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37th PARLIAMENT, 2nd SESSION

Standing Committee on Human Resources Development and the Status of Persons with Disabilities

EVIDENCE

CONTENTS

Tuesday, February 25, 2003

1525

The Vice-Chair (Mr. Eugène Bellemare (Ottawa—Orléans, Lib.))

Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General of Canada)

1530

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Louis Lévesque (Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance)

1535

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Charles Nixon (Acting Assistant Deputy Minister, Insurance, Department of Human Resources Development)

1545

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin (Acadie—Bathurst, NDP)

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Monte Solberg (Medicine Hat, Canadian Alliance)

Mr. Louis Lévesque

Mr. Monte Solberg

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Monte Solberg

1550

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Monte Solberg

Ms. Sheila Fraser

Mr. Monte Solberg

Ms. Sheila Fraser

Mr. Louis Lévesque

Mr. Monte Solberg

Mr. Louis Lévesque

1555

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Monte Solberg

Mr. Louis Lévesque

Mr. Monte Solberg

Mr. Louis Lévesque

The Vice-Chair (Mr. Eugène Bellemare)

Mrs. Judi Longfield (Whitby—Ajax, Lib.)

Mr. Louis Lévesque

Mrs. Judi Longfield

Mr. Louis Lévesque

1600

Mrs. Judi Longfield

Mr. Peter DeVries (Director, Fiscal Policy Division, Economic and Fiscal Policy Division, Department of Finance)

Mrs. Judi Longfield

Mr. Peter DeVries

Mrs. Judi Longfield

Mr. Louis Lévesque

Mrs. Judi Longfield

Mr. Charles Nixon

Mrs. Judi Longfield

Mr. Louis Lévesque

Mrs. Judi Longfield

1605

Mr. Louis Lévesque

Mrs. Judi Longfield

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Sébastien Gagnon (Lac-Saint-Jean—Saguenay, BQ)

Mme Sheila Fraser

Mr. Sébastien Gagnon

Mr. Louis Lévesque

Mr. Sébastien Gagnon

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Sébastien Gagnon

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Sébastien Gagnon

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Raymond Simard (Saint Boniface, Lib.)

Ms. Sheila Fraser

Mr. Raymond Simard

Mr. Louis Lévesque

1610

Mr. Peter DeVries

Mr. Raymond Simard

Mr. Louis Lévesque

Mr. Raymond Simard

Mr. Charles Nixon

Miss Wilma Vreeswijk (Director General, Labour Market Policy, Department of Human Resources Development)

Mr. Peter DeVries

Mr. Raymond Simard

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

1615

Miss Wilma Vreeswijk

Mr. Yvon Godin

Miss Wilma Vreeswijk

Mr. Yvon Godin

Miss Wilma Vreeswijk

Mr. Yvon Godin

Mr. Charles Nixon

Mr. Yvon Godin

Mr. Charles Nixon

Mr. Yvon Godin

1620

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

Mr. Raymond Simard

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Raymond Simard

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

Miss Wilma Vreeswijk

Mr. Yvon Godin

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Tony Ianno (Trinity—Spadina, Lib.)

Mr. Louis Lévesque

Mr. Tony Ianno

Mr. Louis Lévesque

Mr. Tony Ianno

Mr. Peter DeVries

1625

Mr. Tony Ianno

Mr. Peter DeVries

Mr. Louis Lévesque

Mr. Tony Ianno

Mr. Louis Lévesque

Mr. Tony Ianno

Mr. Louis Lévesque

Mr. Tony Ianno

Mr. Louis Lévesque

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

1630

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Mr. Tony Ianno

Mr. Charles Nixon

Ms. Sheila Fraser

Mr. Tony Ianno

Ms. Sheila Fraser

Mr. Tony Ianno

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Louis Lévesque

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Norman Doyle (St. John's East, PC)

1635

Mr. Louis Lévesque

Mr. Norman Doyle

Mr. Louis Lévesque

Mr. Norman Doyle

Mr. Louis Lévesque

Mr. Norman Doyle

Mr. Louis Lévesque

Mr. Norman Doyle

Ms. Sheila Fraser

Mr. Norman Doyle

Ms. Sheila Fraser

The Vice-Chair (Mr. Eugène Bellemare)

Ms. Diane St-Jacques (Shefford, Lib.)

1640

Mr. Louis Lévesque

Ms. Diane St-Jacques

Mr. Charles Nixon

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Larry Spencer (Regina—Lumsden—Lake Centre, Canadian Alliance)

1645

Mr. Louis Lévesque

Mr. Larry Spencer

Mr. Louis Lévesque

Mr. Larry Spencer

Mr. Louis Lévesque

Mr. Larry Spencer

Mr. Louis Lévesque

Mr. Larry Spencer

The Vice-Chair (Mr. Eugène Bellemare)

1650

Mr. Tony Ianno

Ms. Sheila Fraser

Mr. Tony Ianno

Ms. Sheila Fraser

Mr. Tony Ianno

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Sébastien Gagnon

Ms. Sheila Fraser

1655

Mr. Sébastien Gagnon

Ms. Sheila Fraser

Mr. Sébastien Gagnon

Ms. Sheila Fraser

Mr. Sébastien Gagnon

The Vice-Chair (Mr. Eugène Bellemare)

Mrs. Judi Longfield

Mr. Louis Lévesque

Mrs. Judi Longfield

Mr. Louis Lévesque

Mrs. Judi Longfield

Mr. Louis Lévesque

1700

Mrs. Judi Longfield

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

Mr. Charles Nixon

Mr. Yvon Godin

Mr. Charles Nixon

Mr. Yvon Godin

Miss Wilma Vreeswijk

Mr. Yvon Godin

Ms. Sheila Fraser

Mr. Yvon Godin

1705

Mr. Louis Lévesque

Mr. Yvon Godin

Miss Wilma Vreeswijk

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

The Vice-Chair (Mr. Eugène Bellemare)

Miss Wilma Vreeswijk

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Yvon Godin

The Vice-Chair (Mr. Eugène Bellemare)

Miss Wilma Vreeswijk

Mr. Yvon Godin

The Vice-Chair (Mr. Eugène Bellemare)

Miss Wilma Vreeswijk

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Norman Doyle

1710

Ms. Sheila Fraser

Mr. Norman Doyle

Ms. Sheila Fraser

The Vice-Chair (Mr. Eugène Bellemare)

Mr. Monte Solberg

1715

Mr. Peter DeVries

Mr. Monte Solberg

Mr. Peter DeVries

The Vice-Chair (Mr. Eugène Bellemare)

CANADA

Standing Committee on Human Resources Development and the Status of Persons with Disabilities

NUMBER 015

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, February 25, 2003

[Recorded by Electronic Apparatus]

¹ (1525)

[Translation]

The Vice-Chair (Mr. Eugène Bellemare (Ottawa—Orléans, Lib.)): Order, please.

Today is Tuesday, February 25. Pursuant to Standing Order 108(2), we are meeting to review the Employment Insurance Reserves.

Today our witnesses are, from the Office of the Auditor General, Ms. Sheila Fraser, Auditor General of Canada, Mr. Peter Simeoni, Principal, and Ms. Marise Bédard, Director. From the Department of Finance, we have Mr. Louis Lévesque, Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, and Mr. Peter DeVries, Director, Fiscal Policy Division. From the Department of Human Resources Development, we welcome Mr. Charles Nixon, Acting Assistant Deputy Minister, Insurance.

[English]

I will be chairing the beginning of the meeting

[Translation]

thanks to my colleague, the actual Chair, who wants me to gain experience chairing a meeting of considerable interest. First, we will hear Ms. Sheila Fraser's presentation. The others will follow.

Ms. Fraser.

Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General of Canada): Thank you, Mr. Chairman.

[English]

We thank you for this opportunity to appear before the committee today to discuss our audit observation on the setting of Employment Insurance premium rates. As you mentioned, I am accompanied by Peter Simeoni and Marise Bédard, who are responsible for our audit of the Employment Insurance account's financial statements for 2002.

For the last four years we have drawn attention to this issue in the reports on the EI account's financial statements and in the Public Accounts of Canada. The surplus in the EI account grew by $4 billion in the 2001-2002 fiscal year to reach $40 billion and was still growing. At that point it was more than $25 billion higher than HRDC's chief actuary has said is the maximum amount needed.

There have been many discussions about what the balance in the EI account represents. We have used terms like “notional account” and “tracking account” to describe the balance. I want to be clear that it does not represent funds set aside for the EI Program and is not held in any separate bank account. The act requires that an accounting be kept of EI revenues and expenditures. The balance provides a basis for managing the account, and it should be an important factor in setting premium rates so that over time the account breaks even.

The financial statements of the Employment Insurance account cover its fiscal year, which runs from the beginning of April until the end of March. Under the Employment Insurance Act the rates for Employment Insurance premiums are set on a calendar year basis. As a result, in fiscal year 2001-2002 there were two premium rates, one for the last nine months of 2001 and another for the first three months of 2002. The Canada Employment Insurance Commission set the premium rate for 2001, pursuant to section 66 of the act. This section required that as far possible, the rate ensure that the EI account would have enough revenue over a business cycle to pay authorized amounts charged to the account, while at the same time maintaining relatively stable rates. In our view, this means Employment Insurance premiums should equal expenditures over some period of time, including a sufficient reserve to keep rates stable in an economic downturn. In other words, we believe Parliament's intent was that this program would operate on a break-even basis over the course of a business cycle. The legislation also made it necessary for the commission to make certain key decisions, such as how it would define “business cycle” and “relatively stable rates”.

[Translation]

In May 2001, the Act was amended to suspend section 66 for 2002 and 2003 to give the Governor in Council the authority to set the rates for those two years. The Act provides no other criteria to the Governor in Council on how to set the rates.

Nevertheless, given Parliament's apparent intent for the EI Account, we expected that the Commission, for 2001, and the government, for 2002, would have clarified and disclosed the factors considered in setting the rates, the target level for the accumulated surplus, and how long it would take to reach that level. However, we found that neither the Commission nor the government has done so. As a result, I cannot conclude that the setting of premium rates observed the intent of the Act for the year ending March 31, 2002.

