The “New” Employment Insurance Fund
The government has announced in the Budget that it is creating a new, independent Crown Corporation, the Canada Employment Insurance Financing Board (CEIFB) to manage a separate EI bank account, and to set premiums from 2009 on. This responds to employer concerns re paying EI premiums which are “too high” as opposed to worker concerns over access to and the level of benefits. That said, both employers and labour strenuously opposed the accumulation of a staggeringly high EI surplus which was used to pay down public debt, mainly as part of the Martin/Chretien anti deficit/debt crusade. The Liberals slashed benefits, but only slowly reduced premiums.
From 2009 on, EI premiums will be set as now – to balance revenues and expenditures for the coming year, with a maximum change in the EI premium of 15 cents. The big change is that, moving forward, any EI account surpluses could be used to reduce premiums. In other words, if there was a surplus in 2009, it could be used to cut 2010 premiums, or to add to the reserve fund. If there was a series of surpluses, EI premiums would be cut.
Responsibility for setting EI program parameters will remain with the Government of Canada (HRSDC), as it should. The Government has also clearly stated that the Consolidated Revenue Fund remains avaiable to “backstop” legislated EI benefits in the event of a recession which resulted in a deficit in the new EI Account.
The CEIFB will begin with a cash reserve of $2 Billion. However, this has not been booked as an expenditure in the Budget. This is apparently because the new account will – like the old EI Account – still be incorporated into the overall Government of Canada Accounts.
Officials say that the “old” EI Account will remain on the books, and that the Government of Canada will continue to ‘backstop’ the cost of EI benefits if needed.
It should be noted that the new $2 Billion reserve is not only hugely less than the accumulated EI Fund surplus of $54 Billion as of the end of 2006-07. It is also much less than the $10 – $15 Billion which the Chief Actuary has estimated is needed to balance the EI account in the event of a serious recession. It remains to be seen if the “new” account will have to build a significant surplus to back-stop the fund in the event of a recession.
We have no information as yet on the governance of the CEIFB but officials say that EI Commissioners will be consulted. Also, EI Commissioners will continue to perform their current role, minus only the premium-setting function.
More details may be in the Budget Implementation Bill which will be introduced (and passed) quite quickly.
Key Questions and Concerns.
What happened to the $54 Billion surplus? This was initially run-up in the name of building up a “rainy day” fund to finance EI benefitswhile avoiding EI premium increases in a recession.
Who will run the new Fund?
What will be the parameters for the new Fund? Will it be expected to build up a new surplus. How and in what way will it be able to draw on the promised $2 Billion.
Background
Ministers of Finance have recently taken the position that the EI Fund is an accounting fiction since it has (since 1986) been completely integrated with the Consolidated Revenue Fund. However, the government continues to publish a separate EI account as part of the public accounts, complete with annual interest paid on the accumulated surplus. Until the late 1990s, the surplus was justified on the grounds that it was a “rainy day” fund to back-stop the EI program and avoild premium increases in the event of a recession.
The legality of the diversion of surplus EI premium revenues to general government purposes has been upheld by the Courts to date. However, the issue is now before the Supreme Court of Canada. Earlier court rulings suggested that the EI reserve continues to be available for EI purposes and is not a mere bookkeeping fiction.
Regardless of pure legalities, diversion of EI premium revenue to non EI purposes has been criticized as a breach of trust by representative organizations of workers and employers, and by all parties through the 2005 report of the House of Commons Standing Committee on Human Resources, Skills Development and Social Development and the Status of Persons with Disabilities (HUMA), “Restoring Financial Governance and Accessibility in the Employment Insurance Program.”
The accumulation of an EI surplus far in excess of the $10 – $15 Billion estimated amount to balance program revenues and expenditures over a business cycle has also been strongly criticized by the former Chief Actuary of the EI program, by the Auditor-General of Canada, and by the Canadian Institute of Actuaries.
For the past three years, EI premiums have been set through a new “forward-looking” process, ostensibly by the EI Commission. By legislation, the accumulated surplus is disregarded for purposes of setting a premium rate, and the Commission is directed to set a rate which precisely balances revenues and benefits (plus administration costs) over the coming year, based upon economic forecasts, EI program parameters as determined by the government, and the estimated level of revenues, expenditures and resulting balances calculated by the Chief Actuary. There is a legislated ceiling of 0.15% on premium increases, and the government can set the premium in lieu of that recommended by the Commission if it so chooses, subject to the maximum.
It is a source of concern that, under the new process, the premium rate could not be significantly increased during a period of recession and high unemployment, notwithstanding the accumulated surplus. In both the early 1980s and early 1990s, the national unemployment rate rose very sharply (from 7.5% before the recession to over 11% in 1982-85 and 1991-93). Studies commissioned by the government prior to legislated changes to the program in the mid-1990s found that EI (then UI) had significantly moderated these recessions through increases in benefits not accompanied by premium increases.
To be sure, the government could still freeze premiums in the event of a recession, but it would not be bound to draw on the accumulated surplus, and might choose not to do so.
“Also much less than the $10 – $15 Billion which the Auditor-General has estimated is needed to balance the EI account in the event of a serious recession.”
And that is the sticking point – not enough $ in the kitty to cover all those who may need EI in an economic downturn and qualify now, let alone those who were either permanently “disqualified” under the “not left leaning” libs (but still must pay in), or only qualify for greatly reduced benefits prior to lib tinkering.
Libs created a slush fund to pay down the debt, on the backs of workers, and let big business off the hook.
