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Federal Finance Minister Joe Oliver announces the government's new Small Business Job Credit initiative during a news conference at a flooring shop in Toronto on Thursday, September 11 2014. Oliver says employment insurance premiums will be cut, reducing EI payroll taxes by nearly 15 per cent and saving businesses more than $550 million over the next two years.

Chris Young/CP

The Parliamentary Budget Officer is challenging the Conservative government's approach to Employment Insurance, issuing a new report that finds the economy will lose more than 9,000 jobs over two years because the government is collecting billions more in EI premiums than necessary.

The PBO also takes issue with a new Small Business Job Credit announced last month that will provide an average payment of $350 to qualifying small businesses in order to help offset the costs of premiums. The PBO said the $550-million credit will create only 800 jobs over two years, far less than the government has claimed.

The report from Parliamentary Budget Officer Denis Fréchette and his staff was seized upon in the the House of Commons, with the opposition accusing the government of mismanaging the EI file.

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"Half a billion dollars to create 800 jobs is outrageous," said NDP finance critic Nathan Cullen, who called for the new credit to be cancelled.

Finance Minister Joe Oliver defended the EI credit Thursday.

"It has an immediate impact," he told a small group of reporters in Washington, where he is meeting with his G20 colleagues.

Mr. Oliver also reiterated that the government intends to lower EI rates starting in 2017. He vowed that Ottawa would return any future surpluses in the EI fund to taxpayers, saying he had no intention of creating a "slush fund."

The minister expressed his confidence in an earlier estimate by the Canadian Federation of Independent Business, which said the credit would create 25,000 person years of employment over the next two to three years. A job employing someone for two years, for instance, represents two person years of employment.

Thursday's PBO report argues those estimates are far off the mark. The credit would only create 1,000 person years of employment (or 200 jobs in 2015 and 600 jobs in 2016), according to the PBO. Further, because the government is keeping EI premiums at higher levels than necessary to offset the costs of the program, the PBO argues these higher premiums come at an economic cost of 2,000 jobs in 2015 and 8,000 jobs in 2016.

Essentially, the PBO report argues the positive employment impact of the credit combined with the negative impact of the higher-than-necessary premiums means there will be 9,200 fewer jobs in the economy over the next two years than there would have been if the premiums were set to break even and there was no small business credit.

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Alternatively, the PBO report argues the higher-than-necessary premiums could have been used to enhance benefits for the unemployed. Over all, the report takes issue with the government's approach to setting EI premiums for lacking in transparency.

The government argues its rate-setting policy for EI premiums is a two-year temporary option that will then be replaced by a program to have premiums and costs break even over a seven-year period.

The PBO urges parliamentarians to give that plan a closer look.

"The break-even mechanism will require lower contributions during good times and higher contributions during bad times," the report states, expressing concern that this could prove counter-productive during a tenuous economic recovery.

The PBO report says the effect of the government's premium decisions – including the credit for small business – is that Ottawa will take in $4.4-billion more in EI revenue than necessary to cover the cost of benefits from 2014-15 to 2018-19.

Another aspect raised by the PBO is the declining percentage of unemployed Canadians who qualify for EI. In 2007, 46.6 per cent of unemployed Canadians qualified for benefits. That figure dropped to 38 per cent in 2014.

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The PBO says this decline has less to do with government policy reforms and more to do with "a persistent restructuring of the labour market." The projected surplus in the EI fund could be used to temporarily extend benefits to an additional 130,000 unemployed workers in 2015 and 2016, according to the report.

With a report from Kevin Carmichael in Washington

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