In the Budget, the government announced that it will conduct consultations on any new rate-setting process to be implemented for 2005. We note that the new process is now delayed by a year. In the meantime, the government will set the employee premiums for 2004 at $1.98 so that premium revenues would equal the projected costs of the program in that year.

Mr. Chairman, we have reviewed the Budget Plan and we are pleased that the government agrees that it is Parliament's intent that the EI program would be run on a break-even basis. We also note that the government has endorsed a number of principles for a new rate-setting process, including transparency and seeking expert advice.

¹ (1530)

[English]

Committee members may wish to ask the officials from the Department of Finance to elaborate on the government's plans for public consultations, in particular whether there are terms of reference, including timelines, for the consultations, whether the government will report the results of the consultations to Parliament, and what opportunity Parliament will have to discuss a new rate-setting process. Members may also wish to ask the officials from Finance whether the consultations will deal with key program parameters. For example, what would be an adequate reserve, what constitutes a business cycle, and what are considered relatively stable rates?

Mr. Chair, that concludes our opening comments. My colleagues and I would be pleased to answer any questions the committee members may have.

Thank you.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Ms. Fraser.

I imagine Mr. Louis Lévesque would like to make the next presentation.

Mr. Louis Lévesque (Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance): Thank you.

Chairman, members. I am here today to discuss the observations made by the Auditor General in Chapter 11 of her report relating to the cumulative balance in the Employment Insurance Account and the premium rates set by the Employment Insurance Commission for 2001 and by the government for 2002, as well as the status of the government's consultation process.

With me today is Peter DeVries, Director of the Fiscal Policy Division.

I would like to take this opportunity to talk about the Employment Insurance Account, how rates have been set since 1996 and, lastly, the government's consultation process on how to set rates in the future which is now underway.

[English]

Let me turn, first, to describing the nature of the Employment Insurance account. As the Auditor General notes in her report, the Employment Insurance account is a record of all revenues and expenditures relating to the employment insurance program. It is an accounting device used to record the financial transactions related to the EI program, annual premium revenues paid into the government's Consolidated Revenue Fund, or CRF, and annual program expenditures paid out of the CRF, plus any interest credited or charged against the account. The difference between annual EI revenues and annual EI expenditures, including administrative costs, results in the account recording an annual surplus or an deficit in any given year. The cumulative balance recorded in the account is simply the sum over the years of these annual surpluses minus deficits. It is entirely notional, because, as the Auditor General has previously pointed out, these annual amounts have, in fact, in each and every year already been part of the Consolidated Revenue Fund.

This consolidation, in fact, has existed since 1986, when the government acted on the advice of the Auditor General of the time. The rationale for consolidating the EI program was that it is the government that is ultimately responsible for the activities of the program, both in regard to the policy parameters and in regard to funding any shortfalls. Under the EI program it is the government that, with the approval of Parliament, determines the eligibility criteria, the amount of benefits, and the period of time the recipients are eligible for benefits.

This consolidation means the annual surplus or deficit recorded in the EI account directly affects the government's bottom line in each and every year. The account most recently recorded annual deficits in 1991, 1992, and 1993. More recently, strong economic growth has resulted in annual surpluses, despite the continuing reductions in EI premium rates since 1994. Indeed, economic performance has often exceeded expectations, resulting in surpluses that have been larger than originally forecast.

However, the EI account remains a bookkeeping entry only. As the previous Auditor General pointed out, “all receipts of money by the government must be deposited into the Consolidated Revenue Fund and all disbursement of money may only be withdrawn from the CRF with the approval of Parliament.” In effect, there's no separate account within the CRF to which premiums are deposited and from which EI benefits are paid out. There is, consequently, no accumulated surplus sitting in a separate account.

[Translation]

I'm now going to talk about how premium rates are set, starting by explaining how rates were set between 1996 and 2001.

The Employment Insurance Act required that the EI Commission set the premium rate for each year at a level that the Commission considered would, to the extent possible, ensure that there would be enough revenue over a business cycle to pay the amounts authorized to be charged to the EI Account; and maintain relatively stable rates throughout the business cycle.

Their decisions resulted in a continued and regular lowering of rates. The rate set by the Commission for 2001, the year examined by the Auditor General, was the seventh consecutive annual reduction in premiums, bringing the employees rate down by 82¢, from $3.07 in 1994 to $2.25 in 2001.

As you know, the government suspended section 66 of the EI Act and hence the role of the Commission in setting rates for 2002 and 2003 through Bill C-2 and provided for the Governor in Council to set the rate on the recommendation of the Ministers of Finance and of Human Resources Development.

On November 30, 2001, the government announced that the rate for 2002 would be $2.20, which was the eighth consecutive reduction in rates. For 2003, the rate was set at $2.10.

The cumulative reductions to date result in savings to employers and employees of $8.6 billion in 2003.

¹ (1535)

[English]

This brings us to last week's budget, which announced that the government proposes to set in the budget legislation the employee premium rate for 2004 at $1.98 per $100 of insurable earnings, a 12¢ reduction that will save employers and employees, on a cumulative basis, $9.7 billion per year in 2004 compared to the rate that prevailed in 1994. This rate of $1.98 is estimated, on the basis of the private sector economic forecasts that have been used for preparation of the budget and the proposed changes included in the budget, notably on EI compassionate care benefits, to generate premium revenues that are approximately equal to projected program costs for 2004.

The budget also announced the launch of public consultations on a new permanent rate-setting regime for 2005 and beyond. The following rate-setting principles, which are laid out in the budget and are largely based on the pre-budget recommendations of the 1999 report of the Standing Committee on Finance, will form the basis of the consultations: premium rates should be set transparently; premium rates should be set on the basis of independent expert advice; expected premium revenues should correspond to expected program costs; premium rate-setting should mitigate the impact on the business cycle; and premium rates should be relatively stable over time. The budget indicates that interested parties can provide submissions to the government until June 30, 2003, either by mail or through HRDC or Finance websites, and I am told the websites are operational as we speak. In addition, senior officials of both departments will be meeting with key stakeholders from labour and business over the coming weeks to ensure that everybody is aware of the consultations and we can get some initial views and reactions on the principles. It is the government's plan to have legislation to implement the results of the consultations introduced in time to have the new rate-setting regime in place for 2005.

I would be pleased to answer any questions you may have. Thank you.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Thank you very much, Mr. Lévesque.

The next person to make a presentation will be Mr. Charles Nixon. But before we hear Mr. Nixon, I would like to apologize to Ms. Wilma Vreeswijk for forgetting to turn the page and introduce her as a witness. My apologies, Ms. Vreeswijk. For committee members' information, she is the Director General of Labour Market Policy.

Mr. Charles Nixon.

Mr. Charles Nixon (Acting Assistant Deputy Minister, Insurance, Department of Human Resources Development): Thank you, Mr. Chairman.

Honourable members, I am pleased to be here today to talk to you about the Employment Insurance Program and process for setting premium rates.

Employment Insurance has been a key element of Canada's social safety net for the past 60 years. It has been there for Canadian workers when they needed it most, including for nearly three million claimants in 2002. It will continue to be there in the future.

[English]

EI has evolved over time as a function of the changing needs of Canadian workers. Today EI provides a temporary source of income to people who have lost their job through no fault of their own. EI also assists Canadians who cannot work because of sickness or childbirth or because they are caring for their newborn or newly adopted child. As well, the program offers opportunities such as career counselling and skills development to help eligible unemployed Canadians find and keep employment. The EI program responds quickly and automatically to changes in local labour markets, providing enhanced access to benefits and longer duration to those in high unemployment areas.

The program is monitored and assessed on an annual basis and changes are made to respond to the needs of the labour market and of Canadians. Here are four examples. First, to assist working Canadians better balance work and family responsibilities, the government implemented changes to the EI program by extending maternity and parental benefits to one full year and making them more accessible and flexible. Second, in order to better reflect work patterns, the small weeks pilot project was made a permanent and national feature of the EI program. HRDC can now exclude low-earning weeks of less than $150 for benefit calculation purposes. Third, to support young Canadians in acquiring skills and experience, the government has also eliminated multiple waiting periods for apprenticeship training programs. And fourth, to support working Canadians who face the intense demands of caring for a gravely ill or dying family member, the government has proposed in the 2003 budget to implement an EI compassionate care benefit as of January 2004. This would provide six weeks of benefits to Canadians who must take time off work to care for a gravely ill child, parent, or spouse.

The EI Commission will continue to monitor and assess the EI program to ensure that it remains responsive to Canadians, their communities, and the economy. The commission's annual monitoring and assessment report, which publishes their findings, is tabled each year in the House of Commons.

Evidence shows the major role EI can and does play in the lives of Canadians. Studies indicate that 88% of workers in paid employment would qualify for benefits if they lost their jobs. This is significant, because there are approximately 15 million paid employees in Canada. During the 2001-2002 fiscal year the Government of Canada paid Canadians approximately $13.7 billion in EI part I and part II benefits. The amount of benefits paid for 2002-2003 will be released in the public accounts this fall.

Between 1996 and 2001 the EI Act required the Canadian Employment Insurance Commission to set premium rates at levels that would cover program costs while keeping rates relatively stable over the business cycle. Due to the changes made in Bill C-2, the Governor in Council set the rates in 2002 and 2003 for stability and predictability. In order to provide for certainty during the rate-setting review, which has now been formally launched, the 2003 budget set the rate for 2004.

In November 2002 the Government of Canada reduced the 2003 EI premium rate to $2.10 per $100 of insurable earnings. For 2004 it is proposing another drop in the premium rate to $1.98. These decreases are the ninth and tenth consecutive annual reductions in EI premiums since 1994, lowering the rate by $1.09 over a decade. In 2004 this move will save employers and employees $1.1 billion. In total, compared to the 1994 rate of $3.07, government's management of the premium rate will have saved employers and employees $9.7 billion.

