The Federal, Alberta and Saskatchewan Budgets, and What It Means To Ag Equipment Manufacturers

A Message From The President

Our office has been busy this past month as the federal, Saskatchewan and Alberta governments issued their budgets. Below is a summary of our initial analysis:

Federal Budget (delivered by Minister Bill Morneau):

Overall a fair budget for agricultural equipment manufacturers.

• Establishment of the Innovation and Skills Plan which sets an ambitious target to grow Canada’s agri-food exports to at least $75 billion annually by 2025 (p 107).
• Investment of $70 million over six years, starting in 2017–18, to further support agricultural discovery science and innovation, with a focus on addressing emerging priorities, such as climate change and soil and water conservation. I am pleased with this as I have been promoting the positive role of our industry in enabling farmers to be environmental stewards. The federal government since taking office has consistently promoted less dependence on fossil fuel and adoption of ‘greener’ technology, so if you have products or technologies that are helping dairy, beef or grain farmers reduce their inputs, use less water, minimize GHG emissions, etc. please send these examples to April Jackman and I.
• There is no plan yet announced to return to balanced budgets.

The full federal budget is available at www.budget.gc.ca

The Liberal government’s 2nd budget was tabled on the same date as the year before - March 22 - but offered a very different flavour. Unlike last year when money was provided to various election campaign promises primarily in social programs and infrastructure, the 2017 Budget provided more details related to last year’s budget commitments. I had anticipated it would be an ‘innovation’ budget and while there are elements of that, it was not as visionary as meetings and discussions last fall had me believe. I am very encouraged by this though as I believe it means the government recognizes that innovation is more than a buzz word and that programs like SR&ED and IRAP are good and we don’t want to get rid of them entirely.

During meetings with federal officials and MPs, I have highlighted that innovation in our industry is helping feed the world. I affirmed that innovation in our industry is done primarily in rural areas rather than in lab coats in urban settings. As such, I am pleased that the government will be creating a national advanced/digital manufacturing super cluster. My hope is that our industry, which provides some of the most durable and high quality agricultural equipment in the world, will continue evolving and will allow us to maintain a reputation as global agricultural equipment manufacturing leaders. I was disappointed we did not see more about how Canada can and will be a global agriculture powerhouse, but, with the momentum we are building with other associations, I am confident that when we go to Ottawa for AMC’s 2nd lobby day in October, that we will have lots to offer.

Alberta Budget (delivered by the Honourable Joe Ceci):

Alberta’s Minister of Finance, the Honourable Joe Ceci delivered his 2017 budget earlier today which can be accessed here: https://www.alberta.ca/budget-highlights.aspx

Below is AMC’s initial analysis:

• No new taxes announced;
• Increases government spending with a capital spend of $9.2 billion;
• Increases the forecasted deficit to $10.3 billion by year end;
• Alberta’s economy is forecasted to expand by 2.6% in 2017 driven primarily by increased production and exports of oil but also the manufacturing sector overall; and,
• Introduction of 2 tax credits that could benefit agricultural equipment manufacturers: the Alberta Investor Tax Credit (AITC) and the Capital Investment Tax Credit (CITC).The budget contains no plan or timeline for returning to a balanced budget.

Two Tax Incentives:

As part of the Alberta Jobs Plan, the government is implementing the Alberta Investor Tax Credit (AITC) and the Capital Investment Tax Credit (CITC) to support jobs and economic diversification. Both credits can be claimed starting in 2017.

According to the budget document:

• “…The three‑year AITC offers a 30% tax credit to investors who make equity investments in eligible Alberta businesses that undertake research, development, or commercialization of new technology, new products, or new processes. It is also applicable to businesses engaged in interactive digital media development, video post‑production, digital animation or tourism. The total budget for the program is $90 million.
• Eligible corporations can now apply to be enrolled in the AITC program. If approved, individuals and corporations that invest in these corporations may be eligible for tax credit certificates. Individuals can then use their certificates when filing their personal income tax returns to claim a refundable tax credit of up to $60,000 per year.
• Corporate investors can claim the AITC when filing their corporate income tax return. The credit is non‑refundable for corporations and there is no maximum limit on the amount of credit that can be claimed.
• Funding is provided on a first‑come, first‑served basis until the annual funding for the program is fully allocated. "Investments made as of April 14, 2016 may be retroactively eligible for the AITC in 2017.” (p. 96).
• The Capital Tax Incentive Tax Credit (CITC) is a two‑year program that “provides a 10% non‑refundable tax credit of up to $5 million for a corporation’s eligible capital expenditures on manufacturing, processing and tourism infrastructure.” (p.97)

For more information on the application process for these two incentives, please refer to:

www.alberta.ca/alberta-investor-tax-credit.aspx
www.alberta.ca/capital-investment-tax-credit.aspx

There is very little in the budget for the agricultural equipment manufacturing industry.

