Targeted investment write-off for manufacturers appropriate - for now

    OTTAWA, Aug. 13 /CNW Telbec/ - Helping companies adjust to the high value
of the dollar-by extending accelerated capital cost allowances for
manufacturers-was a good move on the part of the federal and Ontario
governments, but these tax write-offs should be temporary, according to a
Conference Board briefing released today.
    "It is appropriate for the federal and Ontario governments to help
companies adjust to the extraordinary rise in the value of the dollar over the
past six years," said Glen Hodgson, Senior Vice-President and Chief Economist.
"But making these measures permanent would distort investment toward the
manufacturing sector and away from other sectors of the economy-which may
lower Canada's productivity growth in the long run."
    The briefing, Should the Accelerated Capital Cost Allowance be Extended
Any Further?, argues that the federal government was correct to introduce a
two-year window for accelerated capital cost allowances in its 2007 budget,
and then to extend the measure to 2010. Ontario's 2008 budget introduced
parallel measures that extend through 2010-11, which is a welcome alignment of
federal and provincial tax policy.
    The public policy question is whether this period is enough time for
Canadian companies to make machinery and equipment (M&E) investments that
improve firm efficiency and raise productivity. Current evidence, in terms of
new M&E investment, indicates that many manufacturers are taking advantage of
the measure.
    Overall M&E in the manufacturing sector is forecast to grow modestly over
the next two years-3.7 per cent in 2008 and six per cent in 2009. However,
these numbers are skewed by the sharp decline in M&E investment in the auto
sector, which is bearing the brunt of the adjustment pain. Other sectors such
as aerospace, food manufacturing and electronic equipment are forecast by the
Conference Board to achieve double-digit growth in their M&E investments this

    This briefing is part of the Conference Board's series "Canadian Tax
Reform for Sustainable Prosperity" designed to foster public debate on tax
reform. Previous briefings in the series include: Implement Sustainable
Funding for Canada's Cities; Use Green Taxes and Market Instruments to Reduce
Greenhouse Gas Emissions; Harmonize Consumption Taxes to Improve Economic
Efficiency; and Provide Fair Tax Treatment for Canadian International

For further information:

For further information: Brent Dowdall, Media Relations, (613) 526-3090
ext. 448,

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