The House finance committee has recommended a review of the EI rate-setting process, and the Auditor General has supported the need to clarify this process. In last week's budget the Minister of Finance announced that the Government of Canada will consult with Canadians on a new permanent process for setting EI rates in 2005 and beyond. According to the principles enunciated in the budget, the rate-setting process should be transparent and the rates should be set on the basis of independent expert advice. Expected premium revenues should correspond to expected program costs, and premium rates should be relatively stable over time. Finally, premium rate-setting should mitigate the impact on the business cycle. HRDC will assist the Department of Finance in this rate-setting review process. As part of the review, interested parties may provide submissions to the Government of Canada via the Finance and HRDC websites or by mail until June 30, 2002. In addition, senior officials from both departments will be meeting with key stakeholders over the coming weeks.

¹ (1545)

[Translation]

To conclude, the Government has continued to implement new measures that improved the EI program for Canadians, while at the same time premiums have been reduced during the past 10 years. We look forward to hearing the views of individual Canadians and employer or employee groups. The goal is a transparent and accountable rate setting process in place for 2005.

I would now be pleased to answer any questions the members of this committee may have. Thank you very much.

[English]

The Vice-Chair (Mr. Eugène Bellemare): Thank you very much, everyone, for an excellent introduction to the subject from each of your points of view from your various interest areas or departments.

Every member will have in the first round seven minutes. We will have the Alliance, the Liberals, the

[Translation]

Bloc québécois, and the Liberals.

[English]

The second round will be a five-minute process for each.

Is there a question?

[Translation]

Mr. Yvon Godin (Acadie—Bathurst, NDP): You said that the first round would be seven minutes. Is that seven minutes for each party?

The Vice-Chair (Mr. Eugène Bellemare): Yes, for each party. Once the Alliance has asked its questions and obtained answers, and the Liberals, the Bloc, someone else from the Liberal Party and the NDP have done the same, we will have a five-minute round.

Mr. Monte Solberg.

[English]

Mr. Monte Solberg (Medicine Hat, Canadian Alliance): Thank you very much, Mr. Chairman.

Mr. Lévesque, in your presentation you spoke about the savings employers and employees will enjoy as a result of the premium cuts. I want to ask you if it's appropriate to use the word saving, given the fact that employers and employees will contribute roughly $42 billion more into this account that they will get out. How can you say it's a saving? How is it accurate to say this is a saving? I could understand if you said it was a reduction, but frankly, I think this is nothing but spin coming out of the political side of the department, and it bothers me to see in a document like this the suggestion that people are saving money because premiums are coming down, when they're not coming down to anywhere near the point where the actuary says they should be.

Mr. Louis Lévesque: I can only answer that the difference between what people would have paid under the old rate and the new rate amounts to $9.7 billion per year.

Mr. Monte Solberg: Let's not pretend it's a saving, okay? People are paying out way more than they're getting back, and I think that's important. I expect, frankly, that a public servant would reflect accurately what is going on and not try to spin this committee. I think that's what you've done.

The Vice-Chair (Mr. Eugène Bellemare): Mr. Solberg, I wish you'd ask questions and make comments in a tone that is not as accusatory as you make it. I don't want to interrupt you, I think your line of questioning is very good, but I wish you'd keep the tone more amicable. These are public servants, at your service, at our service, at the service of all Canadians. They're not here to be flogged.

Mr. Monte Solberg: I appreciate your point, Mr. Chairman, but I've never seen this before. That's why I question it. It does make me very angry to see that kind of language in this document, when we're trying to get to the bottom of a serious issue. I am questioning whether public servants are giving a true accounting of what's going on when they depict the situation as they have depicted it. That's why I am asking these questions.

¹ (1550)

The Vice-Chair (Mr. Eugène Bellemare): Fine. I think it's a question of the tone. I think you're right to question the appropriateness of the word saving. It's just the tone that made me a little nervous.

Thank you, Mr. Solberg.

Mr. Monte Solberg: Fair enough.

I want to ask a question of the Auditor General with respect to the status of the reserve. I guess my question has to do with whether or not the reserve represents a legal financial liability in your opinion.

Ms. Sheila Fraser: I am not a jurist, so I hope you will not take this as a legal opinion, but no, I do not believe the balance is an amount owing. If we thought it was an amount owing, it would be reflected quite differently in the financial statements in the Public Accounts of Canada. The way I interpret the balance, it is, as I think the representative from Finance indicated earlier, basically the difference between all the revenues that have been collected over time and all the expenditures that have been paid out. We believe it was Parliament's intention that over a period of time revenues should equal expenditures. There is an excess of revenues over expenditures at the end of March 2002, some $40 billion, and we question if the rate-setting process is meeting the intention of the act, and we cannot conclude that the way the rates were set respects the act.

Mr. Monte Solberg: We have to conclude that there is no real reserve, then, that the money's all been spent, it's not sitting around in an account somewhere. If there is no reserve, why does the government pay interest on the account, when it's not really a financial liability? Why do they feel compelled to pay interest?

Ms. Sheila Fraser: There is a provision in the act that interest may be paid. I believe it is not a requirement that interest be paid. Perhaps the officials from the Department of Finance could elaborate further and give you a better explanation than I.

Mr. Louis Lévesque: That is correct. There's a provision that says interest may be paid, and it's been the practice to credit the account. But again, these are notional transactions in the account, as with the surplus.

Mr. Monte Solberg: One of the concerns a lot of people have is that this fund over a period of time is supposed to run a surplus, so that in the event of an economic downturn, there will be some funds available to pay out, the government won't have to turn around and raise premiums for those people who are still working or raid general revenues to supply workers with benefits. I'm wondering if officials could explain to me how we can meet those obligations when there's no money in the account.

Mr. Louis Lévesque: Again, the concept of the surplus is a notional one, which, under the legislation up to 2001, was used in the context of the rate-setting mechanism. To be clear, this account has no bearing on the fiscal situation of the government. Any increase in expenditure on benefits resulting, let's say, from a downturn in the economy translates directly into the government's bottom line. And if there's a weakening on the revenue side because of employment weakening, it is the same thing. So the account is really notional in that sense, but it was used in the context of the rate-setting mechanism.

I think this is one of the issues that will be examined in the context of the rate review: in trying to get to a system that provides relatively stable rates and a basic equilibrium, what is the best approach? This is certainly one area where we expect people to comment, and we want people's views in the context of the consultation.

¹ (1555)

The Vice-Chair (Mr. Eugène Bellemare): Thank you very much. Because we had that conversation a short while ago, Mr. Solberg, I feel that I owe you another minute.

Mr. Monte Solberg: Thank you.

I just want to ask a question about the delaying of the new process for setting the premium rate. In delaying this year and by keeping the premium rate higher than the actuary has suggested, what is the impact on the government's bottom line in revenues they'll accumulate over and above what they would have got if the actuary's rate had been respected?

Mr. Louis Lévesque: The budget says the government will propose to Parliament a rate of $1.98 for 2004. That rate is expected, on the basis of the private sector economic forecasts underlying the budget, to roughly produce equilibrium between expected premiums in 2004 and expected administrative and benefit costs in 2004. The consultations will take place until June 30, 2003. Given some time to analyse the results of those consultations and the benefit of having certainty from employers and employees, the government decided to propose legislation for establishing the rate in 2004, having the new rate-setting mechanism in place for 2005.

Mr. Monte Solberg: So in the course of the year the government will end up several billion dollars ahead as a result of keeping the rate at $1.98, as compared taking it down to, say, $1.75, which is what the actuary suggested, isn't that correct?

Mr. Louis Lévesque: That depends upon the rate-setting mechanism that ends up being implemented. What the budget documents indicate is that for 2004, with a rate of $1.98, expected revenues, premiums, and expected benefits will more or less be in balance. As to what rate would be produced under hypothetical premium-setting mechanisms, I don't want to comment. What is in the budget is the intention to establish, going forward for 2005, a process that will be based on the principle of expected equilibrium between revenues and benefits, stability, and mitigating the impact on the business cycle, while at the same time having transparency and expert advice. That's where we're going.

The Vice-Chair (Mr. Eugène Bellemare): Thank you very much, Mr. Solberg.

We now have Madam Longfield.

Mrs. Judi Longfield (Whitby—Ajax, Lib.): Thank you, Mr. Chair.

I'm going to follow up on the question Mr. Solberg raised about the $1.98, the new rate that's been established. Mr. Lévesque, you said it was going to generate premium revenues equal to projected program costs for 2004. I know you're using economic forecasts and all that. One of the new initiatives is this compassionate leave. Can the department tell me how much they expect compassionate leave is going to cost?

Mr. Louis Lévesque: The ongoing annual cost of the compassionate benefit is about $225 million per year, and that's indicated in the budget document. That is factored into the calculation that sees the $1.98 rate as adequate to provide a rough balance between premiums and expected benefit costs.

Mrs. Judi Longfield: Is that the only area where you see expected outgoing costs that are extraordinary? What other factors are going to bring these things into play?

Mr. Louis Lévesque: This is the only area where there are changes being made to the program. That's the only program change that's being built into that forecast.

º (1600)

Mrs. Judi Longfield: Given what you tell me about the expected cost, it doesn't seem to compute that by lowering the rates to $1.98, the revenue received will equal the expenditures paid.

Mr. Peter DeVries (Director, Fiscal Policy Division, Economic and Fiscal Policy Division, Department of Finance): Of course, in the budget we are using the average of the private sector economic forecasts. Based on those forecasts, we expect that the revenues we'll receive from a premium rate of $1.98 will equal the expected program costs. That includes the benefits, the proposed enhancements Mr. Lévesque talked about, and the administrative costs.

Mrs. Judi Longfield: When will you know what last year's surplus or deficit might be?

Mr. Peter DeVries: Audited financial statements will come out in September, hopefully, of this year with respect to 2002-2003. So at that time we'll have a full audited set of financial statements for the Government of Canada, as well as the for the EI program. For 2003-2004, of course, the audited statements will be out a year later than that.

