PACC Committee Meeting

37th PARLIAMENT, 1st SESSION

Standing Committee on Public Accounts

EVIDENCE

CONTENTS

Tuesday, March 19, 2002

¹

1535

The Chair (Mr. John Williams (St. Albert, Canadian Alliance))

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

¹

1540

The Chair

Ms. Phinney

The Chair

¹

1545

Mr. John Bryden (Ancaster--Dundas--Flamborough--Aldershot, Lib.)

The Chair

Mr. John McWhinnie (Assistant Deputy Minister, Department of Human Resources Development)

¹

1550

The Chair

Ms. Susan Peterson (Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance)

¹

1555

º

1600

The Chair

Mrs. Skelton

Ms. Sheila Fraser

Mrs. Skelton

Ms. Sheila Fraser

Mrs. Skelton

Ms. Sheila Fraser

The Chair

Mrs. Skelton

Mr. John McWhinnie

º

1605

Ms. Sheila Fraser

Mrs. Skelton

Ms. Susan Peterson

Mrs. Skelton

Ms. Susan Peterson

Mrs. Skelton

Ms. Sheila Fraser

The Chair

Mr. Crête

º

1610

Mr. Michel Y. Bédard (Chief Actuary, Actuarial Services, Insurance, Department of Human Resources Development)

M. Crête

Mr. John McWhinnie

M. Crête

Mr. John McWhinnie

M. Crête

Mr. John McWhinnie

M. Crête

Ms. Susan Peterson

M. Crête

Ms. Sheila Fraser

M. Crête

Ms. Sheila Fraser

º

1615

M. Crête

Ms. Susan Peterson

M. Crête

Ms. Susan Peterson

The Chair

º

1620

Ms. Phinney

Mr. John McWhinnie

º

1625

Ms. Beth Phinney

Mr. John McWhinnie

Ms. Beth Phinney

The Chair

Ms. Phinney

Mr. John McWhinnie

Ms. Beth Phinney

The Chair

Mr. Pat Martin (Winnipeg Centre, NDP)

Ms. Sheila Fraser

º

1630

Mr. Pat Martin

Ms. Sheila Fraser

Mr. Pat Martin

Ms. Sheila Fraser

Mr. Pat Martin

Mr. Michel Y. Bédard

Mr. Pat Martin

Mr. Michel Y. Bédard

Mr. Pat Martin

Mr. Michel Y. Bédard

Mr. Pat Martin

The Chair

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

The Chair

Mme Skelton

º

1635

Mme Skelton

Mr. Michel Y. Bédard

Mrs. Skelton

Ms. Sheila Fraser

The Chair

Ms. Susan Peterson

Mrs. Skelton

Ms. Sheila Fraser

Ms. Susan Peterson

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

The Chair

M. Crête

º

1640

Mad. Sheila Fraser

M. Crête

Ms. Sheila Fraser

M. Crête

Ms. Sheila Fraser

M. Crête

Ms. Susan Peterson

Mr. Paul Crête

º

1645

Ms. Susan Peterson

The Chair

Mr. Michel Y. Bédard

The Chair

Ms. Susan Peterson

The Chair

Ms. Susan Peterson

The Chair

Ms. Susan Peterson

The Chair

Ms. Susan Peterson

The Chair

Ms. Susan Peterson

º

1650

The Chair

Mr. Mac Harb

The Chair

Mr. Mac Harb

M. Crête

Mr. Mac Harb

Ms. Susan Peterson

Mr. Mac Harb

The Chair

Mr. Alex Shepherd (Durham, Lib.)

Ms. Sheila Fraser

Mr. Alex Shepherd

Mr. Michel Y. Bédard

Mr. Alex Shepherd

º

1655

Mr. Michel Y. Bédard

Mr. Alex Shepherd

Mr. Michel Y. Bédard

Mr. Alex Shepherd

Mr. Michel Y. Bédard

Mr. Shepherd

Mr. Michel Y. Bédard

Mr. Shepherd

Mr. Michel Y. Bédard

Mr. Shepherd

Mr. Michel Y. Bédard

Mr. Alex Shepherd

The Vice-Chair (Mr. Mac Harb (Ottawa Centre, Lib.))

Ms. Susan Peterson

Ms. Wilma Vreeswijk

Mr. Alex Shepherd

Ms. Wilma Vreeswijk

The Vice-Chair (Mr. Mac Harb)

Mr. Pat Martin

»

1700

Mr. John McWhinnie

Mr. Pat Martin

Mr. John McWhinnie

Mr. Pat Martin

Mr. John McWhinnie

Mr. Pat Martin

Ms. Wilma Vreeswijk

Mr. Pat Martin

Ms. Wilma Vreeswijk

Mr. Pat Martin

Ms. Wilma Vreeswijk

Mr. Pat Martin

Ms. Wilma Vreeswijk

Mr. Pat Martin

The Vice-Chair (Mr. Mac Harb)

M. Crête

Ms. Sheila Fraser

»

1705

M. Crête

Ms. Sheila Fraser

M. Crête

Ms. Susan Peterson

M. Crête

Ms. Susan Peterson

M. Crête

Ms. Susan Peterson

M. Crête

Ms. Wilma Vreeswijk

M. Crête

Ms. Wilma Vreeswijk

Mr. Paul Crête

Ms. Wilma Vreeswijk

M. Crête

The Vice-Chair (Mr. Mac Harb)

Ms. Wilma Vreeswijk

The Vice-Chair (Mr. Mac Harb)

M. Crête

»

1710

Ms. Wilma Vreeswijk

M. Crête

Ms. Wilma Vreeswijk

The Vice-Chair (Mr. Mac Harb)

Mr. Robert Bertrand (Pontiac--Gatineau--Labelle, Lib.)

Mr. John McWhinnie

M. Bertrand

Ms. Wilma Vreeswijk

Mr. Robert Bertrand

Mr. John McWhinnie

Mr. Robert Bertrand

Ms. Susan Peterson

Mr. Peter DeVries

Mr. Robert Bertrand

Mr. Peter DeVries

Mr. Robert Bertrand

»

1715

Ms. Sheila Fraser

Mr. Bertrand

The Vice-Chair (Mr. Mac Harb)

Mrs. Skelton

Mr. Peter DeVries

Mme Skelton

Mr. Michel Y. Bédard

The Vice-Chair (Mr. Mac Harb)

M. Crête

»

1720

Ms. Sheila Fraser

M. Crête

Ms. Sheila Fraser

M. Crête

Ms. Sheila Fraser

The Vice-Chair (Mr. Mac Harb)

Ms. Susan Peterson

The Vice-Chair (Mr. Mac Harb)

Ms. Sheila Fraser

The Vice-Chair (Mr. Mac Harb)

M. Crête

The Vice-Chair (Mr. Mac Harb)

M. Crête

The Vice-Chair (Mr. Mac Harb)

M. Crête

The Vice-Chair (Mr. Mac Harb)

---

CANADA

Standing Committee on Public Accounts

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NUMBER 044

l

1st SESSION

l

37th PARLIAMENT

---

EVIDENCE

Tuesday, March 19, 2002

[Recorded by Electronic Apparatus]

¹  (1535)  

[English]

    The Chair (Mr. John Williams (St. Albert, Canadian Alliance)): Good afternoon, ladies and gentlemen.

    Our order of the day, pursuant to Standing Order 108(3)(e), is consideration of chapter 13--“Other Audit Observations (Human Resources Development Canada and the Canada Employment Insurance Commission)”--of the December 2001 Report of the Auditor General of Canada.

    Our witnesses today are, from the Office of the Auditor General of Canada: Ms. Sheila Fraser, the Auditor General of Canada; Ms. Nancy Cheng, a principal of the office; and Yvon Roy, a director of the office.

    From the Department of Human Resources we've got John McWhinnie, assistant deputy minister for insurance; Michel Bédard, chief actuary, actuarial services, insurance; Wilma Vreeswijk, director general of labour market policy.

    And from the Department of Finance we've got Susan Peterson, assistant deputy minister, federal-provincial relations and social policy branch; and Peter DeVries, director, economic and fiscal policy division.

    We're going to start with our opening statement by the Auditor General. We do expect, by the way, to transact a little bit of business, but we are a little short on a quorum. If we have a quorum I will interrupt the proceedings to conduct a little bit of business, and we'll continue from that point forward. However, we're going to start with the opening statement from the Auditor General.

    Ms. Fraser.

    Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General of Canada): Thank you, Mr. Chair. I would like to thank you for this opportunity to appear before your committee to discuss our audit observation on the issue of setting employment insurance premium rates.

    As you mentioned, I have with me Nancy Cheng and Yvon Roy, respectively the principal and director who are responsible for the audit of the 2001 financial statements of the employment insurance account.

    In December of this past year I reported my concern about the erosion of parliamentary control over the way government raises and spends money. The examples that I used included the employment insurance premium rates, Downsview Park, the Canada Foundation for Sustainable Development Technology, and the initiative to provide relief for heating expenses.

    Today, Mr. Chair, I will focus on the growing balance of the EI account and the process of setting premium rates.

    The premiums amounted to $19 billion for the year ended March 31, 2001, but I was unable to conclude whether the setting of the 2001 premium rates observed the intent of the Employment Insurance Act.

[Translation]

    For the past three years, we have drawn attention to this issue in the Auditor's reports on the EI financial statements. We are still concerned about the growing balance in the Account: 36 billion dollars at the end of March 2001. As you know, that balance was far higher than the maximum the Chief Actuary of Human Resources Development Canada considered sufficient. In his last report, the Chief Actuary estimated that a reserve of 10 to 15 billion dollars, attained just before an economic downturn, should be enough. Without adequate rationale for the size and growth of the Account balance, I was not able to say that compliance with the intent of the Act had been demonstrated.

    There have been many discussions regarding what the insurance employment balance represents. We have used terms such as “notional account” and “tracking account” to describe it. It does not represent funds set aside for the employment insurance program, and these funds are not held in any separate bank account. The Act requires that an accounting be kept of insurance employment 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.

    There is also the matter of consolidation. Since 1986 the activities of the employment insurance account have been included in the government accounts, what the accountants refer to as consolidated with the government's general accounts. We believe that this is the proper accounting method, and it complies with public sector accounting standards as promulgated by the Canadian Institute of Chartered Accountants. The employment insurance account is an important component of the government's reporting entity and should be included in the government's accounts. This means that any excess of revenues over expenditures in the Account would be added to the government's annual surplus. Indeed, in recent years, the growing balance in the Account has helped to reduce the government's net debt and contributed to its annual surplus. For the past year alone, the excess balance in the EI account has increased the government surplus by approximately eight billion dollars. If the account breaks even over time, including it in the government accounts will have little effect.

