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OTTAWA (Reuters) - Canadian Industry Minister Tony Clement said on Wednesday that higher productivity and lower taxes are helping domestic companies cope with the effects of a stronger Canadian dollar.
Clement made his comments a day after Finance Minister Jim Flaherty signaled he was more comfortable with a higher dollar despite complaints by manufacturers that it makes doing business harder.
Clement said firms were benefiting from factors such as lower taxes, higher productivity and government efforts to reduce dependence on exports to the United States.
"All of these things have a cumulative effect that we expect will more than overcome the fact of the high dollar," he told reporters, saying he thought most firms were adjusting "very well".
The main opposition Liberal Party said Clement was ignoring the problems posed by the rising Canadian dollar, which closed just below 99 U.S. cents on Wednesday, its highest level in almost 20 months.
A higher Canadian dollar makes it harder for firms to sell their goods in the United States, which takes 75 percent of all Canadian exports.
"In the past, it's been a challenge for companies in Canada because of the fact that they relied historically on the lower dollar to be their productivity and competitiveness edge," Clement said.
The Canadian dollar hit an all time low of 61.79 U.S. cents in January 2002. It recovered gradually, hitting parity in September 2007 before falling back.
"What we're seeing now with the higher dollar, however, is an increase in labor factor productivity ... the fact that companies are adjusting to a higher dollar and looking at other means to increase their productivity," said Clement.
"We think that government policies are helping in that regard, whether it's lower business taxes or zero tariffs on manufactured equipment."
He also said most Canadian companies realized they could not depend on a weak currency to give them an advantage.
"The new normal is that you don't just rely on a low Canadian dollar as your productivity edge and I think most businesses have gotten that point now," he said, also noting that the government was trying to diversity Canada's export markets to reduce reliance on the United States.
Liberal finance spokesman John McCallum said that while productivity gains had helped ease the pain, the strong currency was a huge headache for manufacturers.
"I don't know why the government is downplaying that, possibly because there's not much the government can do about it. But certainly (Ottawa) would be hiding its head in the sand if it says that this is not a problem," McCallum told reporters.
Reporting by David Ljunggren; editing by Rob Wilson