By Alexander Lavoie
Canada has faced persistent challenges with labour productivity growth compared with other G7 countries, and Manitoba has its own productivity challenges.
While labour shortages, population growth, housing and investment attraction often dominate economic development discussions, productivity is an important part of how much economic value businesses and workers can generate. Labour productivity measures the economic output produced for each hour worked. It reflects how effectively an economy combines labour with technology, equipment, infrastructure and other inputs to produce goods and services.
It’s an area where Manitoba certainly has room for improvement. Labour productivity in Canada’s goods-producing industries sits at 73.3 which is the real economic output for every hour worked. Manitoba’s is 61.8, significantly below the national average. Saskatchewan, by comparison, records 119.5, nearly double Manitoba’s level. The reality is Manitoba has an opportunity to generate more economic value from its workforce by encouraging greater investment in productivity-enhancing assets, technology, and infrastructure.
For rural communities, productivity growth is especially important. Many employers face persistent labour challenges, aging workforces, and difficulty attracting workers. When businesses cannot easily expand their workforce, increasing productivity becomes one of the most effective ways to grow. Investments in equipment, software, digital infrastructure, transportation assets, automation, research and development, and other capital assets can help businesses produce more with the workers they already have.
What is the Productivity Mega Deduction?
Recognizing this challenge, the Government of Canada announced the proposed Productivity Mega Deduction on September 15, a tax measure intended to encourage greater business investment in productivity-enhancing assets. If implemented, the measure would allow businesses to immediately expense a significantly broader range of eligible investments rather than deducting their cost over several years. Immediate expensing allows a business to deduct the full cost of an eligible investment in the year it becomes available for use, which can improve cash flow and reduce the after-tax cost of investment.
The proposed measure would increase the amount of assets covered from roughly 15% of assets to more than 65%, including fibre-optic cable, mining property, oil and gas pipelines, software, research and development, computer equipment, aircraft and vehicles, patents, rail track, bridges, and roads.
Many of these asset categories are particularly relevant to rural economies. For rural businesses, the expanded range of eligible assets could be particularly relevant where growth requires investment in equipment, digital connectivity, transportation infrastructure or other capital assets.
The federal government estimates that Canada’s marginal effective tax rate on new business investment would fall from roughly 13% to 6.4%.
What does the proposal mean and how can it help?
From an economic development perspective, reducing the cost of investment matters because businesses make investment decisions based in part on expected returns. When the after-tax cost of purchasing equipment, implementing technology or investing in infrastructure decreases, it can improve the business case for some investments and potentially allow projects to move forward sooner. This can generate short-term economic activity while supporting longer-term productivity gains.
No single policy can solve Canada’s or Manitoba’s productivity challenges on its own. Productivity growth also depends on workforce skills, innovation, infrastructure, regulatory efficiency and access to markets.
For Manitoba, where productivity levels in goods-producing industries trail the national average, policies that support investment could help businesses improve competitiveness, expand production and generate greater economic value. For rural communities, where labour availability remains a persistent constraint, productivity growth could be an important part of supporting sustainable economic growth.
If the proposed measures are enacted:
- Businesses considering an investment should speak with their tax adviser about the rules and whether their planned investment may qualify.
- Economic development professionals may have another tool to discuss with businesses as part of business retention and expansion and investment attraction efforts.
If the Productivity Mega Deduction succeeds in accelerating business investment, its greatest impact may not be measured through tax savings alone, but through the stronger, more productive businesses and communities that emerge as a result.
Read more:
- https://www.canada.ca/en/department-finance/news/2026/09/government-of-canada-introduces-new-productivity-mega-deduction-to-boost-canadas-advantage-as-the-most-competitive-g7-country-for-new-business-inve.html
- https://www.pm.gc.ca/en/news/news-releases/2026/09/15/prime-minister-carney-introduces-new-productivity-mega-deduction