Dear First Ministers: Urgent and Strategic Action Required

As the Prime Minister and Premiers prepare to meet later this week to discuss how best to respond to the current economic crisis, what measures should they be planning to take?

We believe that action is needed in three areas to both address the financial market crisis and ensure that the Canadian economy comes out of the crisis even stronger than before. First, governments should address immediate liquidity problems by ensuring that credit continues to be available to consumers and businesses within Canada. Second, they should make strategic investments in infrastructure and industry transformation and by encouraging businesses to do likewise; and third, they should implement policy measures that will improve the long term competitiveness of the Canadian economy.

Addressing the crisis in financial markets must be the government’s first priority. Credit is the oxygen that allows the economy to breathe. It enables businesses to purchase material, produce goods, invest in capital and ship goods abroad – it is required in virtually every aspect of running a business, large or small. We should all be concerned that despite the efforts of government to maintain liquidity in the banking system, credit conditions for business are tightening significantly, both in Canada and in our major customer, the U.S. As economic activity falls and inventories grow, many otherwise solid companies are finding it extremely difficult to access the credit that their companies need to stay in business. It is time for governments to turn their attention to ensuring the availability of credit not just for banks, but in the real economy.

Secondly, governments should counter the impact of the U.S. recession with strategic investments. As our largest customer slips into in recession, economic growth in Canada is slowing dramatically. The actions taken by the Government of Canada over the past ten to fifteen years to bring deficits under control and pay down the public debt has put the country in a good position to respond to this situation. Having made the sacrifices to reduce spending and debt over the past 15 years, Canadian governments now have the flexibility to cushion the economic downturn through public spending. This is why we support the statements of both Prime Minister Harper and Minister Flaherty that it may be necessary to run a deficit.

While some spending will be necessary to stimulate the economy, it is critical that the spending be strategic. Smart investments that support the country’s long term competiveness will pay dividends. Other spending may just result in debt. In this context, spending priorities should include: incentives to reduce Canadian industry’s carbon footprint, transportation and border infrastructure, market development and the development and commercialisation of emerging technologies.

Stimulating the economy is not only the role of governments, industry too must do its part. With this in mind, governments should also take this opportunity to encourage the private sector to take action to stimulate economic growth by investing in new technologies, innovation, and skills. Private sector spending in these areas will create economic activity now and pay off in improved competitiveness down the road. To encourage business to accelerate the rate of capital investment, the federal government should indefinitely extend the accelerated capital cost allowance for machinery and equipment. In the early years, this incentive costs the government nothing unless businesses invest in capital, and over time it is revenue neutral. And now is the time for those provinces that have not harmonized provincial sales taxes with the GST to take this step. Harmonized sales taxes will further encourage businesses to invest and create jobs by eliminating the tax burden on business inputs. Finally, the government should make the Scientific Research and Experimental Development (SR&ED) tax credit refundable. With companies across the country struggling to stay afloat, we risk losing private sector R&D capacity during these difficult times. This also will cost nothing unless industry invests. Making the SR&ED credit refundable would ensure that the incentive for private sector R&D is effective during this downturn, and could be made affordable by capping the total eligibility.

Finally, now is the time for governments to move forward with the policy reforms needed for long term competitiveness. To that end, the reports of the Federal Competition Review Panel and the House of Commons Standing Committee on Industry provide thoughtful policy reform recommendations. Ultimately, when we emerge from this current economic downturn it will be in to a global marketplace that will be even more fiercely competitive than the one before. By acting now to address our economic fundamentals, Canada’s competitive position will be greatly advantaged as the global economy becomes re-energized.


Jayson Myers
Chair, Canadian Manufacturing Coalition
President Canadian Manufacturers & Exporters

Avrim Lazar
President and CEO
Forest Products Association of Canada