Thank you, Mr. Chair. I'm sorry we were not able to be with you last week. We were holding our own members' meeting in Calgary at the time, so all of us were occupied with that. I'm delighted to join you this morning. I don't think I'll take up too much time with initial comments, because it's probably of most interest to the members to get into a discussion as quickly as possible.
Let me make a few brief comments. You're here, I think, to talk about the establishment of the Canada Employment Insurance Financing Board. Of course, the Canadian Council of Chief Executives has argued for many years in favour of comprehensive reforms to the employment insurance system. In particular, we've said the system should be managed by an independent body, with premiums flowing into and benefits flowing out of a segregated account; we've said the premiums should be set at a level designed to break even over the course of a business cycle; and we have suggested that the mandate of the employment insurance system should be narrowed to focus on protecting Canadian workers against the specific risk of temporary job loss.
The changes being proposed today take an important first step in the right direction by setting up a crown corporation that would be responsible for setting the premiums and managing the funds collected through a segregated account.
In establishing the new account, one critical goal is rate stability. As much as possible, we should be trying to avoid raising premiums during an economic downturn, when both workers and employers can afford it least. To this end, the government intends to maintain the current maximum annual change in the premium rate of 15 cents per $100 of insured earnings.
To ensure the new segregated account is able to cover a spike in benefits during a severe downturn, the government also plans to add a cash reserve of $2 billion. This may or may not be sufficient. Traditional actuarial analysis has called for a cushion of between $10 billion and $15 billion. However, I would suggest that demographics are continuing to drive Canada toward a structurally lower rate of unemployment.
Furthermore, a growing share of the money flowing out of the EI fund is providing benefits for purposes such as maternity leave that are not related to the economic cycle. Indeed, regular benefits now count for barely more than half of the total costs being covered by EI premiums.
In short, the size of the cushion needed going forward may not be as large as it has been in the past. I guess my conclusion here is that we may need a bit more thorough analysis of what the exact number ought to be.
A related issue, of course, is how to funnel the necessary reserve into the new account. The existing EI account has been run in surplus for many years. In theory, it has racked up an accumulated surplus of some $54 billion. In practice, in the absence of a segregated account, all this money flowed into the government's general revenue account and has been used up. Whether you say it was used up for tax cuts or debt reduction or spending in other areas, the money is gone.
Whatever initial reserve is put into the new account, therefore, is going to have to come out of current resources. If more thorough analysis suggests the need for a reserve greater than the $2 billion that's proposed, I'd suggest the most practical path forward might be to shift future year-end surpluses into the EI account instead of into debt reduction, until we have a sufficient reserve established. I think that might be the least intrusive way to do it—not the only way, but perhaps the least intrusive.
In the meantime, the general revenue account would of course have to backstop the EI account—and I think that is covered by the proposed legislation—topping it up in the event of a recession severe enough to exhaust the available funds.
Let me conclude by returning to the issue of longer-term reform of the employment insurance system. Over the years, successive governments have chosen to fund benefits for a variety of purposes through employment insurance premiums. I would suggest that many of these benefits would be characterized more accurately as social programs. These programs may indeed serve laudable aims—I'm not arguing with that—but they're not consistent with the core mandate of the employment insurance system, which, as I said earlier, is to provide insurance against the specific risk of temporary job loss.
Once the management of the system has been shifted to an independent body operating through a segregated account, I would suggest that the government should move such benefits out of the EI system and fund them through the general revenue base. I say that because the division of employment insurance premiums between employers and employees was based on the original insurance mandate. The funding mechanism that was established that way, therefore, ought to be restricted to the costs of that core mandate.
I want to recognize that the mandate of the EI system is not what's on the table for discussion today, but I do want to suggest that this remains a longer-term issue that ought to be taken into account as we're establishing the governance structure and responsibilities of the new board.
With that, Mr. Chairman, I'll conclude and look forward to questions and comments from the committee.