The federal budget addresses the short-term issues of the current economic and financial crisis, but overcoming the long-term competitiveness challenges facing the Canadian economy will require more strategic government action in the immediate future, according to Canadian Manufacturers & Exporters (CME).

"The government took critical steps in the budget to stimulate liquidity, provide incentives that will encourage manufacturers to invest in machinery and equipment, as well as much-needed investments in strategic infrastructure," says CME president Jayson Myers. "But this is only the beginning. We need to ensure that Canadian businesses emerge from the recession in a stronger competitive position, and that will require further steps to encourage business investment in new technologies, new markets, skills and innovation."
 
According to the CME, the most important part of the budget is the government's $200-billion commitment to ensure adequate credit and liquidity for consumers and competitive businesses - a top priority for manufacturers as new orders begin to fall off and credit markets tighten.
 
"We are also pleased that the government will extend the two-year write-off for investments in manufacturing and processing equipment up to the end of 2011," Myers adds. "This provides a much greater degree of predictability that should help to encourage investment in new technologies."
 
Mario Fallico, a partner with Deloitte and the leader of the manufacturing team in Deloitte's Greater Toronto Private Company Services group, agrees that the budget will provide short-term relief. "This budget provides relief for manufacturers in several respects. There are some enhanced tax write-offs and measures to free up liquidity for borrowing...The government is effectively improving the lending ability of Export Development Canada and Business Development Canada. Where otherwise healthy businesses are having difficulty accessing financing, this will be a big help," he says. Fallico adds that there is an indirect benefit from public works projects that when the added employment and spending spreads through the economy, it will generate demand for manufactured goods.

The broad range of infrastructure projects in the budget will also benefit manufacturers that rely on the logistics, innovation, clean energy and broadband infrastructure highlighted in the budget.

"Commodity prices rose this decade in part because of an infrastructure boom in China, so the billions in infrastructure spending here should trickle down to manufacturers," explains Fallico.
 
In spite of the billions of dollars of economic stimulus provided in the budget, there is a need for more strategic support to encourage businesses to invest in the new technologies, new products, new markets and new skills they require to transform themselves, compete and grow in the future.
 
"These are the elements that will build a more competitive manufacturing and exporting sector, and ensure that the Canadian economy emerges from recession sooner rather than later," Myers adds.

Fallico says that more refundable tax credits are needed to encourage specific corporate policy such as hiring more employees and investing in new equipment, and points out another missing component in the budget. "The thresholds that define a small business for the purposes of the scientific research and experimental development tax credit are important. Last year's budget raised the taxable capital limits, allowing more companies to benefit from enhanced treatment (higher rates and more importantly refundability, even when a company is not profitable). This year, no such adjustment was made. One wonders if the government is waiting for companies to become smaller."

In the end, Fallico says that the components that will benefit manufacturers in this budget are not enough to prevent the industry's downward spiral. "Canadian manufacturers rely so heavily on exports to the U.S. and many of the tax measures require companies to be profitable to gain any immediate benefit. Consequently, while the package is not likely to deepen the downturn and it will help, this help will only be enough to slow down the bleeding for Canadian manufacturers."

To view the 2009 Federal Budget, visit www.budget.gc.ca/2009/home-accueil-eng.asp.