By Laura Jones
A train is hurtling down the tracks threatening to derail the Canadian economic recovery.
Employment Insurance (EI) premiums have long been a thorn in the side of business owners and their staffs whose contributions far exceeded what was necessary to fund the program.
Over the years, this notional surplus grew to a staggering $57 billion. Although the money has disappeared, as the government didn’t set it aside for EI, the idea of the surplus is a reminder that for many years employers and employees were overtaxed in this area.
A few years ago, an independent account was set up to ensure that EI would be separate from general revenue — a good idea. But it was only set up with a $2-billion surplus from general revenue, not the $57 billion that was overpaid.
Then came the recession, where higher jobless rates caused more use of the EI program. Guess what is going to happen next?
EI rates are set to skyrocket, at the worst possible time, as Canada emerges from the recession and the U.S. economy remains shaky.
Premiums are going to increase by about 35 per cent between now and 2015. Employers and employees will pay hundreds of dollars more each year as a result.
Does this sound fair? Not even close. Or, as one small business owner asks: “Why are we paying again when we already paid for a surplus [the government] spent?”
Is this a smart move? Only if you think raising a job-killing tax is a good way to create jobs. As another business owner says: “Raising EI premiums will absolutely deter me from hiring more employees and will force me to cut back hours on current employees.”
She is not alone. Employers simply don’t have the capacity to pay for higher premiums without making staffing adjustments.
Increasing rates is projected to cost the Canadian economy up to 170,000 jobs in the short term and reduce wages by 1.2 per cent over the longer term, according to calculations done by the Canadian Federation of Independent Business using methodology from the Atlantic Institute for Market Studies.
Other academic studies, including one from the Paris-based Organization for Economic Co-operation and Development think-tank, conclude the same thing: increasing payroll taxes such as EI dissuades businesses from hiring.
The government’s response to these concerns will likely be the same as usual: Where will the money come from? The temptation is to suggest that someone should have thought of that $57 billion ago.
Instead, I will simply note that federal spending has been growing at a furious clip for years. Reining in some of that spending should help adequately fund EI so that rates can be kept stable.
– Laura Jones is vice-president, Western Canada, for the Canadian Federation of Independent Business. She can be reached at laura. email@example.com. To participate in CFIB’s campaign on EI go to