Mrs. Judi Longfield: The whole idea of setting up a process to look at rate-setting is something that was suggested by the finance committee in 1999. Why has it taken so long to get this consultation process under way?

Mr. Louis Lévesque: I don't want to comment on the specific length of time. The government has established a number of principles that are the basis for consultation. It is proposing to legislate rates for 2004 and to have legislation in place for 2005.

Mrs. Judi Longfield: I would ask Mr. Nixon from Human Resources Development, what is the specific role of HRDC? You mentioned that you are going to consult with experts, but is there any other role in this rate-setting process?

Mr. Charles Nixon: We will be working very closely with the Department of Finance on that, and we will likely be meeting together with various groups that want to sit down with us. I'm sure the EI Commission itself will want to talk to its constituents in the employer and employee and worker groups to gauge the views they may have and perhaps encourage that they send in views as well as part of the consultation period until June 30.

Mrs. Judi Longfield: The consultation period seems very short. I pulled up the website, and we have it here. It is thin. There don't seem to be any parameters. I'm wondering what kind of general advertising you've put out. If you're asking members of the public and saying they can contribute and give their views, how are you letting people know they can do this? What is going to be the role of parliamentarians? I could go on. We're very good at advertising programs where we seem to want feedback, but this almost seems to be a matter of happening to find it on the website. There is no supporting documentation, very little information here. You're simply saying, what do you think about EI premiums? Send in your comments.

Mr. Louis Lévesque: The budget papers include the five principles, which I've mentioned a number of times. We fully expect a lot of comment on the specifics of those principles. For instance, what is meant by stable? What is meant by mitigating the impact on the business cycle? What do you mean by independent? What do you mean by transparency? We fully expect a lot of views from people. It was in all the budget documents. This is now on our website. We're intending to have meetings with key stakeholders from business and labour, which will ensure dissemination of information to a number of interested parties. So we think, generally, there will be a lot of information out there about the fact that these consultations are going on. We fully expect Parliament to be interested in this process, and the government is interested in hearing the views of this and other committees on that. The timelines certainly allow for that input to be taken into account.

Mrs. Judi Longfield: Finally, you indicate that you're going to post the comments. Are you going to post all the comments or selected comments?

º (1605)

Mr. Louis Lévesque: We're going to post the comments of the groups that agree to have their comments posted.

Mrs. Judi Longfield: So everyone who agrees will have their comments posted.

Okay, thank you.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Ms. Longfield.

Mr. Gagnon.

Mr. Sébastien Gagnon (Lac-Saint-Jean—Saguenay, BQ): Thank you very much, Mr. Chairman.

Today, consultations are being proposed to us once again along with a rate-setting mechanism, but which will once again postpone the process for a year and a half. Surpluses are accumulating year after year. An attempt is being made to downplay the impact of that, by conducting consultations. We are also hearing about transparency and a slightly more accountable rate that will make it possible to achieve a balance.

My question is for Ms. Fraser. Wouldn't it be simpler to provide for a self-sufficient employment insurance fund that would make it possible to involve the major players such as the unions, employers and other important elements?

Mme Sheila Fraser: Thank you, Mr. Chairman.

I hope that Mr. Gagnon will understand that I cannot comment on that. That's really a matter of government policy or of Parliament's wishes as to how the program should be constituted. Our concern was to see whether Parliament's intention had been respected in rate-setting.

Mr. Sébastien Gagnon: Section 66 of the Act provided that rate-setting was under the Commission's responsibility, and Bill C-2 eliminated that process, which is now under the government's responsibility. Can we hope that that section will be restored in 2005 only or a little earlier?

Mr. Louis Lévesque: As stated in the Budget documents, the government intends to introduce legislation in Parliament to set the rate at $1.98 in 2004. The purpose of the consultations is to obtain people's views on the best way to restore a permanent rate-setting mechanism starting in 2005.

Mr. Sébastien Gagnon: All the same, you will understand that, between now and 2005, there will be more large surpluses. One can guess what that money will be used for. In the small regions, for example, there is the problem of seasonal employment because workers are not permitted, from one season to another... Today once again, we're being told about 2005 and consultations that won't be over for a year and a half.

That was a comment, Mr. Chairman.

The Vice-Chair (Mr. Eugène Bellemare): Very well, Mr. Gagnon. Is that your last question?

Mr. Sébastien Gagnon: For the moment, yes.

The Vice-Chair (Mr. Eugène Bellemare): You took two and a half minutes.

Mr. Sébastien Gagnon: That's not a problem. I'll have others.

The Vice-Chair (Mr. Eugène Bellemare): We'll now go to Mr. Simard.

Mr. Raymond Simard (Saint Boniface, Lib.): Thank you, Mr. Chairman.

[English]

My first question is for the Auditor General. It's one thing to work on setting up new rates, but wouldn't you also recommend that a separate account be set up for the EI program? It seems to me the whole idea here is that it's insurance. Keeping in mind that we want to have surpluses for more difficult times, shouldn't the account be separate?

Ms. Sheila Fraser: I think that's much like the question Mr. Gagnon asked. It's really a matter of policy. To date, the way the program is administered and the way it is treated, certainly for accounting purposes, it's as if it were a program of the government like any other program, because the government can change the benefits and can modify the program. If it were to be totally independent, I think it would be quite different. I presume that would be one of the aspects the government will look at in its consultations, but I really can't comment on that. It's really a decision of policy.

Mr. Raymond Simard: I'm sorry. I thought Mr. Gagnon spoke about unions, a different corporation set up or something. I was talking within government. Maybe my question could be directed to Monsieur Lévesque. Let me rephrase it. If we all agree that the intent of the EI program is insurance for when you have difficulty, and it should basically be a break-even proposition over time, with a reserve for more difficult times, shouldn't we have a separate account set up and not necessarily put it in general revenues, as is being done now?

Mr. Louis Lévesque: Certainly, the intent is to see that benefits and costs match each other over time. That's one of the principles that's put out for the consultations. As to how independent the program should be, you have to remember that it's the government, at the end of the day, that's responsible for proposing legislation to Parliament on benefit changes or changes to premium rate-setting for the operation of the program. It's the government, ultimately, that's responsible for covering any shortfalls in the program. I'm not sure how independent the program can be from government.

º (1610)

Mr. Peter DeVries: If we were to set up an independent account, we would have to remove the government's responsibility for that program. We would have to set it up much as the Canada Pension Plan account, so it's no longer solely administered by the federal government and its minister is joint trustee with another party, in this case the provinces. Only in that case, where the government gives up its responsibility for the program in setting the overall benefit parameters etc., can we, from an accounting point of view, take it off the government's books. As long as the government is ultimately responsible for this program, which it is right now, it becomes part of general revenues, it becomes part of general expenditures, and it affects our bottom line.

Mr. Raymond Simard: You indicated earlier, Mr. Levesque, that the government is ultimately responsible for any deficit, and that's why it's okay to put it in general revenue, but we also have, as a government, the ability to increase the rates as we wish, don't we, or is that legislated as well?

Mr. Louis Lévesque: The authority to increase rates depends on what the legislation provides for. Up to 2001 section 66 of the act provided for the rate-setting mechanism. This mechanism has been suspended for 2002 and 2003. The government is now proposing to establish the rate for 2004 and to have consultation on a permanent rate-setting program. A clear policy intent is not to have a situation where rates would jump in the first set of circumstances where there's an increase in unemployment. You don't want to have a situation where the rate-setting would contribute to making the business cycle worse. There are trade-offs involved in that and the stability of rates and the degree of protection the government needs in revenues and the fiscal side. That's precisely the purpose of those consultations, to have discussions and the views of people on how you can incorporate the trade-offs in those principles in the most effective manner.

Mr. Raymond Simard: For my information, because I'm a fairly young person here, in the early 1980s Canada went through some tougher times, when interest rates were at 22% and all that. Was there ever a time where the EI account was in a deficit position and where we had to pay out of general revenues?

Mr. Charles Nixon: In 1991, 1992, and 1993.

Miss Wilma Vreeswijk (Director General, Labour Market Policy, Department of Human Resources Development): It was $8 billion over three years.

Mr. Peter DeVries: There was an accumulated deficit of $8 billion by the end of the period, but the accumulated deficit was kept low because the premium rates went from $1.95 over that period to $3.07. So during a period when economic growth was very weak the government raised premium rates, which actually worsened the economic situation at that time, rather than helping.

Mr. Raymond Simard: I'm glad I asked that question. Thank you.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Mr. Simard.

Mr. Godin.

Mr. Yvon Godin: Thank you, Mr. Chairman. I would like to welcome all the witnesses.

We in the New Democratic Party entirely disagree on the reduction of employment insurance premiums. Employment insurance does not belong to the government; it belongs to the workers. I believe I've been clear on this subject since I've been here, that is to say over the past five or five and a half years. I say that, if changes must be made, it is the workers who must benefit from them.

A rate of $1.98 is being proposed, which means 12¢ less for each $100 bracket. That represents an average of approximately $3 per person. If a person earns $500 a week, he will save $3 a week, whereas an employer with 7,000 employees will save $21,000. That's a nice cut for a big employer. It's the big employer that benefits, not the little one. That's what I see in the Budget.

In 52 weeks, an employee will save $156, and the company $1.92 million. Who is really benefiting from the reduction in employment insurance rates? It's the major employers. It's not the employer who normally has short-term employees.

Now I would like to know which of the two departments has the most power. I don't know whether you can answer that question. Is it the Department of Finance or the Department of Human Resources Development? Here's why I'm asking you that question.

Last year, following the 2000 election, we received the Beyond C-2 report. There had been proposals from the five parties. There were unanimous recommendations, which were even accepted by the parliamentary secretary of the Minister of Human Resources Development, and they were rejected. Who has the power to reject recommendations which would have helped people qualify more easily for employment insurance and which would have increased the number of weeks for which people could qualify? Could someone from Finance or Human Resources Development tell us which of the two departments has the power?

