Public support for research and development (R&D) represents a small but strategic share of government spending and plays an important role in supporting productivity and long-term growth. This chapter reviews recent trends in public R&D spending and examines savings measures as reported in the RPF Survey. The reported measures include rationalising R&D support for businesses, streamlining expenditure for research in the public sector and reducing some of the tax expenditures related to businesses’ expenses for R&D. Further enhancing the efficiency of R&D spending can involve performance-based funding agreements, impact measurement, periodic evaluations, encouraging private spending, and streamlining management and administration.
Restoring Public Finances
Enabling Effective Government
Abstract
This chapter outlines the savings measures related to government spending on research and development (R&D) as reported in the RPF Survey. In addition, a number of respondents have also noted planned increases in R&D spending to support productivity and long-term growth, which are presented in the overview Chapter 1.
Public support for R&D, delivered through direct grants or indirect tax incentives, represents a small but strategic share of government spending. Following significant pressures on public budgets in other policy areas, aggregate direct budget allocations for R&D have stagnated in recent years, alongside a notable reorientation of support towards defence-related R&D. However, over the past two decades, the use of tax incentives for business R&D has expanded, leading to an increase in the corresponding tax expenditure. Around one quarter of RPF Survey respondents report savings measures in R&D in 2025-2026. The reported savings initiatives reflect selective adjustments to R&D budgets to better align spending with national priorities and improve cost-effectiveness, most notably through rationalising support for business R&D activities. While selected savings have been identified, they are not necessarily equivalent to a net reduction in total government spending on R&D.
Reform initiatives and savings measures
Reducing or restructuring direct R&D grants for businesses. Savings measures include reducing funding envelopes, discontinuing programmes, introducing stricter eligibility criteria and co‑financing requirements, or removing overlaps between initiatives.
Containing public‑sector research budgets by reducing contributions to research institutions, shifting research activities to academia and/or industry and consolidating overlapping programmes.
A few respondents are also scaling back certain R&D tax incentives to improve cost-effectiveness and limit windfall gains.
Public spending on research and development (R&D), including government-financed research and experimental development in the public sector and support for business R&D, accounts for a modest but strategic share of government spending across OECD and accession candidate countries. It includes both direct appropriations for research conducted by public and private actors and indirect tax expenditures to encourage R&D investments. In 2022, direct budget allocations for R&D (GBARD) averaged 0.7% of GDP in OECD countries. There is considerable variation among countries, from Colombia at below 0.1% of GDP to Japan at 1.6% of GDP. When adding indirect government spending in the form of tax expenditures (GTARD), estimated support increases to 0.9% of GDP on average, and the variation across countries is somewhat reduced.
Government budget allocations for R&D (GBARD) and government tax relief for R&D expenditure (GTARD), 2023 (2022)
Note: Austria, Belgium, Bulgaria, Canada, Chile, Italy, the OECD area, Portugal, Slovak Republic and United States data from 2022 rather than 2023. Australia data from 2021 rather than 2023. Colombia data from 2020. Data not available for Costa Rica, Mexico, and New Zealand.
Source: OECD R&D Tax Incentives Database, https://oe.cd/rdtax, November 2025.
R&D can play an important role in supporting long‑term productivity growth and, by extension, the sustainability of public finances. Research shows that government spending on R&D can generate multiplicative effects, both on GDP and business R&D (Ciaffi, Deleidi and Mazzucato, 2024[1]). In particular public spending on high risk and basic research has the potential to bring significant benefits for society, as it would often be underfunded if left to private markets alone. At the same time, R&D investments, especially in fundamental and early-stage research, are high risk, and the returns – while potentially high – are often uncertain and take long to materialise. Knowledge created through public R&D spending also diffuses unevenly across sectors and firms, and the benefits depend on complementary investments, institutions, and the ability of the private sector to absorb and commercialise new ideas.
