Should the Accelerated Capital Cost Allowance Be Extended Any Further?

Canadian manufacturers are facing significant challenges due to the strong dollar. These challenges are compounded by tougher credit criteria and increased borrowing spreads resulting from the U.S. sub-prime mortgage meltdown. To help firms adapt to these new conditions, in 2007 the federal government introduced an accelerated capital cost allowance (CCA) for investments in manufacturing machinery and equipment. Originally intended to be available for two years, in 2008 the accelerated CCA was extended for a further year. Ontario joined with the federal action. Signal49 Research believes that the temporary acceleration of the CCA rates for manufacturing is appropriate, since it gives profitable firms with reduced profit levels more time to generate the resources needed to revamp their operations. However, as a permanent measure, the accelerated CCA could artificially encourage resources to move into or remain in the manufacturing sector at the expense of other sectors of the economy, eventually lowering productivity growth.