OTTAWA — The federal government is providing $1 billion in tax relief for Canada's ailing manufacturing and processing sector by extending the accelerated capital cost allowance (CCA) for businesses.

Finance Minister Jim Flaherty said Tuesday that the government will allow businesses to use the accelerated CCA, on a declining basis, until the end of the 2012-13 fiscal year.

The CCA is a non-refundable tax deduction that reduces taxes owed by permitting the cost of business-related assets to be deducted from income over a prescribed number of years.

On occasion, a CCA rate is "accelerated" to increase the incentive for investing in an asset by permitting it to depreciate more quickly.

The accelerated CCA plan introduced in the 2007 Budget allowed manufacturing businesses to fully write off investments in machinery and equipment within two years.

Since then, the manufacturing industry has been after Ottawa to extend the plan.

Under the new arrangement, the current 50-per-cent straight-line accelerated CCA treatment will apply for one additional year. After that, the accelerated treatment will be provided on a declining basis over a two-year period.

The extension will help encourage "the retooling needed to boost productivity and move to higher value-added production," says the budget.

The extension is expected to reduce federal revenues by $155 million in 2009-10 and by about $1 billion in total over the period 2009-10 to 2012-13.

Accelerated CCA rates are available for items such as renewable energy and energy efficiency equipment, vessels, mining assets, and capital equipment used for scientific research and experimental development.

The manufacturing industry has been struggling to remain competitive, especially with the rising Canadian dollar.

On Monday, Canadian Auto Workers President Buzz Hargrove called for "decisive" measures in the budget to deal with the problem.

"The manufacturing industry has lost over 350,000 well-paying jobs, while Ottawa sat on its hands," Hargrove said in a press release. "With the North American economy getting weaker by the day, this is the time for Ottawa to step in with meaningful assistance."

Hargrove said the large numbers of voters in swing Ontario ridings will be watching carefully to see if the budget addresses the manufacturing crisis.

Hargrove said the CAW wants:

• Tax credits that are tied directly to new investment spending (like an investment tax credit);
• Targeted assistance for key high-value industries, like the auto industry, aerospace, and other high-technology sectors. Specifically, the union wants Ottawa to support "keystone" investment projects like the proposed new Ford engine plant in Windsor;
• Measures to assist the auto industry to adapt to new environmental rules, with support for investments in fuel-efficient products at Canadian plants.