Canada cancels payroll tax increase as hiring slows

Mon Sep 9, 2013 2:41pm EDT
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By David Ljunggren and Louise Egan

OTTAWA (Reuters) - Canadian Finance Minister Jim Flaherty canceled plans on Monday to increase a payroll tax in a break for small businesses hurting from lingering economic uncertainty, but the move is not expected to provide a big lift to growth or jobs.

The employment insurance (EI) premium paid by both employers and workers will be frozen at 2013 levels for 2014 and will not be allowed to surpass that rate in 2015 and 2016, Flaherty said, instead of rising every year as outlined in the government's March budget.

Flaherty noted global economic troubles, particularly in Europe, that he said Canada could not ignore. At the same time, he said the move to roll back what he called a "payroll tax" was possible because more Canadians are working and fewer are claiming EI benefits, so the EI operating account is on track to eliminate its deficit earlier than planned.

The change will save employers, who pay 60 percent of the premiums, and workers a combined C$660 million ($634 million) in 2014 and will have no impact on government finances, Flaherty said.

"This tax relief will help support Canada's continued economic recovery and sustained, business-led, long-term growth," he said.

Canada has long recovered all the jobs lost in the recession but job growth has slowed this year compared with 2012, and the unemployment rate has yet to drop to pre-crisis levels. The economy also slowed markedly in the second quarter but is expected to bounce back in the third quarter.

The government says its top priority is training unemployed workers in the skills needed to fill available jobs.

The EI system provides assistance to workers who lose their jobs. The EI operating account fell into a deficit as a result of the global recession, recording a shortfall of C$9.2 billion in 2011.   Continued...

Canada's Finance Minister Jim Flaherty makes an announcement in Ottawa September 9, 2013. REUTERS/Blair Gable