Why do governments offer SR&ED tax credits?
Governments realize that research and development is linked to their province and/or country's future economic growth, prosperity and productivity. In 1996 the Federal government released a report that examined the source of growth for the Canadian economy.
From 1984 to 1994 there was:
- a loss of 1,600,000 permanent positions for individuals with secondary school or equivalent education
- a gain of 800,000 new jobs for those with post-secondary education, particularly withing the technical and science fields.
This phenomenon is seen in most industrialized nations. To address the need to retain and develop this technical base, Canada has one of the most favorable tax credit systems in the world with respect to the promotion of SR&ED activities. A more in-depth discussion of the objectives of the SR&ED program can be found in the Introduction of MEUK's SR&ED Tax Case Analysis.
There have been numerous reports written on the economic effect of R&D subsidies and tax credits - here are a few available online:
- Why and How Governments Support Research and Development
- How Important is Business R&D for Economic Growth and should the Government Subsidize it?
For further discussion of the federal government's funding of the SR&ED program, please see MEUK Newsletter 2006-18: "Will the well run dry?"