Ottawa freezes EI premiums for 3 years

Rate locked in at $1.88 per $100 of insurable earnings through 2016
||Last Updated: 09/09/2013

(Reuters) — Finance Minister Jim Flaherty reversed on Monday his decision to raise the amount employers and workers pay into the country's employment insurance (EI) program, a move that offers a break to small businesses as economic uncertainty lingers.

The EI premium rate will be frozen at 2013 levels through 2016, instead of rising every year as outlined in the government's March budget.

Flaherty 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 $660 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, adding that Canada cannot ignore troubles in the global economy, particularly in Europe.

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 $9.2 billion in 2011.

Flaherty had projected in his budget that the EI premium rate would increase by the maximum five cents per year to reach $1.93 per $100 of insurable earnings by 2016, up from $1.88 in 2013.

Monday's announcement means the rate will hold steady instead at $1.88 through 2016. Starting in 2017, the rate will be set annually at a seven-year break-even rate.

Canada has long recovered all the jobs lost in the recession but job growth has slowed down this year compared with 2012, growing at a modest 12,000 a month in the six months to August compared with 29,000 in the previous six-month span. The economy also slowed markedly in the second quarter but is expected to bounce back in the third quarter.

Flaherty repeated his pledge to balance the budget by 2015 and said the change to EI premiums would have no effect on those plans.

"There's no fiscal impact, because the EI account, the operating accounts, stands by itself, so it doesn't affect the budget of the government of Canada."

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