The EI hiring credit: Joe Oliver will take the CFIB’s word for it

Let us now consider how our policy gets made

<p>Federal Finance Minister Joe Oliver (right) stands with Dan Kelly, President of the Canadian Federation of Independent Business (CFIB) as he announces the sovernment&#8217;s new Small Business Job Credit initiative during an availability at a flooring shop in Toronto on Thursday, September 11 2014. Oliver says employment insurance premiums will be cut, reducing EI payroll taxes by nearly 15 per cent and saving businesses more than $550 million over the next two years. THE CANADIAN PRESS/Chris Young</p>

Federal Finance Minister Joe Oliver (right) stands with Dan Kelly, President of the Canadian Federation of Independent Business (CFIB) as he announces the sovernment’s new Small Business Job Credit initiative during an availability at a flooring shop in Toronto on Thursday, September 11 2014. Oliver says employment insurance premiums will be cut, reducing EI payroll taxes by nearly 15 per cent and saving businesses more than $550 million over the next two years. THE CANADIAN PRESS/Chris Young

Two weeks ago, I wondered why the government wasn’t using its own analysis to justify its proposal for an EI hiring credit—even after the parliamentary budget officer projected that the $550-million measure would create just 800 jobs, the government continued to defer to the analysis of the Canadian Federation of Independent Business, an industry association that represents the businesses the credit is supposed to assist.

A day later, we found out that while the government did conduct some kind of its own analysis of its own policy, it apparently hadn’t gone so far as to estimate how many jobs would be created by a policy that was touted as a job-creating measure.

That brings us to yesterday afternoon, when Finance Minister Joe Oliver appeared before the finance committee to testify about the government’s latest budget bill.

There, Oliver explained that the government had relied on the analysis of the CFIB. We know from the previous appearance of a finance official that the Finance Department has not analyzed the methodology behind that analysis. Nor has it analyzed the PBO’s methodology. Nor it seems, from Oliver’s testimony, has the government analyzed why the PBO and the CFIB arrived at different estimates.

Here, first, is my transcript of the most relevant portions of yesterday’s exchanges between Oliver and the NDP and Liberal finance critics with a few interjections for context. After that, a few words from the CFIB about all this.

We start with NDP critic Nathan Cullen.

Cullen: Has your department done an analysis of jobs impact for the $550 million you’re taking out of the Employment Insurance fund, money that according to your colleagues does not belong to the government, but to the people who pay into it?

Oliver: The government has relied on the analysis of those who are the small business experts, those who actually represent small business, which is the Canadian Federation of Independent Business, and it estimated that the $550-million EI payroll tax reduction for some 780,000 companies will create 25,000 person years of employment.

Cullen: Yet ignored the reality that was presented in the analysis from the parliamentary budget officer, an office that your government set up, that shows this will cost half a million dollars or more per job. To rely on the analysis of the CFIB alone and not your own department’s lack of analysis or that from the parliamentary budget officer I would say is to ignore evidence that’s in front of you as finance minister.

Oliver: Well, we relied on those who know their industry best and they have been telling us for years that the No. 1 killer of jobs are payroll taxes. And so we listened to small businesses and we’ll continue to take measures to help create jobs and generate growth.

A short while later, Liberal critic Scott Brison picks up the thread.

Brison: When your finance officials appeared before this committee, they admitted that Finance Canada had not done any internal analysis on the small business job credit. Do you think it’s acceptable to introduce a measure that costs $550 million without doing any internal analysis about its potential impact on job creation?

Oliver: Well, the department does not analyze every measure that we introduce, but 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.

This seems to me to be a key point: Is it unreasonable to expect that the Finance department produce analysis of the impact of every major fiscal policy the government announces? Even if not, shouldn’t it be able to if the policy becomes a point of debate? How is Parliament expected to analyze and judge the proposals it is asked to approve?

I suppose, ideally, we might have an analysis from the government, an analysis from a well-funded and properly empowered parliamentary budget officer. Then sufficiently independent committees would be allowed the time and resources to fully explore and debate the reasoning, data and context.

Or maybe I’m just a crazy dreamer.

Brison: So are you aware of the methodology they used?

Oliver: We are aware that they have expertise, they’ve spoken to their members and I have had an opportunity to speak to them and I’ve had an opportunity to speak to many small businesses in my riding in Toronto and elsewhere around the country. You know, you may not want to listen to small businesses. We do, and they are the biggest generators of employment in the country.

Brison: So you’re not aware of their methodology they used to come to that number?

Oliver: I am aware that they have spoken to their members and they do their regular type of analysis that you’d expect them to do. I mean, when you invest over half a billion dollars, there’s a macro-economic impact and we’re very comfortable there’ll be significant job creation.

Brison: So when the parliamentary budget officer’s analysis, which, you know, the methodology is transparent and is available to any of us, showed that the job credit would create 800 jobs over two years, did you ask your department to reconcile the difference, the delta between 800 jobs versus 25,000 from the CFIB’s estimate? Did you have a curiosity as to why there was such a delta?

Oliver: Well, yeah, we have received a number of estimates from a variety of organizations on a variety of topics and sometimes one looks at them and decides on the face whether they seem to make sense. When the CFIB said it’s a big, big deal for small business, it’s good news for people looking for jobs, 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, we’re influenced by that because they have the expertise on the ground.

So to review: The government is content to trust the CFIB and the existence of a different estimate is met with a shrug.

Brison: So you’re satisfied with no analysis on a $550 [million] …

Oliver: We’re satisfied with their analysis.

Brison: You said you do analysis for certain expenditures, what would trigger—is $550 million not big enough an expenditure to do an analysis?

Oliver: What I said is that we don’t do analyses on every expenditure.

Brison: So why wouldn’t you have done an analysis on this one?

