John Manley's first budget as Finance Minister is getting mixed reviews from Canada's post-secondary education community.

The Association of Universities and Colleges of Canada is praising the measures announced in the budget, saying new money for research will open "new horizons" for Canadian universities.

"This budget will help universities to raise the bar on research," AUCC president Robert Giroux said in a statement. "All the elements are now in place to complete the foundation for enhancing Canada's university research efforts."

The budget included a $500 million grant to the Canada Foundation for Innovation to support medical research, a 10 per cent increase in funding for the three research granting councils and $225 million a year to universities for the indirect costs of research.

But CAUT president Victor Catano says while the funding boost for research is welcome, the government nevertheless missed an opportunity to provide badly needed core funding for colleges and universities.

"The real problem we're struggling with is the reduction in core operating grants to universities and colleges," Catano said.

"As long as the federal government continues to ignore this reality, there just won't be enough funds to keep tuition fees down or to hire the faculty we desperately need to provide the teaching and research. This budget doesn't do a thing to help us meet these challenges."

Student groups agreed the budget should have done more to support the core budgets of universities and colleges so that tuition can be lowered and quality improved.

"This budget is about damage control," said Ian Boyko, national chairperson of the Canadian Federation of Students.

"Most of the new spending for post-secondary education will fill some gaps and partially compensate for earlier funding cuts. But in the bigger picture, the federal government still has no long-term vision for improving the quality and accessibility of colleges and universities."

Among the positive initiatives was the creation of the Canada Graduate Scholarships program that will provide financial support for 2,000 master's and 2,000 PhD students, he added, noting that the program will not be fully operational until 2007.

The budget also unveiled changes in the way Ottawa will transfer money to the provinces in support of health care, post-secondary education and social services.

Beginning in 2004, federal support to health care will be provided in a separate funding envelope, as recommended by the Romanow Commission, while money for post-secondary education and social services will be lumped together in the Canada Social Transfer.

While he is pleased to see the creation of a separate fund for heath care, Catano says he is disappointed the government did not use this opportunity to create distinct funds for post-secondary education and social assistance as CAUT had recommended.

"Until we have separate funding envelopes for all three programs, the Canadian public won't have any accountability over how federal dollars are being spent," Catano said.

He also noted that the share of total federal cash transfers going to health care will rise to 63 per cent when the two new transfers are in place next year, but as recently as the mid-1990s this figure was just 43 per cent.

Catano says this could result in as much as a $1 billion cut in post-secondary education transfers to the provinces.

"Much of the 'new' health care funding may simply be money that is being reallocated from post-secondary education and social services," he added.

Business groups were quick to condemn the budget, claiming the government was boosting spending too quickly.

However, Catano said that even with the new initiatives announced in the budget, program spending as a share of the economy remains near postwar lows.

"The Liberals eliminated the deficit mainly by cutting programs like unemployment insurance, health care, post-secondary education and social assistance," Catano said.

"At best, what we see in the budget is just a down payment on what's really needed."