Thank you, Mr. Chair.
Good morning, and thank you to members of the committee and staff for providing the Association of Equipment Manufacturers with the opportunity to address you today.
Allow me first to say a few words about the members of the Association of Equipment Manufacturers. AEM is a trade association representing manufacturers of agriculture, forestry, construction, mining, and utility equipment. Members include Canadian manufacturers such as MacDon Industries of Winnipeg and Sellick Equipment of Harrow, in Essex County, and some 700 other members that manufacture equipment that allows Canadian farmers, manufacturers, and natural resource companies to compete in the global marketplace.
We have two recommendations that we ask the committee to consider in its report to Parliament. First, like so many other sectors of the economy, equipment dealers are having difficulty financing their equipment inventories. This became more acute when one of the major players in the sector, Textron Financial, withdrew from the Canadian market. In speaking with equipment distributors and some members of Parliament, my understanding is that there is a role for Farm Credit Canada to engage in this area of equipment financing, which is otherwise known as floorplan financing. We ask the committee to provide FCC with this extended mandate, which fits well into its existing financial services.
Second, we urge the federal government to modernize the capital cost allowance rates pertaining to heavy equipment. Specifically, we encourage the government to increase depreciation rates for CCA classes 10 and 38 from 30% to 40%. Those are the classes of equipment that are tractors, bulldozers, motorized machinery, and combines. Modernizing the CCA rates would have positive economic results, with faster replacement of older equipment, which increases productivity and promotes environmental savings. Improvements to the CCA rates would also bring Canada in line with its major competitor and customer, the United States, which has seen a rapid acceleration in its depreciation schedule.
Let's take the example of farming in Canada to illustrate why CCA rates need to be modernized. Canadian farmers use high-tech equipment, such as precision agriculture systems, assisted steering systems, monitors for planting, fertilizing, pesticide applications, and harvest yields, which allows them to drive down fuel and crop input costs, reduce environmental impact, and maximize revenues. The application of these types of technologies has led to tremendous productivity improvements over the past 40 years. As a result of these ongoing technological improvements across the full line of agricultural equipment, Canadian farmers are replacing their equipment much faster. In some cases they are upgrading every three to five years to take advantage of technological improvements to reduce operating costs and increase operator efficiencies as much as possible.
In addition, I've circulated the CCA schedule as it is currently published, and I have highlighted horse, harness, and tractors. You'll note that the harness and tractor both have the same CCA depreciation rate of 30%, which is just one example of how the CCA schedule is out of date. Unfortunately, budget 2009 did not address the need to modernize CCA rates fully.
At the same time, our neighbours to the south were boldly moving forward with their accelerated depreciation rates schedules. You'll see by the chart I have distributed that an American farmer is able to claim more than 93% of the capital cost of a $300,000 combine in the first year of ownership as a result of the implementation of the American Recovery and Reinvestment Act of 2009. On a go-forward basis, depreciation costs will be claimed over a five-year period, as compared to seven years previously. His Canadian counterpart, on the other hand, can only claim 15% of the capital cost in the first year. Budget 2010 strikes us as an appropriate time to correct this.
Positioning Canada to compete on a levelling playing field, attract new business, and improve the attractiveness of our exports will require the federal government to adjust the CCA rates. As the federal government considers how to stimulate economic activity and build a stronger, more competitive, and prosperous Canada, we urge policy-makers to realize the positive benefits derived from modernizing the capital cost allowance and also from extending the services of the Farm Credit Corporation to include floorplan financing for inventory.
Thank you very much, committee members.