Thank you for the opportunity to appear before you today on behalf of more than 400 chambers of commerce and boards of trade, and over 200,000 businesses of all sizes, sectors, and regions across Canada.
Research and development is foundational to modern economies. Strong R and D ecosystems drive innovation, enable new technologies, improve existing ones, enhance productivity, and strengthen competitiveness across entire value chains. The benefits extend far beyond individual firms. Indeed, R and D generates knowledge spillovers, fuels long-term growth and supports the creation of high-quality jobs.
Yet Canada’s economy is at a crossroads. Global competitors—particularly the United States—are rapidly expanding incentives to spur business investment. At the same time, geopolitical uncertainty, supply chain pressures, and shifting global markets are reshaping the environment in which Canadian companies operate. Innovation leadership is increasingly tied not only to economic performance, but to national resilience and sovereignty.
However, Canada continues to lag behind its international peers in R and D spending. In 2023, Canada spent about 1.8% of its GDP on R and D, which is second-last in the G7 and below nearly two-thirds of OECD countries. We spend an average of 2.7% of GDP on R and D. Persistent underinvestment constrains productivity, innovation and long-term growth—challenges that are already reflected in growth forecasts of about 1% in the years ahead.
This competitiveness challenge is sharpened by recent U.S. policy developments. The U.S. has repeatedly moved with speed and scale, most recently through the One Big Beautiful Bill Act, which extended full expensing for machinery, equipment and R and D.
Canada's slow response to past U.S. reforms contributed to a prolonged stagnation in non-residential business investment, which remains below 2014 levels. To avoid falling further behind, bold, coordinated federal action is needed to strengthen tax competitiveness, drive private sector R and D, accelerate technology adoption and position Canada for long-term resilience.
Budget 2025 includes several positive measures, such as early changes to the scientific research and experimental design incentive, or SR and ED, funding for talent attraction, sovereign public AI compute infrastructure and enhanced venture and growth capital. While these are welcome steps, the competitiveness gap facing Canadian businesses remain substantial, especially relative to U.S. innovation incentives.
To close this gap, the Canadian Chamber recommends action in three priority areas.
First is strengthening Canada's tax competitiveness. We recommend offering a productivity and investment tax credit modelled on Ontario's enhanced 15% credit and the Atlantic investment tax credit to support new buildings, machinery, equipment and software. We also recommend permanently extending the accelerated investment incentive to allow full and immediate expensing of machinery and equipment. Permanence would give businesses long-term certainty to anchor production, innovation and R and D in Canada.
Second is modernizing Canada's R and D commercialization and intellectual property incentives. To do this, we recommend accelerating long overdue SR and ED reforms, implementing a pre-approval process, expanding eligibility to commercialization and digital innovation, and indexing expenditure limits to inflation. We also recommend implementing a national patent box regime that provides a preferential tax rate on income derived from IP developed and commercialized in Canada—a proven tool in jurisdictions such as the U.K., Belgium and France.
Third is building the workforce that Canada needs to support R and D growth and technology adoption. To do this, we recommend conducting a national needs assessment to align training with labour market demand and ensuring fast, predictable foreign credential recognition for in-demand occupations.
We thank the committee for undertaking this timely and important study. Strengthening private sector R and D is essential to our long-term competitiveness and growth.
I look forward to your questions and to continuing the discussion.