There is a clear commitment to enable and position Alberta as a ‘climate leader’ with the introduction of its Climate Leadership Plan (CLP), touted as a “made-in-Alberta strategy to lower emissions ensure Alberta’s resources are developed responsibly and create new opportunities to diversify the economy into renewable energy” (p. 55). Given the carbon tax was implemented January 1, the government emphasizes that the $5.4 billion in gross carbon pricing dollars that will be paid by Albertans will be ‘recycled’ into various initiatives. They provided a chart that demonstrates this that can be viewed by clicking here.

The small business tax rate reduction from 3% to 2% was, according to the government, designed to help small businesses adjust to the carbon levy/tax. The reduction was implemented Jan. 1, 2017 so is not new but included in the overview of where the $5.4 billion will be allocated.

On a potentially positive note, the government highlights it will dedicate $1 billion over 3 years to supporting renewables; innovation and technology; and, adjustment funding for coal communities and Alberta’s most trade exposed business. On this front, I will reach out to the government in the coming weeks to encourage them to support initiatives by agriculture equipment manufacturers to do research and development into greener technologies. If you are based in Alberta and have examples of projects you are considering, please let me know as these will make our advocacy efforts stronger.

When speaking with the Alberta government, I will reference our evolving thinking to increase the capital cost allowance for the purchase of new farm machinery (terms/conditions to be considered by our provincial advisory committees) that we will, pending members’ input, propose to the federal government this summer as part of AMC’s submission regarding the 2018 Budget. I will provide members an update on discussions with the Alberta government as they evolve.

Overall there is little said about the importance of agriculture although the budget speech highlights the need to diversify. Many in the business community were quick to criticize the budget, saying it lacks a plan to balanced budgets. Again, one of the positive things that can be said is there are no additional tax increases announced.

On the economic forecast, the Saskatchewan and federal governments will issue their budgets next Wednesday and, despite the different political colors, I don’t anticipate their forecasts or initiatives will be much more positive in the short term. That said, I’m hearing lots of positive comments from members and dealers (albeit mostly in Ontario) about farm equipment being sold, and ‘solid leads’ being secured during farm shows in the first quarter of the year.

Saskatchewan Budget (delivered by Minister Kevin Doherty): “Meeting The Challenge”

Overall our assessment is that the budget is good for agricultural equipment manufacturers as it introduces:

• Capital income tax reductions that will be decreased by 0.5% effective July 1, 2017 and reduced another 0.5% July 1, 2019.
• Introduction of a new refundable 10% research and development tax credit (available to Canadian-controlled private corporations for first $1million in annual qualifying expenditures incurred in Saskatchewan) that will take effect April 1, 2017.
• Introduction of a new Saskatchewan Commercial Innovation Incentive that AMC promoted and encouraged the government to make available to small and medium sized agriculture equipment manufacturers. The government has offered to meet with our SK Advisory Committee in April and will provide further details about the budget accordingly. A meeting invitation will be sent out to all regular members once a date and location is confirmed.
• Increased the Manufacturing and Processing Tax Credit –the rate increases from 5% to 6% for eligible capital acquisitions made on, or after March 23, 2017, in line with the PST tax increase.

There is a larger than expected deficit; however, the theme for Minister Doherty’s second budget was “Meeting the Challenge” an appropriate theme in light of the consistently low commodity prices of oil, potash and other resources that had been a primary revenue source for the province for approximately 10 years. The budget focused on diversifying the revenue base with a 1% increase in provincial sales tax and the elimination of various niche type tax rebates, including but not limited, to farm fuel (100% will now be subject to PST) and on-farm diesel (20% will be subject to PST – a calculation done by finance officials that assumes that of all diesel consumed, 20% is used on public roads or off-farm purposes).

The government indicated it will return to a balanced budget in 3 years.This is important as neither Alberta nor the federal governments indicated when they will have a balanced budget despite introducing various new expenditures.

The full Saskatchewan budget is available at: http://finance.gov.sk.ca/budget2017-18

Prior to Minister Doherty delivering his budget, the Saskatchewan government moved a motion that it will not implement a carbon tax. The environment is a significant issue that the federal and provincial governments have differing approaches on as to how much the agriculture industry is already contributing and what more can be done. As I said to SK’s Minister of Agriculture yesterday, we will continue to be driven by our desire to help farmers and like them we are sensitive to any measure (carbon tax or otherwise) that hinders or helps their profitability and global competitiveness. I applauded the Saskatchewan government’s leadership at the national level as they tend to assume that farmers are environmental stewards whose business is protecting and enhancing their natural resources as part of their day to day farm operations versus the approach of some at the federal and provincial levels that seem to perceive environmental stewardship as a separate activity.

If you have questions or comments about the budgets, please don’t hesitate to let me know.

Leah
President
P: 306.522.2710 ext 225
E: leah@a-m-c.ca
W: www.a-m-c.ca