Given the country's high unemployment, the Conservatives' small business tax credit comes at a bad time. That's because it's bound to cost the Canadian economy 10,000 jobs in the long term.
Mr. Harper's so-called job creation plan is sinking. The Parliamentary Budget Officer's (PBO) report, published on Thursday poked irremediable holes in the Tax Credit for Small Enterprises that I immediately discredited in my last article after it was announced by Finance Minister Joe Oliver on September 11. One of his most troubling findings: the policy will only help create 800 jobs for a half-billion dollar investment!
This tax credit effectively lowers by 15 per cent EI contributions of small businesses whose total contributions don't exceed $15,000. As soon as it was announced, economists pounced on the many faults of this policy. First, it discourages small businesses from growing beyond this new glass ceiling it created, as they would automatically lose their qualification for the tax credit.
Furthermore, small businesses whose payroll is barely above this artificial cap would actually be encouraged to reduce salaries or fire employees in order to qualify. These perverse effects would directly counteract the potential incentives of the tax credit.
This week, the PBO's report should have put the final nail in the coffin of this ill-advised policy. It predicts that in its first year of implementation, the tax credit will help create a mere 200 jobs, and only 600 in its second year. Given the cost of this policy, it amounts to more than half a million per job! When the PBO took into account the rate reductions the government could afford if not for this egregious waste of money, it calculated that the policy would actually cost about 10,000 jobs to the Canadian economy!
Canada's job market is in a woeful state. In the last year, the Canadian economy registered unsustainably low job creation. From august 2013 to august 2014 only 81,300 net jobs were created, of which only 19 per cent (15,300) were full-time. In the private sector, it's even worse. There was a net loss of 57,000 jobs over the same period, and still worse if we only look at full-time jobs, with a net loss of 13,000 since may 2014.
The Conservative government's tax credit for small businesses is simply another populist and clientelist policy which willfully ignores expert opinion and will have practically no effect on employment. Laval University economist Stephen Gordon echoes this sentiment: "...the Conservatives have yet again eschewed a straightforward and effective measure and adopted one that is complicated and most likely to have little effect on employment or wages."
Yet, PBO used the same tools as the Ministry of Finance to calculate these sombre predictions. The Conservatives were simply trying to make it up to small businesses for another of their blunders. Small businesses are not very happy with the adjustments to the Temporary Foreign Workers' program announced this last spring in a perfect example of "trying to put the toothpaste back in the tube." To make up for their mismanagement, they've now dipped their hands in the EI fund to finance a handout masked as a job stimulus. Unfortunately, that very targeting is exactly what is going to create the labour market distortions that poison this policy.
For its part, the Liberal Party has offered a solution that would only benefit businesses that actually created jobs and would avoid creating a glass-ceiling for hiring. Furthermore, the EI Premium Exemption Plan would avoid all market distortion by rewarding all new jobs created. The Liberal plan represents a benefit as high as $1,279.15 for each new job created. For an investment half as large as the Conservatives' at 225 million, 176,000 new jobs could be created. We understand small businesses need breathing room in order to create jobs. That's why Manufacturers and Exporters Canada, Restaurants Canada and the Canadian Federation of Independent Businesses received our suggestion enthusiastically for Independent Businesses.
We believe it's simply not up to ordinary Canadians to foot the bill to settle Conservative gaffes. What matters to us is to stop playing small politics with economic policy and tax credits. Instead, let's create sustainable economic growth to relieve the increasing pressure on middle-class families.