Operating surplus and income accounts

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145. In terms of the Income Accounts (including the Generation of Income and Primary Income Accounts in the SNA) changes are driven by the impact on operating surplus. Sensitivity analysis was carried out to find the impact of various rates of return scenarios on GDP. The scenarios included estimates where a rate of return was added only to R&D sold outside a firm (this study's base case), another where a return was included for all R&D (no premium case), and two other cases in which a five percent and a 10% premium were added to all returns for all R&D (see Table 15). These scenarios resulted in an impact of R&D capital on GDP ranging by $2.3 billion or 0.2% of the economy-wide GDP in 2004 (see appendices 10 and 11 for more details). The addition of a possible rate of return would affect total surplus in that a portion would be reallocated to be attributable to R&D.

Table 15
Gross domestic product and business net operating surplus – four scenarios, 1997 to 2004

Graph 7
Operating surplus scenarios

Comparisons to other studies

147. The results from this study suggest a marginally higher impact on GDP than the previous study undertaken by Statistics Canada.34 The earlier study, produced for the year 2000, indicated an increase of 1.2% in GDP as a result of changing the treatment of R&D. The current study estimates an increase of 1.5% in 2000. The major differences between these two studies involve the treatment of operating surplus, which increased GDP by over $200 million in the base case scenario35, a change in the treatment of software R&D, which added nearly $1 billion to GDP and different assumptions for government service lives.

148. Comparisons can also be made to a recently released U.S. study on the capitalization of R&D. Some adjustments are required to allow for a more accurate comparison. Software expenditures need to be added back to the Canadian additional total, as well as a reversal of the adjustments for trade. If this is done, the increase in GDP in 2002 would be $20.4 billion, or 1.8%, slightly less than the 2.3% to 2.6% range measured for the U.S. in the same year. Other countries have obtained similar results from their initial findings.36

149. The higher U.S. share of GDP is attributed entirely to higher business sector investment on R&D, particularly in pharmaceutical and medicine manufacturing as well as the software publishing industry. Government spending on R&D has a larger share of the total spending in Canada versus the U.S.

 

34 . Siddiqi and Salem, A Proposal for Treating Research and Development as Capital Expenditures in the Canadian SNA, Statistics Canada, June 2006.

35 . This method is similar to the one used in the first Statistics Canada study but differs in that the rates of return used are specific to each industry rather than the rate of return for the R&D industry (NAICS 5417).

36 . This includes the Netherlands, Israel and several other OECD countries.