It’s too soon for more payroll tax

TheGlobeandMail.com – Opinions/Editorial – The EI fund should be balanced, yes, but it should also be counter-cyclical – paying out more and collecting less when the economy is weak.
Published on Thursday, Sep. 09, 2010.  Last updated on Friday, Sep. 10, 2010.

The Employment Insurance system should not be an unending source of red ink, or a pot from which to distribute government largesse; it should be self-sustaining, counter-cyclical and balanced, paying out benefits in proportion to the premiums it raises. But raising premiums too fast could threaten Canada’s economic recovery.

The current proposals by the Canada Employment Insurance Financing Board, as reported by The Globe and Mail, would in effect lead to a tax hike. Every employee making $43,200 or more would pay at least $64.80 more into the system, while each employer would pay an extra $90.72 on top of that. These numbers will go up if there is an increase in the amount of income beyond which no further premium amounts are charged.

The federal government is now carrying a $49.2-billion deficit, and it expects another $53.6-billion in deficits in the three next fiscal years. Its plan depends on using the EI system to fill the gap with the maximum possible increase in EI premiums – 0.15 percentage points – in all three of those years. That would result in $15-billion in new revenues.

But the EI fund still wouldn’t be brought into balance any time soon. In last year’s report, the EI Commission’s chief actuary said the premium rate would have to be 2.43 per cent in 2010 to put the system in balance; even in 2011, it will rise only to 1.88 per cent.

Joblessness and underemployment are still major problems. The unemployment rate is too high at 8 per cent; before the recession, it had not been at that level since the late 1990s. Too many new jobs are part-time (almost half of the overall increase in new jobs since July, 2009). Although the reported premium increases may seem modest, they would amount to new disincentives for businesses to hire. And EI premium increases are regressive (maxing out at $43,200 in income), meaning that poorer workers, in particular, will feel the impact of the $20, $40 or $64.80 taken away from them. The government should think twice before agreeing to the highest premium increases they could impose.

, ought to raise alarms.

The EI fund should be balanced, yes, but it should also be counter-cyclical – paying out more and collecting less when the economy is weak. Deficit reduction ought to remain a leading priority for the federal government, but EI premium increases get in the way of recovery, and hamper the consumer spending that will also help bring the budget back to balance.

< http://www.theglobeandmail.com/news/opinions/editorials/its-too-soon-for-more-payroll-tax/article1701826/ >

Leave a Reply

Your email address will not be published. Required fields are marked *