The Conservative government will boost tax credits for manufacturing as part of a jobs-themed budget that will be light on spending and heavy on marketing as it promises balanced books by 2015.
Canada’s manufacturing sector – once the core of the nation’s economy, and the dominant sector in the country’s once-powerful economic engines of Ontario and Quebec – has suffered through a sharp decline in the past decade. Employment in the sector has dropped by more than 700,000 jobs – nearly 30 per cent – in the past 10 years.
The degree to which Canada’s high dollar impacts manufacturing has been hotly debated in policy and political circles over the past year, with former Ontario premier Dalton McGuinty blaming his province’s troubles at one point on a “petro dollar,” before recanting in the face of heavy criticism from Alberta and Saskatchewan.
Finance Minister Jim Flaherty chose a Roots manufacturing plant in his home province of Ontario for his customary prebudget photo op for a new pair of shoes. The black dress shoes were stamped with a white “Economic Action Plan” logo, which when combined with new government ads, leave little doubt that self-promotion will survive the government’s hunt for savings in the hope for a balanced budget by 2015.
The government called its deficit-era stimulus spending an “Economic Action Plan,” but even though it has since tabled a final report on the program, the branding exercise has continued and is now being relaunched as “Economic Action Plan 2013.”
After releasing Thursday’s budget, Mr. Flaherty will head to Vancouver to deliver a post-budget speech to a business audience on Friday, before travelling to Asia. On Monday, he will speak in Hong Kong to the local chapter of the Canadian Chamber of Commerce. The Asia trip includes speeches and bilateral meetings, but no major international gatherings.
Thursday’s budget is expected to include a heavy focus on boosting manufacturing and international trade, which Mr. Flaherty will highlight during his trip.
“We’re going to talk about manufacturing in the budget [Thursday] and some specific measures that we’re going to take, particularly to help manufacturing enterprises in Canada, including Ontario, which is a very important place for manufacturing in Canada, so that’s one of the major points we’ll talk about,” Mr. Flaherty said Wednesday while trying on his new shoes. “Another important part of things is innovation,” he said.
In practical terms, Jayson Myers, president of the Canadian Manufacturers and Exporters, says he expects the government will support a new fund for manufacturers looking to create new products. “I’m expecting in this budget that we’ll see what the government has in mind in terms of some form of direct funding program,” Mr. Myers said.
That would be in addition to extending the Accelerated Capital Cost Allowance, which the CME has estimated saves manufacturers about $600-million a year. It allows businesses to write off investments in new equipment and machinery completely over three years instead of about 14 years.
Sources said Thursday’s budget will extend the Accelerated Capital Cost Allowance beyond its current 2013 expiry date. The allowance was announced as a temporary measure in 2007 and extended in 2011 because of the recession.
Earlier this week, the minister sent a letter to the Conservative caucus that said the focus of the budget would be on creating jobs through skills training, a new infrastructure deal and support for manufacturing.
Thursday’s budget will promise balanced books by the 2015-16 fiscal year, even though Ottawa faces less revenue than it had expected in November, when Mr. Flaherty released a fiscal update showing the deficit wouldn’t be erased until 2016-17.
Private-sector economists do expect the economy to pick up next year. A recent report by RBC Economics said stronger growth in 2014 will allow Ottawa to meet its 2015 deficit target.
One aspect of the budget that will be closely watched is the detail around what Mr. Flaherty meant when he said the budget will address “tax loopholes.” That could mean certain tax credits will disappear as a way of raising much-needed revenue.
With a report from David Parkinson in Toronto
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