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federal budget

Toronto's Bay Street financial district in February, 2012.Tim Fraser for The Globe and Mail

After promising to support entrepreneurs in the budget, Canada's federal government has extended two Employment Insurance measures that will keep small business EI costs from rising, and cap rate increases for all other employers.

Ottawa is also extending a temporary hiring credit that allows businesses that pay up to $10,000 in EI premiums to receive a tax credit of up to $1,000 against an increase to those premiums.

The one-year extension, first introduced in the 2011 budget, will benefit companies with payrolls of roughly $400,000 or less, an estimated 536,000 employers, and it will cost the government a total of $205-million. Speaking in the House of Commons, Finance Minister Jim Flaherty called the credit "a practical, proven measure, which encourages businesses to hire more workers."

"Obviously that's positive – we asked for the hiring credit to be extended," said Catherine Swift, president and chief executive of the Canadian Federation of Independent Business. In a poll of the CFIB's members, the tax credit was chosen as the most popular measure from the last budget, Ms. Swift said.

"Everybody looks at that and says, 'Well, a thousand bucks isn't much, but every little bit helps.' We know it was meaningful."

In addition, the government is limiting EI premium increases to 5 cents a year per $100 of payroll for employees - topping out at a maximum increase of $22.95 a person based on current maximum insurable earnings - and 7 cents for employers, in a move to make premium costs "more stable and predictable," budget documents say. The cap will remain in place until the EI operating account is balanced.

"By capping it at least we have certainty," Ms. Swift said.

Some small businesses will also benefit from a variety of other measures in the budget, including no change to the 35-per-cent research and development tax credit rate (larger employers will see their rates cut) and a $400-million commitment to increase private sector investment in risky early-stage companies, although details on the latter haven't been developed yet.

Ms. Swift said she expects positive changes from coming measures to reduce red tape. "It's good to have attention paid to small and medium businesses in the overall economic outlook," given their contribution to the economy, said RBC chief economist Craig Wright.

He added the government's EI measures "are a step in the right direction."

Over all, however, Ms. Swift said her organization's 109,000 members will be disappointed by a budget that doesn't deliver deeper spending cuts. "Our members are very much deficit hawks. On that score I was surprised spending cuts were as mild as they are."

With files from Barrie McKenna