Canada Introduces 'Productivity Mega Deduction' to Boost Business Investment

Canada's Prime Minister Mark Carney made a significant pitch at the first-ever Canada Investment Summit in Toronto this week, introducing a 'productivity mega deduction' (PMD) that allows businesses to write off new investments in most capital assets immediately.

The PMD is expected to cut the economy-wide marginal effective tax rate on new capital investments in half, from 16.9% in the US and an average of 19% in other OECD countries, down to 6.4%. This policy change is estimated to have a fiscal cost of $36 billion over five years.

Business investment in non-residential capital has been weak since 2015, resulting in Canadian workers having roughly 9% less capital to work with than a decade ago. The introduction of the PMD aims to boost investment and productivity in Canada.

The change is expected to have a positive impact on businesses considering producing more products in Canada instead of the US, following President Donald Trump's trade aggression. However, some critics argue that immediate expensing favours capital-intensive industries over others, and may not address underlying issues such as high corporate income-tax rates and personal income tax rates.