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The Globe and Mail

Ottawa's deficit plan would hike EI premiums

Finance Minister Jim Flaherty speaks to reporters before delivering a speech in Vancouver on Aug. 30, 2009.

DARRYL DYCK/The Canadian Press

The Harper government's plan for whittling down Ottawa's deficit by 2015 includes collecting billions of dollars more in payroll taxes than it pays out in Employment Insurance benefits over a three-year period.

This is stoking fears that overcollection of EI premiums, starting in Ottawa's 2012-13 fiscal year, could hinder employment growth by unduly burdening companies as they are trying to recover and grow.

But the Tories defend the measure as necessary to ensure the EI program breaks even, particularly given a current freeze on premiums that's keeping them artificially low right now.

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For instance, the deficit or shortfall in the costs of the EI program and the premiums collected - as a result of the freeze - is expected to hit $13.2-billion by the 2011-12 fiscal year.

The Official Opposition Liberals, currently gunning to defeat the Tory government, say it's hard to square EI levy hikes with the Tory pledge to avoid raising taxes as they eliminate the deficit.

Using information released in Thursday's fiscal update, economist Dale Orr calculates that Ottawa will collect $12.9-billion more in EI premiums from employers and workers than it pays out in benefits or administrative costs between 2012-13 and 2014-15.

The Harper government said it's merely trying to ensure that the EI program balances out over time. It wants to recoup shortfalls in EI collections that it expects will have built up over the next few years as a result of the recession - which has sent unemployment skyrocketing.

"We committed to freezing EI premiums as part of the economic action plan to help Canadians weather the recession," said Chisholm Pothier, spokesman for Finance Minister Jim Flaherty.

"We are keeping that commitment and rates will remain frozen until 2011."

Jayson Myers, president of Canadian Manufacturers & Exporters, said he wants to avoid a repeat of efforts to balance the books more than a decade ago when the Liberal government over-collected EI premiums.

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"If they're looking at reducing the deficit by increasing the premiums, then you're going to run into exactly the same problem we saw during the mid-1990s … [and]it will slow down the hiring process," Mr. Myers said.

Liberal finance critic John McCallum said Ottawa should be cautious about trying to resolve a shortfall in EI premium collections too quickly. "I agree with the principle that it should be balanced over the cycle, but what's the cycle?"

Mr. Orr said the Finance Minister should have highlighted this plan to over-collect premiums when he released the fiscal update on Thursday, a document that was designed to show the deficit shrinking to what the government assured Canadians will be "manageable" levels by 2015.

"He pledged to return to balanced budgets without a tax increase. Isn't an increase in EI premiums a tax increase?"

Ottawa's current break-even policy for EI may be hard to stomach for some. As internal government estimates have shown, Ottawa collected $51-billion more in EI premiums than it paid out in benefits over 12 years up to 2005-2006.

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