Budget 2024: Manufacturers seek quicker action for growth and productivity, says CME

Canadian Manufacturers & Exporters (CME) shared in a statement that it was encouraged by new measures in Budget 2024, including those aimed at supporting the manufacturing sector through the transition to a clean economy. However, the association is deeply concerned about the pace of implementation of previously announced measures, compounded by the chilling impact on manufacturing investment through increased capital tax gains.

“Government must move faster and with greater clarity,” says Dennis Darby, CME president and CEO. Manufacturers are still waiting for final legislative details to remove uncertainty for some of the Investment Tax Credits announced in previous budgets. If we don’t move now, Canada will continue to lose investment to the United States, which has had the Inflation Reduction Act (IRA) provisions in effect since August 2022.”

CME explains that it remains concerned that even with swift follow through, the actions in Budget 2024 don’t completely tackle the critical key issues of low business investment and slow productivity growth recently declared an emergency by the Bank of Canada.

“While we appreciate the government’s work to strengthen the economy, the scale of the business investment and productivity challenges facing our economy required even bolder action,” noted Darby. “It is crucial we address these fundamental problems to safeguard our economic future and prosperity. Taxing Canada’s job creators sends the wrong signal, at the wrong time.”

The federal government is increasing the capital gains tax on companies. The budget increases the inclusion rate on capital gains from one-half to two-thirds, which is expected to increase government revenue by nearly $20 billion over the next five years. CME states that this is the last thing the Canadian economy needs, especially in light of Canada’s investment and productivity growth woes. Such measures would deter investment at a time when businesses are striving to boost competitiveness and innovation within the industry and across the economy.

CME is pleased to see the budget propose additional measures to help the manufacturing sector remain competitive during the transition to a clean economy, including the expansion of the Clean Technology Manufacturing investment tax credit to include critical minerals production and the introduction of a new 10 percent Electric Vehicle Supply Chain investment tax credit. The association adds that the government needs to accelerate the rollout of these measures to clear up uncertainty and encourage vital investments in the economy.

The association adds that Budget 2024 proposed several supports that will help boost innovation and growth in Canada’s manufacturing sector, including several measures which CME has advocated for. These include:

• Providing $600 million over four years, and $150 million per year ongoing, for future enhancements to the Scientific Research & Experimental Development tax credit, an essential step if the modernization of the program is to be successful.
• Targeted Artificial Intelligence (AI) support of $2.4 billion, including $200 million over five years to, among other things, accelerate AI adoption in critical sectors, including manufacturing.
• Support for modular and prefabricated manufacturing, including $500 million for an Apartment Construction Loan Program to provide low-cost financing for new apartments that use, among other things, prefabricated homebuilding techniques.

CME is hoping to see the government move away from less targeted support to a more comprehensive industrial policy that would unlock the full potential of the manufacturing sector, fostering widespread innovation, investment and productivity improvements.

“CME supports the steps taken in Budget 2024 to bolster Canada’s economy, but a more thorough approach is needed to meet the big challenges our manufacturing sector and broader economy face, and it’s needed now,” said Darby. “We remain dedicated to working with the government to tackle these critical issues.”