Finance Committee on Nov. 18th, 2013

[Annette Ryan]

That's correct.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you.

I have another point for clarification. There is a lot of discussion on the $57 billion that never existed. I don't think that's a surprise to anybody. That money had gone into general revenue and had been eaten up over the years. The government's position of starting afresh with real principled accounting on a real principled accounting basis is one which I think all employees and employers will understand. It's a good move.

When you look at the rationale for determining EI premium rates based on a seven-year period, where does that come from? What was the basis of that?

[Michael Duffy]

The seven years represents a period long enough to cover the business cycle. At one time the legislation referred to setting the rate so that the EI account would balance over the business cycle. By using seven years, this legislation sets a fixed timeframe. It's a rolling seven years so it doesn't really matter when the business cycle begins or ends, but it's long enough to cover a period of decline and the rebound in the economy.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you.

On the hiring credit for small business, we look at the challenges that small businesses face across the country. In budget 2011 a temporary hiring credit for small businesses of $1,000 per employee was announced, but in the extension in budget 2012.... You're estimating that 560,000 employers will take advantage of this hiring credit for small business, which had been successful in supporting small businesses across Canada. That looks like an increase from 2011, but how much of an increase would it be?

[François Masse]

The most recent numbers we have from 2011 showed 549,925 employers receiving the credit. Preliminary estimates for 2013 are pointing at 560,000.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

It's a small increase.

[François Masse]

It is.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I certainly support the changes to EI, but we're promoting stability and predictability for employers and employees by freezing the rates for three years. After the rate freeze, with the legislation as it's in place now—and you have to consider that we'll leave $660 million in the pockets of employees and employers—we should have a system that's fair, open, transparent, and sustainable.

Say yes, please.

[François Masse]

We agree.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Good. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Keddy.

Mr. Hsu, go ahead, please.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

I want to follow up on something which I think is related to one of Mr. Keddy's questions.

The minister's fiscal update last week mentioned that the EI account is projected to balance in 2015 and will be going to roughly a $5.6 billion surplus by the end of 2016. The fiscal update also projects that the EI rate will fall in 2017 from $1.88 to $1.47.

With that kind of surplus in the EI account by 2016, what's the rationale for freezing EI rates at $1.88 for so long? Could it fall in 2016 instead of waiting all the way until 2017?

[François Masse]

First of all, it's a good point. There's a substantial level of uncertainty in those forecasts, because when we're saying to look two or three years down the road in terms of the total employment situation, it's hard to guess.

That being said, the announcement in September 2013 was to freeze the rate for three years to provide predictability and stability for employers and employees, and they clarified back then that the new mechanism would kickstart in 2017.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Nobody is going to be shocked if.... I mean, it's not a shock to the economy if you decrease it. I realize it's uncertain, but an uncertain decrease in EI premiums is not so scary.

[François Masse]

One point to know, though, is that under the current mechanism, right now the cumulative EI operating account is in deficit. Under the current mechanism whereby it's getting balanced on a yearly basis, the EI rate would actually increase as of next year. By freezing the rate for that period, you actually avoid that increase up to the point where you're getting back into surplus, and then the new mechanism applies.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay.

Thank you, Chair.

[The Chair, Conservative, James Rajotte]

Thank you.

I'm going to take the next round.

Mr. Masse, I do think the question of the account needs to be clarified, because I meet with groups that tell me the government took $57 billion in cash away from employees and employers, that they took that money and they just put it somewhere else. As employees and employers, they want the $57 billion in cash. As has been pointed out by other members, when you have a statement that says there's $57 billion in an account when there's actually no cash in that account, that creates a real problem in terms of perception.

My understanding was that on an annual basis, the nominal surplus, the surplus that was supposed to be in that operating account, was actually used for other expenditure purposes by the government. Therefore, during that whole period of time, there was never a surplus in that account in terms of cash.

[François Masse]

That is correct.

First of all, I will acknowledge that it is confusing. The account was always a notional account; there was no cash balance. It was recommended by the Auditor General back in 1986 that the EI account be consolidated with the accounts of the Government of Canada. However, because of that confusion and other factors, it was decided back in 2010 that retroactive to 2009, the EI account would be closed.

Just to be very, very clear, because that was a notional account as an accounting mechanism, there was indeed, as you said, no cash amount in that account, and when the account was closed, there were no revenues rolled into the general revenue fund. The account was simply closed.

[The Chair, Conservative, James Rajotte]

Okay. From what year was there an actual surplus that then was used for other expenditures? When did that start? You talked about the changes in 2010. When did that actually start?

[François Masse]

That would have been over many years. To be honest, I don't have the breakdown by year right in front of me, but that's something I could forward to the committee, sir.

[The Chair, Conservative, James Rajotte]

Yes, but it was over a period of many years—

[François Masse]

Before that—

[The Chair, Conservative, James Rajotte]

—and the Auditor General made the recommendation, I think in part because of the confusion created by a number like $57 billion which people then attach to. They then say to the government that it should spend that $57 billion, which they believe to be a cash account, on other items, when in fact it's a notional account, as you've said. There's no cash in there.

[François Masse]

That's correct.

[The Chair, Conservative, James Rajotte]

Okay. I just wanted to clarify that. I appreciate your clarification.

Mr. Côté, you have the floor.