Editorial - 21-16

Ottawa is moving on its Budget commitment to review the scientific research and experimental development (SR&ED tax credit program. At stake is Canada's future business R&D performance, which is being buffeted by a number of external forces challenging the nation's ability to compete and prosper in an increasingly knowledge-based world.

SR&ED has long been the most important mechanism for encouraging private sector R&D and innovation. But the program is now more than 20 years old and has not kept pace with fundamental changes in the way R&D is conducted in today's world.

Full refundability for all companies performing R&D in Canada is a no brainer. There will be an additional cost in the form of foregone revenues, but most assert that the extra expense will be repaid through more R&D being performed, with spillover benefits felt throughout the economy.

While the review is certainly welcome, the government must be prepared to seriously consider other recommendations it will receive from industry. Restoration of an industry advisory body into the process would correct the ill-advised decision to kill off the SR&ED Partnership Committee earlier this year.

Ottawa must also closely examine the benefits of extending the scope of SR&ED into areas such as market research and design. R&D is only one element of product and process innovation. Incentives to encourage firms to align their R&D to market needs will allow the full scope of R&D benefits to be realized throughout the economy.