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  • 2019 Federal Budget Analysis February 27, 2019
    Watch this space for response and analysis of the federal budget from CCPA staff and our Alternative Federal Budget partners. More information will be added as it is available. Commentary and Analysis  Aim high, spend low: Federal budget 2019 by David MacDonald (CCPA) Budget 2019 fiddles while climate crisis looms by Hadrian Mertins-Kirkwood (CCPA) Organizational Responses Canadian Centre for Policy […]
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  • Boots Riley in Winnipeg May 11 February 22, 2019
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  • CCPA-BC welcomes Emira Mears as new Associate Director February 11, 2019
    This week the Canadian Centre for Policy Alternatives – BC Office is pleased to welcome Emira Mears to our staff team as our newly appointed Associate Director. Emira is an accomplished communications professional, digital strategist and entrepreneur. Through her former company Raised Eyebrow, she has had the opportunity to work with many organizations in the […]
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  • Study explores media coverage of pipeline controversies December 14, 2018
    Supporters of fossil fuel infrastructure projects position themselves as friends of working people, framing climate action as antithetical to the more immediately pressing need to protect oil and gas workers’ livelihoods. And as the latest report from the CCPA-BC and Corporate Mapping Project confirms, this framing has become dominant across the media landscape. Focusing on pipeline […]
    Canadian Centre for Policy Alternatives
  • Study highlights ‘uncomfortable truth’ about racism in the job market December 12, 2018
    "Racialized workers in Ontario are significantly more likely to be concentrated in low-wage jobs and face persistent unemployment and earnings gaps compared to white employees — pointing to the “uncomfortable truth” about racism in the job market, according to a new study." Read the Toronto Star's coverage of our updated colour-coded labour market report, released […]
    Canadian Centre for Policy Alternatives
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Research and Development

This afternoon, I attended Kenneth McKenzie’s presentation at Industry Canada on “Taxes, R&D and Enterprise Formation.” To a large extent, it was based on his C. D. Howe Institute Commentary.

His main message is that governments seeking to promote R&D can “push” by reducing its cost through incentives (i.e. subsidies) or “pull” by increasing its benefit through lower taxes on profits. While Canada has generous tax incentives for R&D, our allegedly high marginal effective tax rates on capital partly explain our relatively low levels of R&D. By contrast, Sweden has few subsidies for R&D, low taxes on profits, and high levels of R&D.

McKenzie’s conclusion is that Canadian governments “should focus less on targeted tax incentives for R&D (and other activities) and focus more on the competitiveness of our overall production tax regime.” In other words, the objective of promoting R&D becomes just another argument for across-the-board tax cuts.

The Commentary suggests reducing existing federal R&D incentives. Today, McKenzie indicated that he favours maintaining these incentives, but cutting federal tax rates instead of expanding federal incentives on a “go-forward basis.” He correctly noted that, since the funds saved by eliminating R&D incentives could not finance much of an across-the-board tax cut, we might as well retain the incentives.

However, it seems to me that this logic applies on a “go-forward basis” just as much as it does to existing incentives. The government can promote R&D far more strongly by using a given number of surplus dollars for R&D incentives than by using the same number of dollars for across-the-board tax cuts. (Economists of McKenzie’s persuasion certainly invoke this cost-effectiveness rationale in favour of targeted social programs as opposed to universal ones.) Of course, there may be other benefits from across-the-board tax cuts, but then R&D is not really the argument for them.

Another point is that Canadian governments have already done a great deal in recent years to “pull” R&D through across-the-board tax cuts. Have these cuts increased R&D?

Note: To his credit, McKenzie made fun of the “go-forward basis” phrase.

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