º (1615)

[English]

Miss Wilma Vreeswijk: Without saying who has the most power between the Department of Finance and the Department of Human Resources, I think I can answer that. As to Bill C-2 and the government's reply to the standing committee recommendations, I recall that Minister Stewart

[Translation]

filed the government response in the fall of that same year, I believe. So responses were ultimately given to all the recommendations the committee had made.

Mr. Yvon Godin: You responded, but you didn't accept a single one.

Miss Wilma Vreeswijk: Note to Publications--Affiliation should be Ms. Wilma Vreeswijk.

From what I remember, some were accepted.

Mr. Yvon Godin: Which ones?

Miss Wilma Vreeswijk: The recommendations on apprentices and small weeks were approved.

Mr. Yvon Godin: Mr. Chairman, regarding small weeks, there had been pilot projects across Canada. They only accepted the pilot projects and applied them on a national scale.

I have another question. Why do the departments, the Department of Finance or the Department of Human Resources Development, only want to lower employment insurance premiums, whereas the Prime Minister goes to New Brunswick to see fish plant employees and to tell them that he acknowledges that there is a seasonal employment problem there? Once again, is there only going to be a pilot project in the southern part of the province, or are there going to be changes to employment insurance for all Canadians who are required to accumulate hours so that their employment insurance is not cut?

[English]

Mr. Charles Nixon: The Prime Minister did visit southeast New Brunswick over the past weekend and meet with groups that are interested in the issue of banking hours, an issue that's come up, and he has invited a committee, which had previously been set up, to provide recommendations to the government, and they are in the process of doing that.

[Translation]

Mr. Yvon Godin: Yes, but the last time an incident like that occurred, it was in Madawaska, and there was only a pilot project in Madawaska. Now is there only going to be a pilot project in the southern part of the province, and will the pilot projects only be where the Liberals have been elected?

[English]

Mr. Charles Nixon: We would look at anything. With any project that is put forward, it has to be decided whether one would go ahead or not and, if so, what would be the geographic area over which it would be delivered. There have been no decisions made.

[Translation]

Mr. Yvon Godin: Do I still have some time?

º (1620)

The Vice-Chair (Mr. Eugène Bellemare): Yes.

Mr. Yvon Godin: But how can the department manage when its pilot projects--and I'm making accusations here--exist only where the Liberals have been elected, as was the case in Madawaska, and as is currently the case in the southern part of the province? The same problem exists in the north. The same problem exists in Toronto. When a construction job is completed, if the work ends on a Tuesday, there are two days in the week when the worker will have to accumulate hours or waive benefits. The problems exists across the country. Has your department already studied that?

[English]

Mr. Raymond Simard: On a point of order, Mr. Chair, are we here to discuss the surplus? Are these witnesses here for the surplus or anything with regard to Human Resources?

The Vice-Chair (Mr. Eugène Bellemare): I have been very liberal--maybe Mr. Godin will excuse the expression.

Mr. Raymond Simard: I don't really care. They're specialists in that field. I thought we were here for the surplus.

The Vice-Chair (Mr. Eugène Bellemare): We appreciate your comment, Mr. Simard.

[Translation]

Mr. Godin has the floor. But before letting you continue, Mr. Godin, I would like to remind you that, if you have accusations to make against the government, you should make them against the government or against members of the government, not against people from the various departments, who are apolitical.

Mr. Yvon Godin: But I'm asking a question. If you listen to my question, Mr. Chairman, you will see that I respectfully asked what research they were doing for the rest of the country. I led up to my question by saying that we had the same problem in the northern part of the province. My question was for the officials. What kind of research are they doing, and what kind of research are they going to do to be able to study the problem everywhere, be it in the north or the southern part of the province?

The Vice-Chair (Mr. Eugène Bellemare): With all respect, Mr. Godin, your question is highly appropriate. However, it is your preamble that puts the officials in a difficult position because they are required to answer for the politicians. They should account for their policies and their way of proceeding, not answer in defence of the government. It is up to the government to defend itself, not to them to defend the government or even to accuse it. But your questions are very good.

Mr. Yvon Godin: Mr. Chairman, I believe they are ready to answer my question. Let's allow them to answer so that we can see where we are headed.

[English]

Miss Wilma Vreeswijk: I would like to draw attention to the fact that there are provisions under the EI Act for pilots. The government has made use of these pilot provisions. There was the small weeks pilot, and then there were some introduced just last year, the “work-sharing while learning” pilot as well, in response to the issues that arose with softwood. The pilot provisions are used to test and to better understand the interaction between EI and the labour market, and they have been used elsewhere in the country besides New Brunswick.

[Translation]

Mr. Yvon Godin: May I continue?

The Vice-Chair (Mr. Eugène Bellemare): Yes, with pleasure. You have about 30 seconds.

Mr. Yvon Godin: I would prefer to pass because seconds go by quickly. In 30 seconds, I won't have the time to get an answer. I'll wait my second turn.

The Vice-Chair (Mr. Eugène Bellemare): Very well, Mr. Godin. Thank you very much.

We will now go to Mr. Tony Ianno.

[English]

Mr. Tony Ianno (Trinity—Spadina, Lib.): Thank you, Mr. Chairman.

It was very enlightening listening to Mr. Godin, especially how the NDP does not want to decrease the premiums employees pay. I thought that was very interesting. I didn't know that was a policy from the NDP, but I'm very happy to hear it.

How will this new system work? Will you be setting policy of some sort, or giving policy advice? Is that what the new system is meant to be?

Mr. Louis Lévesque: You mean how the new rate-setting will work?

Mr. Tony Ianno: Yes.

Mr. Louis Lévesque: That is the purpose of the consultations. We've just laid out a number of principles. Exactly how things will work out in the end, that's what we want to hear opinions for. There are a number of obvious issues on the role, on an ongoing basis, for the EI Commission. Do you want a role for the Chief Actuary? Do you want a reserve? There are all these issues on the mechanics and what the tradeoffs are between stability and the ability to react following the expected cost of the program. These are the things we want to hear people talk about.

Mr. Tony Ianno: Since we were dealing with historical information, could you explain to me why we have two rates during the year, rather than one rate for the full year, so that people can do their accounting properly, especially small businesses?

Mr. Peter DeVries: We only have one rate for a calendar year, which, of course, is equivalent to the taxation year for all individuals and most corporations. However, as the AG mentioned, our fiscal year runs from April 1 to March 31, so it does span two calendar years. There is a rate that is in effect, from a fiscal year perspective, for nine months of the year and another rate for three months.

º (1625)

Mr. Tony Ianno: In other words, if I understood, there are two rates in one year.

Mr. Peter DeVries: There are two rates in one fiscal year, one rate for one calendar year.

Mr. Louis Lévesque: In respect of taxpayer compliance and administration, there is only one year. It matches with the calendar year, it matches with at-source deductions for payroll, for CPP, and for income tax. The Auditor General audits Canada's books on the basis of the fiscal year, and she is faced with the fact that our fiscal years do not jive with calendar years. This is why she is commenting on two years, a portion of 2001 and a portion of 2002.

Mr. Tony Ianno: When a small business person does their T-4 and all of that, you are saying there is only one rate for the full year?

Mr. Louis Lévesque: Yes.

Mr. Tony Ianno: How come when I do my nanny's returns, I always have to look at two books at the end of the year? Am I missing something?

Mr. Louis Lévesque: You have at-source deduction tables that are produced for January, and because of the change in EI and CPP, you have the changes that go into play on January 1 on income tax, with the indexation notably, but in recent years there have been a number of tax changes. Budget season in both the federal government and provincial governments usually runs from February to March. If there are a number of tax changes introduced in the budgets, typically, the CCRA will produce new at-source deduction tables for July 1, which would normally only affect income tax. It would not normally affect CPP and EI, but that depends on each and every year.

Mr. Tony Ianno: How is it that the employer pays 1.4 on the premiums. How did that come about?

Mr. Louis Lévesque: It has been part of the program for a long time and basically reflects the fact that employers have more control over layoff than employees have, but I would have one of my HRDC colleagues add to that.

Mr. Charles Nixon: I think that's fair. It is an issue of who has the most control, and employers are the ones who are traditionally hiring and letting people go, depending on economic circumstances, of course.

Mr. Tony Ianno: So if people hire, they get penalized, in a sense, for anyone they let go.

Mr. Charles Nixon: No. Someone who is let go can collect EI, and on the employee side--

Mr. Tony Ianno: Hang on, I'm just trying to figure this out. So the employee is let go and collects EI, and the employer gets what for that?

Mr. Charles Nixon: They stop paying premiums.

Mr. Tony Ianno: So that's the bonus?

Mr. Charles Nixon: I don't think anybody would look at it as a bonus.

Mr. Tony Ianno: Okay, so it's not looked at as a bonus. Explain to me why that occurs.

Mr. Charles Nixon: On the employee side--

Mr. Tony Ianno: No, the employer's side.

Mr. Charles Nixon: Let me just finish my story.

Mr. Tony Ianno: Sorry.

Mr. Charles Nixon: I haven't quite been able to tell the other half of it yet. On the employee's side, they pay premiums, of course, but they also have other deductibles, if you like, in the insurance sense. They have a two-week waiting period. As well, they are not getting a full--

Mr. Tony Ianno: And that's a bonus to the employer?

º (1630)

Mr. Charles Nixon: I look at it as a deal.

Mr. Tony Ianno: A deal for whom? The employer?

Mr. Charles Nixon: Between the two sides in an insurance scheme. You have two parties who are paying premiums, they pay different premiums, and they pay different premiums for reasons.

Mr. Tony Ianno: Sorry, I'm trying to figure this out. So in other words, the employer has a bonus, because the employee is going to collect EI, even though they have a two-week waiting period. The employer has the satisfaction that the employee is going to collect EI, and therefore they should pay 1.4 times the amount, right?

Mr. Charles Nixon: Because they have greater control over who comes and goes, yes.

Mr. Tony Ianno: So because they have control of who comes and goes, if they're hiring and creating these new jobs, they're eventually going to be penalized by 1.4 times, because they're going to eventually let them go if their job is no longer required. Is that correct?

