Economy braced for sharp fall in R&D spending last year

Date: April 27, 2022

The latest bulletin on R&D spending has been released by the CRA. Richard Hoy, President of Catax Canada, looks at why it provides a mixed picture of the fortunes of Canadian industry.

An expected fall in R&D spending in 2019 has been dramatically reversed in the final published figures released by the CRA.

In its annual bulletin, the agency revealed that R&D spending in 2019 rose 3.9% to $40.3bn — a surprise turnaround, given that a year ago it revealed it was expecting there to be a fall of $688m.

This was the fourth consecutive year in which R&D spending increased and was mainly driven by improved spending by business enterprises, who raised R&D expenditure by 4.4% to $753 million.

Higher education institutions also took some of the strain in 2019, boosting spending by 4.1% to $303million. Federal government spending rose 1.9% to $128 million.

Broken down by province, Ontario was responsible for the largest proportion of R&D spending (44.9%), followed by Quebec (25%) and British Columbia (12.2%).

Overall, the final readout for 2019 is fantastic news for the Canadian economy but there are storm clouds on the horizon.

The CRA says its research carried out before Covid 19 struck was already indicating a drop in R&D investment for 2021 driven by a steep fall in federal government spending.

This raises the spectre that its prediction of a 1.4% fall in R&D spending in 2021 to $40.1bn could prove optimistic.

The pandemic has forced many businesses to shelve their formal research and development projects and be more hesitant with their spending. We know from around the world that the impact has also varied dramatically by industry but it will be another year before the true impact on Canada’s most innovative businesses becomes clear.

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