09/11/2014 07:25 EDT | Updated 11/11/2014 05:59 EST

EI Premium Cut Announced By Finance Minister Joe Oliver

TORONTO—Ottawa announced Thursday that it will cut employment insurance premiums for small businesses for the next two years, a move it billed will save employers more than $550 million.

The Small Business Job Credit will reduce EI premiums to $1.60 for every $100 earned in 2015 and 2016, down from the current rate of $1.88, said Finance Minister Joe Oliver.

The credit is expected to reduce EI payroll taxes by nearly 15 per cent, and assist small business in hiring more employees or raising wages, said Oliver.

The tax credit will not have any effect on EI premiums paid by workers.

"We believe this will be very helpful on a macro basis,'' Oliver said during the announcement at a small flooring company in west Toronto.

"When you reduce payment by half a billion dollars, you'll have an impact. That's what we're looking for. We believe it will encourage growth and employment opportunities.''

He said the move was necessary to ensure that the Canadian economy continues to grow.

"We live in difficult economic times, and we cannot be complacent,'' said Oliver.

"We must take action to empower Canadian entrepreneurs. Small business owners should be spending time growing their business and creating jobs, they should not be choking on red tape and high taxes.''

The Canada Revenue Agency will be responsible for administering the changes to companies that qualify, removing the need for extra paperwork from businesses.

To be eligible, a business must pay equal to or less than $15,000 in employment insurance premiums next year and in 2016. It's estimated that about 780,000 firms in Canada will qualify.

The minister dismissed the suggestion that it was a sign that the federal government is worried about sluggish job growth.

"It's not a sign of worry,'' he said. ``It's a sign of confidence that we're continuing on the right path.''

Despite his words, there are signs that the Canadian job market is not faring as well as anticipated.

Last week, Statistics Canada reported that the economy shed 11,000 jobs in August, most of them part-time positions. The figure was far below economist expectations for the creation of 10,000 jobs last month.

The agency said there were 112,000 private sector jobs lost in August, while self-employment rose by 87,000. The number of public-sector employees rose by 14,000.

The weak jobs data has also given Bank of Canada governor Stephen Poloz little reason to change interest rates any time soon. In his last announcement, Poloz said he was holding the central bank's key interest rate steady at one per cent, a level where it's been for the past four years.

Business groups have long called for a cut in employment insurance premiums, saying that the taxes have made it more difficult for smaller companies to hire new workers.

Dan Kelly, president of the Canadian Federation of Independent Business, estimates the credit will create 25,000 new jobs over the next two years.

"It's a big, big deal for small business,'' he said. ``It's good news for people looking for jobs, good news for those in companies where, perhaps, the business owners has had a more limited time in increasing their wages too.''

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