How to Make $57 Billion Disappear The Canada Employment Insurance Financing Board

The Minister of Finance announced on September 30, 2010 that the government would be limiting the increase in the employment insurance (EI) rate for 2011 to 5 cents (employee rate) rather than the 15 cents “recommended by the Canada Employment Insurance Financing Board (CEIFB)”. In addition, the annual change in future years would be limited to 10 cents rather than the current 15 cents. In the October 2010 “Update of Economic and Fiscal Projections”, the Minister of Finance stated that “the government will also undertake consultations on how the rate-setting mechanism can be further improved to ensure more stable and predictable rates going forward, while ensuring that the EI account is balanced over time”. Although proposed in the 2008 Budget, the CEIFB has only made one recommendation on rates which the government did not accept.

These changes raise the issue as to why the CEIFB was created in the first place. Given the current deficit in the EI Account and the new proposed annual change limit, the only option the CEIFB has is to recommend annual changes of 10 cents for at least the next five years if not longer. Even then, the government can over ride its recommendation if it so desires. So it has no real role in the setting of EI premium rates, given the current legislation, as it has no option but to recommend annual changes of 10 cents. Even if it wanted to, it could not recommend anything lower or higher.

The CEIFB is a Crown corporation, announced in Budget 2008, to make recommendations to the Government on the employment insurance premium rates. The stated objectives of the CEIFB are “to 1) enhance the independence of the premium rate setting and 2) to ensure that employment insurance (EI) premiums are used exclusively for the EI program”. However, the creation of this Crown corporation does neither.

The CEIFB consists of a seven-member Board, appointed by the Government, based on recommendations of an independent nominating committee. Public servants are not eligible for consideration. These Board members may be perceived to be more independent than the previous three-member Commission, as the latter included a government representative. However, the criteria that must be followed in the setting the employment insurance premium rates leaves virtually no room for discretion in either case.

Premium rates will continue to be based on analysis done by the Chief Actuary with the underlining economic assumptions continued to be provided by the Minister of Finance. The Chief Actuary is required to calculate a “break-even” rate for the upcoming year, taking into account projected benefits and administration costs for the upcoming year as well as past deficits/surpluses in the EI Account. The Chief Actuary and associated staff will now be employees of this new Crown corporation rather than of Human Resources and Social Development Canada. However, given the professional designations of these positions, this change should not have any impact on the independence of the analysis and advice provided.

Under the proposed changes announced by the Minister of Finance, EI premium rates are not allowed to increase/decrease by more than 10% per $100 of insurable earnings from any year to the next. The government, through the Governor in Council, can override the rate recommended by the Board if the government considers it to be in the public interest. The government froze EI premium rates for 2009 and 2010 and restricted the increase to 5 cents (employee rate) for 2011. Given the current status of the EI Account, the annual increases in the premium rates will be restricted to increases of 10% for at least another 5 years, if not longer. Clearly, we don’t need a new Corporation to tell us this.

The creation of the CEIFB will not ensure that EI premiums are used exclusively for expenses incurred by the EI program. The EI program will continue to be fully consolidated as part of the Government of Canada’s annual financial statements. Premium revenues will continue to be included as part of the federal government’s budgetary revenues and program expenses, both benefits and administration costs, will continue to be part of the federal government’s total expenses. As a result, the net financial position of the EI program will continue to have a one-to-one impact on the federal government’s budgetary balance. The creation of a new Crown corporation and a separate bank account will not change that. The account will be used solely to provide input into the rate-setting exercise – no more, no less – as was done in the past.

The objectives set out in Budget 2008 to make the rate-setting process truly independent and to ensure that premiums are used exclusively for the EI program are not enhanced through the creation of the CEIFB. To meet these objectives, the Government would have to give up absolute control over the EI program. This would require transferring the EI program to a private sector entity or to share responsibilities with another party, such as the provinces (as is the case with respect to the Canada Pension Plan). However, this would mean giving up control over any EI program enhancements, which the government was not prepared to do.

So why was CEIFB created. The only reason was to get rid of the cumulative surplus in the EI Account, which as of March 31, 2009 stood at $57.2 billion. Although notional in nature, this balance has been an ongoing embarrassment to the government. The creation of the CEIFB effectively wipes out this massive cumulative balance and replaces it with a cash reserve of $2 billion, under the pretense of creating a more independent process. In her Opinion on the 2009-10 condensed financial statements, the Auditor General noted that she would be commenting in more detail on “significant accounting changes to the accounts for the Employment Insurance program”, which she wanted to draw to Parliament’s attention.

There was no debate on this when the legislation that created the CEIFB was approved by Parliament. It is doubtful that the current members of the CEIFB were even aware of this when they were appointed. Hopefully, the House of Commons Public Accounts Committee will be more diligent in its review of the 2009-10 Public Accounts and press the Ministers of Finance and Human Resources and Skills Development Canada on this issue, as well as the directors of the CEIFB as to how they perceive their role in the setting of EI premium rates. There is no rationale for the CEIFB and it should be disbanded at the earliest opportunity.

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