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Scientific innovation weathers the storm but investment intentions have softened

Date: June 28, 2022

The latest statistics on Government expenditure in science and technology reveal R&D spending has hit a new record high. Richard Hoy, President of Catax Canada, looks at the trends behind the increase.

The last two years have seen unprecedented Government spending in science and technology, with huge sums dedicated to overcoming the Covid-19 pandemic.

Not only did federal investment in science and technology hit a record high for 2020/21 but the R&D component has never been higher either.

The R&D slice of this spending is deemed to add the greatest value to Canada’s economic prosperity. It accounts for more than three-fifths (62.3%) of total federal science and technology spending — and rose 19.9% to $9.4billion.

And the provinces are on manoeuvres too. There’s huge variation in the pace of change across the different regions. While some provinces saw spending fall, there have been huge advances in others.

Ontario led the way, growing its science and technology expenditures by 31% ($852million) to $3.6billion. The National Capital Region increased spending by 15.5% ($544million) to $4billion, Alberta’s rose 57.7% ($357million) to $976million and Quebec’s jumped 17% ($305million) to $2.1billion.

Spending fell 17.3% in British Columbia to $1.3billion due to lower payments to higher education institutions for R&D in the natural sciences.

Canada’s scientific sector is respected the world over and innovative technologies — from vertical farming and clean fuels to the advancement of 3D printable materials — are all prime examples of pioneering work hitting the headlines over the past year.

But the Government of Canada is facing pressure to cut budgets in the face of a global cost of living crisis and increased fears of a looming recession. Carl Gomez, chief economist and head of market analytics at CoStar Group, believes there’s a 30 to 40% chance of a recession in the next six months. CIBC economist Katherine Judge says that if a recession does arrive, it could be in late 2022 or in the first half of 2023.

As business confidence has taken a hit, investment intentions have softened too. The StatCan report describes how weakening spending intentions already indicate a 6.3% fall in expenditure in 2022/23.

However, this would follow seven consecutive periods of growth and spending would still be higher than it was pre-pandemic. So the trajectory is still overwhelmingly positive and that’s in no small part due to the generous incentives on offer under the Scientific Research & Experimental Development (SR&ED) program.

For more information about the tax incentives available to companies in software, science and technology, you can reach Richard Hoy directly at Richard.Hoy@catax.com.

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