Mr. Charles Nixon: I wouldn't use those words, but--

Mr. Tony Ianno: I'm trying to get them from you.

Mr. Charles Nixon: An employee contributes to the program through premiums, through a waiting period, if they collect, and they also only get 55% of their income through EI benefits. So there's a balance between the two. The employer doesn't collect, obviously, but has control, the employee pays less, but has to contribute in other ways, and we think that turns out to be an equilibrium between the two parties in the scheme.

Mr. Tony Ianno: Can you explain to me why the employer should be penalized 1.4 times for something they don't get any benefit from?

Mr. Charles Nixon: They get benefit in the sense that they don't have to look after the workers they let go. The government is doing it, and that's part of a pooled risk in a national insurance scheme.

Mr. Tony Ianno: And how much does the government contribute towards this?

Mr. Charles Nixon: The government pays premiums, it doesn't contribute any more. It's a scheme fully funded by employers and employees.

Mr. Tony Ianno: I'm confused. The government contributes how much of the $40 billion fund?

Mr. Charles Nixon: They are an employer, that's it.

Mr. Tony Ianno: Forget about their own workers. Other than that, the government does not contribute to this $40 billion.

Mr. Charles Nixon: Not since 1993, if my memory serves me, have they contributed over and above any premiums they would pay as an employer.

Mr. Tony Ianno: I understand the $8 billion over three years, and $40 billion minus $8 billion is $32 billion. So how much have they contributed out of that $32 billion?

Mr. Charles Nixon: I can't tell you off the top of my head, for government as an employer.

Mr. Tony Ianno: No, I'm not talking about work. They pay their employees, they contribute on the same basis as everyone else as an employer. This is an employee-employer system the government contributes nothing to, correct?

Mr. Charles Nixon: That's correct, since 1993. The only other issue is interest.

Mr. Tony Ianno: And would the employers want this EI system? If you went to zero premium, would they protest on the streets?

Mr. Charles Nixon: Obviously not.

Ms. Sheila Fraser: Up until the last two years the Employment Insurance Commission has been the one to establish the rate, and on the commission are representatives of employees and employers. So it is, if you will, almost a negotiated rate-setting process, where both sides have come to an agreement that this is how the rates are going to be. I honestly don't think there's any great magical formula as to how the 1.40 was established. I think it was set many years ago and there has been an agreement that it will continue.

Mr. Tony Ianno: I understand that, and the reason for the last two years is only that they've been going on the formula that's already set and they stick with it.

Ms. Sheila Fraser: Well, for the last two years, because that provision of the act was suspended, the commission had no role in setting the premium rates, it was Governor in Council, the government.

Mr. Tony Ianno: So it's never changed, it's always been the 1.4.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Mr. Lévesque, I believe you had a comment to make on behalf of the Department of Finance.

[English]

Mr. Louis Lévesque: I just want to clarify one thing. The EI commission set a rate, but was bound until 2001, when the commission was acting, by the provisions of the EI Act. The commission did not have authority to change the employer-employee ratio, they had the mandate to set a rate on the basis of financing of the program, but within the constraints of the act.

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Mr. Ianno. You had nearly 11 minutes of courtroom performance, and I believe now it is the turn of our Conservative friend Mr. Doyle.

Mr. Norman Doyle (St. John's East, PC): I'm just wondering about something here. Government is now talking about setting up a process independent of itself to set rates for the fund. If an independent body were able to factor in the $40 billion surplus in setting the rate, that would obviously mean a rate could be set that was very low for a long time into the future. But you're saying there is no accumulated surplus sitting in a separate account, it's all gone into consolidated revenue. Are you saying an independent body at some point in the future, when they're setting the rate, cannot take into account the accumulated surplus that was built up over the years?

º (1635)

Mr. Louis Lévesque: The new rate-setting mechanism will take into account the consultations about input on how the five principles we have there can be best incorporated into a new rate-setting mechanism. As to how this new rate-setting mechanism will interact with existing provisions and the past, this is something we expect people to talk about in the consultations, and this is something, obviously, that would have to be dealt with as part of the new approach that will be put forward. I don't want to prejudge or comment on what the outcome of that will be.

Mr. Norman Doyle: So if there is no accumulated surplus, and if the rates in the future are going to be set to keep the funds stable, do we not have a moral obligation at least to give these people back the money they've given to us, $40 billion, over a period of years? Rates will be set to make the funds stable or what have you, so we've got $40 billion sitting around somewhere in consolidated revenue that obviously should be given back to the employers and the employees. Would you not think there's an obligation on government's part to give it back? I know it's a difficult question.

Mr. Louis Lévesque: There are some basic facts I want to go back to. The EI account is a bookkeeping entry only, there's no separate--

Mr. Norman Doyle: It's actual money, though.

Mr. Louis Lévesque: There's no separate account within the CRF in which the premiums would have been deposited and be sitting as cash. There's no such accumulated surplus sitting in a separate account.

Mr. Norman Doyle: Is it money that was given by the employers and the employees?

Mr. Louis Lévesque: As was discussed before, all of this is within the Consolidated Revenue Fund and is accounted for already on a yearly basis. What the new rate-setting mechanisms will try to do is strike a balance between the principles, to have expected program costs and expected benefits in line, transparency and stability of rates, and no particular impact on the business cycle. Again, the transition from what we have in our legislation to where we're going to be at the end is something we expect people to comment about and something the government will have to deal with for the legislative proposal that will be put forward.

Mr. Norman Doyle: Given the fact that the rate always had the effect of limiting the amount of deficit or surplus in the EI account, let me ask the AG, did government ever indicate officially why they were setting the rate higher than what was needed to maintain a healthy fund? Was there ever any valid reason established?

Ms. Sheila Fraser: No. As I mentioned in my opening statement, we have been commenting on this now for four years, I believe. We have been asking for explanations as to why the surplus being accumulated is higher than that the actuary said would be required immediately before a downturn. The Chief Actuary indicated that it would be anywhere from $10 billion to $15 billion. That is the object of our note, and the note, in fact, on the opinion on the Public Accounts of Canada, and it goes back again to the rate-setting: is the rate meeting the intention of the act?

Mr. Norman Doyle: Has the government ever given any information to the Auditor General's office that the surplus would be used at some point in the future to fund additional programs that would assist the unemployed and that kind of thing?

Ms. Sheila Fraser: No, we have never received any explanations of that nature.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Mr. Doyle.

We now go over to Ms. St-Jacques.

Ms. Diane St-Jacques (Shefford, Lib.): Thank you, Mr. Chairman.

I know you gave an answer earlier to the question I'm going to ask you, but perhaps you could give us more details. It concerned the consultations.

I know that the date is June 30, which is very soon. Can the Department of Finance or the Department of Human Resources Development elaborate on the mandate and timetable? And why are we waiting a year and a half to set the rate? It won't be set before 2005.

º (1640)

Mr. Louis Lévesque: I'll start with the last part of your question.

The deadline is being set at June 30 so that the interested parties have enough time to provide their opinions. Given the normal time periods in the legislative process, the government felt that, if it introduced a bill in Parliament to legislate the rate for 2004, that would provide employers and employees with stability and predictibility, as well as enough time to hear the views of the various parties so that there would be enough time to legislate for the next deadline, which was 2005.

In the circumstances, the government set the rate at a level which, it is believed, will be equivalent, in terms of premiums and benefits, to the program administration costs for 2004.

On the subject of consultations, a certain number of principles were established in the Budget to provide a framework for the discussions and consultations. Those principles are: the long-term equivalence of benefits and program costs and premium revenue; a rate-setting process that is transparent; a process involving expert opinion; a process that guarantees relatively stable premiums, and, lastly, a process that will not have the effect of amplifying economic fluctuations. Those are the five major principles that were established.

As for the process, the interested parties are given until June 30 to provide their views. The process is being outlined on the Web sites of the Departments of Finance and Human Resources Development. To ensure we have the views of the most interested parties, which are clearly the workers and union representatives, with our colleagues from the Department of Human Resources Development, we intend quite soon to meet with the major groups representing the employers and union groups. Among other things, that will make it possible to disseminate more information and will also enable others to submit their comments to the government. Subsequently, employees from the Departments of Finance and Human Resources Development will submit their reports to the respective departments. No decision has been made regarding the next steps, but there is a clear intention to put a new system in place for January 1, 2005, which will require a bill.

Ms. Diane St-Jacques: What will be the involvement of the Department of Human Resources Development? Will its role be simply to support or assist, or will it be asked to play a more active role in rate-setting?

[English]

Mr. Charles Nixon: We will be working closely with the Department of Finance on this consultation process, through our website, to accept proposals, if people want to use that route, or through that of Finance--it doesn't matter, they both go to the same place. Certainly, we'll be working with stakeholders and with our commissioners, who have quite a good réseau out into the world of employers and workers, to have them help stimulate contributions to this review. In the world that we work in rate-setting is something people are very conscious of. I don't know that you need to put big billboards up to broadcast that this is under way, because I think quite a few people have already taken note of what's in the budget and are working very diligently on their proposals, some of which we'd been receiving before it even started. People are that keen on making sure there are changes, and they continue to advise us about how they think it should work.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Ms. St-Jacques.

[English]

We now have Mr. Spencer.

Mr. Larry Spencer (Regina—Lumsden—Lake Centre, Canadian Alliance): Thank you, Mr. Chairman.

Coming along now is kind of like playing fourth string--the game's already won or lost--but I do have some questions.

I want to go back to where we started off. The word savings, obviously, is very offensive. It is offensive because that money does not belong to the government, it belongs to the workers from whom it was taken. I've also heard it said that we're not talking to the government here, Mr. Chairman, but these are the government's top guns, so I view them as the government. I think their hands are in the same pot. If I had found a note on my table a couple of summers ago, after some thieves had broken into my house, that said, “We just saved you $300, because we did not take our TV”, it would have been similar to exactly what you said earlier today: we're saving you money because we're not taking our money from you. It is the workers' money, and we really need to remember that. As has been pointed out, surely there's a moral obligation to level this thing out.