Oliver: Because we didn’t think that we needed to do another analysis when we already had received one. And we knew that this is a good-news story for small businesses. The small business organizations had been asking us for a long time for this break.

Brison: The PBO also told this committee that there are around 10,000 businesses in Canada that pay between $14,000 and $16,000 in EI premiums. These businesses are close to the threshold, the cap of the program, which, according to economist Jack Mintz, could create a disincentive for hiring or a disincentive to growth. Are you concerned that 10,000 businesses in Canada that are between this threshold, for those businesses that this actually creates a disincentive to growth according to Jack Mintz, economist, and Mike Moffatt and a group of economic leaders?

Oliver: I think that his comments have been parsed and he didn’t critique the whole program at all. I should tell you that we did analyze aspects of the proposal and as I mentioned they are going to benefit 90 per cent of businesses, 780,000 businesses. So we looked at that and we’re comfortable that there would be a significant benefit….

Earlier this week, Jason Kenney told the House that Jack Mintz actually supported the government’s EI hiring credit. For the record, here is the analysis Mintz wrote for the Globe. Here is Mike Moffatt’s analysis. And here is Stephen Gordon’s analysis.

Awhile after Brison’s time was up, the NDP’s Guy Caron returned to the issue. He asked about the PBO’s analysis and then returned to the CFIB.

Caron: [inaudible] the utmost respect for the Canadian Federation of Independent Businesses. They do good work representing their members. They prepared a study that actually recommends a measure that will cost half a billion dollars that will be to the advantage of their members. So they’re doing what they should be doing, which is working for the members and they are getting some money for their members. My question is not about the CFIB, it’s about in this instance, wouldn’t it be standard procedure for a government department, such as the Finance department, to actually undertake its own independent study to ensure the numbers are accurate and not coming from what is basically a lobby group?

Oliver: They are a lobby group, but they represent small businesses and have the in-depth expertise to understand and to convey the implications of a decrease in EI for their members. We have looked at the impact, our department has looked at the impact of the 780,000 individual companies and on a macro-basis and we’re comfortable that when [en francais] the Canadian Federation of Independent Businesses says that this will create 25,000 person-years, in other words jobs, it is relying on the expert analysis.

Caron: My question is that this is a group that is working to get benefits for their members. The government is not supposed to just take that at face value. It’s supposed to be undertaking its own, independent assessment to spend, because this is basically a fiscal expenditure, to spend the funds that has been allocated to it. So why doesn’t the federal government undertake independent study of a measure that will basically forgo over half a billion dollars? Put it another way, if the Canadian Federation of Students was coming to you and say with half a billion dollars we could actually create 25,000 jobs for youth, you wouldn’t take that at face value would you?

Oliver: Well we would do what we did in this case. Do an overall review, but we would also look at whether the federation had the economic expertise to do that analysis. If they did, we would be influenced by it and so on.

So if the CFS has anything they’d like to ask for, now’s the time to do it.

Over then to the CFIB. The federation’s chief economist posted his analysis on Oct. 9 after the PBO’s report was released.

Over the phone this morning, Dan Kelly, the president and CEO of the CFIB, explained the federation’s discussions with the government.

EI has been, for many years, the main feature of our pre-budget recommendations to government. So we provide them with a tonne of related information, survey data from our members showing that Employment Insurance is the No. 1 most harmful form of taxation to our members. We’ve provided them, over the years, with dozens of econometric analyses on the impact of payroll taxes on small firms and also we raised EI in this round with respect to the burgeoning EI surplus. We wanted to be very, very careful, as we were very critical of the Liberals in the past of using EI money for non-EI purposes, and wanting to make sure that there wasn’t a balloon surplus in any given year that the government would get excited about using for other purposes. So we said we want to see a reduction, the government didn’t believe that it had the capacity to lower EI rates significantly at that moment, so we suggested another form of an EI reduction and then ultimately landed, through back and forth discussions with the minister’s office, on this small business job credit. And that after it looked like that positive, we provided them with our data about what the impact is of a payroll tax reduction in terms of job creation, in terms of creation of person-years of employment. But that was kind of at the end of the process, after it looked like we were good in terms of encouraging them to announce a measure along these lines…

This methodology that we used for this analysis is the same methodology, the same source of data, using the U of T model that we have used for every other discussion around payroll taxes. So we’ve gone over this with Finance for years, mostly related to the potential for a CPP increase. So it’s exactly the same analysis that was used, which is essentially measuring the impact of payroll tax reductions on employment. It’s the same source data that we’ve used, so it wasn’t anything new, it was stuff that Finance had seen for years. We didn’t do a separate analysis specific to this credit [earlier] because essentially it works exactly the same way: it’s a 15 per cent cut in EI premiums and works exactly the same way as any other form of payroll tax increase or decrease would work.

Kelly says he is “flabbergasted” by the whole discussion.

The credit is essentially speeding up a reduction that they had already announced. There’s been no debate about the reduction in Employment Insurance premiums in 2017 and small firms are essentially getting it a couple of years early. They’re getting a chunk of their reduction a couple of years early. The job-creation benefit of it is essentially secondary to the fact that this is essentially an EI cut because employers and employees should not have to pay higher EI premiums than is needed to pay for the cost of the program. So this is essentially returning EI rates back to their break-even level.

The CFIB’s involvement in the analysis of this issue does seem at least a bit awkward—the federation currently lists the hiring credit among its “victories” on the left side of its website. But I think its analysis should stand or fall on its own merits (note: I’m a guy with a degree in English literature and would never pretend to be able to judge those merits on my own). Kelly says the basis for the analysis that the CFIB has provided to the Finance department in the past can be found in this report on the impact of CPP premiums. I will leave it to others to judge all of that.

Otherwise, we’re left with a wholly worthwhile discussion about how our public policy gets made.