Human Resources Committee on May 1st, 2008

[The Chair, Conservative, Dean Allison]

I'd like to call the meeting to order. Pursuant to Standing Order 108(2), our study of the Canada Employment Insurance Financing Board is before the committee.

Part of what this committee is hoping to do over the next couple of meetings is delve into part 7 of Bill C-50, to establish the Employment Insurance Financing Board.

To our first meeting we want to welcome all of our witnesses from the Department of Finance and the Department of Human Resources and Social Development. We have Sherry Harrison and Louis Beauséjour. We also have Yves Giroux and Tamara Miller. We want to thank you all for being here.

I believe Louis and Yves will be making the presentations. Take the time you need. I realize you're pros at this and understand how it all works. We'll be asking some questions, and hopefully you'll be able to shed some light on what exactly will be happening. That will help us direct the next couple of meetings as we consider what's going on with this new financing board.

I know we're all excited to hear what you have to say. Who will go first? Louis.

[Louis Beauséjour, Director General, Employment Insurance Policy, Department of Human Resources and Social Development Canada]

Good morning. I am Louis Beauséjour, the new Director General of Employment Insurance Policy. Four weeks ago, I replaced Bill James, who has now taken up new duties.

With me is Ms. Sherry Harrison who is the Director General responsible for the implementation of the proposed Canada Employment Insurance Financing Board. Also with me from Social Policy at the Department of Finance are Mr. Yves Giroux and Ms. Tamara Miller.

I would first like to thank you for the opportunity to discuss the Canada Employment Insurance Financing Board (CEIFB). As you are aware, in budget 2008, the government took steps to address commitments made in the 2007 Speech from the Throne, to improve the governance and management of the Employment Insurance Account.

My opening remarks will focus primarily on providing an overview of the proposed CEIFB Act which is contained in Part 7 of the Budget Implementation Act. Part 7 of the Budget Implementation Act contains three parts. First, there is the CEIFB Act which creates the new Crown corporation. Second, there are changes to the EI Act and, finally, there are the consequential amendments to the Department of Human Resources and Skills Development Act and the Financial Administration Act.

The CEIFB Act provides for the establishment of the CEIFB, a Crown corporation reporting through the Minister of Human Resources and Social Development, with responsibility for implementing the budget 2008 announcement regarding the governance and management of the EI account.

Pursuant to this Act and amendments to the Employment Insurance Act, the CEIFB will be responsible for setting the EI premium rate under section 66 of the Employment Insurance Act; managing a separate bank account, where any excess EI revenues from a given year will be held and invested until they are used to reduce premium rates in subsequent years; and maintaining a cash reserve as a contingency fund in order to support relative premium rates stability within legislated parameters.

These changes are in keeping with the government's commitment to improving the management and governance of the EI account. As a small crown corporation working at arm's length from the government, the CEIFB will ensure independent decision-making regarding the setting of premium rates and will ensure that EI premiums are used exclusively for EI purposes. These changes will place the program on firm financial footing going forward and will ensure that it is well positioned to withstand changing economic conditions. The CEIFB will be accountable to Parliament via the Minister of Human Resources and Social Development and will report publicly on its activities and results.

The government will maintain its responsibility for EI benefits and program delivery. The CEIFB is not to conduct any business or activity inconsistent with its mandate, including in relation to benefits and other payments made under the Employment Insurance Act.

The CEIFB is to be governed by a board of seven directors, including a chairperson, appointed by the Governor in Council on the recommendation of the Minister of Human Resources and Social Development, who will hold office during good behaviour. A seven-member board of directors was deemed appropriate to accommodate the focused mandate and to fulfill the duties of the three CEIFB committees that are required to be established as described in the proposed CEIFB Act.

Candidates for appointment to the board will be identified by a three-member nominating committee comprising a chairperson appointed by the minister on the basis of merit, a commissioner of employers, and a commissioner of employees. Officers of the CEIFB specified in the legislation include the chief executive officer and the chief actuary. The planning, reporting, and financial management framework for the CEIFB builds upon relevant provisions from part X of the Financial Administration Act. The CEIFB Act will include additional and more specific provisions with regard to board committees, investments, financial management, and reporting.

The EI Act is being amended to implement the new rate-setting mechanism. This new rate-setting mechanism will take into account any surpluses or deficits that arise on a go-forward basis to ensure that program revenues balance with expenditures over time.

To that end, the legislation provides that the CEIFB set the premium rate for each year in order to generate just enough premium revenue during that year to cover expected payments, and to ensure that the CEIFB's reserve is maintained at its target level.

In setting the rate, the CEIFB is to take into account information provided by the Minister of Human Resources and Social Development Canada regarding past EI expenditures and forecasted changes to the program, and from the Minister of Finance regarding past revenues received and anticipated EI revenues and expenditures, as well as the most current forecasts of economic variables relevant to setting the rate. The board will also take into account any investment income earned, and other specified information, including information the CEIFB considers relevant.

