EI rate cut: Ottawa skipped internal study in favour of interest group report

The Harper government passed up conducting its own internal analysis on the job-creation potential of its $550-million small-business job credit, relying instead on numbers produced by an interest group, the finance minister revealed Wednesday.

• Pricey EI rate cut will yield only 800 jobs: PBO report
• MPs debate Liberal pitch to exempt new hires from EI premiums
• EI premium cuts a double-edged sword for job growth
• EI premiums: Joe Oliver announces cuts for small businesses

Joe Oliver told the parliamentary finance committee that Ottawa's decision to introduce the measure was based on the research of the Canadian Federation of Independent Business.

"The department does not analyze every measure that we introduce," Oliver told the hearing as he responded to a question.

"If we don't do it, we look to those who have expertise and we did in this case to the Canadian Federation of Independent Business."

The Canadian Federation of Independent Business estimated the credit would generate 25,000 person-years of employment over the next several years.

A job that employs a worker for one year amounts to one "person-year."

Cut costs $555K per new 'person-year' of employment: PBO

But Canada's parliamentary budget office has argued the credit will create only 800 net new jobs in 2015-16, while a freeze in employment insurance premiums could cost the economy 10,000 jobs over the same period.

The budget watchdog's study said that overall, the credit would create about 1,000 "person-years" of employment with a price tag of $555,000 for each person-year.

Beginning in 2015, the Conservative government's measure will effectively lower EI premiums for small businesses with annual contributions of less than $15,000. Oliver estimates about 780,000 Canadian businesses fall into that category.

Critics of the job credit have said Ottawa should have gone further and made a direct cut to premiums.

They believe it would provide an immediate benefit to all businesses and employees.

Ottawa has indicated a broader reduction to payroll taxes won't happen until 2017.

Opposition parties have accused the government of delaying the cut in order to bankroll announcements aimed at pleasing voters ahead of next year's election.

CFIB has 'expertise on the ground': Minister

At the committee hearing Wednesday, Oliver was also asked if he was aware of the methodology used by the Canadian Federation of Independent Business to produce its estimate.

He replied: "I am aware that they have spoken to their members and they do the regular type of analysis that you'd expect them to do."

When queried whether he asked his department to look into the study released by the parliamentary budget office, Oliver replied that he receives many estimates from a variety of organizations.

"Sometimes one looks at them and decides on the face whether they seem to make sense," he said of the many estimates his office receives, noting it was worth listening to the Canadian Federation of Independent Business because of its "expertise on the ground."

"When the CFIB said it's a big, big deal for small business, it's good news for people looking for jobs," he said.

"We're influenced by that when they say that small businesses should be thrilled with this announcement, because time and time again they've told us that payroll taxes like EI are the biggest disincentive to hiring."

Oliver said he's confident the measure will lead to significant job creation.

CFIB 'working to get benefits for its members': NDP

New Democrat MP Guy Caron, a committee member, asked the minister why his department did not undertake its own independent assessment.

"This is a group that is working to get benefits for its members," Caron said to Oliver, referring to the Canadian Federation of Independent Business.

"The government is not supposed to just take that at face value."

Later Wednesday, the head of the Canadian Federation of Independent Business said he didn't see anything wrong the government's decision to base their job credit on their study.

"Politicians listen regularly to my organization and dozens of other groups to address all sorts of things, either spending or tax-reduction plans," Dan Kelly said in an interview.

"They don't do an economic study of every tax or spending measure that is out there because there are thousands and thousands of those measures."

The group started lobbying the government on the proposal last spring, Kelly said.

He added the plan was developed by the federation's chief economist and based on a model from the University of Toronto.

Kelly disputes the numbers in the parliamentary budget office's report last month.

"Even the most left-wing economist generally admits that there would be some stimulative effect of half a billion dollars in reduced taxes," he said.