Thank you, and thank you for the opportunity to present the perspective of small business on EI and Bill C-50.
First, I'll tell you a little bit about CFIB. We represent more than 105,000 independently owned and operated businesses across Canada, all of which are small and medium-sized companies. They collectively employ 1.25 million Canadians, and they account for $75 billion in GDP. Our members come from every region of the country, and every sector of the economy.
Most people do not realize how big small business has become in Canada. In this country, 98% of all businesses have fewer than 50 employees. They employ about 55% of Canadians and represent 45% of Canada's GDP. They have also been responsible for the bulk of net new jobs in our economy, and this is especially true during more difficult economic periods.
Speaking of more difficult economic periods, the last year has not been easy for many, and small businesses are no exception. CFIB produces a monthly business barometer that tracks our members' business expectations along with a number of other economic factors. Our most recent index, which was released on October 7, shows that our SMEs' outlook dipped quite dramatically during the latter part of last year and earlier this year, but it has been picking up since April. This upward trend has continued into September, leading us to suggest that the economy is making its first tentative steps towards recovery.
The good news is that the level of optimism is up right across the country. For the first time in many years, it's our members in Ontario who are leading the country on this measure. The manufacturing sector is also one of the most optimistic sectors, leading us to believe that those manufacturers that have been able to adjust and survive the downturn of the last few years are starting to come out the other end with renewed hope and optimism.
While optimism is growing, however, hiring plans remain on hold: 16% plan to increase full-time employment, and 13% plan to decrease it. These results are not unusual during times of economic recovery, as employment plans tend to lag behind economic growth. As employment growth is essential to the recovery of the real economy, we must be very cautious of decisions that may end up deterring job creation. We are concerned that some of the decisions being made with respect to EI may end up doing just that.
I'd like to give you a quick glimpse of a report on small business perspectives on EI. You have a copy of that report; it's called “Ensuring Prosperity”. It goes into quite a bit of detail about a variety of issues related to EI. I'm just going to focus on a couple that are relevant to this discussion.
First, CFIB research found that the smaller the firm the less likely it is to lay people off. So while small business employers may not yet be starting to hire in great numbers coming out of a recession, they are more likely to have held onto their people longer. This is the reason that throughout this recession we've not seen a large increase in the percentage of small firms planning to decrease employment. Other research has shown that employment at larger companies has dropped by 10% in the first half of this year but was virtually unchanged among smaller firms. In fact, we know of employers who have forgone their own income to ensure that their employees continue to get paid during these more difficult economic times. What small business provides to employees is stability and personal relationships, which is often not the case at larger firms.
Secondly, it was clear from the survey results that small business owners support the fundamental principle of EI—to provide short-term financial assistance to workers between jobs. For the most part, they were relatively satisfied with the regular benefit side of the program. For example, when asked how the system could be modified to meet the needs of their business, the largest group would rather see no changes to the current benefit levels or current qualifying periods. In fact, the majority want no change or less generous benefit levels or qualifying periods. Instead of making changes to the benefit side of the system, CFIB strongly believes that the most effective way to assist long-tenured workers is to help them get trained and back to work as soon as possible.
Another report we did last May, which was entitled “Canada's Training Ground: SMEs' $18-Billion Investment in the Nation's Work Force”, found that when you calculate the costs associated with formal and informal training, smaller companies actually invest more in training per employee than larger companies. Moreover, oganizations such as the OECD have found that the most effective means of helping people get back to work is to provide on-the-job training incentives. We believe that providing an EI training credit to small employers would be a much better investment of EI training dollars and would likely help to create job and training opportunities for many long-tenured workers.
Our biggest concern with this bill, and with the EI system overall, is the additional costs that are being added to the EI program, which will result in sky-rocketing EI premium rates just as we're coming out of recession.
First, small businesses themselves have identified payroll taxes as having the biggest effect on the growth of their businesses. When you increase the cost of payroll taxes, such as EI, you discourage hiring, and fewer jobs are created.
What kinds of increases are we talking about? The current EI rate freeze, which is in effect until the end of 2010, has been a very welcome policy, as it has allowed many business owners to hold on to their people. Most analysts, CFIB included, do not expect the unemployment rate to fall to 6.5% by 2011, which is the rate at which the EI premium rate freeze was set. So the rate will have to go up in 2011 to compensate for whatever the difference in unemployment rates will be at that time.
However, it has become clear that the government also plans to charge back the two-year EI rate freeze to the EI account, which would require the new Canada Employment Insurance Financing Board, the CEIFB, to pay the government back an additional $10 billion to $13 billion, with interest. The only way it can do that is by increasing EI premiums. As they are limited to an annual increase of 15¢ for employees and 21¢ for employers, we foresee maximum premium rate increases for both employers and employees for many years to come. By passing Bill C-50, yet another $935 million will be added to the total amount the CEIFB will be expected to pay back through premium increases for several years to come.
Turning to the next slide, you'll see what this might mean for an employer or an employee. Taking the most pessimistic scenario, which is also the most likely scenario, given what we currently know, we expect that between 2011 and 2015, EI premiums will increase by 65%. This will ultimately discourage job creation at the worst time, as the economy will be just starting to emerge from its employment slump. Ironically, the $935 million to help long-tenured workers get additional benefits may end up contributing to making their job prospects worse as employers watch the costs of hiring go up and the take-home pay of their employees go down.
What makes this whole scenario even more frustrating is that there was a $57 billion surplus accumulated in the EI account from 1994-2008, as shown on the next slide. We would have no objection to government requiring the CEIFB to pay for the additional EI costs as a result of the current recession if they would repay the $57 billion surplus first. Instead, the new CEIFB was provided $2 billion as an initial reserve, which, given the scenario I have just described, will be easily wiped out in the first year. We strongly believe that the federal government has a moral obligation to pay back the surplus accumulated from employers and employees by absorbing additional costs and by maintaining a premium rate freeze until the $57 billion has been paid back.
In conclusion, we believe that no real discussion about Bill C-50 can take place without your understanding and dealing with the much broader fiscal issues related to EI. We suggest that the EI premium rate freeze be maintained beyond 2010 to ensure that future job creation is not harmed by payroll tax increases. We also suggest that the CEIFB be properly funded to withstand recessions and additional costs by having the $57 billion surplus repaid over time.
With its target of assisting long-tenured workers, Bill C-50 is more acceptable than other measures that have been suggested to enhance EI benefits. However, we remain very concerned that these kinds of selective measures are unlikely to result in the successful restructuring of the program. They will likely just harm the overall financial balance of the system.
Finally, we encourage the government to think about creating an EI training credit that encourages hiring and workplace training as an alternative means of assisting long-tenured workers and others on EI so that they can get effective training and have better access to the new jobs that are being created.