12/30/2011 01:24 EST | Updated 02/29/2012 05:12 EST

Wrong time to raise EI premiums, Rae says

Interim Liberal Leader Bob Rae says this is the wrong time to raise employment insurance premiums.

Premiums are to go up starting Jan. 1, and the average increase will cost employees and employers $306 a year.

Rae accuses the government of breaking an election promise by raising taxes and said ordinary Canadians will pay more while big corporations get a cut. The government is going through with a planned corporate tax cut to bring the rate down to 15 per cent from 16.5 per cent.

Although the government is raising EI premiums, Rae says, it has laid off some workers who handle EI claims, meaning processing takes longer. He says the delays are causing people to go to food banks or miss rent payments.

Rae wants the tax system reviewed and restructured.

"It's crazy to make payroll taxes the basis for employment insurance," Rae said Friday. "I think that we have to get ourselves back into a situation where we recognize that people need support when they're out of work. That hasn't changed."

Rae says the system has to be reviewed "to make sure that we're getting the balance right and to make sure that we're designing a tax system that’s going to be the most innovative and the most likely to create jobs."

Tax structure doesn't encourage hiring, Rae says

The way it's structured now makes it least likely to encourage employers to hire, he says.

Finance Minister Jim Flaherty's spokesman defended the increase in EI premiums, saying the government is raising them by less than it said they would.

"To protect the economy and jobs, we cut any potential increases in half for 2012 — keeping EI premiums near their lowest level since 1982," Chisholm Pothier said in a statement. "This change is expected to save employers and employees $600 million in 2012."

Pothier says the average family of four now receives almost $3,100 in extra tax savings due to measures introduced by the Conservative government.

The EI fund is in deficit and has been since the government froze premiums during the recession, he said.

"Because recovery is fragile, we keep overruling the EI board’s maximum increases to continue giving employers and employees a break," Pothier said, referring to an advisory board that recommends where to set EI premiums.

"We also introduced the Small Business Hiring Tax Credit in budget 2011, to give employers a break on EI premiums and encourage them to hire new employees."

Pothier says a recent Department of Finance study linked low corporate taxes to investment.