March 18, 2013 / 6:09 PM / 5 years ago

Canada minister lauds factory investment writedowns

Canada's Industry Minister Christian Paradis speaks during an interview with Reuters in Ottawa March 18, 2013. REUTERS/Chris Wattie

OTTAWA (Reuters) - Canadian manufacturers have benefited from a measure allowing them to accelerate writedowns of their investments, Industry Minister Christian Paradis said on Monday, but he could offer no guarantees the upcoming federal budget would extend the program.

Finance Minister Jim Flaherty will present the 2013-14 budget on Thursday and has signaled that he will restrain spending to offset weak revenue rather than increase expenditures to boost the sputtering economy.

Ottawa introduced the accelerated capital cost allowance in 2007 to help manufacturers hit by the strong Canadian dollar.

The measure is due to expire at the end of this year, and industry groups have asked for a five-year extension.

“Of course, as industry minister I think this is a measure that is very, very interesting,” Paradis told Reuters in an interview when asked if the extension would be granted.

“It added a lot of leverage in the past and I heard a lot of good comments in the multiple roundtables in the last months, for sure,” he said in an hour-long conversation in his office.

The measure allows businesses to write off investments in manufacturing and processing machinery and equipment over a shorter time than in the past, enabling them to generate more cash flow.

Paradis was careful to avoid making any promises, acknowledging that Flaherty is under pressure to restrain spending in the budget.

“This is a measure that has a cost. It has benefits for sure. How the finance minister will juggle with this, I don’t know ... We have to deal with the fiscal constraints that we have,” he said.

Current costs could climb even higher if Ottawa agrees to a request by the oil industry to extend the benefit to liquefied natural gas plants.

The Canadian Association of Petroleum Producers asked the government last year to recognize LNG facilities as manufacturing and processing assets, which would make them eligible for the benefit.

Jay Myers, president of the Canadian Manufacturers and Exporters, said he was hopeful the budget would include the accelerated writedown measure after his organization lobbied government officials over the past year.

The CME says the accelerated capital-cost allowance allows businesses to depreciate their investments completely over a three-year period compared with about 14 years under the traditional model, and will save manufacturers about C$2.5 billion over the next five years.

Unlike the broader economy, manufacturers and exporters have not yet recovered from the 2008-09 recession.

LESS WORRY ABOUT STRONG CURRENCY

Paradis said he was pleased to see the manufacturing sector growing and noted that he was hearing fewer complaints about the strength of the Canadian dollar, which hurts exporters.

“We used to hear that more in the past than now, to be blunt,” he said.

“Wherever I go, we all agree that it’s unlikely that the Canadian dollar will go down as it used to be so if people are relying on this to increase their competitiveness, it’s not the way to do it,” he said. “We should not rely on this.”

With additional reporting by Randall Palmer and David Ljunggren; Editing by Jeffrey Hodgson and Steve Orlofsky

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