EI surplus hits $54 billion

Program should be managed like CPP: Report

The federal government’s continued use of the employment insurance (EI) surplus to pay down the national debt is proof the EI program should be governed by an independent, non-governmental body, according to a new report from the Ottawa-based Canadian Institute of Actuaries.

EI is a social insurance program, so the premiums collected should only be used for EI-related costs and any surplus should belong only to the EI program, said Bruno Gagnon, president of the institute’s task force on employment insurance.

“There can be some small administration expenses, but basically you normally are expected to repay most of your premiums in the form of benefits and this has not been what’s happening over the last 10 years,” he said.

The EI surplus has been steadily growing since former prime minister Jean Chrétien’s Liberals introduced changes to the system in 1996. It ballooned to $54 billion by March 31, 2007.

“We have been well aware for the past decade that the EI surplus is going into general revenue and is being spent by the government of the day. That is a problem because there is meant to be money in the bank that would pay workers should we hit an economic bump or downturn,” said John Williamson, federal director of the Canadian Taxpayers Federation in Ottawa.

“It is fiscally irresponsible, if not outright reckless, that instead of setting up this fund, governments have simply spent the money.”

The actuaries’ report, A Look Back and a Way Forward: Actuarial Views on the Future of the Employment Insurance System, recommends the EI account be separated from the government accounts. It also recommends a new, independent governance body set the premium rates and manage the funds, in the same way the Canada Pension Plan and the Quebec Pension Plan are managed. The government would still be responsible for setting eligibility criteria and benefit levels.

Premium rates should remain constant over an entire business cycle (from the end of one recession to the end of the next) and, to do so, the governance body should be able to rely on the surplus to cover the increased costs of EI during a recession, said Gagnon. This is something the current EI commission can’t do.

“They are only allowed to look at the expectations for the coming year and set a premium rate that is expected to be sufficient to cover the cost of the program for the coming year,” said Gagnon. “We can’t even consider using this surplus to pay for the increased cost of EI during a recession.”

The report states that accountability rules dictate all premiums and surpluses belong to insured persons and their employers, thus the surplus should be returned to the program. Going forward, the program should always have a surplus of $15 billion in case of a recession, said Gagnon.

While the Canadian Taxpayers Federation supports the report’s recommendations, there are other changes Williamson would like to see, such as lower rates and the harmonization of employer and employee rates.

Currently, for every $1 employees pay, employers pay about $1.40, said Williamson. The higher rates only serve to punish employers, especially those in sectors hard hit by the rising Canadian dollar, such as manufacturing, he said.

“There is really no reason why employers should be paying a disproportionate share,” he said. “Bringing down these rates to a level that is more responsible would be in the public interest to give industry a boost.”

The Canadian Labour Congress also supports the report’s recommendations, but would like to see changes to eligibility criteria and benefit levels, said Andrew Jackson, the congress’s chief economist in Ottawa.

With EI paying out 55 per cent of an insured individual’s annual income to a maximum of $41,100 in 2008, the maximum annual benefit would only be $22,605.

“The maximum benefit would be really just enough to keep a single person above the poverty line and the average benefit is well below the maximum,” said Jackson.

Not only are the benefits insufficient, but tougher eligibility criteria mean fewer people qualify. In 1990, 80 per cent of unemployed Canadians were covered by EI, but changes to EI have caused that percentage to fall to slightly more than 40 per cent in 2004, according to the Ontario Task Force for Modernizing Income Security for Working Age Adults.

“(EI) was created out of the desire to give people more of a sense of security about their economic future in times when they might lose their jobs. But the tightening of eligibility criteria and the erosion of benefits have certainly lessened the positive impact of this program,” said Rob Rainer, the executive director of the National Anti-poverty Organization in Ottawa.

Higher EI benefits and more retraining programs would give unemployed workers the chance to upgrade skills and wait for a highly skilled, high-paying job, which is good for workers and employers, said Jackson.

“That will address skills shortages much more effectively than if they just grab the most immediately available, part-time, low-wage job,” he said.

In the speech from the throne last October, the Conservative government promised to introduce “measures to improve the government and management of the employment insurance system” and Minister of Human Resources and Social Development Monte Solberg told Canadian HR Reporter the government would review the actuaries’ report.

“Right now, Canada enjoys the lowest unemployment rate it has seen in 33 years, but in the last year and a half, the government has also increased employment insurance benefits and lowered premiums to help people who need assistance,” said Solberg.

EI benefits

Eligibility, benefits countrywide

Employment insurance (EI) eligibility criteria and benefits vary across the country based on an economic region’s unemployment rate.
Below is a sample of the unemployment rate, EI eligibility criteria and EI benefits in different economic regions.

Economic regionUnemployment rateHours of work to qualify for benefitsMaximum weeks of benefits allowed
All three territories25.042045
Eastern Nova Scotia13.142045
Prince Edward Island10.452545
Northern Alberta 7.463040
Thunder Bay, Ont.7.163040

Source: Human Resources and Social Development Canada

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