DISSENTING OPINION

Conservative Party of Canada

Peter Van Loan, M.P., York-Simcoe

CPC HRSDC Critic

February 09, 2005

Introduction

The Conservative Party of Canada (CPC) wishes to submit a dissenting report to the Human Resources, Skills Development, Social Development and the Status of Persons with Disabilities (HUMA) report entitled “Restoring Financial Governance and Accessibility in the Employment Insurance Program”.

The mandate of the sub-committee was to review the matter of the surplus that has accumulated over the past 10 years and currently stands at $46 billion.  The focus of attention at this time must be to stop the government’s decade-long practice of setting premium rates well above the necessary level, and the resultant diversion of the surplus to the government’s general revenues in direct contravention of the spirit of the Employment Insurance Act.

The recommendations put forward in the report go well beyond those relating to the surplus issue and make substantial changes to the program which is an entirely separate matter.

Although this is a dissenting report, we recognize the sub-committee’s hard work in completing this report and add that the intent of this report is to complement the recommendations made in the report rather than oppose it in its entirety.

The Notional EI Surplus

The Conservative Party believes that the government needs to be held accountable for the cumulative balance in the Employment Insurance account which continues to grow year after year, despite repeated objections by the Auditor General that it violates the Employment Insurance Act.  Through the continued suspension of a fair and transparent rate setting process, the government continues to allow this surplus to accumulate. 

We believe that the slate must not be wiped clean.  It is important to all contributors that the government be held accountable.  The “notional surplus” (now $46 billion) has been tracked for a reason – that is to recognize what contributors have paid into Employment Insurance. 

The Conservative Party believes that this surplus is the property of those who have made the contributions to Employment Insurance – the workers and employers of Canada. 

We believe that any measures to return these funds should be made in an open, fair and transparent means to those who make the contributions.  Should the government agree to return the surplus to the EI Account, and find the funds to do so, then the surplus should be returned to BOTH employees and employers in recognition of both shares of the over-payment.  This must be done in an open and transparent fashion.

The Conservative Party supports Recommendations 1-8 of the sub-committee report that would establish a regime for a genuinely separate fund, with a reserve, that will not over-tax contributors, and will put an end to the inappropriate accumulation of surpluses, contrary to the Employment Insurance Act.

Any excess of the surplus, beyond that required on an actuary basis for a reserve, should be returned to Canadian workers and employers, over time, through an annual rebate, reflected in a reduced premium rate.

It is at this point where the Conservative Party parts ways with the Liberal, Bloc and NDP members of the Committee.  While all Parties were in agreement that the surplus should be returned to a separate EI account it is how this money will be spent that we disagree.  The three other parties believe that the way to deal with the repatriated surplus is to spend it on program enhancements.  We believe that this money should be returned to the contributors.

CPC Recommendation – should the government determine to repatriate the surplus to the EI account then those funds should be redistributed to employers and employees based on their proportionate contributions.

Program Changes must be Self-Sustaining – Not Funded out of Past Surpluses

The vast majority of the recommendations made in the sub-committee report advocate substantial increases in spending.  The rationale is that the funds to cover the proposed increase in spending be drawn from the repatriated ‘notional surplus’ from the EI Account.  We fundamentally disagree with this position from a number of perspectives.

1)	The EI program must be designed to be sustainable on a go-forward basis.

2)	We must ensure that the new structure of the fund and its rate-setting mechanism actually works before expanding the program.

3)	Any program changes must be properly costed out by HRSDC to determine the long term costs

Any program changes are long term, and should be funded by premiums on a go-forward basis – not out of the previously accumulated surplus.  To use the surplus to fund future program changes is not only inequitable, but invites an expansion of the program that will, by definition, be unsustainable in the long term, once the surplus has been exhausted.  A crisis would most certainly result years down the road. 

CPC Recommendation – that any major spending increases not be implemented until the EI Account is operating properly and until they have been properly assessed for their financial implications to the fund.

The Changing Role of the Employer in the EI Program

The recommendations for program changes put forward by the Committee report represent a dramatic and radical collection of new expenditures.  There has been no proper fiscal assessment of the costs of the changes.  To implement wholesale changes to the EI program and incur massive spending increases that will affect workers and employers across the country is short-sighted.  Many of the issues sought to be addressed might be more appropriately handled on a regional basis rather than through radical change to the system.  The sub-committee heard from employer stakeholders that there was little or no consultation with stakeholders on the impact of expansions to the EI program on employers who contribute the larger share of premiums. 

There are very few recommendations in this report which relate directly to the testimony of those witnesses who represent the employer contributors to the program.  Employers have been expected to assume the greater share of premium contributions because it was held that employers have greater control over the decision to hire or lay off an employee so they must bear a greater expense.

However, in recent years special benefits have been extended to workers over which the employer has no control (i.e. parental leave). Yet, the employer continues to assume more of the costs associated with these “social program” elements of EI.  Fairness and equity demand that the balance be restored in this area.

CPC Recommendation – the government should review the premium rate ratio in light of the social program element to the EI programs to ensure that equity and balance are maintained.

Areas of Unanimous Support

There were several other recommendations that were supported unanimously by the Committee and the Conservative Party would like to be on the record as having supported these recommendations.  These recommendations were 17, 18, 20, 21, 26, 27, and 28.  These recommendations were supported because they addressed inequities in the system, made the system function more efficiently or addressed matters of compassion.  They would not result in massive spending increases and would be supportable within the current premium rate.

Support for Program Changes

We must make it clear that the Conservative Party is not opposed to changes to the EI program in principle but rather feel that any changes must be considered only once the program is functioning properly and only after the costs and impacts have been fully considered.  This has not been done at this time.  It is our opinion that it would be disrespectful of taxpayers’ dollars to recommend substantial spending increases without knowing the full impact.

Conclusion

The $46 billion accumulated notional surplus from the Employment Insurance system reflects a deliberate program of overtaxing workers and their employers to divert those monies to fund other government priorities.

This practice is intellectually dishonest, violates the law, has attracted the criticism of the Auditor-General, and is an unfair and regressive tax.  Instead of funding government spending increases out of more progressive income taxes, the use of EI surpluses for that purpose takes proportionately more from the working poor, and small businesses.  As such, it taxes those who can afford it least, shifting the burden from those with the means to do so.

Excessively high payroll taxes represent job-killers, stifling the ability of employers to create new jobs and economic growth.  The best form of employment insurance is the creation of new jobs – something that is harmed by the $46 billion over-taxation through EI premiums over the past decade.

Our priority is to stop this unfair practice that hurts working families and the businesses who have had their money taken by the government, under false pretences.  The theft must stop, and their money must be returned.