Canada’s Budget promises relief for manufacturing sector

The news today in Canada is yesterday’s budget, and the “headline” that there’s a lot in there to help Canadian manufacturing, the “engine” of Ontario.

Well, is it true?

The federal government is providing $1 billion in tax relief for Canada’s ailing manufacturing and processing sector by extending the accelerated capital cost allowance (CCA) for businesses.

Finance Minister Jim Flaherty said Tuesday that the government will allow businesses to use the accelerated CCA, on a declining basis, until the end of the 2012-13 fiscal year.

The CCA is a non-refundable tax deduction that reduces taxes owed by permitting the cost of business-related assets to be deducted from income over a prescribed number of years.

On occasion, a CCA rate is “accelerated” to increase the incentive for investing in an asset by permitting it to depreciate more quickly.

The accelerated CCA plan introduced in the 2007 Budget allowed manufacturing businesses to fully write off investments in machinery and equipment within two years.

This says that, if you have the money to invest in new machinery, you can pay it off sooner, that is, write it down sooner, lowering your tax bill. Hopefully, you’ll take some of the tax refund and use it to actually pay it down faster at the bank, thereby also reducing borrowing costs, another expense.

But let’s think about this a bit. Many Canadian manufacturers are already on the ropes, hanging on by their fingernails. Are investments in new machinery uppermost in their minds? Are new machines even in the picture? I don’t think so. They’re doing everything they can to keep from laying off more people, to hang on to loyal employees.

While I applaud government efforts to reward newer, higher-productivity machinery, that shouldn’t be the whole picture. How about a reduction on Workers Comp premiums for companies with good safety records? How about cost sharing on CPP for a year or two? These are costs every manufacturer, even those on the ropes, has, and so every manufacturer will benefit from them.

So what do other people thing?

Manufacturers say budget comes up short Reuters Canada says:

Canada’s budget offered some financial help for the country’s struggling manufacturing sector on Tuesday, but industry groups said it would not be enough to offset the impact of a strong domestic currency, a slumping U.S. economy and low-cost global competition.

[…]

Industry groups, however, said the one-year extension of the 50 percent rate would not give capital-intensive industries the time and funds needed to plan and execute the big investments they need to compete internationally.

“It’s really a grab bag of goodies, some loose pocket change being thrown to the manufacturers,” Jayson Meyers, president of the Canadian Manufacturers and Exporters Association, told Reuters.

[…]

Jim Stanford, an economist at the Canadian Auto Workers union, said the auto fund would not help workers who are losing their jobs as the industry cuts back.

“We would have preferred to see Mr Flaherty take a billion dollars out of that whopping 2007 surplus and create a real auto investment fund to match Ontario’s billion-dollar fund,” Stanford said.

The Toronto Star called it a show about nothing

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