Jack Mintz: The ‘mega productivity’ tax deduction — good intentions, wrong policy

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeFP CommentJack Mintz: The ‘mega productivity’ tax deduction — good intentions, wrong policyA better policy would be to lower tax rates on all investments and eliminate various deductions and credits so as to broaden the tax baseLast updated 5 minutes ago Prime Minister Mark Carney speaks during a press conference during the second day of the inaugural Canada Investment Summit in Toronto, Ont., on Sept. 15, 2026. Photo by VALERIE MACON/AFP via Getty ImagesAt this week’s investment summit, Prime Minister Mark Carney announced a “mega-productivity” deduction that will enable companies to “expense” — that is, write them off immediately — about two-thirds of their capital assets on a permanent basis. Last year’s “super-productivity” deduction was for just 15 per cent on a time-limited basis. Business groups were as thrilled as kids in an ice cream shop — on the grounds any improvement in incentives is better than none.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountFrom society’s perspective, however, there is nothing mega about the new policy, which fails the three criteria for a good tax structure: efficiency, fairness and simplicity. A far better choice would be to reduce corporate income tax rates so as to spur investment in all business activities, not just those chosen by government. Most major tax reforms around the world, including Canada’s past efforts, follow two principles: low rates and neutrality across business activities. The mega productivity deduction goes in the opposite direction.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againExpensing capital expenditures, as the proposed rules allow, results in a double deduction for capital expenditures: a company can write off both the investment cost itself as well as related interest expenses from their taxable profits. This produces a negative tax rate that effectively subsidizes capital, giving businesses a preference for investing in capital-intensive processes like AI rather than hiring workers. Even the Department of Finance points out in its backgrounder that negative effective tax rates will cause some industries to over-invest in capacity — notably agriculture and fishing, manufacturing and processing, and transportation and storage.Over the past decade Ottawa has brought in, not just the mega deduction, but also investment tax credits and other preferences that favour manufacturing and clean energy over other investments. Short-lived assets that are repeatedly replaced get the tax benefits over and over again, which favours investment in machinery rather than structures, which are longer-lived.Some depreciable assets won’t be allowed the mega deduction — most structures, patents, franchises, concessions and licences, intangible property and pipelines — though they do continue to qualify for the time-limited accelerated depreciation announced last year. Non-depreciable investments in land and inventories are also put at a tax disadvantage. As a result, certain industries benefit less from the mega productivity deduction: wholesale and retail trade, construction and services. Banks, insurance companies and real estate likely also benefit less — though we don’t actually know since Finance excludes these sectors, as well as oil, gas and mining, from its analysis. In fact, less than half of all capital is covered by its data, a problem that has existed for almost 40 years.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Combining expensing with investment tax credits will enable many companies not to pay any income taxes at all, blunting these policies’ effectiveness. As their tax losses and credits accumulate, companies use complex manoeuvres to shift them to taxpaying entities like banks. It’s all perfectly legal but angers the public even so.Because of the mess created by Liberal “mega” deductions and tax credits in the 1970s and early 1980s, Conservative finance minister Michael Wilson scaled back tax preferences in the 1985 budget and reduced corporate income tax rates — though without losing tax revenues.Countries have used accelerated depreciation for decades, though often with limited impact on investment. The U.S. used partial or full expensing for short-lived equipment from 2002-04 and 2009-24. Last year, Donald Trump’s One Big Beautiful Bill made expensing permanent — at least until the next administration. Bonus depreciation boosted investment to a degree, but with many companies not paying taxes, its impact was muted. Nor did it have as much effect on U.S. tax competitiveness. Only the 2017 Tax Cuts and Jobs Act, which lowered the U.S. federal corporate rate from 35 per cent to 21 per cent, made the U.S. tax-competitive again.Canada has also used accelerated depreciation over the years, though also without much success. Since 1972, manufacturing and processing firms have benefited from both a two-year writeoff for machinery investments, as well as various investment tax credits. Until 2005 Ottawa provided a manufacturing deduction that reduced corporate tax rates in that sector. (Ontario, Saskatchewan and Yukon still have preferential rates.) But despite all the tax preferences aimed at the sector over the past 50 years, manufacturing value-added declined as a share of GDP as jobs moved to China, Mexico and other low-wage economies.Canada responded to the U.S. tax reform of 2017 with accelerated depreciation, which included expensing rather than a 50 per cent bonus. Though investment in the U.S. grew sharply after the corporate rate cuts, Canada’s investment stalled. Accelerated depreciation couldn’t stop that.Why has expensing failed? Companies only get a timing benefit from writing capital costs off right away rather than doing so over time. From a cash-flow perspective, expensing has only a marginal impact in improving profitability — unlike a corporate income tax rate reduction or an exemption of retained earnings from tax. The Department of Finance estimates that the mega deduction will have an incremental fiscal cost of $36 billion over five years — equivalent to a federal corporate tax rate reduction of just 0.9 percentage points. When CEOs and corporate boards look at cash flows, a major determinant of investment, expensing is icing on the cake.Ottawa is right to encourage investment in Canada. But it has chosen Donald Trump’s path, not a Canadian one. We should keep to the tried-and-true recipe we have followed in tax reforms over the past half century: lower the tax rate and broaden the tax base.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.