Canadian Manufacturers & Exporters has devised a strategy designed to make manufacturing an economic driver during the recovery from the pandemic and it notes the auto industry is a key to understanding manufacturing's role in the economic rebound.
Manufacturing our Future is a three-phased approach to a post-pandemic economy.
Canada’s 90,000 manufacturers account for more than 10 per cent of the country’s GDP, nearly two-thirds of merchandise exports, and 1.7 million jobs.
“The manufacturing sector has the capacity to drive the Canadian economic recovery,” CME President and CEO Dennis Darby said in a statement. “CME developed a three-phase roadmap: respond, recover, and prosper, that will enable government to leverage manufacturing as part of their economic recovery plan.”
Despite many businesses ramping up or shifting production in response to the COVID-19 pandemic, the majority of manufacturers report their rate of output has fallen below normal since the onset of the pandemic and expect it will remain below normal for the next 3-6 months, mostly due to a drop in demand, CME says.
Manufacturers rely heavily on consumer spending for their domestic sales with the clearest example coming from the automotive industry, the organization says. The economic shutdown has resulted in an unprecedented decline in car usage — down 75 per cent in April and 44 per cent in May.
“The weak demand for car, gas and car repairs means companies in those related industries must slash production, which in turn results in layoffs, scaled back investment plans, reduced orders to suppliers, and eventually, shrinking government revenues,” CME warns in the report.
But, beyond calling for an expansion of the Strategic Innovation Fund — something it calls “a short-term measure” — CME has a tax-incentive plan that it says has worked with automakers in the United States.
CME says many U.S. states have switched their investment support regimes to be tied to the tax system and be outcomes based.
“The Gulf Coast states, for example, provide a range of tax credits to companies making major investments, which in effect decrease the tax burden on companies as they scale up production,” CME says. “Michigan has adopted a similar system to attract new auto assembly plants, and this approach has so far been successful. The tax credits are applied against all taxes including payroll, property, and corporate to secure investment and guarantee a longer-term return for taxpayers.”
Specifically, CME recommends that Canadian governments implement a tax-based investment incentive approach in addition to the more selective Strategic Innovation Fund.
“The outcomes that should be measured and audited against are the critical elements needed for long-term success and prosperity. These include capital investment, training, exports, scaleup/commercialization, and environmental performance,” CME says.
CME goes on to say that Canada needs to, among other things, leverage its regional supply chains and address its labour and skills shortage.
