100 Per Cent Capital Cost Allowance: An Incentive for ICT Adoption
By Lynda Leonard, Senior Vice-President ITAC
Ten years ago when I came to work at ITAC, the idea that the use of information and communications technology tools could contribute to productivity growth was still a controversial notion. It was a belief fervently held and promoted by those of us in the ICT industry but not yet an empirically supported economic principle. The return on investment on ICT investment was hotly debated at the economic level and even at the enterprise level.
Starting with a groundbreaking study in 1999, supported by IBM and Microsoft, ITAC set out to change that. The study, conducted by the Conference Board of Canada, illustrated a clear link between ICT investment and productivity growth. We followed this with other work commissioned from influential economists and organizations, such as the Centre for the Study of Living Standards, drawing attention to the serious gap in ICT adoption between Canada and our global competitors. And we talked about the need to improve our rates of use of ICT with all levels of government at every opportunity.
Gradually what was once a controversial notion became an idea widely held in the economic public policy mainstream. The first evidence of this came in the 2004 Federal Budget, which provided for an accelerated capital cost allowance rate of 45 per cent on computer hardware and systems. This was subsequently boosted to 50 per cent.
In an economic downturn, there is inevitably contraction in capital investment. In Canada’s case, several quarters of constriction would only exacerbate the negative impact on our productivity. Fortunately the 2009 Federal Budget contained an important measure to address this – a temporary 100 per cent capital cost allowance rate for computer hardware and systems software acquired between January 27, 2009 and before February 1, 2011.
This measure will help to mitigate against the normal business reflex of cancelling or postponing major purchases in a downturn. Perhaps more importantly, it signals a key shift in public policy. It indicates very clearly that government understands the economic benefit of ICT investment as clearly as we do.
Sometimes the process of effecting policy change can seem very slow. It can make businesses question their participation in public policy dialogue through associations like ITAC. But the reality is that associations provide the critical mass to conduct complex economic dialogue over long periods of time. Every once in a while we reach a positive turning point in the dialogue that rewards our patience and makes all the research and white papers worthwhile. We have achieved that breakthrough in the ICT and productivity discussion. The CCA measure gives our customers a much needed incentive to look again at the impact timely ICT investments can make upon their productivity and ensure a speedier recovery from the downturn.
The leaders of manufacturing enterprises understand that effective information and communications technology investments can drive productivity and competitiveness in their business. To share this understanding with the manufacturing community, ITAC, the Information Technology Association of Canada, has created a series of videos wherein executives of small and mid-sized firms discuss their strategies and insights.
The first in this series features Peng-Sang Cau, the President of Transformix Engineering. Transformix is a Kingston, Ontario based manufacturer of customized automation systems.
Tell us a bit about your business, what does Transformix do?
Who are Transformix’s customers?
You have been the driving force behind the company's recent investments in information and communications technology. What strategic business problem did you seek to address with this investment? How has it paid off?
When we started, from day one, we knew that we had to use technology to grow and to advance our organization. We also bring technology to our clients, we are an automation company, so our clients are looking to us for the latest and best in manufacturing technology.
Manufacturers today face many difficult choices in the operation of their businesses. "Do I add more staff to accelerate my output or do I invest in technology to make the operation I currently have more productive?" is one example. How do you approach this dilemma?
From our perspective, we don’t just preach technology, we have to practice it. Every investment that we make whether it’s for our manufacturing or engineering or even just within our administrative group boils down to asking how is this technology going to help our people do a better job? How do you do more with the same number of people?
We also look at how the technologies fit in to the corporate culture. We are succeeding because our corporate culture relies heavily on our people and treating them well. Part of treating our employees well is allowing our employees to have a balanced lifestyle. So when we look at technologies especially with IT or communications technologies we look at how we can allow them to work off-site, wherever they want.
To view the entire video interview, please click the link.
By Jason Grosse, with files from ITAC
Beneath the surface of Canada’s current (and hopefully short-term) economic problems, we face a systemic productivity challenge. There is a persistent 10 to 20 per cent gap in labour productivity between Canada and the United States that troubles many economists and public policy makers.
It is now widely recognized that the use of technology is a key contributor to productivity growth at both the enterprise and the macro-economic level. Recognition is due in large part to work conducted by the Centre for the Study of Living Standards (CSLS). In a study conducted in 2003, CSLS attributed a significant share of Canada’s productivity gap with the nation’s comparatively poor rates of technology adoption.
The concern about Canada’s under-use of technology has grown. In its most recent annual report, the Task Force on Competitiveness, Productivity and Economic Progress charted the technology investment gap between Ontario and the United States from 1987 until 2007 and suggested “closing the investment gap offers the potential for closing the prosperity gap. With higher machinery, equipment and software investment our workforce could be more productive.”
The report also recommends “Investment in assets like machinery and technology and in our own skills and knowledge is a crucial driver of increased productivity, and productivity growth is necessary if we are to realize our full potential.”
Tom Turchet, Vice-President Software, IBM, says ITAC’s ICT Adoption Committee is an active and important part of the ITAC agenda to accelerate the use of ICT. The committee is taking a head-on approach to addressing the issue of ICT adoption.
“The mandate of the committee is to promote the value of ICT in Canada and execute effective actions to ensure Canadian companies are aware of the role technology plays within their business goals,” said Tom.
The committee has been working with the Canadian Manufacturers Association in a series of events including education sessions, best practices and working with the Canadian Manufacturers and Exporters’ SMART initiative.
This year, says Tom, the committee is looking at other specific areas of ICT adoption that ITAC will champion.
“With the challenging economic environment still confronting us, it is even more important to understand how technology can and will enable organizations to gain greater efficiencies, save on overall costs, and compete on the world stage.”
The ICT adoption committee is made up of members who share a passion for the issue of ICT adoption and have many years of experience in IT. Any ITAC member organization is welcome to nominate a person to participate.
Budget 2009 Provides Nearly $1.5 Billion in Measures
to Stimulate ICT
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