¹  (1540)  

Setting the EI premium rates is an issue of financing, not accounting.

[English]

    The Employment Insurance Act sets out provisions for setting EI premiums. Those provisions were suspended by a recent amendment to the act. The Governor in Council has full authority to set the premium rates for 2002 and 2003 without the participation of the Canada Employment Insurance Commission. In late November 2001, the government set the 2002 premium rate for employees at $2.20 for each $100 of insurable earnings.

    Traditionally, the chief actuary prepares a report and provides forecast information on the EI program to assist the EI commission in setting premium rates. The report updates historical premium revenues and program costs and projects program costs and break-even premium rates under different economic scenarios. The actuarial report is later made available to the public on the HRD website. No such report was prepared in advance of the setting of EI premium rates for 2002. The actuarial analysis would have provided valuable supporting information for the setting of rates.

    Mr. Chair, the government has announced plans to review the entire rate-setting process during the coming years. In my December report, we commented on the importance of the objectives and the outcomes of that review.

    The review should result in a transparent and objective rate-setting process with appropriate and clear points of reference. The process needs to be transparent, and how criteria are to be interpreted and applied needs to be clear to give Parliament assurance that the intent of the EI legislation is being followed. The review needs to clarify whether EI premium revenues are raised to cover only EI program costs. That would also include determining the nature of the EI account balance and deciding on its disposition when the new rate-setting process, if any, takes effect.

    We also think the review itself needs to be open and include consultations with key stakeholders. We understand the Department of Finance is leading the review, in consultation with Human Resources Development Canada. To make the review more open, we suggest that in its consultations the Department of Finance include employer and employee groups along with the EI commission and the chief actuary of HRDC.

    Mr. Chair, this committee may wish to discuss the status and the progress of the review that is currently underway to determine how EI premium rates ought to be set. The transparency of the rate-setting process is essential to ensuring proper parliamentary control over the raising of EI premium revenues.

    This concludes my opening remarks. We would be pleased to answer any questions the committee may have. Thank you.

    The Chair: Thank you very much, Ms. Fraser.

    I have something here, and I thought the committee might appreciate it. I photocopied it in both official languages. It's from the Public Accounts of Canada, 2000-2001, from “Other Matters for Parliament's Attention” included the audit report of the Auditor General. It's the compliance with the Employment Insurance Act. I would like to table that and distribute it to all members of the committee in case you would like to use that in your deliberations this afternoon. I'll ask the clerk to distribute that.

    I mentioned at the beginning that we were going to conduct a little piece of other business. The clerk advises me that we do have quorum, so I'd ask Ms. Phinney to speak, please.

    Ms. Beth Phinney (Hamilton Mountain, Lib.): Thank you, Mr. Chair.

    I have the report on the response of the 21st report of the House of Commons Standing Committee on Public Accounts on the Canadian Human Rights Commission and the Canadian Human Rights Tribunal. I have it in both official languages. I've read it, and I'm not happy with it. I'd like to have another meeting on the issue.

    The Chair: Ms. Phinney would like to have another meeting on the Canadian Human Rights Commission and the Canadian Human Rights Tribunal. She has a report prepared by the Library of Parliament, which she is tabling in both official languages.

    Are you moving that we have another meeting?

    Ms. Beth Phinney: Yes, I so move.

    (Motion agreed to)

    The Chair: Thank you. You will give these copies to the clerk.

    We will continue on now with Mr. Bryden.

¹  (1545)  

    Mr. John Bryden (Ancaster--Dundas--Flamborough--Aldershot, Lib.): Mr. Chairman, I'd just like to make reference to the meeting we are to have on Thursday to hear officials with respect to the Treasury Board guidelines pertaining to the expenses of ministers and exempt staff.

    As you are well aware, the cabinet has made a decision to release the expenses. I don't know whether it is the committee's will to carry on with the hearing on Thursday. It's fine by me that we do so. I had an amendment to the motion that is before the committee for a vote on Thursday, and I don't see the relevance any more, so I would propose to withdraw it. I presume I have to give notice, if I'm going to withdraw it, before the meeting on Thursday.

    The Chair: So the amendment you proposed to the motion put forward by Mr. Grewal is being withdrawn.

    Mr. John Bryden: Yes.

    The Chair: So noted.

    Okay. We will now turn to the Department of Human Resources Development for their opening statement.

    Mr. McWhinnie.

    Mr. John McWhinnie (Assistant Deputy Minister, Department of Human Resources Development): Thank you, Mr. Chairman and honourable members. I'm pleased to be here today to talk to you about the employment insurance program and chapter 13 of the Auditor General's report.

    Employment insurance has been a key element of Canada's social safety net for the past 60 years. It will continue to be there for workers who need it.

[Translation]

    EI has evolved over time as a function of the changing needs of Canadian workers. Today, EI offers temporary financial support to Canadians who suffer a loss of revenue due to layoff, sickness, childbirth, or to care for children. The EI plan also offers certain services such as professional orientation and the development of competencies to help unemployed Canadians to re-integrate the workforce.

[English]

    Evidence shows the major role EI plays in the lives of Canadians. Employment insurance covers 88% of workers in paid employment. This is significant, because there are 12 million paid employees in Canada.

    In 2000-2001 alone, close to 1.7 million Canadians received about $9.5 billion in benefits. In 2000-2001, more than $1.9 billion was invested in employment benefits and support measures through such programs as targeted wage subsidies and skills development, and almost half a million Canadians were served under EI part II.

    In 1996, following extensive consultations with Canadians, the Government of Canada replaced unemployment insurance with employment insurance to reflect the changing needs of the economy, the labour market, and workers. At that time the government committed to monitoring the impacts of the program on people, communities, and the economy.

    As a result of this monitoring, the government has made changes to make the program even more responsive to Canadians' needs. To summarize, we have enhanced parental benefits; made small weeks a permanent and national feature of EI; repealed the intensity rule; modified the clawback provisions; and eased the re-entrant rule for re-entrant parents.

[Translation]

    EI also plays a support role in the implementation of the Canadian government's national action plan in matters of learning and development by helping workers obtain the means to take their place in the knowledge economy.

    In the 2001 budget, the government has announced that registered trainees will only be subject to one waiting period of two weeks, for the entire duration of their training program.

[English]

    These changes to the EI program reflect the government's balanced approach of increasing EI benefits, while approving decisions of the commission to steadily decrease EI premiums. The government is committed to continuing a prudent and balanced approach when dealing with the EI program, particularly during periods of economic uncertainty, like the one we are experiencing.

    Since 1986, following the recommendation of the Auditor General of Canada, EI premiums have been included as revenue, and EI benefits have been reported as expenditures in the government's financial statements.

[Translation]

    Only the expenditures that are related to the EI plan can be taken from the EI account, and all accumulated excesses are credited to revenues. Earned interest is credited to the account when it is in a surplus situation. For example, for 2000-2001, interest of 1.6 billion dollars was credited to the fund because of the 36 billion dollar surplus on the books as of March 31, 2001.

[English]

    It's important to remember that the government must pay for EI benefits in all circumstances, even when the account runs deficits, as it did in the recessions of the early 1980s and early 1990s. A projected surplus is an estimate only, given that it changes as the economy evolves, and many additional factors may come into play. For example, the surplus for fiscal year 2001-2002 was projected to be $7 billion in the March 2001 report on plans and priorities; however, given the economic situation of the past year, a more realistic estimate would now be about $4 billion.

¹  (1550)  

    In establishing the EI premium rate, the EI Commission has had to take all these economic factors into account. Prior to Bill C-2, the EI premium rate was reduced for seven consecutive years. In fact, between the years 1998 and 2001, the decision made by the commission to reduce premium rates was unanimous. At $2.25, employers and employees saved about $6.4 billion in 2001, compared with the 1994 premium rate of $3.07. The Governor in Council further reduced the premium rate in 2002 to $2.20.

[Translation]

    Last year, the Government of Canada announced that it would review the premium rate setting mechanism. This measure was taken after the Standing Committee on Finance concluded that the rate setting mechanism in place prior to Bill C-2 did not work, and also in response to the previous comments of the Auditor General.

[English]

    The review will allow stakeholders to make their views known about how the EI premium rates should be set in 2004 and beyond. Human Resources Development Canada will support the Department of Finance in the rate-setting review process.

    In the meantime, with Bill C-2, which received royal assent on May 10, 2001, the EI Commission no longer has an official role in setting the EI premium rate for 2002 and 2003. With this legislative change suspending the role of the EI Commission, a formal chief actuary's report was not required. However, the chief actuary did provide an information document on the outlook for EI premium rates in 2002 to support the EI Commission's informal consultations with their constituents. This document has been made available on the HRDC website since the setting of the 2002 rate last December.

[Translation]

    To guarantee stability and predictability of the premium rates, the governor in council has set the rates for 2002 and it will do so for 2003, as well.

    I would be pleased to answer any questions that the members of this Committee may have.

    Thank you very much.

[English]

    The Chair: Thank you very much, Mr. McWhinnie.

    Now we'll turn to Miss Peterson for her opening remarks. Thank you.

    Ms. Susan Peterson (Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance): Thank you, Chairman. I'm pleased to be here and to contribute to the discussion today.

    As the Auditor General has said, chapter 13 of her report makes a number of observations on the cumulative balance in the employment insurance account and the premium rates set by the Employment Insurance Commission for 2001. It also mentions the review of the rate-setting process the government announced it would undertake when it introduced Bill C-44 in September 2000. This review was again referred to when the bill was reintroduced as Bill C-2 in February 2001.

    I would like to first briefly describe the nature of the employment insurance account. As the Auditor General notes in her report, the account is notional in nature, which means there is not an account sitting there containing cash. It is an accounting device used to record the financial transactions related to the employment insurance program: annual premiums, revenues paid into the government's consolidated revenue fund, and annual program expenditures paid out of the consolidated revenue fund, plus any interest credited to or charged against the account.

    Obviously the difference between annual EI revenues and annual EI expenditures, including administrative costs, results in the account recording an annual surplus or deficit in any one given year. The cumulative balance recorded in the account is simply the sum of these annual surpluses minus deficits and is entirely notional, because, as the Auditor General points out, these annual amounts have in every year been part of the consolidated revenue fund.

    This consolidation of the EI account with the books of Canada has existed since 1986, when the government acted on the advice of the Auditor General of the time. This consolidation means the annual surplus or deficit recorded in the EI account directly affects the government's bottom line in that year. The EI 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 employment insurance rates. Indeed, economic performance had often exceeded expectations, resulting in surpluses that have been larger than what was forecast.

