It was touted as a job-creator in a tough job market, but new evidence suggests the Conservative plan to cut Employment Insurance premiums for small business won't achieve its stated goal of making it easier for employers to hire new workers.

And the head of a key lobby group acknowledges the decision by the government may be linked to other political considerations.

In a new report, the parliamentary budget officer, Jean-Denis Fréchette, says the small business job credit announced last month by Finance Minister Joe Oliver would generate only 800 new jobs over two years — 200 new full-time equivalent jobs in 2015 and 600 new jobs in 2016.

That would mean each new position will cost the government — and the taxpayer — $687,500.

The head of the Canadian Federation of Independent Business called the PBO's figures "puzzling."

"That seems really really thin," Dan Kelly told CBC News Wednesday.

 "Our own estimate at CFIB was that it would create 25,000 person years of employment. A different measure, but still an awful lot more than the PBO is estimating. And we're trying to figure out why their estimate is so thin."

CFIB lobbied for EI cut

But Kelly also said the government's decision came only after his organization had lobbied heavily for a cut to EI premiums as a form of quid pro quo, to placate small business owners enraged over two new policies: new anti-spam legislation, and a drastic reduction in temporary foreign worker permits.

Kelly called those "dumb decisions" on the part of the government.

'It's another example of Conservative politics triumphing over public policy' - Liberal Finance Critic Scott Brison

In a separate interview with CBC Radio last month, Kelly recalled the message his organization took to the government in a lobbying session.

"As a result of (those decisions) we said to the government look, you guys have made some really boneheaded moves over the past number of months; we need to see a couple of positive things come forward. (We) suggested specifically, progress on Employment Insurance," he said in an interview with CBC Radio's Ontario Today Sept. 30.

"And the good news is the EI fund has returned into balance... and the government has decided to move ahead with it and we give them credit for that," he told host Rita Celli.

Kelly also said small businesses are happy with the EI measure both as a job creation tool, and as a tax reduction measure.

Liberal Finance critic Scott Brison says the measure was a poorly-conceived attempt to placate one group for political purposes.

"The Conservatives were looking for some bone to throw towards the small business community to make up for the aggravation," he said.  

"They didn't think this out, it's another example of Conservative politics triumphing over public policy."

Brison said the program contains a disincentive to hire by limiting the benefit to companies with 15 employees or less, and will simply cost too much. The Liberals have countered with a proposal to grant EI premium "holidays" for companies that first create jobs.

The job credit will cut EI premiums, starting in 2015, for businesses with an annual contribution of less than $15,000.

The government says 780,000 business in Canada are expected to benefit from the credit in 2015.

"This is real money that a small business can use to help defray the costs of hiring new workers and to take advantage of emerging economic opportunities," said Finance department spokeswoman Stéphanie Rubec.

To make his calculations, the budget watchdog used the Finance Department's own EI premium rate multiplier to estimate the increase in employment "as a result of higher after-tax business incomes."

The small business job credit is not the only problem identified in the EI system by the PBO report.

"We've made a number of observations in the report that the way the program is governed now is creating a lot of problems. First of all, it's not predictable...it's not transparent. What we have suggested is the government should provide an estimate of the cost of the rates that they have put in place," said Assistant PBO Mostafa Askari.