The government will retain its authority to substitute a rate for the one set by the CEIFB if it judges it is in the public interest to do so.

Amendments to the Employment Insurance Act also provide for the establishment of a reserve through the transfer of $2 billion from the Consolidated Revenue Fund (CRF), to be indexed annually as prescribed by regulation. This $2 billion-amount takes into account different economic scenarios and assessments undertaken in conjunction with the employment insurance 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 2001-2002.

Transactions related to EI will continue to be recorded in the EI account. EI premiums will continue to be collected by the Canada Revenue Agency through source deductions, transferred to the CRF and credited to the EI account.

In situations where EI revenues exceed EI benefit payments during the year, funds will be transferred from the CRF to the CEIFB's account, charged to the EI account and invested until they are used to reduce premium rates in subsequent years. In situations of revenue shortfalls, the difference would be covered through a transfer from the CEIFB's account to the CRF and credited to the EI account.

The legislation also provides for advances from the CRF in situations where the reserve is insufficient to cover EI benefit payments, with advances to be repaid in subsequent years using the premium rate-setting mechanism.

With the CEIFB taking on the responsibility for EI premium rate-setting, the EI Commission will retain its other responsibilities for supporting the EI appeal system, making regulations with the approval of the Governor in Council, and review and approval of policies related to program administration and delivery.

The EI Commission will continue to have an important role in the EI program that is complementary to the role of the CEIFB, and it will be given an ongoing mandate to continue the EI monitoring and assessment report as a permanent annual report.

In addition, the EI commissioner for workers and the EI commissioner for employers will be given new responsibilities as they become members of the nominating committee responsible for identifying and recommending qualified candidates for appointment to the CEIFB board of directors. This will ensure that business and labour play a role in selecting the most qualified individuals to manage decision-making concerning the financing of the EI program

The government's objective is to have the CEIFB running as soon as possible, preferably in time to set the 2009 EI premium rate using the new premium rate-setting mechanisms. The timing of the establishment of the CEIFB will be dependent on the passage of the relevant legislation. Should the CEIFB not be in a position to set the 2009 EI premium rate, the EI Commission will do so according to the existing legislation.

We would be pleased to answer any questions members may have regarding the proposed CEIFB, but first I'll let Yves speak

[Yves Giroux, Director, Social Policy, Federal-Provincial Relations and Social Policy Branch, Department of Finance]

I would like thank you for the opportunity to explain the changes to the management and financing of the employment insurance program as set out in Bill C-50, the budget implementation bill.

The creation of the Canada Employment Insurance Financing Board and a new premium rate-setting mechanism as set out in budget 2008 addresses the expectations of Canadians with regard to employment insurance and the premium rate. It also affects necessary changes to the program at a time when the Canadian economy is entering a period of relative uncertainty. As such, we are entering this period with a position of relative strength, compared to most of our partners.

The government remains committed to ensuring that the right policies and programs are in place to help Canadians, as demonstrated by the numerous measures in the budget that will certainly help weather these uncertain economic times. Within this context, the proposed Canada Employment Insurance Financing Board will help ensure that the EI program is well positioned to withstand changing economic conditions.

As noted by my colleague Monsieur Beauséjour, the new board represents a significant improvement in the management and governance in the EI account. An independent board of directors will have the responsibility each year for setting EI premium rates, using a new mechanism that will ensure the program breaks even over time. The board will be responsible for managing its own bank account, and it will maintain a real cash reserve in that account.

In our view, Canadians can have confidence in the fact that the employment insurance program will be managed on a purely cost-recovery and go-forward basis, and that the premium rates will not be higher than what is needed to pay benefits.

My colleague Tamara and I would be pleased to answer any questions from honourable committee members.

[The Chair, Conservative, Dean Allison]

Thank you very much for those presentations.

We're going to start, as we normally do, with our first member.

Mr. Savage, you have seven minutes, sir.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, Chair.

I want to thank the witnesses for coming here today. We appreciate your assistance as we sort through this new policy directive of the government.

Employment insurance has become a very important part of the social fabric of Canada. When I read the budget and came to page 71 about this new crown corporation, it made me and a lot of other Canadians a little bit nervous, frankly. That's not to say there isn't good cause and that there haven't been many cases made that there should be a more independent administration of employment insurance—I think there's a case to be made for that—but the idea of a totally separate, arm's-length crown corporation for EI causes people some concern.

That's why this committee has taken the step of doing a brief study on this to find answers to some of the key questions and provide Canadians more information. We appreciate that we may be at an early stage in terms of the mechanism of creating this new crown corporation, but there are some very important questions that need to be asked.

This committee is well aware that employment insurance is an issue that we've dealt with at this table; we have more private members' bills on employment insurance than we do on anything else. They tend to be on the benefits side as opposed to the premium side, I think, in part because the premium rates for EI per $100 of insurable earnings have dropped since 1993 from $3 to $1.73 on the employee side, and from $4.20 to $2.42 on the employer side. So premium rates have dropped significantly in the last decade or so, and benefit levels have also dropped.