    I would now like to briefly review how rates have been set since 1996, when the rate-setting provisions were last adjusted in the legislation. It was the responsibility of the Employment Insurance Commission to set rates in accordance with the criteria set out in the Employment Insurance Act. The act requires that the commission set the rate for each year at a level that the commission considers will, to the extent possible, ensure that there will be enough revenue over a business cycle to pay the amounts authorized to be charged to the employment insurance account and maintain relatively stable rates throughout the business cycle.

¹  (1555)  

[Translation]

    Each fall, the commissioners received the annual report from the chief actuary on the EI rates. The commissioners, who represent workers and employers, then consulted their constituencies before meeting to set rates for the following year. The commissioners have agreed on the rates for each of the past four years.

[English]

    The commission's decisions resulted, as you know, in a continued lowering of EI premium rates. The rates set by the commission for 2001 amounted to the seventh consecutive annual reduction in premiums, bringing the employee rate down by 82¢, from $3.07 in 1994 to $2.25 in 2001. These reductions meant savings, as have been mentioned, of $6.4 billion for workers and their employers in 2001, compared to the 1994 rate.

    As you know, Bill C-2 suspended the role of the commission in setting rates for two years, 2002 and 2003, and provided for the Governor in Council to set the rate on the recommendation of the Ministers of Finance and of Human Resources Development. The ministers took into account a range of factors, including the economic uncertainty caused by the events of September 11 and the possible global economic slowdown and their potential impact on labour markets, EI program costs, and the overall fiscal situation. As well, of course, they took into account the desirability of maintaining stability in EI rates. The rate for 2002 was set at the level that had been assumed for planning purposes in budget 2000 and in the October 2000 economic statement--that is, the rate dropped by five cents, to $2.20.

[Translation]

    When the government set the rate, it was continuing the trend that was started by the EI Commission, that is, annual reductions of the rates to the point where the contributions only cover the program costs. Of course, the program costs fluctuate from one year to the other depending on the economy. Therefore, contributions can never exactly cover the costs in any given year. In addition, if that were tried, the rates would be unstable, which would lead to major increases in rates during economic slowdowns. Therefore, as was planned under the previous Act, rate setting requires an equilibrium between covering the fluctuating costs of the program and maintaining relatively stable rates.

[English]

    In 1999, as part of its report on pre-budget consultations, the House of Commons Standing Committee on Finance reviewed the EI rate-setting process. It implied, in effect, that the rate-setting provisions in the EI Act are flawed. It said rate-setting “involves not only a 'look forward' process in assessing the level of revenues sufficient to cover program costs over a business cycle, but also a 'look back' process by taking into consideration the level of any past excesses or shortfalls of revenues relative to program costs”.

    The report found the “look back” process to be problematic. The look back could cause serious disruptions to the overall management of the federal government's budget simply because EI revenues and expenditures form part of general revenues and therefore affect the government's budgetary balance. The report recommended, therefore, that employment insurance rates be set on the basis of revenues needed to cover program costs over the business cycle looking forward, and not take into account the level of the cumulative surplus or deficit nor any interest associated with that cumulative position.

    These comments by the finance committee contributed to the government's decision to review how EI rates should be established and to suspend the existing provisions in section 66 of the EI Act while that review takes place.

    At the moment, work on the issues identified by the finance committee is taking place internally. The Auditor General's suggestions in her report regarding elements the government may wish to consider during the review are certainly welcome. The review process will, of course, also provide for the views of interested stakeholders to be heard. The review is intended to result in a better way of setting premium rates. The goal is a method that is clear and transparent and meets the objective of EI premiums covering only ongoing program costs.

    Thank you, Mr. Chairman. I'd be pleased to take any questions.

º  (1600)  

    The Chair: Thank you, Ms. Peterson.

    Now we'll turn to Ms. Skelton for the first round.

    Eight minutes, please, Ms. Skelton.

    Ms. Carol Skelton (Saskatoon--Rosetown--Biggar, Canadian Alliance): I'd like to start with the Auditor General, please.

    Ms. Fraser, at what point does the surplus in the EI fund become so big that you will declare that the government is breaking the EI Act?

    Ms. Sheila Fraser: Because the legislation has no benchmarks or is not sufficiently clear, I would actually doubt that I would ever be able to conclude that it is not respecting the law. I think I have gone probably as far as I can in saying that I cannot conclude that the law has been respected. There are no amounts, no reference points in the act that would allow me to conclude that the law has been broken. But I think I have raised the signal this year that this is serious and that the issue has to be looked at.

    Ms. Carol Skelton: You raise, for instance, the business cycle, enough revenue, and relatively stable rate levels. Has the government ever taken any steps at all towards this?

    Ms. Sheila Fraser: We have asked the commission for more information on how it sets the rate, particularly given the report of the chief actuary, which indicates a surplus of $10 billion to $15 billion, and the surplus in the account far exceeds that. We have been given a response that would seem to indicate that great attention has been paid to stability, but it does not sufficiently address the question of sufficient revenues to meet program costs over an economic cycle. Because of that, and because there is this notion in the act, combined with stability, as we have indicated, I am unable to conclude that the intent of the legislation has been respected.

    Ms. Carol Skelton: Why do you think the government is denying your requests? Why is it stonewalling you in your requests?

    Ms. Sheila Fraser: Well, I don't know that I would qualify it as stonewalling, but you may want to ask the government.

    The Chair: Do you want to ask the government?

    Ms. Carol Skelton: Yes, I do.

    Why are you not complying with the Auditor General's request on setting benchmarks, etc.?

    Mr. John McWhinnie: To respond on the role of the commission, which has set the rate up until this past year, and I think to which the remarks in chapter 13 from the Auditor General refer, there are many factors the commission takes into account when it sets the rate. Certainly stability has been a key concern, but I think it's fair to say that we do have a commissioner for workers to represent labour and workers in Canada and we have a commissioner for employers to represent the interests of business and employers. Their views sometimes are quite disparate, so it isn't a question of everybody looking at this from the same perspective.

    I think traditionally our commissioner for workers has not necessarily had a problem with the level of the premium rate as much as a desire to encourage enhancement of benefits, whereas the commissioner for employers has wanted to see a downward trend in premium rates to get to a more equal point. I don't think any of the commissioners set out with an objective to establish a surplus beyond what was necessary to run the program, but with some very healthy years in the economy, there is a double impact, if you will. If not as many people are on claim, then the payouts aren't as high, and if more people are working, then they pay more premiums.

    So certainly from the commission's perspective, a lot of factors were taken into account, particularly from their consultations.

º  (1605)  

    Ms. Sheila Fraser: Mr. Chair, I'd just like to add that I think the lack of clarity that currently exists in the legislation points to the importance of this review. As well, in this review process there should be more clarity and more transparency in terms of how those premium rates should be set. I think this review is a very important function that is being conducted, and hopefully it will resolve many of the issues we have been raising.

    Ms. Carol Skelton: Ms. Peterson, can you tell me why...? There had to be some reason that cabinet wanted to take over the rate-setting process for 2002-03. Can you tell me some of the suggested scenarios as to why cabinet would want to take over that rate-setting process?

    Ms. Susan Peterson: This was prompted by the kinds of observations made by the House of Commons finance committee about there being real problems with the current legislation with respect to how the rates were to be set. The government undertook to review those rate-setting processes and decided, given that they didn't appear to be working well, that while the review was under way it would suspend the rate-setting process--the flawed rate-setting process, if you like--in the current legislation until such time as there was an analysis of the options for future-rate setting processes, and consultation and what have you, and then, when they were put back in place, that suspension would come to an end.

    Ms. Carol Skelton: Were we not doing that backwards? Shouldn't we have had the review and then, after the act was changed, looked at it? Shouldn't it have come before committee before you took over setting the rates?

    Ms. Susan Peterson: The EI rate-setting process is an extremely important one. As I mentioned, because the EI account is consolidated with the government's account, it has major implications for the federal government's overall budgetary balance and budgetary position. So the government said if this rate-setting process is flawed, as it appears to be, and it's going to take a while--this is not an easy policy question, believe me--to figure out what a better process would look like, then we don't want to be subject to a flawed rate-setting process during that period of time.

    If it didn't matter so much, then maybe that would be an appropriate approach. But the government is of the view that it does matter to get that rate-setting process working properly. Therefore they wanted to work in the sequence I suggested.

    The Chair: Ms. Skelton, you have a minute and a quarter left.

    Ms. Carol Skelton: I would like to ask the Auditor General about subsection 19(3) of the Employment Insurance Act. It came in force in 1996, and it changed the way the commission calculated overpayments. This caused turmoil within the department, affected hundreds and thousands of claimants over a five-year span, and may have taken millions of dollars that claimants are entitled to from claims.

    Were you aware of this problem? If not, will you allow us to make a case to you in order to persuade you to look into this?

    Ms. Sheila Fraser: I have only been aware of it because of debates and questions that have arisen in the House. I understand that the major issue is the non-retroactive application of certain provisions. I am not sure we can do much about it, but I am aware of the situation. We could consider it in future audit work if we were to look at the program, but I tend to think that may be more of a policy decision than an administration decision.

    The Chair: Thank you very much, Ms. Skelton.

    Now we'll turn to Monsieur Crête, s'il vous plaît huit minutes.

[Translation]

    Mr. Paul Crête (Kamouraska--Rivière-du-Loup--Témiscouata--Les Basques, BQ): Thank you, Mr. Chairman.

    The Auditor General's report notes that the chief actuary's report was not written before the setting of rates for 2002, and the actuarial analysis would have provided valuable supporting information for setting the rates. In Mr. McWhinnie's document, we are informed that the chief actuary is no longer required to produce an official report since the change in the Act.

    I would like Mr. Bédard to tell me if he was personally responsible for deciding or recommending that the report not be issued this year.

º  (1610)  

    Mr. Michel Y. Bédard (Chief Actuary, Actuarial Services, Insurance, Department of Human Resources Development): Quite simply, the EI Commission did not ask for the report. So a report was not produced because there had been no request for by the Commission.

    Mr. Paul Crête: I would therefore like Mr. McWhinnie to tell me why the report was not requested, given that everyone surely shares the Auditor General's opinion that the information in such a report is very useful and that the report would have been useful for the next two years, even if the department no longer has this responsibility.

[English]

    Mr. John McWhinnie: The commission had really no role this past year in setting the rate. And all they required and asked of us was some analysis so they could do some informal consultation with their constituents. It's as simple as that. They just didn't ask for a report.

[Translation]

    Mr. Paul Crête: Was it your department or the EI Commission that decided not to request the report?

