Home Regular Contributors Budget Changes the Game for Manufacturers and Exporters

Budget Changes the Game for Manufacturers and Exporters

David MacLean.

Things were bound to change. A string of provincial governments kicked the deficit can down the road, racking up billions in new debt. Being debt free, while it lasted, was a point of pride for Albertans and a symbol to the world that we were… different.

It began as a slow leak during the Stelmach years with the global financial crisis in 2007 ending a long period of sustained economic growth. Premier Stelmach started borrowing for roads and infrastructure, abandoning the short-lived practice of paying for things out of pocket. Public service spending continued to ramp up.

Then came Premier Alison Redford, who seemingly made a bet that sky-high oil prices would save the day. High prices never returned. A run of scandals led to a new leader in Jim Prentice, exactly when oil prices really started to collapse. He introduced a tough budget, with spending tightened and a handful of taxes increases that spread the pain around. He was defeated months later by Rachel Notley’s NDP.

The NDP rejected spending cuts, increased taxes on business, and set out to diversify the economy with a range of programs and incentives. They promised to “bend the curve” on government spending, meaning it would continue to rise but not as quickly as it had before.

All the while, Alberta continued to have the most expensive government in Canada and four successive Premiers either didn’t see the problem or simply failed to do anything about it. That all changes with Premier Kenney and this still-new UCP government.

Now that we’ve had six weeks or so to reflect on its impact, one thing is clear – the 2019 budget represents a public policy sea change.

NDP programs generally supported by manufacturers are mostly gone. The Capital Investment Tax Credit (CITC) will not be renewed, the Scientific Research and Experimental Development (SR&ED) tax credit is toast and the Alberta Investor Tax Credit is no more.

These programs were welcomed because they incentivized particular behaviours that we need to see more of in Alberta and across the country – innovation and investment in equipment and technology. Manufacturers have steadily slipped in global investment rankings, meaning our productivity growth will lag behind our competitors.

These programs may be missed, but they are replaced by a promise to cut the corporate tax rate by a full third over the next 30 months.

Eliminating CITC and SR&ED may have measurable consequences – particularly in the start-up space. But slashing corporate tax rates, a policy broadly endorsed by economists as a way to stimulate investment and create jobs, signals to the business community that this government cares about competitiveness.

We all saw this coming. This government is going to tackle spending, and everyone will be impacted. In other words, they are doing precisely what manufacturers have always done.

We’re going to continue to make the case that creative policy design can help make Alberta a manufacturing and R&D powerhouse but, for now, we need our government to carry on with needed reforms.

We’ll be better for it when we get to the other side.

Canadian Manufacturers & Exporters (CME) is the voice of Canadian manufacturing. CME represents more than 2,500 companies who account for an estimated 82 per cent of manufacturing output and 90 per cent of Canada’s exports.