TORONTO—Ottawa moved to cut employment insurance (EI) premiums for small businesses this week, touting it as an effort that will save employers more than $550 million over the next two years and help stimulate hiring.
But critics say if the federal government really wanted to see employment pick up in Canada, it should have made job creation a requirement of the tax credit.
“They could try to tie it to employment in some way, if that’s what they wanted to do, rather than it being a tax giveaway,” said Angella MacEwen, a senior economist with the Canadian Labour Congress (CLC).
Finance Minister Joe Oliver said the job credit will see EI premiums reduced to $1.60 for every $100 earned for 2015 and 2016, down from the current rate of $1.88.
The credit, which is expected to reduce EI payroll taxes by nearly 15 per cent, will leave employers with more money to spur hiring and increase salaries, Oliver said.
The tax credit will not have any effect on EI premiums paid by workers.
“We believe this will be very helpful on a macro basis,” Oliver said during the announcement at a family-run flooring company in west Toronto. “When you reduce payment by half a billion dollars, you’ll have an impact. That’s what we’re looking for. We believe it will encourage growth and employment opportunities.”
To be eligible, a business must pay equal to or less than $15,000 in EI premiums next year and in 2016.
The credit would amount to about $2,200 in savings each year for a company that, for example, employs 14 workers, each earning $40,000 a year, and pays $14,740 in EI premiums in 2014.
A small business with three employees, each earning $25,000, would save about $295 a year from this year’s EI premium bill of $1,975.
MacEwen doubts a maximum savings of about $2,200 is enough for employers to consider boosting hiring or raising salaries.
“I’m sure anyone would be happy to have an extra $200, or $2,000, in their pocket. These businesses will put the money to good use; find other ways that are better to use it like upgrade equipment or put a sign up … or buy a laptop maybe,” she said from Ottawa. “We don’t expect this will have any impact on any employment.”
Instead, MacEwen suggested that Ottawa should have used the money from the tax credit to provide more skills training to unemployed workers.
Jerry Dias, president of Unifor, the country’s largest private-sector union, said it’s “ridiculous” to think that this credit will spur job growth.
“It’s naive at best to believe that this will stimulate one job,” he said from Vancouver. “What type of job can you create with $2,000 in savings? You’re going to pay people $40 a week for a year? That’s unbelievable.”
But Craig Wright, chief economist at Royal Bank of Canada (RBC), said although the impact may be minimal, it may be enough to push some employers to considering hiring.
“In terms of impact on the economy and the job market, it is a positive, just a not very large positive, I would think,” he said. “It lowers the cost of employment, it helps at the margins. Decisions are often made at the margins. I think the overall scale of the impact is fairly modest but these were modest changes.”
Wright added that hiring can depend on a variety of other factors, too.
“The bigger issue is how the economy performs. If firms are looking at hiring more people, it’s a bit of a relief in the cost of hiring,” he said. “It’s particularly good if demand is there. Firms won’t be doing hiring just because they save a bit on EI contributions, they’ll hire if the economy is strong enough and demand picks up.”
Oliver dismissed the suggestion that this credit is an indication that the federal government is worried about sluggish job growth.
“It’s not a sign of worry,” he said. “It’s a sign of confidence that we’re continuing on the right path.”
He also used the opportunity to reiterate the Conservatives’ promise that, after 2017, the EI premium will be set every year and calibrated so the fund will have a seven-year break-even rate.
Despite Oliver’s optimism, there are signs that the Canadian job market is not faring as well as anticipated.
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 economist expectations for the creation of 10,000 jobs last month.
Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), said any help for small business owners is welcome.
“We think it’s well timed. The economy is good, more members are looking to expand than shrink but we’re not knocking the lights out from an economic perspective,” he said. “We really want to make sure that Canadian employers can create as many jobs as possible and invest in their employees as much as they can as well.”
The group estimates the credit will create 25,000 new jobs over the next two years.
“It’s a big, big deal for small business,” said Kelly.
The Canada Revenue Agency (CRA) will be responsible for administering the changes to companies to about 780,000 firms in Canada that will qualify for the credit.