Figure 9.2 shows that the growth in direct public spending on R&D in OECD countries has slowed as compared to the overall growth of R&D expenditure, including spending from the private sector. In 2024, government and higher education sectors contributed 27% of total gross domestic expenditure on R&D (GERD), down from 33% in 2010 (OECD, 2026[2]). With the end of pandemic-related stimulus packages in several countries, government budget allocations for R&D, which do not include R&D tax incentives or other indirect support mechanisms, were stable in 2023 (+0.7%) and declined in 2024 (-4.1%). Data on the composition of government R&D budgets also indicate a reorientation of priorities, characterised by an increase in defence-related R&D spending (+1.2%), while funding towards energy and environment-related R&D has declined (-8.0%), after significant growth in earlier years (OECD, 2026[2]). As the use of R&D tax incentives has expanded over the past two decades, indirect government support through tax expenditure has grown, thus helping to further leverage investments in R&D from the private sector. While government tax relief for R&D expenditure has grown faster than direct budget allocations over time, it remains significantly smaller in absolute size, accounting for approximately 15% of total support in 2022.1
Overall R&D expenditure from all funding sources (GERD) remained at 2.7% of GDP in the OECD in 2024, unchanged since 2020. While overall growth in expenditure remains aligned with GDP in the OECD as a whole, some countries have seen stagnation or declining research budgets. In 2024, Japan, Korea and Türkiye reported R&D growth rates of over 5%; however, in the European Union, average growth stood at 0.4% and some countries recorded a decline (OECD, 2026[2]).
Government budget allocations for R&D (GBARD), Government tax relief for R&D expenditure (GTARD) and Gross Domestic Expenditure on R&D (GERD), OECD area, 2007-2024
Note: For the OECD area, latest data available on GTARD is from 2022. For details, see OECD R&D Sources and Methods Database
Source: GERD and GBARD from Main Science and Technology Indicators (MSTI database) as of March 2026, OECD data explorer; GTARD from OECD R&D Tax Incentives Database, https://oe.cd/rdtax, November 2025.
GBARD – Government Budget Allocations for R&D
GBARD reflects government priorities for public research and innovation. It estimates planned government budgetary allocations for R&D activities, based on a fund-based approach. It includes funding for R&D performed in government, higher education, and other sectors, as well as contributions to international organisations. It excludes R&D financed by public enterprises from market revenues. By convention, it also excludes indirect forms for support including tax relief for R&D expenditures.
GTARD – Government tax relief for R&D expenditure
GTARD refers to tax provisions that reduce the tax liability of firms or individuals specifically because they perform or finance research and experimental development. These measures are assessed relative to a standard tax system without R&D-specific incentives and are intended to encourage private investment in R&D. The GTARD indicator captures the estimated fiscal cost of such tax provisions which provide incentives towards R&D.
GERD – Gross Domestic Expenditure on R&D
GERD is the total expenditure (current and capital) on R&D in a country, including R&D carried out by all resident companies, research institutes, university, and government laboratories. It includes R&D funded from abroad but excludes domestic funds for R&D performed outside the domestic economy. It is commonly expressed as a share of GDP and serves as a key indicator of overall R&D intensity.
Source: OECD Frascati manual and glossary of statistical terms.
Governments support business R&D investment through various direct budget allocations and tax expenditures. The latter typically involves tax provisions on inputs (R&D expenditures by firms) or outputs (incomes from licensing, patents or other), lowering the effective cost of private R&D investments. In 2023, tax expenditures constituted close to 56% of total support for business R&D in the OECD (see Figure 9.3), compared to 35% in 2006. Tax incentives for R&D have risen in popularity across the OECD, as they are perceived to have several advantages:
They can be designed to let eligible businesses choose which R&D projects to invest in,
Are compliant with international trade and competition rules and
They have been considered as relatively easy to administer (OECD, 2024[3]).
In estimates, R&D tax incentives and direct support measures are found to be equally effective in boosting business R&D (OECD, 2024[3]). While tax incentives are found to be effective in encouraging experimental development and R&D projects closer to the market, direct government funding is comparatively more effective in stimulating basic and applied research with high risk (OECD, 2020[4]).
