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Minister of Finance Joe Oliver tables the federal budget in the House of Commons on Parliament Hill in Ottawa on Tuesday, April 21, 2015.Adrian Wyld/The Canadian Press

The Harper government's pre-election budget offers investment incentives to manufacturers and growing tax breaks to small businesses while promising to return Ottawa to the black.

After years of highlighting the importance of Canada's resources sector, the Conservatives shifted the focus to the hard-hit manufacturing sector.

"Some have questioned the role of manufacturing in Canada's future economic success. We do not," Finance Minister Joe Oliver said in his speech delivered in the House of Commons. "For this government, the words, Made in Canada, continue to fuel pride and inspire confidence."

To encourage investment in the manufacturing sector, Mr. Oliver announced a 10-year extension of the accelerated capital cost allowance (CCA), which allows companies to take generous writeoffs for new equipment. The measure will cost $1.1-billion over the next four years.

"This is a sector that we're counting on to help Canada pick up in growth, particularly if it turns out the resource bounty is not as generous as we thought it would be," said Avery Shenfeld, chief economist at CIBC. He said the tax incentive is a "useful hand of support to those manufacturers who are prepared to put their own money up in capital spending."

The writeoff was first introduced in 2007 and extended several times but was due to expire at the end of 2015.

Guy Nelson, chief executive officer of Empire Industries Ltd., an engineering firm based in Winnipeg, said the accelerated CCA is a significant incentive "for all sorts of businesses, particularly in the manufacturing sector, to invest in the type of equipment that is needed to enhance our productivity."

Canadian industry is lagging on productivity measures, Mr. Nelson said, because we have smaller plants and smaller markets than firms in other countries. Consequently, "it is very important to use equipment to enhance the productivity of plants and the work force – to give them the best tools to be as efficient as they possibly can and to compete on a world scale."

The tax break offered Tuesday will give an overall boost to Canadian manufacturing, said Dean Davenport, president of the transportation group at Cambridge, Ont.-based IMT Corp., which makes truck axles and components.

"I think this is a great step to allow manufacturers to spend money on capital equipment," Mr. Davenport said. "This allows the company to take what would have been tax dollars and spend them on new machinery and infrastructure upgrades that create jobs."

The Canadian tax system is now considerably more attractive than the United States, Germany or other developed economies for new investment, said Jayson Myers, chief executive at the Canadian Manufacturers & Exporters association. The Finance department said Canada's marginal effective tax rate for new investment in manufacturing will be 9.1 per cent in 2016, compared with 31.7 per cent in the United States, and 26.4 per cent in Germany.

Ottawa will also provide $100-million over five years to support product development in Canada's auto parts sector, specifically aimed at technologies to improve fuel efficiency and onboard communication and automation. However, half of that money was re-directed from an existing auto sector fund.

"This funding commitment is a recognition of the important contribution a competitive auto parts manufacturing sector makes to the Canadian economy and we appreciate the government's continued partnership," Flavio Volpe, president of the Automotive Parts Manufacturers' Association, said.

Mr. Oliver also targeted small businesses with a series of tax breaks, most notably a reduction in the rate from 11 per cent currently to 9 per cent by January 2019. Finance Canada said the measure will save small businesses $2.7-billion over four years. Small business will also benefit from a new financing support – to be administered by Export Development Canada – to help them reach markets in developing countries.

Slower economic growth and lower crude prices have cut $6-billion from anticipated revenue this year, forcing Mr. Oliver to maintain a large surplus in the Employment Insurance account to avoid a deficit on the overall books in the current year.

As a result, he is projecting a $1.4-billion surplus this year and $1.7-billion in 2016-17.

But the government is counting on rising oil prices to help boost economic growth and pad its surpluses in future years. It will also collect an average of $3.5-billion per year more than required for Employment Insurance benefits over the next two years, promising to slash premiums only in 2017.

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