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Canada's beleaguered auto makers and other manufacturers found little solace in the new federal budget, as the government maintained its focus on debt reduction and delivered only a smattering of initiatives that one auto industry official declared “distressingly inadequate.”

The budget does extend a program of accelerated tax allowances for depreciation of new manufacturing machinery and equipment by three additional years, on top of the original two-year plan introduced in the 2007 budget, although both the length of the extension and its terms were less generous than many observers had hoped for. The government also pledged $250-million over five years to support research and development of greener vehicles, but the funds fell well short of what the auto industry felt was necessary to stimulate investment in such projects.

Meanwhile, another program aimed at encouraging greener vehicles – the ecoAUTO Rebate program, which delivered rebates of up to $2,000 to people buying fuel-efficient vehicles – will be allowed to expire next year after it runs its two-year course.

Jim Stanford, economist with the Canadian Auto Workers union, called the budget's initiatives for manufacturers “grossly out of proportion with the task at hand.”

“[Finance Minister Jim] Flaherty is sitting on $10-billion [in surpluses] that he could have done something with. Instead, he is putting it away for a rainy day. Well, guess what? For manufacturing, today is a rainy day.”

He suggested Mr. Flaherty could have set up a more substantial investment fund for the auto sector, perhaps matching the $1-billion fund set up by the Ontario government, but instead preferred to continue to use its ample surplus to pay down debt.

“He doesn't recognize the importance of manufacturing and the severity of the problems it is in,” he said. “We're going to see tens of thousands of high-paying, skilled jobs disappear.”

“Given the severity of the crisis, it is distressingly inadequate,” he said.

However, Mr. Stanford said the Canadian auto industry will actually be happy to see the end of the green-car rebate program. “That program sounded good in spirit, but it was perverse in impact,” he said.

While the program has been attractive for environmentally conscious consumers, the auto makers saw it as providing an incentive to buy fuel-efficient foreign-made cars rather than bigger vehicles built by Canadian manufacturers.

“We'll be glad to see that one die,” he said.

Jayson Myers, president of the Canadian Manufacturers and Exporters, an industry lobby group, said he was “very disappointed” in the budget's lack of substantial incentives to stimulate investment in the manufacturing sector.

“We were very clear [in consultations with the Finance Department] that we needed a five-year extension” to the accelerated depreciation program, Mr. Myers said. He said manufacturers need that kind of time frame in order to make multimillion-dollar investment decisions, plan and implement often complicated engineering processes, and clear regulatory hurdles.

Instead, the full program – under which manufacturers can depreciate new machinery and equipment by 50 per cent annually – is only extended one additional year, to 2009. For assets acquired in 2010 and 2011, the depreciation rate will decline by 10 per cent in each subsequent year.

“The impression I have is that the government is relying on low corporate taxes to be competitive. That gets you in the door, but it's not enough when others are offering greater incentives,” he said.

“When I read between the lines in the budget, I think the government is writing off manufacturing.”

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