Direct government funding and government tax relief for business R&D expenditure, 2023
Note: Austria, Belgium, Bulgaria, Canada, Chile, Italy, the OECD area, Portugal, the Slovak Republic, and the United States data from 2022 rather than 2023; Australia data from 2021; and Brazil and Colombia data from 2020. Data not available for Mexico. For general and country-specific notes on the estimates of government tax relief for R&D expenditures, see: https://oe.cd/rdtax
* Data on subnational tax support not available
Source: OECD R&D Tax Incentives Database, November 2025.
Drawing on results from the RPF Survey, Figure 9.4 provides an overview of selected savings measures pursued by respondents in 2025-2026. Around one quarter of respondents reported savings measures related to R&D. The majority of these are measures to constrain or reorient support for business R&D, but a smaller number also seek to streamline expenditure on research in the public sector. Measures to rationalise business R&D support mainly concern direct grants, whereas fewer governments report measures to reduce tax expenditures. This is in line with the observed growth in the use of R&D tax incentives in recent years. It can also reflect the fact that direct grant schemes tend to be more numerous than tax relief measures, and, in general, show greater variety in their design and implementation.
The measures reported in the RPF Survey focus selectively on fiscal savings and do not provide a complete overview of budgetary developments or recent policy trends in the area of R&D spending. In addition to the savings measures on R&D, presented in this chapter, around one quarter of the survey respondents have indicated that they are planning new expenditures in R&D to support long-term growth (see Chapter 1). A broader discussion of recent developments in R&D policies is available in the EC-OECD STIP Compass (EC-OECD, 2026[5]) and OECD (2025[6]) INNOTAX portal – a single entry point to the OECD policy information, indicators and analysis on R&D tax incentives.
Measures approved or submitted to parliament, fiscal years of 2025 and 2026
Note: Results based on 39 RPF Survey responses. Data is not available for France.
Source: 2026 OECD Survey on Restoring Public Finances, Questions 9.1(a) Reduce R&D support to enterprises, 14.1(j) Reduce tax expenditures related to businesses’ expenses for R&D and 13.1(d) Streamline/reduce expenditure for research in the public sector.
There are also examples of respondents strategically reallocating spending towards R&D. For example, as part of its strategy to accelerate and remove barriers to growth, Finland aims to raise national R&D expenditure to 4% of GDP by 2030, with a target of 1.2% of GDP for central government funding. New expenditures to enhance productivity and competitiveness will be supported through reductions in other forms of support to households and businesses, including cuts to non-R&D subsidies for businesses.
While the following sections discuss separately direct R&D support and indirect tax relief support, which were collected separately through the survey, developments in direct funding and tax support for business R&D should be interpreted jointly, as the net effect on firms’ incentives and on public finances ultimately depends on both types of instruments.
9.2.1. Reducing direct R&D support to enterprises
Several respondents seek to streamline direct spending on business R&D and innovation support, either by reducing overall funding envelopes, tightening grant governance or discontinuing specific funding programmes.
In Canada, the National Research Council will refocus its Industrial Research Assistance Program by adjusting contributions to some programme streams, while not impacting strategic sectors. Furthermore, Canada is not renewing certain funding envelopes in federal science and innovation programmes. The measures reflect government-wide efforts to streamline programme delivery and realign spending with priority outcomes. Some adjustments are being made to reduce the overlap with other federal (or local) R&D support policies. At the same time, Canada is enhancing several R&D-related tax incentives with the overall aim to support productivity and competitiveness.
Japan has reviewed a programme to support R&D conducted by SMEs in collaboration with universities and other institutions. Based on an assessment of past support performance, the required budget for ongoing projects has been examined, resulting in a reduction in the overall budget from 2025 to 2026. In addition, a special framework has been revised to enable high-priority support for SMEs actively engaged in R&D, even if they do not receive investments from private funds.
