Finance Minister Jim Flaherty is considering bringing in measures to provide relief to Canada's manufacturing industry, which is feeling the effects of the high dollar.
Speaking at the Oshawa Chamber of Commerce in his home riding, Flaherty said the dollar's meteoric rise in recent months against the U.S. greenback has combined with growing competition from imports to create major challenges for manufacturers.
The finance minister, embarking on national pre-budget consultations, called the situation a "perfect storm" saying the rising dollar has "left our manufacturers and exporters with little time to adjust.''
"We have seen the impact here in this community with General Motors and our auto parts manufacturers and suppliers, and with our agriculture, tourism and forestry sectors,'' said Flaherty.
He said the federal government in the last budget -- at a cost of $1.3 billion -- accelerated the capital cost allowance (CCA) permitting businesses "to write off 100 per cent of their investments in new machinery and equipment" over the next two years.
Manufacturers have now been urging him to extend the CCA over a longer period of time.
"We'll consider that as we prepare the next budget," he said.
Normally, the cost of depreciable assets -- such as buildings, furniture and equipment -- acquired for use in business or professional activities cannot be deducted as an up-front expense when calculating net income for tax purposes, says the Library of Parliament website.
In recognition of the fact that these assets wear out or become obsolete over time and are replaced the federal government created the capital cost allowance.
The CCA is a non-refundable tax deduction that reduces taxes owed by permitting the cost of business-related assets to be deducted from income over a prescribed number of years, says the website.
On occasion, a CCA rate is "accelerated" to increase the incentive for investing in an asset by permitting it to depreciate more quickly.
Accelerated CCA rates are available for items such as renewable energy and energy efficiency equipment, vessels, mining assets, and capital equipment used for scientific research and experimental development.
"Combined with the elimination of the federal capital tax, the acceleration of cuts to small business taxes and further drops in employment insurance premiums, our government is determined to create the conditions for business to succeed,'' said Flaherty.
Help for municipalities
Later in his address, Flaherty indicated municipalities can expect little help from the federal government, despite strong lobbying by Toronto Mayor David Miller, backed up by Ontario Premier Dalton McGuinty.
Flaherty said the federal government has already done its part.
"What I say to the municipal governments and to the provincial governments, quite frankly, is they have to do their job, too," Flaherty said.
"We have done our heavy lifting federally, with $33 billion for infrastructure, a $1 billion flow agreement with the (Greater Toronto Area). Now it is up to the municipalities and the provincial governments to do their jobs as well."
He said the feds set aside $1.26 billion in the budget in March to create a "federal office of public/private partnerships," which should be up and running by early 2008.
But that office will approve funding partnerships between the private sector and all levels of government on projects that have economic significance for Canada as a whole, he said.
"I'm talking about projects of economic significance to the country, national projects that should be the concern of the national Government of Canada, gateway projects, including the St. Lawrence gateway, our gateway to the United States, from Ontario," Flaherty said.
When asked what the government would do about the Canadian dollar's rise, he was non-committal.
"The Bank of Canada has responsibility for monetary policy,'' he said, adding: "We'll see."
He also said "reality is that Canadian business can't expect the dollar to go back to the lows'' when it was in the 62- to 70-cent range."
He said there are many factors affecting prices in Canada and the U.S. and the prices of products in Canada won't necessarily be a direct reflection of the loonie's strength.
However, he pointed out that some prices in Canada have dropped due to the high Canadian dollar.