[English]

    Mr. John McWhinnie: The commission didn't ask for a report. Normally we provide the commission, as a support to them, whatever they need. The chief actuary did prepare an analysis, which we call an outlook document, which is available for the commissioners.

[Translation]

    Mr. Paul Crête: And you considered that it was not relevant for your department to produce this report, when the Auditor General states, and I quote: “The actuarial analysis would have provided valuable supporting information for setting the rates.”

[English]

    Mr. John McWhinnie: Once again, our role is to support the commission in the rate-setting process and particularly to make the chief actuary available for whatever information the commission needs or requires. In this particular year, since there was no role they felt it was not necessary to have a report. All they asked for was some analysis, and we provided that.

[Translation]

    Mr. Paul Crête: Ms. Peterson, does the Department of Finance believe that it is pertinent to have the Chief Actuary's report, which would help in evaluating this important part of the EI Account, namely, the history of rates and benefits and what is planned for the coming years? Is the fact that the Chief Actuary already said that the surplus had to be 10 to 15 billion dollars not sufficient to show that such a report would be relevant for 2002?

[English]

    Ms. Susan Peterson: As Mr. McWhinnie said, there was information prepared. There was an analysis prepared by the chief actuary, and that was available to the commission and also available to the Department of Finance. So we were aware of the analysis the chief actuary had prepared.

[Translation]

    Mr. Paul Crête: My question is for the Auditor General.

    Why do you state that the information that was provided was insufficient? In your presentation, you state that what was published on the web site is only the departmental version, that it is not the Chief Actuary's actual report. Would you have deemed it relevant that a report be produced for 2002 to provide adequate follow-up on the EI account?

    Ms. Sheila Fraser: Thank you, Mr. Chairman.

    There are two parts to the answer. First, the report that was produced was not as complete and did not present as many long term scenarios. I think that it is always important to have as much information as possible. However, I would like to emphasize the fact that the Act does not require the Chief Actuary to produce a report and that in setting the rates there is no reference to the Chief Actuary's report. Therefore, there is no legal requirement to produce a report. I think, however, that a tradition had been set and that it had been the usual procedure to produce a report. The fact that certain provisions were suspended did not have any effect on any legal obligation Chief Actuary may have had to produce a report.

    Mr. Paul Crête: My question doesn't apply to the legal aspect, but rather to the relevance of producing such a report under the current circumstances. The government has decided to suspend the procedure. Do you believe, as Auditor General, that this would have been a pertinent tool, leading to a better evaluation of whether the Act had been followed in the past, is it being followed now, and will be it be in the future?

    Ms. Sheila Fraser: Certainly. The report that was produced by the actuary indicated that a rate of 1.51--if my memory is correct--would have been sufficient to cover the costs for the next year. The current rate is much higher than that. Such a report maybe would have helped in explaining the gap between the two rates.

º  (1615)  

    Mr. Paul Crête: In that case, and in light of the Auditor General's comments, I would like to know if the Department of Finance, and Human Resources Development Canada, who are conducting the current review, intend to request a report this year, a report that would include the analysis that the Chief Actuary conducted for 2002, and reports for 2003 and 2004, until we get to a regular process so as to avoid losing the pertinent information that we should get from this kind of report.

[English]

    Ms. Susan Peterson: I would answer that the Governor in Council, in setting the rate for the year 2002, of course was not bound by the suspended parts of the Employment Insurance Act. So I think we have to be careful in the way we speak here, because I think there's a sense here that maybe the Governor in Council did not follow the law, with the assumption being that the law is as in the part that has been suspended. I think you have to be careful about that.

[Translation]

    Mr. Paul Crête: Mr. Chairman, that is not my question. I would like Ms. Peterson to answer my question. Does she intend to request that a report be produced so that the rates can be evaluated to the satisfaction of the Auditor General.

[English]

    Ms. Susan Peterson: I'm not in a position to make a decision about whether the Governor in Council would like a report from the chief actuary when it sets the rate next year, which is the second year of its two-year rate-setting process, so I'm not the right person to ask about that. But I think it is important, nonetheless, for the committee to understand that the Governor in Council did have an analysis that the chief actuary did not prepare for the Governor in Council, but we did have the benefit of the information of the analysis that the chief actuary undertook and shared with the commissioners in their informal consultation. So it's not a black and white situation.

    I think, as Mr. McWhinnie suggested, the commission was not setting the rate this year, so did not ask for a report. And now you're asking me, will the Governor in Council ask for a report from the chief actuary before it sets the rate for 2003? As I said, I'm certainly listening hard to what you're saying, but that's not a decision for me to make.

    The Chair: Thank you, Mr. Crête.

    Ms. Phinney, please, eight minutes.

º  (1620)  

    Ms. Beth Phinney: Thank you, Mr. Chairman.

    Mr. McWhinnie, since we have you before the committee, could you please clarify the issue surrounding undeclared earnings?

    Mr. John McWhinnie: I would be happy to, if I can. I will start by saying that although it's a very complicated issue, I think it has become perhaps a bit more complicated than it really is.

    Back in 1996 in the legislation, we always had a provision of undeclared earnings in the EI Act, which means people can work while they are on claim, they just have to tell us what they earn. Of course, everybody is allowed up to a maximum of $50 a week, while on claim, without impacting on their benefits. Anything more than that, it would be deducted dollar for dollar. Before 1996, it was dealt with on a week-by-week basis. If you reported your earnings on one week, then we would deduct those to establish what we would call an overpayment and we would deduct those from your benefits.

    The issue was a lot of people weren't reporting. That is why undeclared earnings is the issue here, whether it's misrepresentation, or an opportunity to abuse or defraud the system. The other part of the legislation in 1996 was to set really strong precedents around fraud. Undeclared earnings was one of the key aspects of people working while they were on claim.

    The other aspect that came in was primarily driven by demands on the employer community. We were putting a lot of demands on them to get their payrolls, week by week, to match ours. We went back to look at these. We put in something called a period of employment where we would look at the whole period while someone was on claim, match it with employer records, and if they did not jive in terms of what people had declared, then we would apply that across the whole claim.

     We never asked for more than what people had not declared, and we never took back more than they had rightfully received that they weren't eligible for.

    The issue came up in the application of that. Some people had undeclared earnings assigned to a week when they didn't work, and people said that just didn't make sense and wasn't fair.

    We made a number of administrative arrangements to try to deal with that. It was very difficult to administer, as people have recognized. Our own staff did not like the application of this. Our board of referees, our umpires, MPs, a lot of people have complained about the application.

    In 1999 we passed a regulation to eliminate weeks when people did not work, which basically solved the primary issue of the problem where undeclared earnings were being applied to weeks when they did not work. There were still difficulties, and then with the standing committee looking at Bill C-2, there was a lot of discussion around it. At that point, when we couldn't put it into a legislative change during that bill, we found a solution by changing a regulation to go back to the way it was pre-1996. That has been fixed since last year.

    So these issues people are talking about are old ones. They are things that happened. I think it's also important to say that where honest mistakes were made by the claimant, employers, and in some cases by us, they were sorted out. We didn't go chasing people when there was just an issue like that.

    Where we decided it was misrepresentation or fraud and serious enough, we applied administrative penalties, which were also a strong measure of the 1996 legislation. So where you heard about people getting charged more than they actually didn't declare, we charged administrative penalties because we decided there was misrepresentation.

    So that's kind of the issue. From 1996 until last year it was in effect. That was the law. As people have said, it was a difficult one to administer, but it was the law, so for anybody who had overpayments established during that period, that's the way the law was at the time. It was intended to be tough. The real issue was that people felt the application of it wasn't fair, in the way it was distributed, but people weren't charged more than they didn't declare.

º  (1625)  

    Ms. Beth Phinney: Are there still individuals out there who feel they have been asked, over the last few years, to pay back more than they should have?

    Mr. John McWhinnie: Anyone could have had their claim revisited when this was first applied. We also have a very open and fair appeal process with four levels of appeal, if people felt they were unfairly treated. That was another one of the factors. A lot of these cases were coming through the appeal system, and we felt we had to address it.

    Ms. Beth Phinney: Thank you.

    Do I still have a couple of minutes?

    The Chair: Yes, you have three minutes.

    Ms. Beth Phinney: Could you please tell us what impact the events of September 11 had on the EI account?

    Mr. John McWhinnie: They had an impact on the account, but also on the program. We had several years of fairly low unemployment rates and fairly steady claim loads. Last year the economy started to downturn in April, particularly in Ontario in the auto industry. We started having increased claim loads. We had a bit of an administration problem in catching up, because after many years of working at a certain level, we had to respond quickly.

    Then, of course, we had a labour relations issue in the department with a lot of our frontline staff in late summer--August and September. So when September 11 hit we weren't in a really good position for the immediate downturn, particularly in the airline industry, and the consequential impact on the tourism and other industries. We really had a major workload issue in the program, and claim loads went up. At one point, in certain parts of the country, they were 30% higher than the year previously, so we really had to scramble to do that.

    I think the evidence shows that the program was there. It responded quickly. With the mass layoffs, we were able to go in and do what we call mass claims-taking and deal with the whole industry in one opportunity, rather than having everybody come to our offices individually.

    We hadn't used work-sharing very much in the last four or five years, but since September 11 we have spent about $100 million out of the program on work-sharing, and saved thousands of jobs by putting thousands of people on work-sharing, particularly in the airline and tourism businesses, until they pick up their businesses again. We averted up to about 25,000 layoffs of people just by using that.

    There were, of course, some delays in being able to get cheques out to clients because of that workload issue. We've now worked through those backlogs and are at pretty much normal levels, even though, overall, year to year, we're running about 15% higher in claim load than a year ago.

    Ms. Beth Phinney: Thank you.

    Thank you, Mr. Chairman.

    The Chair: Thank you very much, Ms. Phinney.

    Mr. Martin, please, for eight minutes.

    Mr. Pat Martin (Winnipeg Centre, NDP): Thank you, Mr. Chair.

    Thank you all for very interesting briefs.

    While I do want to talk about the main point, about the setting of rates as per the AG's report, I'd like to point out that a lot of us feel that the whole surplus and the main issue about EI is not as much the setting of rates as the eligibility question. We believe, regarding the changes in 1996, there's no big shock why there's a big surplus, because hardly anybody qualifies any more, compared to the old rules, at least.

    In fact, you'd be interested in knowing that the CLC has done a cross-country analysis of everyone's ridings and sent all the MPs this information, and in my own riding of Winnipeg Centre alone, the 1996 changes amount to $20.8 million sucked out of my riding--the third-poorest riding in the country--every year, per year.

