Ottawa rebuked, again, for massive EI surplus

By Jerry Langton
|Canadian HR Reporter|Last Updated: 12/20/2004

Canada’s Employment Insurance program may have generated another $2 billion surplus in 2003, but Canadians shouldn’t expect the federal government to spend more on human resources initiatives soon — the money will be used for other things.

The government’s own financial watchdog, auditor general Sheila Fraser, has declared the surplus to be in violation of the Employment Insurance Act of 1996. In her annual report last month, Fraser noted that the current accumulated surplus of $46 billion is more than three times the $15 billion maximum advised by the Chief Actuary of Human Resources Development Canada in 2001 to ensure the stability of the EI program.

“We believe the government has not observed the intent of the Employment Insurance Act,” her report said in reference to the surplus.

Any group hoping to cash in on last year’s surplus is already too late. “That money’s already been spent,” said David Gamble, chief of media relations and public consultation for Finance Canada. “The Employment Insurance account has been consolidated on the books since 1986; it’s just a bookkeeping entry, there’s no real cash there.”

Because of this consolidation, any surplus accrued from EI premiums automatically goes into the federal government’s general fund if it’s not spent on something else.

Dale Orr, chief economist with Toronto consulting firm Global Insight, estimates that surplus funds from the EI account have made up about 40 per cent of Ottawa’s payments on the national debt over the past three fiscal years.

If any of the surplus were made available, there are many different ideas of how to spend it. Not surprisingly, business organizations have recommended lowering premiums, while labour advocates support increasing benefits.

Lynn Johnston, executive director of the Canadian Society for Training and Development, said Ottawa should be spending more to ensure employers have a ready supply of skilled labour.

“Paul Martin said that it was time to reinvest in Canadians. Maybe he could start with this,” she said.

“Since the fund is there to look after Canadians looking for their next job, can’t we use it to help them find better jobs more quickly?” she said. “We’d love to see them set up a national database of best training practices that employers could tap into — or the government could get the long-promised ePortfolio program off the ground.”

According to Johnston, ePortfolio would be a program under which people could record all pertinent educational and employment information to a permanent electronic file which would be maintained by the government and made available to potential employers. “The idea has been around for years. But nobody has put any real work into it,” she said.

“What they’re doing is Enron accounting — a grotesque distortion of what the system was set up for,” said Kevin Hayes, senior economist with the Canadian Labour Congress. “While benefits have been cut, funds have been diverted away from people who need them.”

He said that the primary reason the surplus has been growing is less money is being spent on people who need it.

“In 1990, about three-quarters of unemployed Canadians received benefits, while last year it was 38 per cent,” he said. “They made it much harder to qualify for benefits and they now last for much shorter periods.”

This is the fifth straight year the auditor general’s report has criticized the surplus, and very little of it has been made available for new HR initiatives. “The auditor general has brought this issue to Parliament’s attention each year since 1999,” the report continues. “And she urges the government to take the necessary steps to resolve it.”

So far, Ottawa’s steps toward reform have been small. A parliamentary committee has been examining the process and the Liberal government promised a review, but there have been no official announcements yet.

“It might be a good idea to pay down the debt, but it’d be a better idea to ask Canadians if that’s what they want to do with the surplus, or at least tell us that’s what they’re doing,” said Garth Whyte, executive vice-president of the Canadian Federation of Independent Business (CFIB). “It’s set up like a slush fund, raising money for other purposes without the public’s knowledge.”

According to Jason Clemens, director of fiscal studies at the Vancouver-based Fraser Institute, “some economic commentators have suggested that this practice has helped the government to reduce the budget deficit by stealth.” And 77 per cent of economists surveyed by the Fraser Institute recommend the government put an end to the practice, although 82 per cent of respondents indicated that debt-reduction should be the government’s primary financial goal.

For its part, the federal government has said that it has made a commitment to reduce the surplus, but that a better-than-expected economy with lower unemployment rates than it had forecast led to the surplus and that a shift in economic fortunes could have a very different outcome. “We’ve lowered the EI premium or kept it the same every year since 1994,” said Gamble of Finance Canada.

Earlier this month, Ottawa did in fact announce another decrease in the employment insurance premium rate. As of Jan. 1, 2005, employers will pay $2.73 per $100 of insurable earnings, down from the current $2.77. The employee rate will fall to $1.95 per $100 of insurable earnings from the current $1.98.

“It’s better than a kick in the pants, however it’s not what our members were hoping for or deserve,” said Whyte, in a press release responding to the new rate announcement.

“The government is determined to continue this unfair tax on jobs,” he added.

While lowering EI premiums may prevent future surpluses, Hayes points out that taxpayers paid the premiums believing they would be used for EI purposes and that they should be repaid with better benefits. “They have to get back to the purpose of why the money was collected in the first place,” he said. And he’s determined to get the money back into the EI system.

“We know it’s already been spent, but we’re treating it like a debt to the EI fund,” he said. “We’d like to see the $46 billion — not to mention the $1 billion in interest the auditor general’s report said they’ve made on it — repaid and we’ve sent them a seven-year schedule that we think is reasonable.”

Jerry Langton is a Toronto-based freelance writer.

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