New Zealand has similarly scaled back certain R&D support for businesses through a combination of programme savings and the non‑renewal of science and innovation funds. These initiatives were withdrawn as part of the government’s 2024-2025 budget.
The Netherlands has reported savings on R&D support, amongst other through the discontinuation of the National Growth Fund, which was established in 2020 to support knowledge development, research and innovation.
In Norway, the 2026 budget includes a reduction in support for research and development, primarily through the agency Innovation Norway. While the government continues to highlight the importance of private‑sector innovation, it emphasises that greater reliance should be placed on private capital, with public support refocused on structural measures. Iceland is also making efforts to curb growth in public support for innovation companies, following a period of a sharp increase in public R&D spending (see Box 9.2).
Iceland stands out as one of the OECD countries with the most generous support policies for business R&D, including grants and tax incentives for innovation-intensive companies. In recent years, Iceland’s research and innovation system has expanded rapidly. From 2018 to 2023, corporate investments in R&D more than doubled, and public grants for innovation companies tripled. While generous support policies are likely to have contributed to the emergence of fast-growing innovative firms, it has also intensified pressure on the public budget and raised concerns about effectiveness. In response to this, the government is currently reviewing the legislation for tax incentives for R&D to clarify eligibility conditions and strengthening the framework for implementation and oversight to ensure the long-term effectiveness and sustainability of the system. The measures allow the government to maintain support for innovation while containing rapid spending growth.
Source: Ingþórsson / The Icelandic Centre for Research (2025[7]), Ministry of Finance, Iceland.
9.2.2. Streamlining or reducing expenditure for research in the public sector
A smaller number of respondents are pursuing measures to contain or rationalise spending on publicly funded research, though the depth and nature of reforms vary. The measures primarily reflect a need to restore public finances while maintaining core research infrastructures.
Belgium is reducing its financial contribution to the national scientific research fund in the Wallonia-Brussels Federation, the primary instrument supporting fundamental scientific research in the Wallonia-Brussels Federation. The fund finances scholarships, grants, permanent and temporary researcher positions, and major equipment at French‑speaking universities.
Canada has set multi‑year reduction targets for federal departmental spending – including science functions. In practice, some departments (e.g. Agriculture and Agri‑Food Canada) are planning to streamline science programmes outside core mandates and shift certain scientific activities to academia or industry, while federal science operations will be concentrated on priority domains (e.g. environmental sustainability and food production). Despite these reductions, Canada’s 2025 budget simultaneously introduces new investments in R&D fields such as AI, defence and energy-related research. This illustrates a shift toward more selective, mission‑oriented research funding.
In a situation of fiscal consolidation, governments may want to avoid spreading funds thinly across fragmented initiatives. The use of priority-setting frameworks can help focus resources on areas with the highest expected social returns and make sure they are aligned with national missions (OECD, 2025[8]). As an example, Mexico has launched a reform of its federal budget that seeks to rationalise, consolidate, and strategically align public R&D investments with national development priorities (see Box 9.3).
Finally, in the Netherlands, public research-oriented budgets are being reduced in the period 2025-2029, including savings on research institutions, without the exact measures being detailed in the RPF Survey.
The Mexican government is simplifying programme structure of its Federal budget, reducing the number of budgetary programmes through mergers, eliminations, and reclassification. This streamlining supports efforts to improve tracking of expenditure and align public policies with the National Development Plan 2025-2030 and international commitments.
A feature of the reform is the creation of “Research and Development” as a new transversal classification intended to rationalise spending and improve co-ordination of R&D expenditure across public policy sectors. Previously, public research spending was dispersed across numerous programmes. Consolidation under this single Research and Development heading is designed to reduce fragmentation and optimise impact.
Although not conceived primarily as a savings measure, the reform is expected to generate efficiency gains by reducing duplication, lowering administrative overhead, and enabling more strategic, outcome‑oriented allocation of research resources.