You say the surplus is notional. So then must be the idea of a premium matched to the benefit cost over time. Is that true? There's no intent to level this out, it's purely notional. I want to hear you say it.

º (1645)

Mr. Louis Lévesque: The principles that are laid out in the budget make it pretty clear that the government has the intention of putting in place a mechanism that will ensure that expected program costs, including administration and benefits, and expected revenues are roughly in line over a period of time.

Mr. Larry Spencer: All right. Then is there a plan to lower the rates to below the annual costs, so that the account balance will come back into line, so this $40-some billion can be absorbed back? Unless you're doing that, you're delusionary. You've got yourself believing something that isn't going to happen. You keep saying this is a cost over time equalized, but if there's no way you'll ever put the $40-some billion back, that's not going to happen, it's not true.

Mr. Louis Lévesque: I can only repeat what I said before on the issue of the transition. Once you have a new rate-setting process in place as a going concern, how you are going to address the transition from the old regime, the current regime, to the new regime is one of the aspects we expect people to comment on in the consultations and will be one aspect the government will have to deal with in legislation.

Mr. Larry Spencer: So you're hoping they don't want their money back.

I've done some figures here on a sheet. Through 1991, 1992, 1993 you went into an $8 billion deficit. The rates went from $1.95 to $3.07, and over the next 10 years we have accumulated a $40-some billion surplus. So take off the $8 billion deficit and we've made something like $35 billion over this. Did you realize that if you'd just left them alone, you'd still have a $35 billion surplus? So what are we calling a business cycle? If we'd left the rates alone, we'd still have been $35 billion up, wouldn't we? We're going back to where they started here now, $1.95, $1.98, we're saying that's sufficient, and we've still got $35 billion sitting over here.

Mr. Louis Lévesque: Again, I can only say these are notional amounts. There's no cash sitting anywhere.

Mr. Larry Spencer: Notional amounts and notional principles.

Mr. Louis Lévesque: As to the business cycle, that's one element for consultation. We want to hear from people. If the premiums adjust quickly, are there implications for the business cycle? That's precisely the type of issue the consultation is meant to address, where the balance is in that area.

Mr. Larry Spencer: How long is a business cycle?

The Vice-Chair (Mr. Eugène Bellemare): Excuse me, Mr. Spencer, your five minutes are up. I appreciate the answers from one of the top guns who keeps the government in the black rather than the red.

Mr. Ianno.

º (1650)

Mr. Tony Ianno: Thank you, Mr. Chair.

The reason I was asking the question on the history--and I hope you can send to the committee details of how it was set--is that I think it's important in respect of where you go and why one would want to consider changing it, whether it's your commission, or the act, or government at large.

I'm very much in favour of finding an opportunity for small businesses to have a reduction. So I don't agree with Mr. Nixon's mindset, because I'm very much in favour of job creation and not penalizing in any way. Not that you were saying the word penalizing, but I was receiving that information from what you were saying. I think Canada should be proud of having 560,000 new jobs last year, of which probably 85% were from SMEs. Taking into account that we have 15.3 million Canadians working, that's a good percentage, the best I think we've had in a very long time, and I hope we're lucky enough to continue it. But in order for that to be the case, with the economic environment we hope is in place, lower interest rates etc., we also can create stimulus for SMEs. I'm hoping your commission will look at that as a possibility, aside from what we do from the policy side. We'll have to push the government and the minister to ensure that SMEs will continue to grow on the employment side. I think, the more people we get, when you do your multiplication, the more money we get.

That brings me to the Auditor General and the term notional. I assume it would have to be the Auditor General who says, it's in the consolidated general revenue fund, but it's there notionally, so it's part of the EI system, even though it's probably already been paying the debt and for all the other programs we've been producing to try to stimulate the economy. Would you ever consider getting rid of the term notional, just forgetting about it, and dealing with an even par? I don't think Mr. Spencer is ever going to see where some of that “notional” is going to be reduced, unless there's a real catastrophe from an economic perspective, which I hope we don't face. So why don't we just turn the page and say we're starting from scratch, because in the end, the government still has the consolidated revenue fund it has to deal with, and just deal with the current situation and the future?

Ms. Sheila Fraser: That is, of course, one of the options that is available. There's a policy decision that obviously has to be made. Currently, under the act there is an account established. There is a requirement for financial statements for that account. Obviously, all that legislation would have to change, and that would be a policy decision.

Mr. Tony Ianno: How would you feel if that policy came through and the government voted that in?

Ms. Sheila Fraser: As you know, the Auditor General doesn't comment on policy. So if the policy decision was there, we would see whether the policy was being implemented.

Mr. Tony Ianno: So if I were to say, it probably makes more sense, since that's always going to stay, I would probably be safe.

Thank you.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Mr. Ianno.

We will now go over to Mr. Gagnon.

Mr. Sébastien Gagnon: My question is for Ms. Fraser. Are you satisfied with the government's desire to achieve a balanced threshold? Do you believe that threshold will be achieved?

Ms. Sheila Fraser: We're looking at what's been said in the Budget. According to the government's projections, with a rate of $1.98, there will be a balance. The auditors are still waiting to see what has happened before making a judgment. We will see in the fall of 2004 whether that rate is in fact the right rate to ensure a balance.

I must say that what interests me most in all this are the consultations and how the new system will work to ensure compliance with the principles and transparency in rate-setting.

º (1655)

Mr. Sébastien Gagnon: Are you satisfied with the 2005 deadline?

Ms. Sheila Fraser: I believe that, when section 66 of the Act was suspended in May 2001, the government made a commitment to hold consultations. We asked on a number of occasions where matters stood on those consultations. I dare hope that the consultations that were announced will be held sooner and in a more disciplined manner than those of May 2001.

Mr. Sébastien Gagnon: Were recommendations made concerning ways of operating apart from those consultations? I know that you can't take a position on the creation of an independent fund, since that's a political question, but were there other possible solutions that would ensure application is tangible and more effective?

Ms. Sheila Fraser: The government has always indicated that it intended to hold consultations. This is an important program that affects the vast majority of Canadians, either because they pay premiums, or because they receive benefits, or because they own businesses. So these are important questions, and I believe that a consultation process is necessary and even required. We want to see the process carried out and the choices that the government will make following those consultations.

Mr. Sébastien Gagnon: You understand that some doubts may be expressed in view of the fact that there was a surplus of $40 billion and that this has been going on for a few years now.

Thank you, Mr. Chairman.

The Vice-Chair (Mr. Eugène Bellemare): Very good, Mr. Gagnon. Thank you very much.

We are now going over to Ms. Longfield.

[English]

Mrs. Judi Longfield: I have a couple of questions that result from those the Auditor General suggested we might pose. What would be considered an adequate reserve? What constitutes a business cycle? What are considered relatively stable rates?

Mr. Louis Lévesque: These are precisely the types of issues we want to hear from people about. I think most people would agree that there's no perfect answer to any of those questions, and there are trade-offs between some of the concepts. That's precisely the intent of the consultation, to seek the views of various stakeholders in respect of each of those trade-offs. The government will take them under advisement in deciding the next steps.

Mrs. Judi Longfield: Okay. If that's what you hope to elicit from the consultations, I might have expected to see those kinds of things on the website asking for input. Right now what we see on the website doesn't set out any framework, and those are the kinds of things I hope we would be getting consultations about. Is this it? Are we going to see anything more on the website? Are we going to fill in the gaps?

Mr. Louis Lévesque: As to government documents, this is it. We will post the submissions of the people who agree to have their submissions posted. We will hold meetings. I think there are constituents out there who are pretty well aware of those issues and have views already, and we fully expect that these views will be expressed. So I'm not too nervous about the prospect of people not having any information or views on things. That is not something we really fear. We know there are a lot of constituents out there who have expressed views on many of those issues over the years, and we want to hear them out, have discussions, notably with the key stakeholders, to get a better sense, and then move forward.

Mrs. Judi Longfield: Is it fair to assume you have views on these particular issues, the department?

Mr. Louis Lévesque: It's fair to assume we have the mandate to listen to people on the basis of the five principles that are laid out. We want to hear what people have to say on a new rate-setting mechanism built around those principles. These are the views expressed in the budget papers. Definitely, the government feels that these are appropriate principles upon which to build a new rate-setting mechanism. Beyond that, I don't think we have any particular views. In fact, we want to hear about how a new rate-setting mechanism can be built around these principles.

» (1700)

Mrs. Judi Longfield: Thank you.

[Translation]

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Ms. Longfield. We now go to Mr. Godin.

Mr. Yvon Godin: Thank you, Mr. Chairman.

It's been said that the government or the Department of Finance may pay interest on the employment insurance fund surplus. It may pay interest; it doesn't have to. Does that make sense, when it collects interest on overpayments to persons who were not entitled to employment insurance and who are the poorest people in the country? In July 2002, the government began collecting interest on overpayments. It doesn't hesitate to take money from those who've lost their jobs and who can't receive employment insurance. How can you justify that? Don't forget that this is money of employees and employers, not that of the government.

How can you charge them interest, when you generate a surplus of $42 billion and don't pay interest? How can you justify that? That surplus was taken in order to balance the Budget. We no longer have a deficit thanks to the employment insurance surplus and we're not paying interest on the Employment Insurance Account.

[English]

Mr. Charles Nixon: We did put in place the charging of interest on certain overpayments, but those are related to fraud. This is where someone knowingly tried to abuse the EI account by not reporting their earnings, submitting fraudulent records of employment, or the like. For a person who simply made a mistake, who was not trying to defraud the EI account, there is no interest. It is only for people who are proven to have defrauded the EI account.

[Translation]

Mr. Yvon Godin: If the government takes $42 billion from workers and employers, puts that money in the general funds and doesn't give that money back, isn't that the same thing?

[English]

Mr. Charles Nixon: We have to put in place measures to respect the account.

[Translation]

Mr. Yvon Godin: A pilot project was put forward two or three years ago for businesses hiring new people. Those businesses paid no employment insurance. They were exempt from employment insurance premiums for two years. Has a study been conducted on this subject? Did those businesses create more jobs because they weren't paying employment insurance premiums? Is it only the employment insurance factor that leads a company to hire someone or not?

