Tax Breaks Needed To Avert 'Perfect Storm' For Canadian Lumber Industry

by Mike Godfrey, Tax-News.com, Washington

19 October 2005

A number of adverse economic factors will combine to produce a "perfect storm" for Canada's forest industry unless the government steps in with tax incentives to enhance the competitiveness of the nation's lumber product, the industry has warned.

On Monday, the Forest Products Association of Canada (FPAC), urged federal and provincial governments to "act immediately" to mitigate the impact of the continuing rise of the Canadian dollar, which has increased 64% in value against the US dollar since January 2003. FPAC also warned that the Canadian lumber industry is being squeezed by cheap imports and high energy costs.

Meanwhile, Canadian lumber imports into the United States remain the subject of tariffs after the World Trade Organisation came down in favour of the US in an ongoing trade dispute. According to Washington, Canadian provinces give sawmills an unfair subsidy by not charging market rates to harvest timber on government land. In response, in May 2002 the US applied tariffs at an average rate of 27.2% on annual exports worth some $4.6 billion.

While FPAC President and CEO, Avrim Lazar, argued that the industry has responded "aggressively" to these challenges, he nevertheless warned that it threatens to be engulfed by a "perfect storm" unless the government steps in to ensure the industry's future viability.

"With the dollar now at 85 cents, governments must take immediate action to modernize and make more competitive the tax and regulatory regimes that currently threaten the industry’s competitiveness, and the jobs and communities it supports," Mr Lazar stated.

In its presentation to the Standing Committee on Finance, FPAC urged the Government of Canada to consider a number of initiatives to support those already undertaken by the forest products industry to help ensure its future success. These included the reduction of taxes on capital investment to encourage modernization and private investment, and incentives to help the switch from fossil fuels to renewable energies such as biomass.

According to FPAC, Canada’s forest industry represents 3% of national GDP and exports $45 billion of wood, pulp and paper annually. It is also one of Canada’s largest employers, providing over 900,000 direct and indirect jobs across the country.

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