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Ottawa to halve EI premiums hike, miss four year balanced budget target

CALGARY - Finance Minister Jim Flaherty conceded Tuesday he won't be able to balance the budget in four years as promised after all, while at the same time taking measures to lighten the load on workers and businesses by slashing planned payroll tax hikes in half.

Warning the recovery is fragile and slowing, Flaherty told a business audience in Calgary he is ready to go further if conditions continue to deteriorate.

"We are well aware of the challenges ahead to the global economy and how that may impact Canada,'' he said.

"Let me be clear. We will not be bound by ideology when it comes to making decisions to keep our economy strong and protect Canadians, their financial security and jobs.''

During their winning election campaign this spring, the Harper Conservatives trumpeted their achievements on the economic front by boasting they would do one better than their budget in eliminated the deficit by 2014-15.

But Flaherty heard from economists last month that the budget assumptions of economic growth were no longer applicable, which would mean Ottawa revenues from tax receipts would be lower than anticipated.

As well, the economists warned the minister that the risks of an even worse outcome were rising.

Plugging in the new numbers means Ottawa's deficit will balloon from the previously thought $19.4 billion next year to $27.4 billion, and for 2013-14, from $9.4 billion to $17 billion.

Ottawa was counting on savings from departmental cutbacks to put them into the black in 2014-15, but now the expectation is for a $3.5 billion deficit, once $4 billion in savings are included. Without counting the savings, the deficit would have been $7.5 billion.

In total, the government is adding about $29 billion in red ink from the current year to the end of the planning horizon in 2015-16.

According to the government's new fiscal track, the government will record a tiny $600 million surplus in 2015-16, but that is only if all the savings from cutbacks are realized.

The changes to employment insurance premiums were leaked to some news media late Monday night and are minor in nature.

Ottawa will cut in half payroll taxes scheduled to go into effect Jan. 1 that would have raised premiums on workers by 10 cents per $100 of insurable earnings, and 14 cents for firms.

The changes will mean workers earning the maximum $43,000 of insurable earnings can expect to see their take home pay shrink by about $23 a year, while firms will be paying an additional $31 a year per employee.

As well, the government will also extend for another 16 weeks, until next October, the work-sharing program that gives employees the option of working fewer hours _ to permit a co-worker to keep their job _and receive EI benefits for the subtracted hours.

The government said the hit to its revenues will be $600 million next year, adding that it plans to return to the normal 10-cent premium increase in 2013.

"We will continue to make protecting Canadian jobs and the economy our top priority,'' Flaherty said.

Still the changes are unlikely to satisfy critics who believe Ottawa needs to do more to stimulate a fragile economy projected to record at best modest growth for the next year and a half.

"With stubbornly high unemployment, it is dumb and dangerous to increase the price of hiring by hiking taxes on jobs,'' said Liberal finance critic Scott Brison.

The Canadian Federation of Independent Business, which had lobbied for the cancellation of the payroll tax hikes, took comfort that a half loaf was better than none.

"But the bad news is unless your employer comes up with a raise for you, your take home pay is going to go down,'' said Dan Kelly, the CFIB's head of legislative affairs.

Flaherty told the business audience that while it is important to show flexibility, the government can't afford to break the bank either. He noted that other countries, particularly in Europe, are not grappling with the nightmare of too much debt.

"Countries, like individuals, do not stumble into prosperity,'' he said. ``They set out a plan and stick to it, so that they are fully capable of seizing opportunity when misfortune hits, instead of being overwhelmed by it.''

As such, Flaherty said he is sticking to the broad strokes of his June budget, which phased out stimulus spending in infrastructure and announced plans to keep government spending growth to about two per cent.

The minister said he is also committed to cutting the corporate tax rate by 1.5 points to 15 per cent on Jan. 1, saying low taxes are one of the reasons the country is getting plaudits as a good place to invest.

In an unrelated, announcement, the minister said the government had renewed its agreement with the Bank of Canada keeping the central bank's marching orders of targeting inflation at two per cent annually in place for another five years.

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