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Tax and spending measures target hard-hit factories

Finance Minister Jim Flaherty tables the federal budget in the House of Commons on Parliament Hill in Ottawa on Thursday, March 21, 2013.


Finance Minister Jim Flaherty turned the spotlight on Canada's hard-hit manufacturing companies in Thursday's budget, offering a series of tax and spending measures aimed at boosting their fortunes.

In a budget that stresses fiscal prudence, the Conservative government switched gears from a focus on resource development to provide some modest help for central Canada's struggling industrial sector.

Last year, Mr. Flaherty introduced Ottawa's "responsible resource development" policy, which included an overhaul of the regulatory process to speed up environmental permits for projects like oil-sands pipelines. This year, the minister aimed to revive Ontario and Quebec's traditional manufacturing base with stimulus to spur investment and innovation.

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The budget features a two-year extension of the popular Accelerated Capital Cost Allowance (ACCA), which will cut manufacturers' tax bill by $1.4-billion over four years. "This will allow businesses across Canada to improve their productivity and enhance their ability to compete globally," the Minister said in the House of Commons.

Jayson Myers, head of the Manufacturers and Exporters Association, said the tax measure – which was set to expire at the end of this year – provides an important incentive for companies to invest in new equipment. "The ACCA provides cash flow up front as they make the investments so it actually increases the rate of return on their investments by about 10 per cent over the first three years of the investment," he said.

Business investment in industrial equipment has boomed in recent years, climbing to $31.5-billion at an annualized rate in the second quarter last year, compared with $20.7-billion in 2009 and a pre-recession high of $29.1-billion in 2008.

Extending the capital cost allowance by two years is a positive move, but the government should make that change permanent, said Ben Hume, president of Sheppard's Building Materials Inc. of Surrey, B.C. Assessing capital projects and whether they make sense often takes more than two years, noted Mr. Hume, whose company employs 25 people who make sunrooms, patio covers and deck enclosures.

The government responded to business leaders' complaints about Canada's shortage of skilled workers with a proposed training grant that will be enabled only if the provinces and employers agree to contribute equal amounts. And it announced a 10-year infrastructure plan – sought by the construction industry – that maintains the current pace of spending.

Mr. Flaherty also announced the government will extend funding for the Federal Development Agency of southern Ontario, with $920-million over five years. Of that amount, $200-million is earmarked for an advanced manufacturing fund to subsidize companies' efforts to innovate with new products or production methods.

Peng Sang Cau, CEO of Transformix Engineering, a Kingston, Ont. company that sells specialized assembly-line machinery around the world, said the new fund is positive – at least in theory. But she points out that every new support program has its quirks, and it can be very complex for small businesses to figure out how they work. "A lot of these programs look great on paper, but are very difficult for small entrepreneurs to access because we just don't have time," she said.

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For Craig McIntosh, president of Winnipeg-based Acrylon Plastics Inc., the money for training is vital. The federal government will kick in $5,000 per employee if a company and provincial governments provide an equal amount.

"We're training all the time," said Mr. McIntosh. Acrylon has about 350 employees, many of them immigrants who need English-language training and instruction in basic manufacturing skills, he said.

In the aerospace sector, the government is launching a new technology demonstration program, as recommended by the aerospace industry review led by former industry minister David Emerson.

The program aims to move technologies out of laboratories and into commercial production by testing their safety and efficiency. It will be allocated $55-million per year once it is fully operational in 2018. But about a third of that money, or $20-million, will come out of the existing strategic aerospace and defence initiative.

The government will also prolong the incentives it offers to the forestry sector to conduct research and development, and market research into the new opportunities for Canadian forestry products in international markets. However, the two-year extension will provide $92-million to the industry as opposed to $105-million in its previous incarnation.

With files from Sophie Cousineau in Ottawa.

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About the Authors
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More


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