    If some new businesses wanted to come to your riding with a payroll of $20.8 million, imagine what you would do to attract that business. Well, we've had to sit by and watch $20.8 million sucked out just by these changes alone. So we're not surprised that there's a surplus when the eligibility issue is such a problem.

    I would ask the Auditor General, perhaps, and I know it's not part of this study, would she care to comment on the basic ethics of deducting money from a person's paycheque for a specific purpose, and you've told the person that you're talking it off their cheque for this reason, and then putting that money in consolidated revenue to use for something completely different, and then denying that person any benefits? To me, at the very least, that's a breach of trust.

    In the worst case, it's out and out fraud to allow that expectation to exist, that if I give you this money every month, no matter whether it's $2 per $100 or $2.50 per $100, and I become unemployed, I'm going to get benefits when I'm unemployed, right? Yes, that's the deal. But fewer than 40% really do. Could you comment on that, although I know you have to be careful with it?

    Ms. Sheila Fraser: The criteria for eligibility are really a policy decision. What we can look at is how they are being managed. So criteria will change over time.

    I'd like to go back to the accounting. I know this is probably a little difficult, but there is a separate EI account. It is not a bank account, but there is a separate account, if you will, on the books of Canada. Under the legislation, all the revenues are to be recorded in that account, and only certain expenses that relate to that program can be paid out of that account. That is why there is a surplus of $36 billion...well, it could be more than that, somewhere around $40 billion now.

    How the cash is used is a different issue. The cash that is generated by that account can be loaned to the rest of the programs. And in fact the government recognizes that, because it pays interest to that account. If you look closely at the public accounts of Canada and the net debt, there is a separate account for EI. We have included it in the books of the government because it is a program like any other program, but there are under the law, the act now, specific instructions as to what expenses can be charged to that account.

    My legal counsel obviously isn't sitting beside me, but I would believe that should the government start to charge amounts to that account that were totally unrelated to the employment insurance program, that would be a violation of the act, in my view, and would be something that would have to be brought up in the public accounts. So until now, we audit that account every year to make sure that only expenses that are permitted under the law are charged to that account.

º  (1630)  

    Mr. Pat Martin: I understand the designated uses of the EI funds.

    Ms. Sheila Fraser: The law provided that all the revenues would go into the consolidated revenue fund. If there had been a separate account established--

    Mr. Pat Martin: That surplus shows up as part of the government's overall surplus, however.

    Ms. Sheila Fraser: That's correct.

    Mr. Pat Martin: Dealing with the fact that the commissioners have been relieved of their duties, do you think the government would have suspended their rate-setting abilities if the fund was $40 billion in deficit?

    Ms. Sheila Fraser: I can't speculate.

    Mr. Pat Martin: The point I'm making is that it's an absolute cash cow currently, because it's taking in far more than it's paying out--$19 billion collected, and $11.4 billion paid out in benefits and training, the two designated usages: a surplus of $8 billion or $9 billion a year. People don't realize that's $750 million per month above and beyond what it needs to operate.

    Ms. Peterson mentioned that in 1991-93 the fund did fall into deficit. Our information is--and maybe you can confirm it--the total cumulative deficit was about $11 billion during that period. Does that jibe with your knowledge of that era?

    Mr. Michel Y. Bédard: The maximum cumulative deficit rose to $6 billion by the end of 1993, I think it was.

    Mr. Pat Martin: I'm sorry?

    Mr. Michel Y. Bédard: The cumulative deficit rose to $6 billion.

    Mr. Pat Martin: The cumulative rose to $6 billion, but I mean the total ever: the number of times the fund has ever been in deficit. Add all those up and it's $11 billion. Does that sound right to you?

    Mr. Michel Y. Bédard: In 1991-93, we ran three successive annual deficits, which totalled about $8 billion.

    Mr. Pat Martin: In those three years.

    Mr. Michel Y. Bédard: Yes, the annual deficits.

    Mr. Pat Martin: And there was another period earlier where the fund was in deficit briefly as well?

    Mr. Michel Y. Bédard: Back in the eighties, yes.

    Mr. Pat Martin: Correct. If you add all of them up, it's about $11 billion.

    I guess I'm asking you, then, say you need $10 billion in reserve all the time, and say we pay back every penny of that cumulative debt of $11 billion--that's $21 billion. We're now at $42 billion. As reasonable people, wouldn't you all recommend we either raise the eligibility or cut the premiums or some combination of the two? Is there anybody here who disagrees with that?

    The Chair: Who are you addressing your question to, Mr. Martin?

    Mr. Pat Martin: Well, we've got the best minds in the country on this issue assembled here, so....

    The Chair: You're going to have to pick somebody.

    Does anybody want to answer? Okay, we've got Ms. Vreeswijk who wants to give us the answer. We're going to get the full answer here.

    Ms. Wilma Vreeswijk (Director General, Labour Market Policy, Department of Human Resources Development): The full answer?

    I'd like to deal with the eligibility question under EI. As you know, the commission prepares every year a monitoring and assessment report where we take a look at the impact of EI on individuals, communities, and the economy. It has taken a very close look at the issue of coverage under the EI program in a number of different measures.

    One in particular I think Mr. McWhinnie cited in his opening statement. If you look at the 12 million people who are in paid employment--because EI is a targeted program to those in paid employment--if those people lost jobs and we had a major, major shock, what proportion of those people who are in paid employment would be eligible for EI? It would be 88% of people who would be eligible for EI. It's important to realize that close to two million people a year are benefiting from the program. In fact, two-thirds of the claimants have twice as much as the minimum entrance requirements to get into the program.

    So in terms of coverage, this issue has been examined fairly extensively. As I said, the 88% are eligible.

    The Chair: Thank you very much, Mr. Martin. We appreciate that.

    Now we'll go back to round two, and it is four minutes each.

    Ms. Skelton, please.

    Ms. Carol Skelton: Mr. Bédard, I just wondered if you've ever sat down and thought out how many unemployed workers we would need in Canada to use up the surplus we have now.

     Mr. Michel Y. Bédard: What I can say is that for the year 2002, we would run neither a surplus nor a deficit if the unemployment rate rose to 10% approximately. So the rate of $2.20 would approximately cover costs associated with an unemployment rate of 10%. To run down the current surplus, you'd need an unemployment rate higher than 10%.

º  (1635)  

    Ms. Carol Skelton: How big a recession would we have to have in this country before we would use up that budget?

    Mr. Michel Y. Bédard: The last two recessions were the most severe that we've seen since the 1930s, and the unemployment rate in those two recessions rose to between 11% and 12%.

    If the unemployment rate rose to 12%, with the current unemployment rate we'd run a deficit of about $2.5 billion. If the unemployment rate rose higher, which I think is probably unlikely, but who knows, for each unemployment percentage point, the associated cost would be about $1 billion, and there would be a loss in revenues of about $200 million. The impact on the EI account would be about $1.2 billion.

    Ms. Carol Skelton: Good. If the government were to establish a separate EI fund with real cash in it for the workers, would you be willing to study this proposal and make a recommendation--if we took the real money and put it in a separate account that the workers put in there? Does anybody have an opinion on that?

    The Chair: To whom are you addressing your question?

    Ms. Carol Skelton: Anyone. The Auditor General.

    Ms. Sheila Fraser: Well, thank you. That really is a policy decision.

    Ms. Carol Skelton: Okay, sorry.

    Ms. Sheila Fraser: It would require a change to legislation. It would be a massive change.

    The Chair: I think the question should be going to Ms. Peterson.

    Ms. Susan Peterson: It's an enormous policy question, but I think I'm correct in saying that the reason in 1986 that the Auditor General advised that the government should consolidate the EI money with the general revenues of the government was because the government is the body that makes decisions on what the benefit structure should be and what have you. If effectively therefore the government is controlling policy in that respect, then it has to be consolidated with the general revenues of the government.

    If you thought it was correct that the Government of Canada have nothing to do with EI policy, then you could get it out of the consolidated revenue funds, but that's a huge question. Do parliamentarians and the government of the day want nothing to do with setting EI policy? That's an enormous question.

    Ms. Carol Skelton: Okay. Does anyone...?

    Mr. Bédard.

    Ms. Sheila Fraser: Could I just clarify one issue, Mr. Chair?

    Entities that are consolidated do not all have to bank through the consolidated revenue fund. It is because it is specified in the EI Act. We have many crown corporations, for instance, that are consolidated with the accounts of Canada--the public accounts--and they do have separate bank accounts.

    I wouldn't want us to confuse the fact of having separate bank accounts with the issue of consolidation. They're two separate issues.

    Ms. Susan Peterson: Could I ask Mr. DeVries to comment further?

    The Chair: Yes.

    Mr. DeVries.

    Mr. Peter DeVries (Director, Economic and Fiscal Policy Division, Department of Finance): Just to pick up on that point, that is true. Even if the EI account was not to have a separate bank account, under the current policy decisions, which would still rest with the government, any surplus, any excess revenues of the government that would take on premiums over the cost, would still impact on the bottom line.

    I think what Ms. Peterson was saying is that in order to ensure that the EI program per se does not impact on the government's overall bottom line, you would then have to take that outside of government. You would have to set it up like the Canada Pension Plan, where you have a second or third party involved in the decision-making of the benefits and the rate-setting.

    The Chair: Okay, thank you very much, Ms. Skelton.

    Monsieur Crête, s'il vous plaît. Vous avez quatre minutes.

[Translation]

    Mr. Paul Crête: First, we have evidence that Mr. Bédard's opinion is important because he is the only one here who can comment, given that he is the Chief Actuary of the system. I believe, therefore, that the pertinence of producing a report has been demonstrated.

    Second, the Director General of Labour Market Programs studies the plan in relation to people who are employed rather than currently unemployed. This well highlights the system's problem. This is not a question, but a comment, and I don't need any other opinions on this.

    Ms. Fraser, you say that the Commission has not complied with the intent of the Act, that you can't say if the Act was complied with in 2001. For 2002, given that you have not received a report from the Chief Actuary, can you say whether the Commission has complied with the intent of the act.

º  (1640)  

    Mad. Sheila Fraser: We have not completed, or even started, our audit of the employment insurance account. The fact that these sections were suspended abolish the criteria that I had used to state my opinion last year. I cannot say today if we will maintain the perspective we had last year. I would prefer that we first conduct our audit, and then do a complete review.

    Mr. Paul Crête: You nevertheless state in your report, and I quote:

The transparency of the rate-setting process is essential to ensuring proper parliamentary control over the raising of the EI premium revenues.

