Driving Long-Term Growth in Manufacturing
- February 8, 2019
How the Federal government’s fiscal update will impact manufacturing
As the executive director for the Canadian Tooling & Machining Association (CTMA), I am fortunate to work with many shops that cover all facets of our industry. Over the past year I have visited many of our member companies and if one word could describe the business environment it would be “uncertainty.” Many have been asking “should I buy that new machine now, or should I wait and see what happens?” A lot of company owners and managers have been sitting on their hands waiting for the tariffs on steel and aluminum to be eliminated and the NAFTA/USMCA deal to be re-negotiated and signed. As we all know now, there has been some positive and negative news on both fronts.
I am hoping that the federal government’s Fiscal Update, released on November 22nd, announcing many changes will spur some much-needed new investment for our Canadian companies. These reforms include a new tax write-off scheme allowing manufacturers to immediately recoup the full cost of machinery and equipment, as well an immediate write-off for clean energy equipment. There’s also a new accelerated capital cost allowance to encourage businesses of all sizes in all sectors to invest in assets that can drive long-term growth by allowing them to deduct the costs of those investments sooner. These are big changes which will bring Canada in line with the reforms happening south of the border and with other countries around the world. I would like to think that constant pressure from the CTMA and other industry associations influenced the decision makers in Ottawa to initiate these reforms.
When I was an owner of a machine shop, my business partner and I took the purchasing of new machine tools extremely seriously. These are huge, long-term financial commitments, especially for the smaller shops, so any help to reduce the impact on a company’s finances is always appreciated. Below are thoughts from CTMA member companies on how these measures will affect sales and purchases of machine tools in Canada:
Ray Buxton, general manager of Mazak Canada, says reforms brought in by U.S. President Trump have had a positive effect and sales in the U.S. have increased over the previous year.
“Accelerated depreciation, lower corporate taxes, reshoring, “Buy America” and tariffs – all of these have had an impact on the U.S. economic climate. Growth is mostly positive, but there are also some negative impacts due to tariffs and the uncertainties of the USMCA negotiations. As far as the Canadian market goes, we are expecting a very strong 2019 since many Canadian companies have been sitting on their cash waiting for signs of stability. Now with these tax reforms in place, the USMCA signed, and higher confidence that many tariffs will be eliminated, confidence is returning to the Canadian manufacturing sector.”
Gaston Petrucci of Compact Mould is also positive, noting that “these new rules will allow us to actively look into purchasing new machinery and upgrades in 2019, purchases we had been contemplating but were reluctant to procure last year. These changes are important to keep Canada close to the USA in terms of tax write-offs so that we can remain competitive.”
Tracey Heslop, CFO and VP at Anchor Danly says “as for Canada, my understanding is that these changes allow companies to offset current year investment against current year income, helping to preserve cash in a year of investment by lowering current or future income taxes payable, which can be very significant to all sizes of businesses. As for Anchor Danly specifically, we will benefit significantly given the investment we have made in our Windsor facility in 2018 with the two large new pieces of equipment totaling over US $3 million. It's good timing for us given this is our most significant investment year in quite some time. Going forward, it also gives additional ROI immediately to new investment decisions, which may make the decision to invest easier for us and other companies.”
From conversations I have had with many other shop owners, they say they are grateful of the recent measures the Canadian government has brought in to level the playing field between Canadian and U.S. companies. I have always believed that the role of governments should be to provide an environment for businesses to thrive, creating jobs and increasing wealth for all involved. These reforms are a major step in helping Canadian companies move forward and make badly needed investments. Now if we could only do something about those tariffs. SMT