In a budget that’s supposed to mark a shift to greater austerity, the federal government is nevertheless still spending to enable small business to keep hiring.
Today’s budget proposes to extend the hiring credit for small business that was introduced in last year’s budget. In budget 2011, the government announced a temporary hiring credit of up to $1,000 per employer, which provides relief against the additional employment insurance premiums they would pay for adding workers. The idea is to reduce the obstacles to hiring new workers for small businesses.
Last year, it estimated that the credit would be available to 525,000 small businesses (defined as firms with EI premiums of less than $10,000), thereby reducing payroll costs by an estimated $165 million.
Today, citing the fact that the economy is still in recovery mode, and facing continued global uncertainty, the government announced a one-year extension for that credit. And this year, it expects the credit will apply to 536,000 small businesses, representing $205 million in reduced payroll costs.
The government is also extending last year’s commitment to limit EI premium increases, as part of a broader plan to make EI rates more stable and predictable. Last year, it pledged to limit annual premium increases to 5¢ in 2011, and 10¢ in subsequent years. Now, the government is proposing to limit premium increases to 5¢ per year, until the EI Operating Account is balanced; after that, the premium rate will be set annually at a seven-year break-even rate.
It’s also proposing a variety of other changes to the $16.7 billion EI program that aim to improve its efficacy and efficiency, at a cost of almost $500 million over the next two years.
First, the government is trying to better align the value of EI benefits with local labour market conditions by changing the way benefits are calculated. The government says that the new formula will make the program more responsive to changes in the local labour market, and ensure that those living in regions with similar labour market conditions receive similar benefits.
Starting in April 2013, those claiming EI will have their benefits calculated based on their highest-earning weeks over the preceding year, and the number of weeks used in the calculation will range from 14 to 22 depending on the local unemployment rate. Introducing this new methodology is expected to cost $387 million over two years.
It’s also unveiling a new pilot project to ensure EI recipients aren’t discouraged from working while also receiving benefits. Currently, EI benefits are clawed back dollar-for-dollar once a worker has earned a certain amount, which discourages them from accepting additional work. The government is now proposing to cut the current clawback rate in half and apply it to all earnings made while on claim.
“This new pilot will ensure that EI claimants always benefit from accepting work by allowing them to keep more of what they earn while on EI and supporting their search for permanent employment,” the budget says. The program is expected to cost $74 million over the next two years.
In addition to limiting premium hikes, the government is planning to introduce legislation to allow the premium rate to be set earlier in the year, to provide more notice to employers and workers. It is also pledging to review the size and structure of the Canada Employment Insurance Financing Board, which sets the rates.