Source: Proyectos México – Economic Package 2026, Ministry of Finance and Public Credit, Mexico
9.2.3. Reducing tax expenditures related to businesses’ expenses for R&D
While it has become increasingly common to support business R&D through tax expenditures, only a few respondents have reported reductions on tax expenditures related to businesses’ R&D expenses. Reviewing tax expenditures could help governments identify windfall gains for firms that would have invested anyway. Reported measures from the RPF Survey include the following:
Japan has reviewed its R&D tax incentives system and made several changes from the fiscal year of 2026 (through the 2026 tax reform). While the changes include some expansionary elements, such as the introduction of a strategic technology-oriented framework, other support measures are being scaled back to strengthen incentives. The net estimated result is an increase in tax revenue.
From 2026, Lithuania has reduced the generosity of is preferential corporate income tax rate for income derived from the commercialisation of inventions generated through R&D activities. This measure reduces tax expenditures related to R&D support, while still maintaining preferential treatment for qualifying intellectual property income.
Portugal is eliminating the option to claim R&D tax benefits through investments in R&D-focused funds. When eliminating the policy, the government emphasised that these funds often do not result in actual R&D activity – thus, no productive innovation outcomes. The mechanism was bureaucratic and led to a mismatch between the tax benefits claimed and the actual R&D activities performed. It ultimately diluted the incentive for companies to invest directly in R&D. While the above-mentioned mechanism is abolished from 2026, tax benefits given to companies that directly invest in R&D are continued.
9.2.4. Enhancing the efficiency of R&D spending
Beyond the specific savings measures reported in the RPF Survey for 2025-2026, OECD countries have taken other measures in recent years to enhance the efficiency of public R&D spending. Drawing on data from the STIP Compass (EC-OECD, 2026[5]), the below cases illustrate how countries are exploring various options to address spending pressures in this area while preserving innovation capacity:
Performance-based funding agreements, impact measurement and other incentive structures.
In addition to contractual performance targets and impact-based evaluation, possible mechanisms include repayment mechanisms tied to commercial success and milestone-based funding. In the United Kingdom, the Advanced Research and Invention Agency uses programme-level stage-gating, where multiple teams are funded early but only those meeting technical milestones progress. This allows the government to explore several approaches in priority areas (e.g. AI) and concentrate resources on the most promising solutions. In Israel, programmes implemented by the Innovation Authority often require companies receiving grants to meet commercialisation objectives and repay grants through royalties if projects succeed, linking public funding directly to market outcomes.
Periodic evaluations of research and innovation programme. OECD countries increasingly rely on systematic programme evaluations to inform decisions on whether R&D initiatives should be continued, redesigned or phased out (EC-OECD, 2026[5]). In Finland, a recent evaluation of the Academy of Finland (Arnold, 2022[9]) recommended more strategic steering and systematic review of the agency’s funding instruments. The findings informed and supported subsequent reforms to reorganise the Academy as the Research Council of Finland and strengthen its role in implementing the country’s long-term R&D funding strategy. In France, the need for better targeting R&D tax expenditures has become a central theme of fiscal consolidation, following evaluations performed by France Stratégie (CNEPI, 2021[10]).
Encourage private spending on R&D. By prioritising policies with the potential to attract or mobilise private investments, governments can improve cost-sharing and accelerate progress while limiting public spending growth. Public-private co-funding models can help reduce fiscal burdens while sustaining R&D ambitions. Israel provides an example of how governments structure innovation programmes to attract private co-investment. Through the Israel Innovation Authority, collaborative R&D initiatives often bring together firms, universities and public research organisations in jointly funded projects. For example, national quantum technology consortia (2023-2026) supports collaboration between government, academia and industry to advance quantum technologies. (OECD, 2025[11]).