Miss Wilma Vreeswijk: Is that question being put to me, sir? We will check to see whether a study has been conducted on that. For the moment, I can't say whether it created jobs or not.

Mr. Yvon Godin: Thank you.

Ms. Fraser, I have a request for you. The government simply says that 85% of people qualify for employment insurance benefits. That's what the government always says in its speeches. A report was published nearly four years ago which stated that only 40% of people who pay employment insurance premiums qualified for employment insurance benefits. It's been said that the system is there for many persons, but only 38 or 40% of those persons qualify.

Can the Office of the Auditor General conduct a study on this in order to give us the real figures? Is that part of your mandate?

Ms. Sheila Fraser: Mr. Chairman, we are currently conducting an audit of the employment insurance program. I cannot presuppose what will be in our report, but it is highly likely that we will address the question of the number of persons who contribute to the program and those who benefit from it, and that those statistics will be included in a description of the program which is generally in our reports.

Mr. Yvon Godin: I see that employment insurance premiums will be $1.98 and that the surplus is of such an amount. I find that it's more a question of mathematics than of conducting a Canadian tour to determine how much people should pay. I have reservations about this tour.

On your tour, what would happen if, instead of talking about premiums, people adopted my position and said that it's not the premiums they want to talk about, but rather the fact that they want their employees to have access to benefits when they don't have jobs? Will the departments be open to suggestions of this kind, or won't such suggestions be welcomed?

» (1705)

Mr. Louis Lévesque: Our mandate is to conduct consultations on the rate-setting mechanism. Having said that, we expect that people will raise questions about incomes, as Mr. Ianno mentioned, and about the structure, the employer-employee ratio, maximum insurable earnings and exemptions. We expect that these questions will be raised. That's one of the reasons why our colleagues from the Department of Human Resources Development will be involved with us. When we conduct the consultations, we won't tell people to be quiet if they no longer talk about the rate-setting process, improved benefits or things like that. We will definitely listen to all submissions that are made. The mandate ultimately consists clearly in examining the question of rate-setting, but, when we talk to the various organizations, we will definitely listen to the points they raise.

Mr. Yvon Godin: My last question is perhaps a comment. If I correctly recall the history of employment insurance, there was an agreement after the war. The government said that companies would achieve full employment and that there would no longer be any reason to pay for people who had no jobs. That's why an employment insurance system was established to which employers, along with employees, had to contribute a certain amount because, if employers did not offer full employment, they had to help provide money to those people. Am I right in saying that?

Miss Wilma Vreeswijk: We'll look into the history, but I would like to address the question you put to the Auditor General, that is to say who is covered by the employment insurance program.

As you know, every year, we study the question of who is covered by the program. We have three measures, one of which is this: if all people who are employed right now lost their jobs, what percentage of them would be eligible for benefits? That's how we came up with the 88% figure. That's a study that we published in the Monitoring and Assessment Reports.

There are also other measures for checking to see which people are unemployed and determining what percentage of people who have paid employment are eligible for benefits. That's how we came up with the 83% figure. I believe you referred to the B/U ratio. That includes people who have never been employed, such as students, or people who have left their employment without just cause. The figure includes a broader population than the one concerned by the program. The program is aimed at a narrower population.

The Vice-Chair (Mr. Eugène Bellemare): Thank you.

Mr. Yvon Godin: Mr. Chairman, on a point of order.

The Vice-Chair (Mr. Eugène Bellemare): Yes.

Mr. Yvon Godin: Could we have the study they conducted so that we could determine how they did it? I utterly disagree with what she said. It seems that, if all those who have jobs lost them tomorrow, they would be the only ones eligible for employment insurance benefits. If a person doesn't have 910 hours, even if he contributed to the employment insurance fund, he would not be entitled. He would not be part of the 85%.

The Vice-Chair (Mr. Eugène Bellemare): If I understand correctly, Mr. Godin, you're requesting a report. You're saying she didn't give you the right answer. What report do you want a copy of?

Mr. Yvon Godin: They conducted a study on the 85% figure that the Minister always cites in the House of Commons.

The Vice-Chair (Mr. Eugène Bellemare): Madam, is your study available?

Miss Wilma Vreeswijk: Yes, we have the study that she tables every year. It's the Monitoring and Assessment Report. It's available and all the figures...

The Vice-Chair (Mr. Eugène Bellemare): Do you have copies?

Mr. Yvon Godin: One moment. I would like to clarify a point. I have that study, and that's not what I want. I want to know how they came up with their figures.

The Vice-Chair (Mr. Eugène Bellemare): Do you understand his question?

Miss Wilma Vreeswijk: Yes, I understood it.

Mr. Yvon Godin: I don't want the study, because I am familiar with it.

The Vice-Chair (Mr. Eugène Bellemare): Thank you, Mr. Godin.

Can you give us that response?

Miss Wilma Vreeswijk: Yes, it will be a pleasure.

The Vice-Chair (Mr. Eugène Bellemare): Very well.

Mr. Godin, thank you very much.

[English]

Our very last round now will be

[Translation]

Mr. Monte Solberg, who will have two minutes, and Mr. Doyle, who will also have two minutes, then that will be finished.

Mr. Doyle.

[English]

Mr. Norman Doyle: I just have one short question. I want to get a clear answer on what happens to the accumulated surplus. Are you saying the money, because it's in general accounts, can be used to fund any program now? And if it can be used to fund any program, I want to ask the AG if this is appropriate from a legal or an accounting point of view. You can take this money, apparently, and put it into consolidated revenue, and if it's there, I can only assume it can be used to fund any program the minister might deem appropriate. Is it appropriate, or is it legal, from an accounting point of view, to be able to take that money out of consolidated revenue general accounts and now use it to fund any program in the country, given the fact that it was taken from employers and employees?

» (1710)

Ms. Sheila Fraser: I'll try to give an element of response, and perhaps the Department of Finance will as well.

The cash can be used for different programs. It's almost as if you have a joint bank account: the money goes in, you use it in different ways, but you maybe didn't give permission. So the cash has been used for various programs. The cash may have been used to help pay down debt etc. The Employment Insurance Act, though, is very clear on the kinds of expenses that can be charged to the Employment Insurance account; there are only certain expenses that are admissible. If it was equipment purchases or things that had absolutely nothing to do with the program, it would not be correct for them to be charged there. So at the end of the day, we have a surplus that is to be used, by our interpretation, in setting the rates, so that it breaks even over a period of time, and only certain expenses can be charged to that account.

I don't know if that helps you. In a way, if you will, the account is lending money to other programs, but within the Consolidated Revenue Fund.

Mr. Norman Doyle: So really, when you get down to the letter of the law, it's illegal to do it. It's not good accounting practice and procedure to take that kind of money from workers, put it into consolidated revenue, and then use it on, I don't know, the minister's entertainment account or any other account in the world.

Ms. Sheila Fraser: But it's very clear in the act that the funds go into the Consolidated Revenue Fund. There is no distinction in the Consolidated Revenue Fund between one program and another program. It's sort of a general bank account of government. So I believe there's nothing illegal in using that cash for other purposes.

The Vice-Chair (Mr. Eugène Bellemare): Thank you very much, Mr. Doyle.

Mr. Solberg.

Mr. Monte Solberg: Thank you very much, Mr. Chairman.

It's been suggested that maybe, to bring the account into balance, the employers and employees could send in notional premiums for the next number of years, and that way, we'd eventually balance the account off.

My question has to do with the fact that the Auditor General could not conclude that the intent of the EI Act, section 66, had been respected at the end of the 2002 year with respect to how premiums were set. The Auditor General stated in her submission today that the factors used to determine what the rate would be were never made clear. So I want to give Mr. Lévesque and his colleagues the opportunity now to make clear what factors were used to set that rate, because, rather obviously, if the government is suggesting that the notional account should be run to $45 billion, $50 billion, $55 billion, $60 billion, whatever it is, we should know that--maybe they're planning on a 10-year recession down the road. What factors did the government use to determine where the premium rate would be set for 2002?

» (1715)

Mr. Peter DeVries: That same question was asked by the public accounts committee following a similar type of hearing. At that time the government did respond, and the response is on public record. As to the criteria we used in setting the rates for 2002, you've got to remember the EI Act was not into effect, so the government had the authority to set the rates without having to respect the provisions of section 66. Maybe I can read from the response at that time:

The key factor in setting the premium rates for 2002 was the outlook for economic growth in 2002. For budget planning purposes, the Department of Finance uses the average of private sector economic forecasts for key economic variables, such as real GDP, inflation, employment, unemployment rate and interest rates. In addition it meets with the private sector Economic Advisory Group, consisting of the chief economists of Canada's chartered banks, to obtain their advice on the appropriateness of these forecasts. Economic growth slowed dramatically in 2001, reflecting the impact of the global economic slowdown, as well as the tragic events of September 11. The consensus view was that these developments would also restrain the rate of growth in 2002. Private sector economists forecast annual growth of 1.3% in 2001 and only 1.1% for 2002. These economic forecasts, as well as the uncertainty surrounding these forecasts, were the key factors in setting the EI premium rates for 2002.

Mr. Monte Solberg: But in the end, of course, that projection was way out, because you ran a huge surplus, isn't that correct?

Mr. Peter DeVries: Of course, we're always looking one year ahead in setting the premium rates. You set the premium rates in the fall of the preceding year, and so it is subject to economic developments over the course of that year.

The Vice-Chair (Mr. Eugène Bellemare): Thank you very much, Mr. Solberg.

This brings to an end this very exciting meeting. I appreciate the answers from our top guns, usually called witnesses, and I would like to remind the Auditor General that she now has a new role, according to one of our members from the opposition--you're a top gun. I will inform the government and the government members that they should be looking forward to another best-seller of friendly fire very soon.

Thank you very much. The meeting is suspended one minute, because we have a report to go through in camera.

[Translation]

Thank you very much.

[Proceedings continue in camera]