Income Tax Cuts Better Than EI Premium Reductions even at Modest Incomes, says Business Council

October 6, 1998

Cutting Employment Insurance premiums instead of personal income taxes would hurt most lower-income Canadians, according to the Business Council on National Issues (BCNI). The Council was rejecting allegations by union leaders and others that a BCNI tax cut proposal issued yesterday would put money only into the hands of the rich, while EI premium reductions would help average workers.

“Either form of tax relief would put money back into the pockets of hard-working Canadians, but the BCNI approach would provide more relief to lower income families at less cost to the federal treasury,” said BCNI President and Chief Executive, Thomas d’Aquino.

He also criticized suggestions by Bloc QuǸbǸcois Leader Gilles Duceppe that the federal government will record a $15 billion surplus this year. “To tell Canadians that we can dramatically reduce EI premiums, increase health care spending and cut taxes in a single year is ludicrous and irresponsible,” Mr. d’Aquino said. “Despite the signs of a slowing economy, there is room for some tax reduction, but we have to make very careful choices.”

The BCNI believes that the government will be able to afford about $3 billion in tax relief in the 1999 budget if it avoids any new spending. A reduction of 40 cents per $100 in insurable earnings in EI premiums would cost about $2.8 billion. For half that cost, one of the personal income tax measures proposed by the BCNI for the 1999 budget would provide more relief to Canadian families with modest incomes.

That proposal, a $500 increase in the basic and spousal amounts, would cost $1.4 billion. Yet it would provide more relief for taxable single earners than a $3 billion cut in EI premiums on incomes of up to about $20,000 and more relief for one-earner families up to and beyond the EI maximum insurable earnings of $39,000.

“While the BCNI always has agreed with the idea of a self-supporting insurance-based EI system focussed on providing effective protection to workers against short-term job loss, that is not what we have today,” Mr. d’Aquino said. The discussions and negotiations that would be needed to create such a system would involve a wide range of issues and clearly would take a long time to resolve.

“We should reduce EI premiums over time, but for now, we must give priority to personal income tax cuts over reductions in EI premiums,” Mr. d’Aquino added.

Personal income tax cuts offer more relief to individuals than equivalent EI premium reductions primarily because more than half of the EI premiums are paid by employers.

The members of the BCNI are the chief executives of 150 leading Canadian corporations, which together account for some 1.4 million employees. Yet in the course of the BCNI’s discussions on tax policy this summer, these corporate leaders overwhelmingly ranked personal income tax cuts as a more important competitive issue than reducing EI premiums.

“The fact is that by concentrating on personal income tax reductions, we can achieve greater relief at less cost for most lower-income families and create more opportunity for all Canadians to improve their after-tax earnings and their quality of life,” Mr. d’Aquino concluded.

The Business Council on National Issues is a not-for-profit, non-partisan organization that is the vehicle for Canadian chief executive participation in national and global issues. The member companies of the BCNI administer close to $1.9 trillion (Canadian) in assets, have a yearly turnover of more than $500 billion and are responsible for a significant majority of Canadian private sector investment, exports, research and development and training.