Achieve savings through streamlining management and administration. Reducing duplication through better governance and making the administration of funds more cost-effective can produce savings. From more to less disruptive options, administrative reforms can include consolidating of overlapping programmes and agencies, sharing physical and digital facilities, or simply promoting stronger cross-institutional collaboration to leverage synergies across policies and ministries. Austria is one of several countries to change its R&D governance structure to strengthen strategic co-ordination and reduce fragmentation across ministries and institutions. In 2023, the government replaced two separate advisory bodies with a single council. In parallel, the government introduced the RTI Strategy 2030 and multi-year RTI Pacts that align research and innovation priorities across ministries and link them to funding agreements (EC-OECD, 2026[5]). By streamlining application and reporting processes, transaction costs for researchers and agencies can also be reduced. In 2025, the United Kingdom’s Research and Innovation system, “the UKRI”, introduced a single digital funding service to streamline how researchers find, apply for and manage grants. The system aims to reduce bureaucracy and simplify application and reporting, so that researchers spend less time on administration (UK Research and Innovation, 2025[12]).
Differentiating tax expenditures. Implementing caps or differentiated rates for large firms relative to SMEs, that are otherwise less likely to develop R&D activity, could improve cost-effectiveness and maximise the impact of limited R&D spending. Australia, Canada, the Netherlands and the United Kingdom are examples of countries that have provided favourable R&D tax incentives for SMEs compared to larger firms, for example through higher credit rates, refundability provisions or eligibility rules.
References
[9] Arnold, E. (2022), Evaluation of the Academy of Finland, Publications of the Ministry of Education and Culture, Finland 2022:7, https://julkaisut.valtioneuvosto.fi/server/api/core/bitstreams/d419ca87-30ac-442d-839b-e5af6d95eac1/content.
[1] Ciaffi, G., M. Deleidi and M. Mazzucato (2024), “Measuring the macroeconomic responses to public investment in innovation: evidence from OECD countries”, Industrial and Corporate Change, Vol. 33/2, pp. 363-382, https://doi.org/10.1093/icc/dtae005.
[10] CNEPI (2021), Évaluation du crédit d’impot recherche: Avis de la CNEPI 2021, Evaluation Report, Commission nationale d’évaluation des politiques d’innovation, https://www.strategie-plan.gouv.fr/files/files/Publications/2021/0601%20CNEPI/fs-2021-rapport-cnepi-cir-juin.pdf.
[5] EC-OECD (2026), STIP Compass - international database on Science, Technology and Innovation Policy (STIP), Database, edition 03/2026, https://stip.oecd.org.
[7] Ingþórsson, Á. (2025), Rannís - The Icelandic Centre For Research, https://en.rannis.is/news/research-and-development-expenditures-in-iceland-continue-to-increase.
[2] OECD (2026), “Statistical release”, OECD overall R&D growth stable; government R&D budgets decline and reorient towards defence, https://www.oecd.org/en/data/insights/statistical-releases/2026/03/oecd-overall-rd-growth-stable-government-rd-budgets-decline-and-reorient-towards-defence.html.
[11] OECD (2025), “An overview of national strategies and policies for quantum technologies”, OECD Digital Economy Papers, No. 379, OECD Publishing, Paris, https://doi.org/10.1787/5e55e7ab-en.
[6] OECD (2025), OECD INNOTAX Portal, OECD, Paris, https://stip.oecd.org/innotax/.
[8] OECD (2025), OECD Science, Technology and Innovation Outlook 2025: Driving Change in a Shifting Landscape, OECD Publishing, Paris, https://doi.org/10.1787/5fe57b90-en.
[3] OECD (2024), “How do governments direct support for innovation?: Lessons from recent OECD measurement and impact analysis (MABIS) work”, OECD Policy Briefs, No. 4, OECD Publishing, Paris, https://doi.org/10.1787/c1d93d1c-en.
[4] OECD (2020), “The effects of R&D tax incentives and their role in the innovation policy mix: Findings from the OECD microBeRD project, 2016-19”, OECD Science, Technology and Industry Policy Papers, No. 92, OECD Publishing, Paris, https://doi.org/10.1787/65234003-en.
[12] UK Research and Innovation (2025), UKRI, https://www.ukri.org/apply-for-funding/improving-your-funding-experience/reducing-research-bureaucracy/.
← 1. The latest available year at the time of writing of this report.