HUMA Committee Report

Dissenting Opinion on the Report on the Canada Employment Insurance Financing Board

of the Conservative Government Members of the

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

First and foremost, the Conservative government members of the Standing Committee on Human Resources and the Status of Persons with Disabilities (HUMA) would like to extend their sincere appreciation to all the witnesses who appeared before this committee throughout the course of this study.  Their time and efforts are truly appreciated. While we understand that a few witnesses disagree with certain particulars of the creation of the Canada Employment Insurance Financing Board (CEIFB), it is worth noting that “most of the witnesses who appeared before the Committee indicated that the government’s proposal to strengthen the EI premium rate-setting process was a step in the right direction.”¹ We applaud the Ministers of Finance and Human Resources & Social Development for their excellent work on this file. It is good to see that transparency and accountability are finally being restored to the management of the Employment Insurance Account.

While we appreciate the work done by the committee, and the witnesses who appeared before it, we feel that this study was premature, and distracted our committee from other priorities. As the government members stated during the meeting of April 1, 2008, we feel that the time of the committee could have been better used. A concurrent study of the Canada Employment Insurance Financing Board Act has been taking place in the Standing Committee on Finance (the “Finance Committee”) during their study of Bill C-50, with 7 out of the 16 organizations/individuals who appeared as witnesses before our committee appearing before the Finance Committee as well. In addition, a few of the organizations were regional bodies who appeared alongside their national organization.

We do not agree with any of the recommendations of this report. However, prior to addressing the specifics of these recommendations below, it is important to highlight what took place during the meeting of May 27, 2008 of the Finance Committee. During this meeting, a number of the recommendations in this report were put forward in the form of amendments to Bill C-50, the budget implementation bill that includes the CEIFB legislation. None of these amendments were adopted.  If the opposition parties who support the recommendations in the HUMA report sincerely wanted these changes implemented, they could have done so during this meeting. They did not. It is for this reason that we believe this report to be a “lame duck” report.

It must, however, again be stressed that we sincerely appreciate the time and efforts exerted by the witnesses who appeared before our committee.

Recommendation 1:

It is clear in section 5(2) of the proposed Canada Employment Insurance Financing Board Act (CEIFB Act), that the CEIFB will be responsible for the management of the Employment Insurance Account. More specifically, it states that the CEIFB is not to conduct any business or activity inconsistent with its mandate, including in relation to benefits and other payments made under subsection 77(1) of the Employment Insurance Act.  The proposed legislation also explicitly states that the Board will only be responsible for managing a separate bank account, implementing an improved EI premium rate-setting mechanism and maintaining a cash reserve.  The Government of Canada will continue to have responsibility related to Employment Insurance benefits and program delivery. For this reason, Recommendation 1 is unnecessary, since it has already been addressed specifically in the proposed legislation.

Recommendation 2:

Section 4 of the proposed CEIFB Act specifies the Board’s objects:

• to set the premium rate under section 66 of the EI Act
• to maintain a reserve in accordance with that section
• to manage amounts paid to it under section 77.1 of that Act
• to invest its financial assets with a view to meeting its financial obligations

The CEIFB therefore requires a board of directors who have the necessary skills and expertise to effectively carry out this mandate.  It would be entirely inappropriate – and a dangerous disservice to EI premium payers – to choose directors solely on the basis that they are advocates of particular constituencies. Qualified candidates will be selected following recommendations of a representative Nominating Committee and will be appointed through the Governor-in-Council process.  The Nominating Committee includes the EI Commissioner of Workers and EI Commissioner of Employers. Through this process, business and labour play a role in ensuring the most qualified individuals are selected to manage decision-making on the financing of the EI program.  With representatives of both employees and employers participating in the selection of potential candidates, it is anticipated the interests of premium payers to be given full consideration by the CEIFB Board of Directors.

Recommendation 3:

The proposed CEIFB Act stipulates that the Board must consider certain information in their determination of the premium rate for the following year.  In setting the rate for a given year, the CEIFB will receive information from the Ministers of HRSDC and Finance, among other sources, including the most current forecast values of economic variables that are relevant and the estimated amounts credited to the new Employment Insurance account.  Section 66(2)(g) of the CEIFB Act  provides in setting the rate that the Board can consider "any other information that the Board considers relevant". This provides the Board more flexibility in setting rates than the Chief Actuary or the EI Commission have today. Currently, the EI Commission can only take into account "public" input. It will be up to the CEIFB Board of Directors to decide how to use the information it receives or collects. The CEIFB Board of Directors will be accountable to Parliament via the Minister of HRSDC for ensuring the Board fulfills its mandate, which includes ensuring that program revenues and expenditures break even over time.  The Board will also report publicly on its activities and results.  In light of these facts, we believe this recommendation to be moot.  

