12/30/2011 02:54 EST | Updated 02/29/2012 05:12 EST

EI Premiums: Raising Payroll Tax On New Year's Day Will Discourage Hiring, Bob Rae Warns


TORONTO - Ottawa is making a mistake in raising employment insurance premiums while unemployment is high, Liberal leader Bob Rae warned Friday.

The change, which kicks in on New Year's Day, will penalize Canadians already struggling to make ends meet and discourage employers from hiring, Rae said.

"This is not the time to be raising taxes on jobs or taxes on payroll," he said in a news conference at his Toronto constituency office.

The Liberals have called for a freeze on the premiums, which are set to rise by five cents per $100 of insurable earnings to $1.83, while the maximum insurable pay increases to $45,900 from $44,200.

The Canadian Taxpayers Federation has said premium hikes for employment insurance and the Canada Pension Plan will collect an additional $306 per employee from workers and their employers in 2012.

A spokesman for Finance Minister Jim Flaherty said the government introduced a small business hiring tax credit in the budget "designed to give employers a break on EI premiums and encourage them to hire new employees."

Chisholm Pothier, Flaherty's director of communications, said the Liberals voted against the the credit.

Rae said Friday that it's time to stop relying on payroll taxes to fund the social safety net.

"I think 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," he said.

"But to continue to put pressure on the payroll system to pay for it is wrong-headed."

The Conservative government has said it brought in significant tax relief since 2006 and Canadians' tax burden is now the lowest in 50 years.

Last month, Flaherty halved the EI increase to five cents, rather than the previously scheduled 10 cents per $100 of insurable earnings.

The decision will deprive the federal treasury of about $600 million in revenues.

The EI system has come under fire recently, with critics blasting the current program for failing to keep up with societal and economic change.

A task force co-chaired by former Saskatchewan premier Roy Romanow found the system is complex, opaque and not easily understood by contributors.

As a result, only 46 per cent of the country's unemployed received EI benefits last year, compared with 86 per cent in 1981, the group said in a report released last month.

Meanwhile, Canada's unemployment rate rose to 7.4 per cent in November, the latest figures available.