SR&ED Report: “Canada’s R&D Deficit — And How To Fix It” (2005)
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In 2005, the C.D. Howe Institute published a report entitled “Canada’s R&D Deficit — And How To Fix It”. The paper discerned that Research & Development (R&D) in Canada was in decline. It addressed the roadblocks to greater success in this area and proposed different measures to help the Canadian meet the lofty goals it had set for R&D spending.
A Broken Innovation Environment for R&D
The author states that Canada had been falling behind in world R&D rankings in recent years; he references the idea that this is due to a broken “innovation environment.”
“Significant improvements to the innovation environment, particularly those which generate new private sector jobs and enterprises, are only likely to emerge if governments provide stronger incentives for business investment,” he said.
The author says that a major factor will be improving government R&D incentives, such as the Scientific Research & Experimental Development (SR&ED) tax credit.
“Existing federal and provincial resources aimed at supporting business sector R&D should be more focused than those provided by the existing R&D tax credit system,” he said.
SR&ED Conclusions
An important issue raised by the author is that government spending on R&D tax credits such as SR&ED hasn’t necessarily produced the desired results.
“One cause for concern about Canada’s current public R&D programs is the long-standing observation that, despite having one of the OECD’s most generous tax subsidy programs for R&D, Canada continues to rank low on the organization’s global scale,” he said.
However, it’s noted that R&D incentive programs can and do work, saying that countries employing this type of program are “some of the most successful states in terms of achieving high levels of business-funded R&D and success at commercializing that research.” Instead, the author suggests moving program administration powers to the provincial level rather than federal.
“The countries using such plans all tend to be small both in population and in geography, enabling efficient internalization of the relevant external effects and the minimization of pressure from special-interest groups,” he said. “That points to the provinces as being potentially the best administrators of the grant programs.
This article is based on a SR&ED report at the time: Canada’s R&D Deficit — And How To Fix It.1
