Human Resources Committee on May 27th, 2008

[The Chair, Conservative, Dean Allison]

I would like to call to order the meeting of the Standing Committee on Human Resources, Social Development and the Status of Persons with Disabilities.

Pursuant to Standing Order 108(2), we are studying the Canada Employment Insurance Financing Board.

I want to thank you once again, Minister, for appearing before us. This committee has been seized with this particular issue over the last couple of meetings, and I know that there were a couple of additional questions. I also realize how busy your schedule is, so it's great to have you back in such a short period of time to discuss some of these issues.

I realize you have an opening statement, sir, so why don't we just get started with that. Then we'll go around with a few rounds of questions. We only have one hour, so we will try to get everyone as many questions as we can.

Minister, the floor is yours, sir.

[Monte Solberg, Conservative, Minister of Human Resources and Social Development]

Thank you very much, Mr. Chair.

I'm pleased to have with me today Mr. Paul Thompson, associate ADM for skills and employment at HRSDC.

Thank you for the opportunity to appear before this committee regarding the proposed Canada Employment Insurance Financing Board, or CEIFB.

The governance and management of the EI account has been an issue for several years. In 2005 the standing committee heard from stakeholders through the study, and subsequently reported its findings in “Restoring Financial Governance and Accessibility in the Employment Insurance Program”. Views have also been expressed regarding EI financing through annual sessions on rate-setting.

Bill C-50 addresses concerns expressed by a wide range of stakeholders representing workers, employers, experts, and elected officials regarding how the EI account should be managed.

As a small crown corporation working at arm's length from the government, the CEIFB will ensure that EI financing decisions are taken independently and separate from the government's responsibilities regarding benefit determination and payout.

The proposed Canada Employment Insurance Financing Board will be responsible for implementing an improved EI premium rate setting mechanism that will ensure EI revenues and expenditures break even over time; managing a new bank account, separate from the government's general revenues, where any excess EI premiums from a given year will be held and invested until they are used to reduce premium rates in subsequent years; and maintaining a $2 billion cash reserve as a contingency fund that will support relative premium rate stability.

In addition, the EI premium rate-setting mechanism will be improved so that any surplus premiums and income from investments from one year will be taken into account when setting the subsequent year's rate. This measure will ensure that premiums collected over time will not exceed benefits paid.

To contribute to the relative stability of employment insurance premium rates, the board will be limited to the extent to which it can change the rate by a maximum of 15¢ per year.

It is important to note the Government of Canada's contribution of $2 billion to establish a real cash reserve. This money, coming from existing government revenues, will provide a contingency fund in support of relative premium rate stability. If, in a given year, the EI premiums does not collect enough money to cover the cost of EI benefits to be paid that year, then the money in the reserve will be used to offset premium shortfalls that could arise as a result of the 15¢ limit in premium rate increases.

It is important to recognize that the $15 billion reserve figure mentioned in 2000 by the chief actuary was characterized as the amount required to avoid raising premium rates throughout a severe economic downturn, similar to that experienced in the 1980s. This is not a figure that is consistent with the government's approach, which aims to match program revenues and expenditures each year. Nor does this figure take into account changes to the EI program structure, size, and clientele, or today's significantly improved economic conditions.

With respect to the $54 billion notional cumulative surplus prior to 2009, this is simply a bookkeeping entry reflecting the difference in prior credits and debits in the account. We are improving the system going forward by creating a separate account with a real cash reserve. The Canada Employment Insurance Financing Board will be run by seven part-time directors who have the necessary skills and expertise to effectively carry out the organization's mandate.

Qualified members will be selected, following recommendations made by a nominating committee that would include the commissioner for workers and the commissioner for employers, and will be appointed through governor in council.

Through this process, business and labour can be assured that the most qualified individuals are selected to manage decision-making on the financing of the employment insurance program.

It will be up to the board of directors to develop a corporate plan and a budget for consideration of the Treasury Board, and Parliament as part of the estimates process. The incremental costs of operation for the new activities and responsibilities of the CEIFB are expected to represent only a fraction of the additional returns on investment not previously realized under the old system.

I wish to emphasize that the CEIFB will have responsibilities related only to EI financing. HRSDC will continue to have policy responsibility--related to EI benefits and through Service Canada for program delivery--to ensure that the program remains responsive to the needs of Canadians and is delivered efficiently and effectively.

Our plan is one that looks to the future and ensures independent decision-making regarding the management of EI funds and making sure that these funds are used only to pay for EI benefits;

that premium rates reflect actual program costs and take into account investment returns so that Canadians pay the right premium rates, just sufficient to cover the cost of benefits received;

and ensures that the program is on a firm financial footing going forward, well positioned to withstand changing economic conditions.

