Increases in income tax and employment insurance (EI) and Canada Pension Plan (CPP) premiums are getting mixed reviews from employer and labour groups.
The executive director of the Newfoundland and Labrador Employers’ Council, Richard Alexander, says any time taxes on employment are increased — whether it’s through EI, CPP, workers’ compensation or the province’s two per cent health and post-secondary education payroll tax — it makes it more expensive to hire people and therefore becomes “a disincentive to employ people.”
Despite the province’s positive financial state, Alexander said Newfoundland has the highest tax on labour of any province in Atlantic Canada and is second in all of Canada.
“So, an increase in EI and an increase in CPP is not going to help that. It’s going to further (the) divide between this province and other provinces,” he said.
The employers’ council has stressed during previous budget consultations that Newfoundland needs to be competitive, yet Alexander said workers’ compensation premiums here are 21 per cent higher than the Atlantic average, and other Atlantic provinces don’t have a health and post-secondary education payroll tax.
He said the federal government originally proposed more significant EI and CPP premium increases, but there was a “fairly strong, aggressive lobby” from businesses against that.
“While we’re not excited about the increase, it’s a lot better than what was originally proposed,” Alexander said.
The employers’ council believes Ottawa should review the EI program, rather than just keep increasing premiums to cover deficits in the system.
Alexander said while employers are satisfied with the system for the most part, any time you have an $8-billion-plus deficit in a system like EI, you need to take a hard look at some of the programs being offered.
He said the program should fall more in line with what it was originally intended to do, “and that’s help people, who have been laid off through no fault of their own, find alternate employment.”
In 2009, the employers’ council surveyed its members about the impact of the EI system on running a business. Alexander said 41 per cent said they had someone turn down a job or because they were eligible for EI, while 60 per cent said they had an employee ask for a layoff in order to receive EI.
Lana Payne, president of the Newfoundland and Labrador Federation of Labour, has a different perspective.
She says while EI and CPP premiums are considered taxes by employer groups, they are “extremely important programs” for workers.
“It protects the unemployed and provides maternity and parental benefits,” Payne said, adding that “CPP is the most effective, low-cost, high return retirement savings program in the world.”
Payne downplays concerns raised by the Canadian Taxpayers Federation (CTF) about the effects of EI and CPP premium increases on average workers, and said that in 2010, EI premiums were the lowest they’ve been since 1982.
She believes the increases are necessary to ensure the EI system doesn’t run into a deficit, noting that, given the “whopping number of Canadians who lost their jobs in the recession, the amount of benefits being paid out increased dramatically.”
Regarding CTF’s calculation that someone earning $44,200 a year will pay an extra $77 a year in EI and CPP premiums, Payne said that’s only about $1.46 a week, which is not a lot, considering the benefits of these programs.
While EI premiums will increase slightly, benefits will also increase, she said, to a maximum of $468 a week, compared to $457 previously.
Payne said CPP benefits also increase each year according to inflation. However, she said, it should be noted that Canada has some of the lowest premiums for things like EI and CPP in the industrialized world.
“And for over a decade in the 1990s and 2000s,” Payne said, “EI premiums did not increase. In fact, they decreased substantially.”
Ironically, Payne said, the taxpayers federation isn’t complaining about the billions and billions of dollars in annual lost tax revenue as a result of the “federal government’s subsidization of the registered retirement saving plan (RRSP) business and the financial industry.”
She said Douglas Peters, former head economist with Toronto Dominion bank, was quoted as saying that higher RRSP contributions result in a tax expenditure or subsidy to savers, but the largest benefits go to those in the highest income tax brackets. Payne said Peters commented that the private option is “the equivalent of the poor subsidizing the rich, so the rich can have larger pensions when they retire.”
She said Canada needs to start taxing corporations and the wealthy to ensure they pay their fair share and the federal government could start paying back the $55 billion it “borrowed” from the EI account in the 1990s and 2000s — “money it used to hand out tax cuts to the rich and to corporate Canada.”