There have been some good pilot projects brought in by the previous government, which I think took some steps in balancing that. And we all want to make sure that employment insurance works for employers and employees, both on the premium side and benefit side. But there are parts of this country that are hugely reliant on employment insurance, so we need to make sure that we get this right. So I think it's an important study that this committee is doing.

Beyond this study, could I ask either Monsieur Beauséjour or Monsieur Giroux or anybody else, what consultation is the government planning as it formulates the plan for this new crown corporation? What public opportunities will there be for people to provide input into the makeup of this new crown corporation?

[Louis Beauséjour]

Sherry, do you want to answer that?

[Sherry Harrison, Director General, Canada Employment Insurance Financing Board Task Team, Department of Human Resources and Social Development Canada]

Maybe I could respond to the member's questions with regard to the process for appointing the board of directors. As indicated in the opening remarks, the board of directors will be selected from a list prepared by a nominating committee. The chair of the nominating committee will be appointed by the minister, based on merit. That chair, as well as the two existing EI commissioners, will be responsible for preparing a list of proposed nominations.

The merit criteria for the board of directors are specified in the act, and those appointments are Governor in Council ones. The government process for making those appointments will be adhered to.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you.

Beyond just creating the commission to run it—assuming the government will have some directive for this commission as it sets it up—is there going to be some public consultation? Are there going to be some across-Canada opportunities for employers, workers, individuals, and industry groups to have input into the formulation of the crown corporation?

[Sherry Harrison]

The legislation provides that the board of directors may consult on the establishment of EI rate-setting. The act does not specify how and when that consultation is to be undertaken, so it would be up to the board of directors to establish that process.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

I understand that the Treasury Board Secretariat's report, Meeting the Expectations of Canadians: Review of the Governance Framework for Canada’s Crown Corporations, indicates that there have to be some annual meetings to receive comments from stakeholders. Will that be followed? Is this part of the process?

[Sherry Harrison]

To my knowledge, it is not specified in the legislation, but I am certain that those guidelines will be brought to the attention of the board of directors for consultation. The act does specify a public report by the board of directors on the premium rate-setting process and consultations by the directors, as well as the tabling of other public documents to Parliament.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

There was some discussion of the fact that in the new board there will be representatives of employers and employees. Did I hear that correctly?

[Sherry Harrison]

The nominating committee chair is selected by the minister based on merit. That individual, as well as the two existing EI commissioners, will be responsible for proposing the list of board of directors.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

The question is, is there a mandate that employees and employers be equally represented?

[Sherry Harrison]

That is not specified in the legislation.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

I see.

Let me ask you about the $2 billion that's being transferred.

In the last number of years the EI fund has had its annual surplus and/or deficit, and we all know the discussion of the accumulated surplus being some $50-plus billion. In 1991-92, there was in fact a deficit in the EI account of almost $4 billion; in 2000-01, there was a surplus of over $8 billion.

How did you come up with the $2 billion? Would it not make more sense to transfer a larger sum of money to the new corporation?

[Yves Giroux]

The $2 billion was assumed to be sufficient whether in a recession or a slowdown, in the event that it ever were to happen. It's important to keep in mind that should the reserve not be sufficient, the government stands behind this and would cover any shortfall that would be needed to pay the benefits. So transferring an additional amount of money was not deemed necessary at this point, given the new rate-setting mechanism that will be put in place.

There were different figures mentioned a couple of years ago, but these were assuming keeping the rate stable throughout the economic cycle, which is not the case now.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

We're all familiar with the notional, at least, surplus of some $54 billion, and that this money has gone. It's been used to pay off debt. We could have an argument at this table forever about whether that was a wise move or not, but the money has actually gone. But we do have these huge fluctuations, which generally are more than $2 billion, and in the last decade they've been on the plus side.

What was the surplus in the fund for the last fiscal year?

[Yves Giroux]

I don't have the precise figure, but I believe it was well below $1 billion. So over the last two or three fiscal years, I think it was close to $2 billion in total.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Well, according to the Library of Parliament, it was over $3 billion for 2006-07.

[Yves Giroux]

The EI program operates on a calendar year basis, so there might be differences arising from that difference.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Okay.

Is there still a possibility, if a case was made, that more than $2 billion would be transferred to this organization?

[Yves Giroux]

I'm not sure I understand your question.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

It's probably not a fair question to ask you, then.

I would make the statement that it seems to me that $2 billion is an insufficient amount to transfer to this new organization, considering the fact that there have been huge surpluses in the last number of years. But if you go back to the early 1990s, there were large deficits. Although this new crown corporation is responsible for setting the premiums and not the benefits, there is great concern in large parts of the country that the connectivity of them could be affected. In fact, this may be arm's length unless the government wants to get a grab of something on the EI side. And it might actually affect the benefit side as well. So that's where some of the concerns are coming from.

We're going to hear from some of the people who are affected.

Two seconds? Two minutes?

[The Chair, Conservative, Dean Allison]

Yes, sure. Two seconds.