Mr. Thompson and I will be pleased to address the committee's questions.

Thank you. Merci.

[The Chair, Conservative, Dean Allison]

Thank you very much, Minister.

It's been proposed that we go with five-minute rounds of questions, just so we can get a few people in there. If that's okay with the committee, we'll proceed in that fashion.

Mr. Savage, we'll start with you, sir. You have five minutes.

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

Thanks, Chair.

Minister, thank you very much for coming. You have made yourself available to this committee on a number of occasions, quite voluntarily, which I appreciate; I think we all do. Thank you for that.

In terms of the background on this issue, as you know, we had proposed some hearings on this new Employment Insurance Commission. Even among many people who support the idea of a separate fund for EI, there are concerns about just how arm's-length this commission is going to be. While we understand it's on the “setting of the premium” side and not on the benefits side—that would be a parliamentary responsibility, a government decision, a minister's responsibility—there is some concern that some decisions of the board may end up impacting on the benefits side as well--either purposely or, more likely, not on purpose. So there are a number of issues.

I know that colleagues will ask you about the $2 billion reserve and whether that's sufficient, and people will ask you about the accountability side of this fund.

I want to talk about two things, first of all. One is that when we did these hearings, on very short notice a number of people made themselves available. We heard from employers, from employees, from CFIB, from the Canadian Council of Chief Executives, from the actuaries, from a number of people. So there seems to be a lot of interest in this.

I wonder whether you think, especially in light of the fact that if we had not had these hearings at this committee there would have been no public or national dialogue of any kind around the setting up of this corporation, there's room for more input from Canadians on the composition of the board and the set-up of this new crown corporation.

[Monte Solberg, Conservative, Medicine Hat, AB]

First of all, thank you for the question.

Mr. Chairman, this is an important issue, but I would point out that this has been discussed for a long time. First of all, the principle of having a separate arm's-length body has been discussed for some time. The actual makeup of the board is to a large degree governed by the Crown Corporations Act, and a precedent in establishing other crown corporations.

Because the function of this board is quite narrow, we think we have put in place all the safeguards and the proper mandate to get the outcomes we want, which is to have premiums and benefits brought into balance in a consistent way.

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

I recall, for example, that when Mr. Dannie Hanson, from the great independent state of Cape Breton, came before this committee, he indicated that we should take the time to make sure that there are solid bureaucratic controls of the corporation. I would suggest to you that there are many Canadians who would still like to have input into this process, which was only announced in the budget, with some hearings here. And we will make some recommendations.

Let me tell you that having gone through this process and having heard from your officials and from you, I am somewhat reassured that there's no devious plan to dramatically undermine employment insurance. But I'm not convinced that enough time has been taken to ensure that we don't go down a road we might look back on and say, “If we had taken more time, we could have done things differently.”

Let me also....

Did you want to make a comment?

[Monte Solberg, Conservative, Medicine Hat, AB]

I was just going to say that there is precedence, of course, for establishing these boards. The CPP Investment Board is an example of that. We do have a bit of a template in terms of making sure we establish a board that really understands its mandate and is focused. These people are put in place to perform some professional functions.

Although I do understand the concerns, I can assure you that no one is more interested in getting this right and doing a good job than I am.

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

On the composition of the board, Minister, a number of people have raised issues around the fact that it's not explicitly laid out exactly how the board will be composed. The FTQ says that the bill does not mention that the board of directors must be representative in terms of premium payers, for example. The construction trades council sent us all some very specific concerns about how the board should be composed to ensure representation from all sides. Garth Whyte from CFIB said in his testimony that informally it's been identified that the nomination committee will be the EI Commission, but it's not formally stated in the act. He would like to see it formally stated.

I wonder if you could give us some consideration on how people can be assured that their views, as employers or employees, will be equally represented on this EI Commission.

[Monte Solberg, Conservative, Medicine Hat, AB]

I guess what I would say is that I don't want to send the message that this is about benefits by putting in place people who have opinions and axes to grind on the benefits issue. What we're really looking for are people who are experts when it comes to investments. That's why, in the terms and conditions for establishing who this committee would be made up of, we talk about people with a background in forecasting, insurance business, banking, and these kinds of things. It's really all about the investment, similar, again, to the CPP Investment Board.

That's part of the reason why I'm not anxious to bring forward people just on the basis of positions they've taken in the past on really what amounts to the benefits side of it. I would be quite concerned about that.

So while I'm not unsympathetic to your concerns, my focus is really about making sure that this is done professionally, that benefits and premiums are brought into balance consistently year over year, that the money is invested well, that there is a return, and that any extra premiums are returned back to workers and employers.