    You believe, therefore, that transparency is essential. To accomplish this transparency, given the current actions of the department on this issue, that is, the fact that it did not ask the Chief Actuary to produce a report and there is no transparent mechanism currently, the rate for 2002 having been established under the most obscure conditions I know, do you believe that transparency is now sufficient if there are no consultations, which you suggest there should be, of employer and employee groups by the EI Commission and the Chief Actuary of Human Resources Development Canada?

    Ms. Sheila Fraser: We have to remember that when these provisions were suspended, there was also a commitment to perform a program review. I don't know where that is exactly at the moment, and I would perhaps like the committee to ask...

    Mr. Paul Crête: We don't know any more than you, Madam. Perhaps the departmental officials will tell us. We have no information on this topic.

    Ms. Sheila Fraser: In any case, I think that it would be a relevant question. I also think that everything will depend on the consultation process that will be held within the context of this project.

    Mr. Paul Crête: Can the Department of Finance tell us how this process will ensure the transparency required under the Act?

[English]

    Ms. Susan Peterson: Yes, certainly.

    As I said in my opening remarks, we are now in the midst of our internal work on what sorts of options exist for a better rate-setting process. The goal of course is to have the new rate-setting process in place for the setting of the rate in 2004.

    No decisions have been made with respect to exactly how the public consultations will take place, but you can be assured that there'll be opportunities for all stakeholders to make their views known--and indeed parliamentary committees. The finance committee has registered its interest in this process, as has the human resources committee.

[Translation]

    Mr. Paul Crête: What is the situation for 2002-2003? If in 2002-2003, the rate is set without knowing what's going on, in 2004 you will come back and tell us that we can no longer use past data. What is the mechanism's transparency, currently, for 2002-2003?

º  (1645)  

[English]

    Ms. Susan Peterson: Well, I can tell what sorts of considerations the Minister of Finance and the Minister of Human Resources Development had in mind when they made the recommendation to the Governor in Council, but you're right that it is not a transparent process. This is why the act is suspended only for two years while it is very important the review takes place.

    No one contemplates that it would be appropriate for the Governor in Council to go on setting rates indefinitely without any provisions in the act passed by Parliament to say on what basis they should be set. That's absolutely right. This is why the suspension is in place for two years, with the goal of getting in place a new rate-setting process that has been well discussed.

    The Chair: Thank you very much, Monsieur Crête.

    I have a couple of questions for Mr. Bédard. You mentioned that at 10% unemployment, revenue and expenditures would be balanced; the fund would no longer grow, but it wouldn't diminish. You also said that every 1% of unemployment above 10% would cost the fund about $1.2 billion, a billion dollars in expenditures and $200,000 in forgone revenue.

    Now, if I do my math correctly, the fund as it currently stands could withstand 20% unemployment for three years, or 15% unemployment for six years, and still have sufficient funds in it. Would you agree with this statement?

    Mr. Michel Y. Bédard: I won't challenge your calculations.

    The Chair: Ms. Peterson, do you think it's appropriate to have a balance in the EI fund of such a magnitude that it could withstand 20% unemployment for three years? Do you anticipate a recession of this magnitude?

    Ms. Susan Peterson: Mr. Chairman, the government has approved the decisions of the commission over the past seven years to steadily bring down rates, and it has done so--

    The Chair: But that wasn't my question.

    Ms. Susan Peterson: I know.

    Mr. Mac Harb (Ottawa Centre, Lib.): She's giving you the right answer. The question was wrong.

    Ms. Susan Peterson: I was going on to say that I think it's important that the government has also made statements in a number of places, saying it wants to see the rate set so that in future it just covers the cost of the EI program. I'd like to comment on this for a minute. It is a very significant statement.

    The Chair: You're going to keep the $40 billion and just go with a break-even proposition.

    Ms. Susan Peterson: In a sense, this is what the House of Commons finance committee says, that the rate should be set looking forward. If you look back to the past you have this illusory cumulative surplus, which is nowhere--except on a piece of paper. Therefore, this issue is one of the things that have to be grappled with.

    The really, really tough policy issue that has to be grappled with is the trade-off, if you wish, or the balance between the relative stability of EI rates and our making sure there is enough money to cover the cost of the program, given that we know the economy doesn't go chugging along; it slows down sometimes too.

    The Chair: I know.

    Ms. Susan Peterson: Can I add one thing?

    The Chair: Okay, very quickly.

    Ms. Susan Peterson: Mr. Martin was asking earlier about how big the deficits have been in the past. I mentioned that in 1991 and 1993 the deficits were $7 billion or $8 billion. They weren't enormously higher at that time because the government, faced with this incredible impact on the unemployment insurance program in the economic downturn, bumped up the rates from $1.95 to $3.07. If it hadn't done that, the deficits would have been enormous--huge. And in economic terms, the next time we're hit with a huge downturn, it doesn't want to have to raise rates.

    So there's always a trade-off between thinking you have enough to cover the cost of a program when big things like that can happen, and trying to not have rates jump all over the place.

    The Chair: Okay, I have two simple follow-up questions.

    Is it the department's policy that if we do go into a serious economic decline with a significant increase in the unemployment rate, there will not be an increase in the EI premium rate?

    Second, have you or Mr. Bédard done a calculation of how many jobs have been lost to the economy by virtue of the fact that the EI rate has been at a surplus of $6 billion or $7 billion a year, and therefore in essence can be construed to be over-taxation? You may disagree with our terminology, but you've been collecting $6 billion or $8 billion more than you're spending. How many jobs has this cost the economy?

    Ms. Susan Peterson: I would like to make two comments.

    I'm not an economist, but every economist I know agrees on at least one thing, and that is that when the economy is in a downturn, the last thing you really want to have to do is to take up the costs of hiring people or keeping people. So you don't want your EI premium rates going up significantly in a downturn.

    The Chair: Is that the policy?

    Ms. Susan Peterson: I'm not saying it's the policy, but those are the sorts of considerations that will be very much in the forefront of the rate review, the review of how one should set rates. You want to avoid things like that.

    I'm going to ask Mr. DeVries to comment on your second question, the one about the economic analysis of what would have happened if rates had been lower--although they've been coming steadily down. My one comment would be that I think you're assuming that if EI rates had been lower, all of the other tax reductions the government has put in place could have gone ahead nonetheless, and I don't think you can assume that.

º  (1650)  

    The Chair: I see. Okay, we'll not assume it.

    Mr. Harb, please.

    Mr. Mac Harb: This is a very important debate, Mr. Chair. Now that they have heard what the Auditor General, the Department of Finance, and Mr. McWhinnie from the commission have told us, it is my hope that this is the last time we will hear any interventions in the House or in committees from my colleagues on the opposite side about this supposedly magical surplus account sitting out there with a huge sum of money in it that we have to turn back to the people.

     It's quite evident from what we have seen today that the government is on the right track in trying to review the process of how those rates are set. Also, I think it's extremely sensible to see the government moving ahead with some prudence. It's very refreshing to hear both the Auditor General as well as Ms. Peterson agreeing on the fact that there's no such thing as a magical accountant. I guess my question--

    The Chair: No magical accountants? Come on, Mr. Harb.

    Mr. Mac Harb: There's no magical account per se.

    The Chair: Oh, “account”.

    Mr. Mac Harb: My question is that my colleague, Mr. Crête, raised a point.... And I hope this doesn't give the impression that the department will not be involved with the Auditor General; it's my understanding, as Ms. Peterson has clearly stated, the Auditor General will be as involved as everyone else--

[Translation]

    Mr. Paul Crête: I hope that we will strike enough fear...

[English]

    Mr. Mac Harb: I wanted to confirm with Ms. Peterson, as well as Mr. McWhinnie, that the Auditor General will be more than welcome to be a full participant in this whole debate. Would that be the proper statement to say?

    Ms. Susan Peterson: I think the proper answer to that is that the Auditor General can play whatever role she believes is appropriate.

    Mr. Mac Harb: And I think that would be your answer, Monsieur Crête.

    Some hon. members: Oh, oh!

    The Chair: Okay, Mr. Shepherd, please.

    Mr. Alex Shepherd (Durham, Lib.): I'll go back to the Auditor General, just to clarify something I should know and maybe don't know. Do the expenditures that can go out of the EI account include manpower training, grants and contributions for creating new employment opportunities, and so forth?

    Ms. Sheila Fraser: Yes, Mr. Chair, that's right. There's not only the payment of benefits, but other payments that go out. The labour market agreements, for instance, are expenditures that can be charged to that account.

    Mr. Alex Shepherd: So there are a number of things HRDC may do to try to create opportunities for employment that in fact are not charged to the account.

    Ms. Sheila Fraser: Possibly.

    Mr. Alex Shepherd: Going back to Mr. Bédard, I'd be interested in one thing: what impact has the new regime of one-year maternity leave had on the EI fund? It's a futuristic thing, so you must have a quantitative analysis of what it's costing.

    Mr. Michel Y. Bédard: It's costing about a billion dollars a year to extend parental benefits.

    Mr. Alex Shepherd: So when you had the number “between $10 billion and $15 billion”, had you taken that into account?

º  (1655)  

    Mr. Michel Y. Bédard: No, the number of $10 billion to $15 billion really refers to variations in EI regular benefits, because you build a reserve against fluctuations in unemployment. The cost of maternity or sickness benefits is fairly stable. You don't really need a reserve; it's quite predictable. You might need a small reserve for fluctuations in those types of benefits, but it's really the volatile types of benefits--regular benefits.

    Mr. Alex Shepherd: Are you saying that the fact the rates didn't come down as fast as maybe they could have is offset by the fact that the maternity leave was a new policy agenda?

    Mr. Michel Y. Bédard: Well, of course the cost of extending parental benefits, as well as Bill C-2's repeal of the intensity rule and benefit repayment, etc.--those costs had to be accounted for and are charged to the EI account. Together they amount to about 20 cents' worth on the EI premiums--about $1.5 billion, or close to 20 cents.

    Mr. Alex Shepherd: Just out of interest--I know it's your business--how do you calculate that? Do you take the number of labour force participants of child-bearing age and work some analysis about how many people will take advantage of it?

    Mr. Michel Y. Bédard: We essentially extrapolate from current trends and from expected growth in the labour force and growth in average wages and thus in average benefits. It's essentially extrapolating from the current base. Of course when there are program amendments we have to rely on cost simulations, which are provided by our strategic policy branch.

    Mr. Alex Shepherd: But once again, you do things based on the current legislative format. You have no idea whether the government may bring in legislation to improve benefits in the future; therefore they're not part of your actuarial calculation.

    Mr. Michel Y. Bédard: No.

    Mr. Alex Shepherd: Also, we talked about the grants and payments benefits--other kinds of positive things the government has tried to do to stimulate employment. They're not part of your actuarial calculation, are they?

