Results: research and development investment relatively small but growing

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119. Results of the RDSA are presented in the general order of the sequence of accounts as organized in the SNA. The presentation of the results will begin by examining the affects of the change in treatment of R&D on the production account. This will be followed by analysis of the generation and use of income accounts, the capital and finance accounts and finally the balance sheet accounts. Tables providing a detailed time series of the accounts are available in the appendix. Final expenditures, as presented in the CSNA, will then be looked at followed by the impact on industries. Impacts on the total economy, including various scenarios for rates of return will follow.

120. The RDSA allows for the study of the impact of R&D spending on the economic accounts. One view is to look at its total capitalization in the economy including its impact on the stock of capital; the other is analyzing additional capitalization, as a result of the change in treatment of R&D, in the SNA. All estimates use the additional activity data, unless otherwise specified. Furthermore, estimates are based on a scenario with no rate of return on own-account R&D added to operating surplus and are presented in real (constant dollar or volume) terms unless otherwise specified.

121. The impact of changing the treatment of R&D in the SNA is not large but it has been growing over time. In Canada, the level of GDP increases by 1.6% in 2004, compared to 0.9% for 1976. This gradual increase has resulted in little impact to the growth rates for the total economy. Since R&D is continuing to increase in importance in the economy, the sooner the change in treatment is introduced into the accounts, the smaller its initial impact will be. The inclusion of R&D also provides a more accurate view of the productive assets in the economy while improving sectoral measures of net worth.

The production account

Current dollar estimates

122. The impact on output of changing the treatment of R&D is less than the impact on GDP. This occurs because purchased R&D was considered an intermediate input under the previous methodology. With the change in treatment, these expenses are capitalized, and therefore moved to fixed capital formation. On the other hand, own-account R&D increases both output and value added. Since these expenses continue to be incurred by the organization producing the R&D, there is no impact on intermediate purchases. All the taxes and subsidies on production associated with R&D are already in the CSNA and therefore there is no change to the level of the taxes and subsidies (see Table 5).

Table 5
Current account—System of National Accounts – Total economy, additional impact, 2004

123. As can be seen on Table 5, GDP increases by $20.4 billion in 2004. Operating surplus takes the full impact of the change in treatment of R&D to an asset, while labour income remains unchanged. Although labour income is involved in the production of R&D, this income has already been accounted for in the National Accounts (see Table 6). Over 85% of the increase to operating surplus is allocated to consumption of fixed capital or capital consumption allowance (CCA).

Table 6
Current account System of National Accounts—Total economy, additional impact, 2004

Use of income

124. With the reclassifying of R&D to an asset, investment expenditures increase. Assets generate additional income and operating surplus.

Table 7
Current account—System of National Accounts – Total economy, additional impact, 2004

125. Economy-wide saving increases by $6.8 billion in 2004 (see Table 7). Corporate saving is increased by $3.0 billion. Government and non-profit organization activity shifts saving upward by $3.8 billion in 2004. Government saving is up $3.5 billion, with $1.3 billion accounted for at the federal government level and the remaining $2.2 billion for provincial governments.

126. The sector accounts for income and outlay reflect the fact that saving and capital consumption equal investment in the case of R&D. Capital acquisitions increase, as a result of the changing of R&D to assets, while income, through an increase in operating surplus, rises by the same amount. With the broadening of the definition of investment to include R&D, saving would increase 6.9% in 2004. This is down from a high of 9.9% in 2002 (see Graph 1).

Graph 1
Research and development increases savings