Budget 2009 gets mixed reviews

OTTAWA, Ont. – The Honourable Jim Flaherty, Minister of Finance, recently tabled the 2009 Federal Budget, which is intended to "stimulate economic growth, restore confidence and support Canadians and their families during a synchronized global recession," but the manufacturing industry isn’t convinced.

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.