    Mr. Michel Y. Bédard: The part II benefits, those that are charged to the EI account, are part of a--

    Mr. Alex Shepherd: But there must be some significant grey area. I'm sure some of the people at HRDC would say a lot of their programs are oriented to creating new employment opportunities. But they can't be charged to the EI account, correct?

    Mr. Michel Y. Bédard: Those that are not charged to the EI account, of course, are not accounted for in our forecast. I mean, they are not part of the EI account, so they're not covered by EI premiums.

     There are very strict rules delimiting what is charged to the EI account under part II and what is charged to general revenues, or the consolidated revenue fund, without going through the EI account. Those are two very different types of programs.

    Mr. Alex Shepherd: But presumably, Ms. Peterson, there would be an argument there to say that if you were going to change the legislative format, you should maybe change the expenditure allocation from the EI account to allow for other sorts of employment programs that are directly related to employing people.

    The Vice-Chair (Mr. Mac Harb (Ottawa Centre, Lib.)): Maybe you could give a brief answer to Mr. Shepherd, and then--

    Ms. Susan Peterson: I think Ms. Vreeswijk should take the question.

    Ms. Wilma Vreeswijk: Could your repeat the question, please? Are you asking what--

    Mr. Alex Shepherd: I was posing a question from a policy point of view as to whether in fact we should be rethinking some of the programs that are undertaken by HRDC that are directed toward creating employment opportunities with enhancing skills and so forth, and that are not directly charged to the EI account, in this process of review that the finance committee is undertaking.

    Ms. Wilma Vreeswijk: I can't comment on whether we should be rethinking that, but I can comment that there are programs that support skill development training that are funded outside the EI account. You must be aware of the youth employment strategy that also was established, where there is $455 million spent out of consolidated revenue to support and assist young Canadians in making the transition to the labour market and in making the overall school-to-work transition.

    So there are programs in place that are funded out of consolidated revenue, like the youth employment strategy, that are outside of the act.

    The Vice-Chair (Mr. Mac Harb): Mr. Martin and then Mr. Crête.

    Mr. Pat Martin: Thank you, Mr. Chair.

    I'd like to start by saying that so far we've heard the surplus talked about as if it was a notion, as if it was illusionary, and then the chair--when he was still allowed to have an opinion, when he was not in the chair--called it a magical, mythical account. There was nothing illusionary about that money when it came out of working people's pockets or employers' pockets. It was a hard, cold fact and it was a catch.

    Also, the federal government stopped paying into the EI account. The federal government doesn't contribute anything to it, so the surplus isn't illusional. We believe it has been used to offset tax cuts, to offset other spending initiatives. So I think there's going to be something, that the $40 billion is going to disappear somehow into the sands of time with this new rate-setting formula, if it comes in.

    The point I really wanted to make is that when it comes to rates versus the eligibility issue, I used to run the carpenters union, and I've never had an unemployed carpenter come into my office and demand a five cent per $100 reduction in rates, but I've had hundreds of them come in and say they don't have enough hours to qualify under these new rules, or that the paycheque of $430 a week they used to get when they were unemployed is now only $150 week because of the new divisor rule, the way they calculate the benefits over the number of weeks you've worked.

    Because I have so little time, the question is to John about the apprentices you mentioned, that now an apprentice will only have to pay a two-week waiting period when they're in their training component. Why are they paying anything? Why is an apprentice considered unemployed when they're doing their apprenticeship component in school, when they have an attachment to the workforce? The very definition of an apprentice is that you're not unemployed when you're going to school; you're still an employee of that employer. That's the beauty of it. So why are they still penalized with a two-week waiting period, and what has that cost? Perhaps the actuary could give us the dollar figure on this new rule of charging apprentices as if they're unemployed for a waiting period.

»  (1700)  

    Mr. John McWhinnie: First of all, it's not a new rule.

    Mr. Pat Martin: It's 1996.

    Mr. John McWhinnie: No, but the issue is, and always has been, that apprentices.... It's an unemployment of choice, if you will. It's the way they get access to unemployment benefits while they're taking their training.

    The issue of the two-week waiting period is something that is part of the act. It's a fundamental shared risk, like a deductible with any insurance program, and that's part of the act. The issue with--

    Mr. Pat Martin: It never used to be, though. It was under the other part of the designated uses, and there was no waiting period.

    Mr. John McWhinnie: In the past there was always a waiting period. The two weeks were covered by training costs out of the consolidated revenue fund, not out of the EI Act. So in 1996, when that changed and that transferred--

    Mr. Pat Martin: So there was no interruption, then, in income maintenance.

    Mr. John McWhinnie: Exactly. In terms of labour market development agreements, the provinces took over the administration of part II, and that's where that issue arose.

    I think the issue people complained about a lot is that every year you went on training, you had to serve a new two-week waiting period. So what has been enhanced is that you only serve the waiting period once during your whole training, whether it's four years or whatever.

    Mr. Pat Martin: What is the cost associated with that change? Do you have anything listed in the actuarials?

    Ms. Wilma Vreeswijk: I can respond to that question. I believe the costs are in the order of about $30 million for the apprenticeship element.

    Mr. Pat Martin: So there's a surplus of $750 million a month, and that detail costs about $30 million a year.

    Ms. Wilma Vreeswijk: That's right.

    Mr. Pat Martin: So with one day's surplus of the account, you could eradicate the two-week waiting period for apprentices.

    Ms. Wilma Vreeswijk: I don't want to comment on the math, but I would like to comment on your question relating to the divisor. The divisor was established to try to promote workforce attachment and work effort so that--

    Mr. Pat Martin: We believe it was designed to bring down the benefits paid per week.

    Ms. Wilma Vreeswijk: It does allow individuals to maximize their benefits in terms of over and above the entrance requirement. They can maximize their benefits if they worked two weeks over the minimum entrance requirement. What we do know is that 98% of claimants are working those extra weeks so that they are able to maximize their benefits and avoid the divisor.

    Mr. Pat Martin: But dead weeks are factored in the calculation. If in the 26 weeks prior to filing the claim you worked for 15 weeks and didn't work for nine, those dead weeks are averaged in the whole 26-week period. So it drags down your benefits. Is that accurate?

    Ms. Wilma Vreeswijk: I don't think so. If I understand you correctly, I believe you're referring to the small weeks.

    Mr. Pat Martin: No, the dead weeks. They become averaged into the benefits.

[Translation]

    The Vice-Chair (Mr. Mac Harb): Mr. Crête.

    Mr. Paul Crête: I have three short questions, Ms. Fraser.

    When you say that the intent of the Act has not been complied with, are you referring to the 36 billion dollar surplus? If we keep 15 as a reserve, we can't say what the remaining 21 billion dollars will be used for.

    I would like to tell Mr. Harb that this is in fact the money that has been used to pay government expenditures and the debt, and we did have not contributed because we don't pay EI premiums. As long as this situation exists, I believe that we can only be embarrassed by the situation.

    I would like to know, Ms. Fraser, if this is what you means when you say that the Commission has not complied with the Act.

    Ms. Sheila Fraser: We believe that the intent of the Act was to ensure that over the period of an economic cycle, the account would break even, and that within that economic cycle, revenues would simply cover expenses. We are concerned with the growing surplus. We question whether there is compliance with the intent of the Act.

»  (1705)  

    Mr. Paul Crête: With the two year suspension, aren't we respecting the Act less and less, because we will no longer have data to know whether or not we have had a complete economic cycle?

    Ms. Sheila Fraser: We can perhaps presume. With data from the past that will be available or with the data that would have been prepared, I think that an analysis could be nevertheless be conducted.

    Mr. Paul Crête: I have a question for Ms. Peterson. Unfortunately, perhaps the Ministers would be in a better position to respond, but...Why have you taken into consideration the Finance Committee's report on the issue of the two-year suspension, and not taken into account the unanimous report from the Committee on Human Resources Development on the modifications that should be made to the EI plan? What justified following up on one report, and not doing so for the other, unanimous, report?

[English]

    Ms. Susan Peterson: I'm not quite sure which part of the human resources committee report you're referring to.

[Translation]

    Mr. Paul Crête: I am speaking about the June 1st report that the government shelved, which has 17 major modifications to the EI plan.

[English]

    Ms. Susan Peterson: The review we're working toward now is simply on the rate-setting process.

    Frankly, the benefit side of the unemployment insurance program is the responsibility of the Minister of Human Resources.

[Translation]

    Mr. Paul Crête: That means that the Minister of Finance is responsible for revenues, but the Minister of Human Resources Development is responsible for expenditures. I understand why the six or seven billion dollars in annual surplus always goes to other things than the EI plan.

[English]

    Ms. Susan Peterson: No, I wouldn't jump to any conclusions. For instance, let me make an analogy to the Canada Pension Plan. If you look at the Canada Pension Plan Act, the Minister of Finance is responsible for the financing provisions and the Minister of Human Resources is responsible for the benefit provisions; they're the two named ministers. I'm not attempting to make anything of it. If the human resources committee is making recommendations with respect to benefits, then it's the responsibility of the Minister of Human Resources to reply to the report.

[Translation]

    Mr. Paul Crête: I have one small last question for Ms. Vreeswijk. I would like to know what percentage of unemployed individuals actually receive benefits.

[English]

    Ms. Wilma Vreeswijk: I'm happy to respond to that question.

    In terms of a review of coverage within the EI Commission report--as you know, it's tabled every year--there are a number of different measures reviewed. The review that is undertaken--that is, the EI coverage survey--takes a look at what proportion of the unemployed are eligible for EI, and we have supported in the past--

[Translation]

    Mr. Paul Crête: No, I am not talking about the percentage of eligible people. What is the percentage of unemployed individuals receiving regular benefits? Between 1 and 100 percent, what is the percentage.

[English]

    Ms. Wilma Vreeswijk: As I was about to say, the report and the commission reports that 80% of unemployed--those who are in paid employment who are unemployed--are--

[Translation]

    Mr. Paul Crête: No. My question, Ms. Vreeswijk, is not that. Are you telling me that 80 percent of the currently unemployed, and not those who are receiving unemployment insurance, are receiving benefits?

[English]

    Ms. Wilma Vreeswijk: What I am saying is that within.... EI is a targeted program; it is targeted to those in paid employment--

[Translation]

    Mr. Paul Crête: No, I'm not talking...

    The Vice-Chair (Mr. Mac Harb): Mr. Crête, please let her answer the question. I will allow you to ask another question, but please let her answer the previous question.

