2024 FEDERAL BUDGET: MANUFACTURERS SEEKING FASTER ACTION FOR GROWTH AND PRODUCTIVITY

OTTAWA, APRIL 16, 2024 – Canadian Manufacturers & Exporters (CME) was encouraged by new measures in Budget 2024, including those aimed at supporting the manufacturing sector through the transition to a clean economy. However, CME 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, at a time when Canada can least afford it.

“Government must move faster and with greater clarity” says Dennis Darby, CME President & 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.”

At the same time, CME remains concerned that even with swift follow through, the actions in Budget 2024 don’t fully tackle the critical key issues of low business investment and slow productivity growth recently declared an emergency by the Bank of Canada. These areas are vital for maintaining our standard of living and ensuring the manufacturing sector can thrive in the future.

“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,” continued Dennis 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.”

Manufacturers are also disappointed that the government did not extend the Accelerated Investment Incentive, which is set to expire at the end of 2027. This important measure allows manufacturers to immediately write off the full cost of machinery and equipment, encouraging them to make productivity boosting investments. By not extending the measure, the government has created investment uncertainty, making it difficult for manufacturers to plan their future investments with confidence.

New Tax Measures Threaten to Dampen Canada’s Already Weak Investment Performance

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. 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 we are striving to boost competitiveness and innovation within the industry and across the economy.

New and Expanded Investment Tax Credits, But Patience Being Tested

We were 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 per cent Electric Vehicle Supply Chain investment tax credit. Still, the government needs to accelerate the rollout of these measures to clear up uncertainty and encourage vital investments in our economy.

Innovation Measures: Some Good News

Notwithstanding the slow rollout of Investment Tax Credits, Budget 2024 proposed several supports that will help boost innovation and growth in Canada’s manufacturing sector, including several measures which CME has long 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 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. This shows the government understands the need for innovative solutions to our biggest problems.

Comprehensive Industrial Policy Still Missing

Finally, we were also hoping to see the government move away from less targeted support to a more comprehensive industrial policy, something 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.” concluded Darby. “We remain dedicated to working with the government to tackle these critical issues.”