Earlier this month, the Department of Finance announced the launch of Employment Insurance (EI) premium rate-setting consultations.

The government will be accepting suggestions from individuals and businesses on how the EI rate setting mechanism can be improved while also:

• Ensuring the program breaks-even over time;
• Avoiding large cumulative surpluses and deficits; and
• Maintaining transparency in the rate setting process.

The consultations, which have a closing date of November 30, 2011, are open to anybody who is interested in participating and can be submitted via email or regular post.

"With these consultations, we are aiming to ensure greater premium stability," says Parliamentary Secretary Shelly Glover. "This is in keeping with the spirit of the Next Phase of Canada's Economic Action Plan and its measures to encourage business investment and growth, including tax reduction, cuts to red tape and a new one-time EI Hiring Credit for Small Business."

From surplus to deficit

There has been a fair amount of controversy surrounding how EI premiums have been used over the last decade. Dan Kelly, Senior VP of Legislative Affairs for the Canadian Federation of Independent Business, notes that the current woes with EI are due to the way premiums have been handled in the past.

"Over the course of the last decade, EI rates have been set at a much higher level than is necessary to pay for EI benefits, and so there had been a giant surplus - to the tune of $57 billion - accumulate over a decade," says Kelly.

"The problem with that is that all that money was never put into a separate fund. Basically, all of the surplus dollars from EI were just pulled into general government revenue and spent."

When the government eventually did create a separate account for EI in 2006, they only put 2 of the $57 billion that had been taken, and the fund immediately went into deficit due to the recession.

According to Kelly, the way the EI surplus was handled was nothing short of a hidden tax.

"The name of our campaign in 2010 was 'stop the tax grab.' The fund wouldn't have been in deficit had the government not taken all of the surpluses out of the account," he says. "Employees and employers are being asked to pay for deficits, meanwhile, when the fund was in surplus these dollars were just bled off into general government revenue."

EI premium rate increases

The government had previously frozen EI rates in 2009 and 2010, but they have been unfrozen and are slated to increase over the next several years. In 2011, EI rates were increased by 5 cents per $100 dollars for employees and 7 cents per $100 for employers, an increase smaller than expected.

These numbers will double in 2012, 2013 and 2014, with EI rates set to increase by 10 cents per $100 for employees and 14 cents per $100 for employers in each of these years. This means that by 2014, the EI rates will increase from what they are currently at by 30 cents and 42 cents per $100 for employees and employers respectively.

"When you add up the increases, and that's of course on top of the 5 and 7 per cent increase that happened this year, then it becomes a fairly significant tax hike on every job [and for every employer] in Canada," says Kelly.

"A glimmer of hope"

Though he believes that there is still a ton of work needed to improve EI, Kelly thinks that the announcement of the consultations and other programs are a "glimmer of hope."

"The Government has taken a couple of good steps," he says. "At the end of last year they announced a smaller than planned increase and they announced the rate review. Second, they announced in the EI hiring credit for 2011."

The EI hiring credit is a program created to provide a monetary incentive for small businesses to continue to create jobs.

"Essentially what it does is for smaller firms, if their EI bill went up for any reason, they would get a credit of the first $1000 of increase," says Kelly. He also notes that though a good step, the EI hiring credit is only available this year and will be discontinued in 2012.

But by and large, the EI premium rate setting consultations seem to be a step in the right direction and they may very well generate some progressive and practical ideas.

"We are optimistic that there may be some positive recommendations coming out of this EI rate setting review that is going on right now," says Kelly. "We're hoping that after this review we might actually see some recommendations that will help [improve the system]."

Written submissions to the consultation are invited and should be sent by November 30, 2011 to:

Email: ei-consultations-ae@fin.gc.ca.

Post: Chris Forbes
         Federal-Provincial Relations and Social Policy Branch
         Department of Finance
         L'Esplanade Laurier 
         15th Floor, East Tower
         140 O'Connor Street
         Ottawa, Canada K1A 0G5

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