By David Ljunggren and Louise Egan
OTTAWA, Sept 9 Canadian Finance Minister Jim
Flaherty canceled plans on Monday to increase a payroll tax in
a break for small businesses hurting from lingering economic
uncertainty, but the move is not expected to provide a big lift
to growth or jobs.
The employment insurance (EI) premium paid by both employers
and workers will be frozen at 2013 levels for 2014 and will not
be allowed to surpass that rate in 2015 and 2016, Flaherty said,
instead of rising every year as outlined in the government's
Flaherty noted global economic troubles, particularly in
Europe, that he said Canada could not ignore. At the same time,
he said the move to roll back what he called a "payroll tax" was
possible because more Canadians are working and fewer are
claiming EI benefits, so the EI operating account is on track to
eliminate its deficit earlier than planned.
The change will save employers, who pay 60 percent of the
premiums, and workers a combined C$660 million ($634 million) in
2014 and will have no impact on government finances, Flaherty
"This tax relief will help support Canada's continued
economic recovery and sustained, business-led, long-term
growth," he said.
Canada has long recovered all the jobs lost in the recession
but job growth has slowed this year compared with 2012, and the
unemployment rate has yet to drop to pre-crisis levels. The
economy also slowed markedly in the second quarter but is
expected to bounce back in the third quarter.
The government says its top priority is training unemployed
workers in the skills needed to fill available jobs.
The EI system provides assistance to workers who lose their
jobs. The EI operating account fell into a deficit as a result
of the global recession, recording a shortfall of C$9.2 billion
Flaherty had projected in his budget that the EI premium
rate would increase the maximum 5 cents per year to reach C$1.93
per C$100 of insurable earnings by 2016, up from C$1.88 in 2013.
Monday's announcement means the rate will hold steady
instead at C$1.88 through 2016. Starting in 2017, the rate will
be set annually at a seven-year break-even rate.
There is unlikely to be much of an economic boost from the
new EI policy, which appears to be more a reaction to labor
market improvements than an admission of economic weakness, said
Doug Porter, chief economist at Bank of Montreal.
"In terms of the macro effect, this would be more of a case
of avoiding a negative (i.e. premium increase) rather than
introducing positive (i.e. premium cut)," Porter said.
Porter believes the government will have room to cut the EI
rate in 2015 or 2016 for a bigger bang. An announcement for 2016
could potentially come in autumn of 2015, just before an October
general election that the Conservatives hope to win on the basis
of their economic track record.
"If the government is looking for a fiscal measure to help
promote job growth, cutting EI premiums would be an excellent
place to start," Porter said.
Derek Burleton, deputy chief economist at Toronto-Dominion
Bank, welcomed the move because the small businesses most
affected by the EI premiums are the economy's job-creation
"The stability of premium rates removes one of potential
headwinds that was facing employment growth over the next few
years," Burleton said.
"That said, this announcement wouldn't lead us to revisit
our employment forecast over the next few years."
Flaherty repeated his pledge to balance the budget by 2015
and said the change to EI premiums would have no effect on those
"There's no fiscal impact, because the EI account, the
operating accounts, stands by itself, so it doesn't affect the
budget of the government of Canada."