Question here, does not business get to write off “this cost of doing business” of their EI contributions in their taxes, thus reducing their overall taxes payable to the treasury?
The EI fund has turned into everything that it is not. It was supposed to be an insurance based fund that protected people in times of joblessness, with the hopes of finding new work within a specific albeit full employment estimate for job changing estimate for a time frame.
When it was transformed from the UIC fund to the EI fund it became its ultimate antithesis. Instead of bringing policies up to date to better reflect the dynamics of our economy, the designers further molded it into a much heavier stick to beat up on those losing a job. No longer can people live on the scant payouts that it provides, policies become more stringent on who qualifies ie.employers basically take full control of who will qualify for EI, seasonality measures are implemented to make it harder for seasonally based workers to somewhat scrape out a living.
Ultimately it was viewed as the ultimate source for retraining funds, and at one point some years ago it looked as though the EI fund might actually liberate those displaced from one sector and given the ability to retrain for another sector in a quite a bit more seamless, less pointed manner. However, one is hard pressed to deem the direction of the EI fund is anywhere near those goals now.
It is quite a sad, misguided waste of a lot of policy dollars, filled with so much misdirection and $55 billion dollars of monies owed to those in need. Imagine given all the wealth we have in this society, that we take money from those that need it the most during their times of crisis, and use it to pay down debts, corporate tax cuts and other seemingly EI funded initiatives.
That last tax cut in the fall mini-budget in a sense really was the last hope of recovering any of that money. I wonder what the tories really have in mind for this fund. Imagining that it will be properly set up and functioning can be thrown out the window, as the initail offering of 2 Billion is far short of what that fund is owed. Announcing somekind of super training fund to deal with the Manufacturing losses might have put it into some kind of respectable inital footing. Instead it is a slap it starts out with a slap in the face to those currently facing job loss or threatened by it.
More and more it is proven that this Harper government is proving it does not have the capacity to run a country anywhere but into the ground. They have had the reigns for 2 years and a bit and they continually chase prosperity for all away. From allowing the dollar to escalate, to inaction on the environment to manufacturing inaction. They are masters of doing nothing and when they do enact something it is quite in the favour of those with all the cash.
Well written Andrew . May I send the piece on to some business associates ?
To Jan from the Bruce – yes we business get to deduct this payroll tax ( EI ) from any profits we might earn. If we don’t earn a profit , we have to pay it anyway .
To Paul T – good that you question the whole plan as it is presently . This past week some wondered if fishermen were paying in enough to cover what they draw out – if not , that means that those of us that have never drawn out any UI or EI are paying the shortage . However my point is moot as the collection so grossly overcomes funds being paid out .
EI could be a very good plan if it were restructured to be just that . Worker retraining might become a part of the plan within certain rules .
all Canadians at tax time have to declare all earnings.The government can extort funds set aside for Canadians when things are tough.2 billion dollars is chicken feed?The working class are going to be force to contribute more in new taxes or E.I deductions?
I disagree with proposed changes. We need a separate crown entity managed by representatives of employers and employees.
As having worked 32+ years without any interruption and earning more than the maximum insured earned income to learn that I qualified for 13.6% of the full time salary I earned, was and is ridiculous and my approval for benefits was equal to someone who worked maximum hours and new to the workforce!
No maximum premiums, no maximum insurable income, employers premiums equal or less than employees, all benefits based on 55 or 60% of lost income with benefit period based on months with continued uninterrupted employment.
The plan above makes little change. If a person works two jobs, say each paying $21,150 and an employer needs to lay him / her off, EI will not pay the employee any benefits! Even though the employee is paying 100% of the premium maximum and the employer is paying 1.25 times more from both employments.
If you think that is fair, then go with the proposal.
We need Earned Income Insurance Fund with access based on months (not hours) of contribution to the workforce. Seasonal workers who workers determined to draw EI annually should be limited to drawing not more than 2 X the premiums they pay in. When that amount is exhausted, that is the end of their benefits.
More work and effort should be on those who work years in the workforce and suddenly, through no fault of their own, loose their full time year round job. Like those in manufacturing and export businesses.
EI premiums should not be used to fund government programs, pay down the deficit (heck I bought into the GST to pay down the debt, – where does that money go now?) or fund Ministers over expenditures or cover up AD Scams.
Respectfully, D Soulis
being one of those that landed on unemployment due to my company closing in january I have been actively searching and just recently began receiving unemployment. It is to the point where you are forced to be selective about what jobs to take. Sure I could take a $10-12/hour job just to get back to work, but the opportunity cost in giving up $10-12/hour I receive in unemployment and no need to find child care etc….simply isn’t worth it. It can become a catch 22 for some people. Trust me, I would rather be sitting at work where I was prior to January, but that isn’t possible right now…and believe me, I am looking…locally and nationally. I am ready, willing and able to uproot and relocate.
E.I. is a total scam, qualifying is nearly impossible sometimes. The first time I applied for EI in 2005 they tried in every way to make sure I didn’t qualify, I had worked over 2100 hours in just 5 months which is way over the hours needed to qualify. They lost my paperwork continuosly and I submitted all my records in both paper form and data(CD-R). 3 months later I recieved my first payment from them…..It is now 2010 and once again they are looking to screw me over on my claim. They phoned my boss and harrassed him to the point where he called me and told me in not so many words that when work resumes I won’t be getting a phone call to come back, so now I’ve really lost my job, thanks to EI.
Maybe EI should be taken by the private sector