[English]

    Ms. Wilma Vreeswijk: As I said, the commission does review coverage and in particular the coverage survey of those who are unemployed. Of those who are unemployed.... And as you know, EI is a targeted program to those who are in paid employment; it does not include the self-employed. Of those who are unemployed who have been in paid employment, 80% would be eligible for EI.

[Translation]

    The Vice-Chair (Mr. Mac Harb): Mr. Crête. Do you have another question?

    Mr. Paul Crête: I will simply ask my question one last time. What percentage of the unemployed, unemployed individuals, is actually receiving employment insurance? For example, with youth, we know that it is one in four. The overall statistic is 40 percent. What I want to verify with you, is not the number of individuals who would be eligible if they became unemployed, it is the number of people receiving benefits among all the unemployed.

»  (1710)  

[English]

    Ms. Wilma Vreeswijk: As I said, for those who are unemployed, 80% are eligible. I believe you are including, however, in your calculation of 40% those who may not have worked, those who are in school, those who are self-employed.

[Translation]

    Mr. Paul Crête: No, I am talking about those who are unemployed, who are looking for work.

[English]

    Ms. Wilma Vreeswijk: Of that, as reported in the monitoring and assessment report, it is 80% who are eligible.

[Translation]

    The Vice-Chair (Mr. Mac Harb): Mr. Bertrand.

    Mr. Robert Bertrand (Pontiac--Gatineau--Labelle, Lib.): Thank you very much, Mr. Chairman.

    I would like to come back to what Mr. McWhinnie wrote in his briefing notes. When you say that EI is in constant evolution, you talk about the various programs that are offered by your department, including the increase in parental benefits. Mr. Bédard informed us earlier that this program cost approximately one billion dollars per year. I will quickly read to you the other programs: national implementation of Small Weeks; repeal of the intensity rule; modification of the clawback provisions, and others. What have these modifications cost the department?

[English]

    Mr. John McWhinnie: My colleagues probably have the exact numbers, but in general, the one I mentioned is about $1.5 billion.

[Translation]

    Mr. Robert Bertrand: They cost 1.5 billion dollars.

[English]

    Ms. Wilma Vreeswijk: To try to bring clarification, the enhancements to parental benefits--not the parental benefits as a whole, because there was a parental benefit previously, just the recent enhancements of accessibility, flexibility, and duration--were estimated to be $1 billion. On the changes that were made under Bill C-2, the estimate of costs for that was $500 million. There were also changes--I'm sorry, I don't recall the numbers--in terms of small weeks and the recent changes to the budget, on top of that.

[Translation]

    Mr. Robert Bertrand: Yes, but if I understand what you have said, Madam, we are talking about a lot more than one billion dollars.

    I have another question for Mr. McWhinnie. Is the summer student program funded under the EI program?

[English]

    Mr. John McWhinnie: It's from the consolidated revenue fund, not the EI program.

    Mr. Robert Bertrand: Okay.

[Translation]

    One last question for Ms. Peterson. I have always been told that when there is a surplus at the end of the fiscal year, it is used to reduce the deficit or to lower the debt. Is this indeed what the surplus is used for?

[English]

    Ms. Susan Peterson: Mr. Chair, the great expert on these things, Mr. DeVries, should take that question.

    Mr. Peter DeVries: You're quite right. At the end of the year, if there were a surplus, that surplus would automatically go to paying down the net public debt.

[Translation]

    Mr. Robert Bertrand: I was asking the question because everyone is talking about a surplus of 40 billion dollars. This surplus is surely on paper, because if there were one, it would have already been applied to the debt.

    I would like to make sure that I understand.

[English]

    Mr. Peter DeVries: Whatever the surplus is at the end of the year, as audited by the Auditor General, it automatically goes to reducing the net public debt from the level it was the year before. So last year we recorded a surplus of $17.1 billion overall, which included the excess of revenues over program costs from the EI account. The overall net public debt of the government, which was about $550 billion, was then reduced by the $17.1 billion.

[Translation]

    Mr. Robert Bertrand: My last question is for Ms. Fraser. All the questions we have heard today dealt with a surplus that is not quantifiable.

»  (1715)  

     I would like to come back to what you state in your report. You stated that in 1986--you weren't there at the time--, the Auditor General had requested that the EI account be incorporated into the consolidated revenue fund. Would it have been better to keep it separate? At least, we would have been able to see how much money is in the account.

    Ms. Sheila Fraser: At the time, the EI account was separate. I believe that the decision to amalgamate it with the government budget was an appropriate accounting decision because it was in fact a government program and the government was controlling the decisions on rate setting and benefits. For all government programs to appear in the financial statements, therefore, it was important to include the EI program.

    For example, the Canada Housing and Mortgage Corporation is part of the consolidated accounts, just as many other crown corporations are contained in the consolidated financial statements. This doesn't mean that the funds from these corporations go into the consolidated revenue fund. To properly account for government activities, all government programs and crown corporations must be included.

    I would like to come back to the issue of the net debt because sometimes there is confusion between net debt and debt. In a company, there are retained earnings, and there is debt. In the government's financial statements, net debt is the difference between assets and all liabilities. Debt is another figure entirely. So when we say that we have reduced the net debt, it's simply the cumulative accounting of all surpluses and deficits from the beginning. It doesn't mean that there has been an actual payment of debt.

    To complicate things even further, I would say that we are talking about a net debt of 550 billion dollars in the Public Accounts. If you carefully look at these accounts, as of March 31, 2001, you will see that there is a positive figure of 36 billion dollars that corresponds to the surplus in the EI account, with other small amounts coming from specific and well identified programs. The government's net debt, the general net debt, is 590 billion dollars. There is a note in the financial statements on this. There is a fund that constitutes somewhat of a reserve for the EI account.

    Mr. Robert Bertrand: Thank you, Mr. Chairman.

    Now I'm more confused than ever.

    The Vice-Chair (Mr. Mac Harb): There you are.

    Ms. Skelton.

[English]

    Ms. Carol Skelton: Mr. DeVries, how much of the EI surplus went to pay down the national debt in the last fiscal year?

    Mr. Peter DeVries: In the last fiscal year, we recorded an overall budgetary surplus of $17.1 billion. Included in that $17.1 billion was, I believe, around $8 billion--or seven-odd billion dollars--surplus in the overall EI account, where EI premiums exceeded the benefits as well as the administrative costs. That would be part and parcel of that $17.1 billion.

    Ms. Carol Skelton: Okay.

    This is to the chief actuary of the EI fund. Could you tell us what you expect the EI surplus to be this year? The government forecasted about $43 billion, but has that changed?

    Mr. Michel Y. Bédard: The department will issue its official release for the next fiscal year in a few days, so I think one should wait for that publication. But it will definitely be less than last year, of course, given the ongoing recession.

[Translation]

    The Vice-Chair (Mr. Mac Harb): Mr. Crête.

    Mr. Paul Crête: Ms. Fraser, you say that the Commission has not complied with the intent of the Act. Does this mean that there wasn't compliance with the Act because the billions of dollars are currently funding general government operations and paying down the debt, and are not being put back into the account within a given economic cycle?

»  (1720)  

    Ms. Sheila Fraser: As I said earlier, we are questioning whether the Commission has complied with the intent of the Act, because we have found that there is an accumulated surplus that is over the amount that was deemed sufficient. The fact that the account lends money to other operations does not overly worry me; there is interest being paid on it and other expenses have not been made against it. If expenses had been made against the account, which would contravene the Act, I would have more of a problem with this, but that's not the case.

    Mr. Paul Crête: If the money is not put back into the account...Currently it is treated as an account debit. Theoretically, the government pays interest on the account, but up to now, the government has not put this money back into the EI system.

    Ms. Sheila Fraser: The Act does not provide for a separate account. The funds go through the general account. I am not worried by the fact that there is not a separate account.

    Mr. Paul Crête: OK. When you say that the Commission has not complied with the intent of the Act, it's in relation to...

    Ms. Sheila Fraser: It is in relation to the setting of the rates.

    Mr. Paul Crête: Setting the premium rate, right?

    Ms. Sheila Fraser: Yes.

    Mr. Paul Crête: OK. Thank you.

    

    

    

[English]

    The Vice-Chair (Mr. Mac Harb): This is very useful. I see no further questions. I just have a very small comment and a question.

    Now you are undertaking the study, I guess there will be a number of partners involved in the overall input into it. Quite obviously, because of the changes that have taken place recently in terms of the qualification period, in terms of a number of factors, you're going to find yourself in a situation where you may have to revisit some of the charges that you would have to charge now to the EI account that you were not charging before.

    Do you foresee that it is going to be the case that you would have to have some sort of amendment to the Employment Insurance Act, or can that be done administratively? How are you going to do this at the end of the whole discussion? Are you going to come back with a report that will require an amendment?

    Ms. Susan Peterson: Yes, we certainly anticipate that given that there are certain parts of the act that have been suspended, and in effect the finance committee has suggested that it's not working properly or well or appropriately, that when the rate-setting process is changed, it will require an amendment to the act, yes.

    The Vice-Chair (Mr. Mac Harb): Thank you very much.

    Ms. Fraser, do you have any closing remarks?

    Ms. Sheila Fraser: Thank you, Mr. Chair.

    I would like to reiterate the importance of this program to many Canadians. I think we've seen the interest around the committee room today. We look forward to the review and hope that it will be as open and as transparent a process as possible, and that at the end of the day we will have clarity about how these rates are established.

    The Vice-Chair (Mr. Mac Harb): Thank you very much. I want to also thank our witnesses.

    Mr. Crête, hopefully it's not a question.

[Translation]

    Mr. Paul Crête: No it's not a question.

    Since I am not thoroughly familiar with this committee, I would like to know if it is possible to adopt, unanimously, a motion that would state that the Committee adopts the suggestion being made by the Auditor General, specifically that the Minister of Finance consult the employer and employee groups, as well as the EI Commission and the Chief Actuary of Human Resources and Development Canada, so that adequate parliamentary control can ensure transparency in the process for collecting EI premiums.

    The Vice-Chair (Mr. Mac Harb): Mr. Crête, I would like to be able to discuss this, but unfortunately, we don't have a quorum.

    Mr. Paul Crête: Then we'll have to come back to this at the next meeting. We will have to receive the wording of the motion within the required 48 hour notice.

    The Vice-Chair (Mr. Mac Harb): If I were you, I would send it to the Committee on Finance or the Human Resources Development Committee. However, it's your choice. If you want to give your opinion, I am sure that the Chairman...

    Mr. Paul Crête: It's a good idea to send it to the three committees.

    The Vice-Chair (Mr. Mac Harb): It's your decision.

    We will suspend proceedings for this committee until 15:30 hours, Thursday, March 21, 2002.

    The meeting is adjourned.