Conservative changes to EI could cost Canada jobs, Budget watchdog warns

OTTAWA – The Harper government’s $550-million small-business job credit will create just 800 net new jobs in 2015-16, while a freeze in employment insurance premiums could cost the economy 10,000 jobs over the same period, Canada’s parliamentary budget office says.

The latest report from the budget office, released Thursday, says the credit will create a total of about 1,000 “person-years” of work at a cost of $555,000 for each person-year. A job that employs a worker for two years amounts to two “person-years.”

The report also says that because EI premiums are frozen at higher levels than necessary to offset the costs of the job credit, thousands of jobs could be lost.

“PBO estimates the premium rate freeze will reduce full-time equivalent employment by 2,000 jobs in 2015 and a further 8,000 jobs in 2016,” the report said.

Starting next year, the job credit will effectively lower EI premiums for small businesses with annual contributions of less than $15,000.

Critics of the measure have complained the government should have gone further with a direct cut in premiums that would provide an immediate benefit to all businesses and employees.

That broader slash to payroll taxes isn’t happening until 2017, the government says.

The Conservatives haven’t said why they’re waiting for two years to implement that cut; the PBO report says EI premiums are currently 13 cents above the break-even level and will be 28 cents above the break-even level in 2016.

In 2017, the report says, EI premiums will start to go down, eliminating the surplus in the EI operating account.

The opposition has accused the government of padding its coffers in order to dole out goodies ahead of a 2015 election. As if on cue, the government said Thursday it would double the child fitness tax credit, a promise made in 2011 that was contingent on a balanced budget.

In Washington on Thursday for meetings with his G20 counterparts, Finance Minister Joe Oliver defended the job credit, denying the government was hoarding cash for electioneering purposes.

“We have committed to starting in 2017 to bring rates down so that in the next seven years, they will be break even,” he said.

“We’re not going to be using the money as a slush fund, which was what it was last time. The Liberals drove it up to $60 billion so they’re not in a position to be critical, it seems to me.”

Oliver announced the measure last month following a concerted lobbying effort from business groups stung by the government’s crackdown on temporary foreign workers and its anti-spam legislation.

He said the job credit would benefit about 780,000 Canadian businesses, but didn’t provide a job creation estimate.

The Canadian Federation of Independent Business, on the other hand, praised the announcement, estimating it would create 25,000 person-years of work over the next several years.

CFIB head Dan Kelly said he was puzzled by the PBO report, saying it’s out of line with estimates from the organization’s chief economist.

“I think their numbers are off,” he said in an interview.

“I mean, this is a half a billion dollars back into the economy through essentially a payroll tax reduction, the most harmful form of tax to small- and medium-sized firms …. this has got to have a lot more impact than that.”

Kelly adds small business owners are “incredibly positive” about the small business tax credit.

The opposition, meantime, pounced on the report.

“Eight hundred jobs … is much more in keeping with what we had highlighted as one of the fundamental flaws with Mr. Oliver’s plan,” Liberal leader Justin Trudeau said in an interview with The Canadian Press.

“There’s a greater incentive for companies to stay small and even get smaller, rather than to actually grow and create jobs…. It just demonstrates that this government is wrapped up in ideological tax cuts rather than thinking about real and concrete ways to grow the economy and create jobs.”

Nathan Cullen, the NDP’s finance critic, heaped scorn on both parties.

“Time and again, we’ve seen Liberals and Conservatives misuse EI funds that belong to workers and employers,” he said in a statement.

“Now Conservatives are using these funds for a credit that won’t even do what it’s supposed to — create more jobs for Canadians.”

Follow Lee-Anne Goodman on Twitter @leeanne25

— With files from Joan Bryden in Ottawa and Alexander Panetta in Washington, D.C.