Measure will only help Canadian companies if private sector invests heavily to tackle low productivity
June 7, 2011
by Canadian Manufacturing Daily Staff
OTTAWA—The extension of the two-year Capital Cost Allowance (CCA) write-off for manufacturing and processing technologies announced in the Harper Government’s federal budget is critical to sustaining Canada’s economic recovery, according to Canadian Manufacturers & Exporters (CME).
The accelerated rate of depreciation will save Canadian manufacturers approximately $650 million over the next five years, said Jayson Myers, CEO and president of CME.
The two-year depreciation rate for investments in industrial machinery was set to expire at the end of this year, but yesterday’s budget announcement has ensured businesses can take advantage of the investment incentive for another two years.
“Canadians can no longer borrow their way out of recession,” says Meyers. “As the government looks for opportunities to save money, we have to rely more than ever on business investment, innovation, improved productivity and export growth to sustain Canada’s economic recovery and generate the incomes and public services that Canadians expect.”
The accelerated write-off combined with corporate tax cuts help, but Myers says more must be done to eliminate regulatory impediments, facilitate exports into the U.S. and other global markets and leverage publicly-funded research to develop the solutions that will enable Canadian businesses to compete and grow, he adds.
The renewal of the capital cost allowance may have come at just the right time, considering the head of the Organization for Economic Co-Operation and Development (OECD) called on Canada to improve its productivity at the International Economic Forum of the Americas.
“The great challenge for Canada is productivity,” says Angel Gurria, secretary general of the OECD.
Gurria failed to provide any specific solutions for boosting the persistent problem but said the government needs to step in to ensure Canada maintains its global competitiveness.
Canadian Auto Workers (CAW) president Ken Lewenza agrees, saying the CCA will only help productivity if private corporations start investing in Canadian manufacturing facilities.
“The private sector hasn’t lived up to their commitment,” he says. “Those companies haven’t spent the money they’ve been given through tax abatement or corporate tax reductions – if you’re not investing in the latest technologies or processes, those initiatives don’t really mean anything.”
Indeed, countries that don’t invest in productivity and job creation are looking at a long, bleak road to recovery. Currently about 50 million people are unemployed in OECD countries, nearly 14 million more than before the crisis.
The OECD’s long-term forecast through 2026 points to mediocre global economic growth; high deficits and debt levels; and elevated unemployment rates that reduce very slowly.