Harper government defends payroll tax plan

The Harper government is defending fiscal plans that envision over-collecting payroll taxes by $12.9-billion during a three-year period, a measure that ultimately would help shrink overall budget deficits up to and including 2015.

The Tories say this would be necessary to cover a deficit in existing collections of Employment Insurance premiums that is projected to hit $13.2-billion by 2011-12. They froze EI rates as the recession hit - to help businesses that pay these levies - and thus premiums are artificially low until 2011.

Both employees and employers pay EI premiums in the form of payroll taxes. Rates are expected to rise in 2011 to start the process of breaking even on the program.

The Conservatives said Saturday Canadians should not form the impression that they are deliberately going to over-collect EI premiums in order to lighten future deficits.

But as Toronto economist Dale Orr shows, the effect nevertheless of fiscal plans to over-collect EI premiums will be to whittle down future budget shortfalls from what they would otherwise be. The deficit in 2012-13 will be about $1.6-billion smaller as a result; it will be about $5.1-billion less in 2013-14 and about $6.2-billion smaller in 2014-15.

Mr. Orr gleaned these figures from the government's annual fiscal update released Thursday.

The Tories however say they're not going to take premium surpluses and use them for political ends, something they accuse the former Liberal government of doing. They only want to recoup the growing deficit in EI premiums.

"We committed to freezing EI premiums as part of the economic action plan to help Canadians weather the recession," Prime Minister's Office spokesman Dimitri Soudas said today.

"We are keeping that commitment and rates will remain frozen until 2011. We will not act like the Liberals [and]raise EI premiums and use surpluses in the EI account to fund political priorities on the backs of hard working Canadians."

Critics however say Ottawa should consider taking a longer period to recoup an EI shortfall rather than over-collecting so much in a briefer time span. The concern is an over-collection of EI would unduly burden businesses as they are trying to recover and grow after the global recession.