Federal budget “shortchanges” plastics manufacturing

The federal budget presented last week offered some relief for Canadian manufacturers and exporters, but fell short of the sector’s expectations.

Going into the announcement last Tuesday, industry association leaders had indicated that they would like to see the two-year accelerated capital cost allowance (ACCA) extended for five years.

The industry also hoped to see a number of other measures — such as changes to the Scientific Research and Experimental Development (SR&ED) regime and an employers’ training tax credit — that would help manufacturers compete through investment and improve cash flow. (Read more about the industry’s hope for the budget here.)

Instead of a recommended five-year extension, the new budget extends the two-year write-off by a year and provides two more years with declining depreciation rate. Although Finance Minister Jim Flaherty said the measure would benefit the manufacturing sector by approximately $1.3 billion by 2009-10 in his budget speech, industry leaders expressed their disappointment with the extension.

“This just doesn’t cut it,” said Canadian Manufacturers and Exporters (CME) president Jayson Myers. “Manufacturers are under the gun to innovate and this measure basically takes us back to where we started. With an one-year extension at current levels, it doesn’t fit into the business planning cycle for Canadian companies, so many hard-pressed businesses won’t be able to take advantage of this.”

The Canadian Plastics Industry Association‘s Serge Lavoie echoed Myers’ disappointment.

“I really do feel that manufacturing got shortchanged,” he told Canadian Plastics. “They’ve considerably watered down the original recommendation.”

Both Myers and Lavoie argue that the short extension will only benefit some manufacturers. Myers also noted that a five-year extension would allow companies more time to make significant investment decisions.

CPIA’s Lavoie had also hoped to see action on employment tax training credits and changes to the SR&ED program. Yesterday’s budget offered nothing on the former, and minor improvements to the latter.

If approved, the budget will increase the expenditure limit for private corporations from $2 million to $3 million. The upper limit for taxable capital phase-out will be extended from $15 to $50 million, and the limit on income phase-out will go from $600,000 to $700,000.

Additionally, the budget hopes to extend SR&ED eligibility to R&D conducted off Canadian soil, raising it to a maximum of 10 per cent.

But Lavoie had hoped that SR&ED credits would be made refundable or monetized.

“The crux of what we were asking for was not done, and that was critical,” he said. “What we were looking for was cash flow measures, so you spend money today you get to write it off almost immediately.”

Additionally, Flaherty announced plans for an Automotive Innovation Fund, with $250 million in funding over five years for the development of greener and more fuel-efficient vehicles. Details about how that money would be distributed were not made available.