EI premium cuts a double-edged sword for job growth

A left-leaning think tank is criticizing the federal government’s small businesses tax break, saying the program may result in job losses as businesses may make cuts to become eligible for the break.

To combat sluggish job growth numbers across the country, Federal Finance Minister Joe Oliver announced a cut in employment insurance premiums for small businesses on Thursday.

Businesses that pay up to $15,000 in EI premiums will benefit from the break, which reduces the EI premium from $1.88 per $100 of payroll to $1.60. That is a drop of 15 per cent in EI costs.

But David MacDonald, a senior economist with the Canadian Centre for Policy Alternatives, said the move could actually result in job losses.

"Essentially, what it does is it creates a cap on payrolls at about $550,000. So if you're an employer and your payroll is slightly over that $550,000, you've got a strong incentive to cut your payroll. Maybe by firing someone or cutting their hours down to get below that threshold and once you do, then you get a tax break," he said.

MacDonald said if the federal government wanted to create jobs, there are other ways to go about it.

"This isn't linked to actual employment and if the government wanted to directly incentivize employment, it should provide a tax break for small employers who actually hire someone in addition, as opposed to just giving everyone with payroll under $550,000 a tax break which is what will effectively happen," he said.

Some pleased with lower premiums

But for some small business owners, the change is a welcome relief.

Philip Holmans owns the World Tea House, a specialty tea shop which is likely to be eligible for the credit.

He pays less than $15,000 a year in EI premiums.

Holmans is expanding the business so this is an unexpected bit of good news.

"With the new store in Bedford we'll be doubling our staff, so you know our payroll is going to double or even more. So this is definitely a welcome opportunity to give people more hours," he said.

Small business owners will be eligible for the credit to a maximum of just over $2,200.

Jenn English is with the Canadian Federation of Independent Business, a group that represents small businesses across Canada.

She said the credit will come in handy especially to business owners in this province.    

"Nova Scotia is a very highly taxed jurisdiction and our members will take any relief they can get that will help their bottom line," she said.

English said business owners will also appreciate the fact this is an automatic tax credit so there's no extra paperwork to submit to get their money back.