for direct federal funding of research and development by Canadian business enterprises are down slightly to $733 million in 2007/2008 from $791 million in 2005/2006.

The federal spending decline comes on the heels of a report by global tax accountants Deloitte last week, which found Canada's technology venture capital market is on the verge of collapse. The survey found that existing tax rules, which tie up funds for months and require investors to fill out exhaustive returns, are keeping foreign investors from putting money into Canadian startup companies.

Venture capital firms invested only $852 million on Canadian startups in the first nine months of 2007, about a third of what they spent in 2002. The amount invested has dropped almost every year since, Deloitte said.

In May, three months after the federal budget, Prime Minister Stephen Harper pledged to boost private research and development with a new science and technology strategy.

"No country can remain prosperous and healthy without reinvesting a proportion of its wealth in science and technology," he said.