Recommendation 4:

The proposed CEIFB will be responsible for:

• implementing an improved EI premium rate-setting mechanism that will ensure EI revenues and expenditures break even over time;
• managing a new bank account, separate from the Government’s general revenues, where any excess EI premiums from a given year will be held and invested until they are used to reduce premium rates in subsequent years; and
• maintaining a $2 billion cash reserve as a contingency fund that will support relative premium rate stability.

To support the CEIFB’s focused mandate, it will be up to the Board of Directors to develop a corporate plan and an operating budget for consideration by the Treasury Board.  The operating budget will include only the businesses and activities of the CEIFB, including investments.  A summary of the Corporate Plan will be laid before Parliament and the budget will also be considered by Parliament as part of the Estimates process.  The additional costs for the new activities and responsibilities of the CEIFB will be incremental to the current EI administration costs. Most, but not all of the activities will be new.  New activities such as managing the separate account and maintaining the reserve will represent incremental costs to the EI Account. These new costs are expected to be more than offset by investment returns not realized under the old system. Given the CEIFB’s focused mandate, and the requirement for Parliament’s approval of any operating budget, amendment of the proposed CEIFB Act as proposed in Recommendation #4 is unnecessary.

Recommendation 5:

It should be noted that a variant of this recommendation – to change the rate-setting reference period to 3 years – was proposed as an amendment to Bill C-50 by Olivia Chow, M.P. in the April 27, 2008 meeting of the Standing Committee on Finance.  This amendment was not passed.  Government members voted against this measure, but the amendment failed due to the abstention of the Liberal members. Our disagreement with this recommendation is based on the fact that given the size of the EI program, and the sensitivity to small changes in economic conditions, forecasting the appropriate premium rate for one year alone has proven to be a challenge. Forecasting this premium rate over a 5-year cycle would be subject to more uncertainty, and the usual prudent approach taken by forecasters would likely result in large surpluses. Setting the rate using a one-year cycle is the most transparent approach and is likely to bring more immediate results to Canadians by providing the right premium rate – just sufficient to cover the costs of benefits provided.

During the study leading to the creation of this report, questions were raised about the amount of the $2 billion reserve. This amount is equivalent to the surplus in the Employment Insurance Account since January 2006.  The return of this surplus in the EI account to Canadian workers, through the creation of this reserve, is something which was never done under the previous government.

The $2 billion cash reserve is being established as a contingency fund that will support relative premium rate stability. This $2 billion amount takes into account different economic scenarios and assessments undertaken in conjunction with the EI Chief Actuary. It was estimated that a cash reserve of this level would be adequate to offset cash shortfalls under the new rate-setting model resulting from a mild recession, such as the one experienced in 2001-02.

In the event of a premium shortfall, the difference would be funded from the reserve in that year, which would be replenished through the rate-setting process in subsequent years.   And in any situation where EI revenues were insufficient to cover EI benefit payments, the Government of Canada would continue to pay EI benefits with funds from the CRF.

It is important to recognize that the $15 billion figure mentioned in 2000 by the former Chief Actuary was characterized as the amount required to avoid raising premium rates throughout a severe economic downturn, similar to that experienced in the 1980s.

This is not a figure that is consistent with the Government’s approach which aims to match program revenues and expenditures each year, nor does the 2000 figure take into account changes to the EI program’s structure, size and clientele, or today’s improved economic conditions.

Recommendation 6:

   Finally, we disagree with the statement in the report that “the legal wording regarding the creation of [the] reserve conveys a sense of choice rather than an obligation”².

In the event of a premium shortfall, Section 80(1) of the EI Act provides for advances to the EI Account from the CRF. The use of "may" allows the Minister of Finance to provide an advance to the EI Account, which would be repaid according to the terms and conditions established by the Minister of Finance.

The use of "shall" would bind the Minister of Finance to only provide the necessary funds in the form of an advance and would limit the ability of the Minister of Finance to make the terms and conditions of repayment as flexible as possible. It is for this reason also that we cannot support Recommendation 6.

Summary:

In summation, while we appreciate the efforts of the committee and the witnesses who appeared before it, we feel that this report was premature, addressed issues which were concurrently being examined by another committee, and distracted the committee from other important work already in progress.  We do, however, look forward to the creation of this new and independent body which will finally ensure that EI premiums are managed in the best interests of Canadian workers and employers.