Critics slam cuts to EI premiums
Credit will save small businesses millions, but won’t do much to boost hiring, economists say
Business groups are cheering plans announced by federal Finance Minister Joe Oliver on Thursday to reduce employment insurance premiums for small business by nearly 15 per cent, a move that could save such companies more than $550 million over the next two years.
But economists and critics say the tax change — dubbed the Small Business Job Credit — will do little to prompt hiring by Canadian firms in the face of lagging demand from consumers and a sluggish economy.
In particular, some observers worry the measure puts added pressure on the EI system.
“If government wants to give a tax break to small businesses, that money can come out of general revenues rather than out of the EI fund,” said Angella MacEwen, senior economist with the Canadian Labour Congress.
“The concern is that workers and other businesses are subsidizing this tax credit. Money that should be set aside for workers for income support and training is no longer available.”
Under the changes, small business owners will pay $1.60 in EI premiums for every $100 of insurable earnings in 2015 and 2016. That’s down from the current rate of $1.88.
Any business that pays employer EI premiums of $15,000 or less in those years is eligible for the credit.
Almost 90 per cent of all businesses in Canada that pay EI premiums will receive the credit, or about 780,000 firms, Oliver said.
“We believe it will be helpful on a macro basis,” said Oliver, who made the policy announcement at Value Wood Floors Ltd., a small flooring company in Etobicoke.
“When you reduce payments by half a billion dollars, you’re going to have an impact. That’s what we’re looking for. We think it’s fair and we believe it will also encourage growth and employment opportunities.”
EI premiums that are paid by workers will not be affected. Nor will EI benefits, the government said.
Federal finance critic Nathan Cullen of the NDP questioned whether the EI relief would truly help what he called an “anemic and distressed” job market.
“It’s not creating the kind of jobs we need. We’re falling further and further behind,” Cullen told reporters at a caucus retreat in Edmonton.
He said the government needs to provide incentives for companies that actually create new jobs, rather than “no strings attached” tax breaks.
“You get the tax credit when you create the job. That’s common sense,” Cullen said.
The Canadian Manufacturers and Exporters ap- plauded the announcement.
“The Small Business Job Credit will help a powerhouse — the thousands of small businesses — of the Canadian economy become more competitive,” the group said in a release.
Business groups have called for a cut, saying that higher premiums have made it more difficult to hire new workers. Ottawa has pledged a big reduction in EI premiums for all businesses in 2017.
“Small firms have been looking for additional relief to enable them to create that new job, to reinvest in their employees, and help them increase wages in their business,” Dan Kelly, president of the Canadian Federation of Independent Business, told reporters.
An economist for the lobby group estimates the tax cut will create as many as 25,000 jobs over the next two years.
MacEwan called the job creation figure “outrageous.”
The maximum amount a small business would get back is about $2,200, or about $190 per employee, she said.
But if the firm hires one extra employee or gives a worker more hours and, in the process, exceeds the $15,000 cap, “they lose all of it,” MacEwan said.
“It’s very poorly designed, if it were intended to support hiring or wage growth.”
The premium cut takes away money that otherwise could have been used to improve unemployment benefits, Erin Weir, economist at the United Steelworkers Union, said in an interview.
Fewer than 40 per cent of unemployed Canadians across the country are eligible to receive EI benefits, Weir added. “I think there’s a strong case to be made for investing in improving the accessibility and duration of EI benefits.”
The measure is “a step in the right direction,” Craig Wright, chief economist at RBC Economics, said in an interview.
“I wouldn’t put a big number behind it in terms of the overall impact for Canada or Ontario,” Wright said.
“It’s a positive but there are many other factors that are weighing on employment.”
Last week, Statistics Canada reported that the economy shed 11,000 jobs in August, most of them part-time positions. The figure was far below economists’ expectations for the creation of 10,000 jobs.
Hiring has come in below the level that “we had hoped for” for the last18 months, Oliver said.
“As we’ve said many times, the international financial and economic situation is fragile. The United States seems to be starting to move forward. We have to see that sustained before we’re going to get the kind of employment numbers we would like to see.”
Value Wood Floors, the company that hosted Oliver and about a dozen reporters for the announcement, manufacturers and distributes flooring across Canada and Europe.
The family-owned-and-operated firm, started in 1984, has 12 employees. It hired three in the past month, in part to help keep up with strong demand from Western Canada.
The EI premium cut would not be “a determining factor” in decisions to hire more workers at this time, “but it’s a benefit right now,” said Nicholas Zaremba, the firm’s head of sales. “Anything that lowers employment tax is beneficial to any business owner. I think it will definitely help the economy.”