[The Chair, Conservative, Dean Allison]

Thank you, Mr. Savage.

On that point, Minister, I know that one thing we heard was that when we explained to people exactly what was going on, they felt better about it. So maybe there could be some PR explaining some of the changes. I think it was enlightening for some people to find out that money wasn't going to be taken out; it was just doing the same thing but at arm's length. They were reassured. Although they were unsure of the changes period, some things we were able to clarify. That's what we're trying to do for the rest of the members today.

We'll move now to Mr. Lessard. You have five minutes, sir.

[Yves Lessard, Bloc, Chambly—Borduas, QC]

Mr. Chair, I suggest that you give the Liberal Party two minutes more. I do not appreciate the fact that you changed the rules like that. By limiting participation to five minutes, you are taking two minutes away from the Bloc Québécois and the NDP. You are therefore changing what we agreed to at the beginning. I think that we could get around the table if you kept with the seven minutes.

[The Chair, Conservative, Dean Allison]

Here's what we'll do: we'll have a vote on that.

Would members like to have five-minute rounds right now?

[Some hon. members]

Agreed.

[The Chair, Conservative, Dean Allison]

It looks like we'll be going with five-minute rounds.

Yes, Mr. Savage.

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

On a point of order, just for Mr. Lessard's clarification, it had been my suggestion, through the chair, that we move to five minutes so that more people...in light of the fact that it was only an hour. I didn't try to take time from anybody, and I'm sure we can provide flexibility as the chair allows, but that was my recommendation.

Thank you.

[The Chair, Conservative, Dean Allison]

Thank you.

Mr. Lessard, it's your turn, sir, for five minutes.

[Yves Lessard, Bloc, Chambly—Borduas, QC]

Mr. Chair, I am totally opposed to this way of conducting business. As I have already said, this change in the rules has the effect of depriving the two opposition parties of the time set aside for their questions. I do not appreciate that approach at all. I suggest that, next time, our Liberal friends remember what I have just said. Otherwise, there is no point in establishing the rules at the beginning. I find this situation annoying.

Mr. Minister, clearly, we support the idea of creating a fund and we support the contributions of employees and employers being used exclusively for the purposes of the employment insurance fund. But we would like you to explain the functions of the new board compared to those that the commission presently fulfills.

The other day, you told us that the objective was to make the operation more transparent, specifically when it comes to setting contribution rates. The reason why this function is being taken away from the commission is not clear to us. We are not opposed to the idea, but we would like to understand clearly the roles of each of the two bodies.

[Monte Solberg, Conservative, Medicine Hat, AB]

Thank you for the question.

I think the most important way in which the process will be made more honest, if I can put it that way, is that the new commission will look both forward and backward when it comes to setting the rate. So that's one of the most important changes being made. Today the commission does not look backward at, for instance, surpluses that have occurred in the current year. The new EI Commission will look forward and backward when it sets these rates, and of course it will be subject to scrutiny by this committee and by others who question whether or not it's meeting its objectives.

As the EI Commission, it will have the same scrutiny and will be subject to all the regular terms and conditions that any crown corporation will be subject to. So there will be the same transparency, but because it's arm's length, it will be independent and ultimately it will have that extra ability to look backward as well and make better judgments, I think, on what premium levels should be.

[Yves Lessard, Bloc, Chambly—Borduas, QC]

You know that we are not of the same mind about the $54 billion surplus. You say that this is a theoretical amount, but, actually, it is real money contributed by employees and employers. Last time, you agreed that it was real money and that it had been diverted to other uses. You agreed to that again.

Under the conditions that the treasury is going to establish itself—I will just use the term “treasury” for convenience—it will be able to lend sums of money to the board. Under those conditions, why not use the money to gradually pay back the money that the fund is owed?

[Monte Solberg, Conservative, Medicine Hat, AB]

First of all, the way this will work is that the funds will pass through the CRF to the account.

Our concern going forward is to make sure we don't end up in the same situation we've ended up in the past. The way we think we need to do that is to establish a cash reserve, and the best way to ensure that funds are protected is to turn them back to the people who earned them in the first place: workers.

So if we reduce premiums, that's the best way of all, in my judgment, to ensure that workers are protected, instead of taking the approach you're arguing for, because of course that $54 billion you're talking about would still be within the government. I'm arguing that the best way to protect workers is to give that money back to them.

[Yves Lessard, Bloc, Chambly—Borduas, QC]

Mr. Minister, you are aware that you are telling me that employees are going to be repaying money that they have already contributed. Lowering contributions will be done at the expense of people who lose their jobs, because their employment insurance benefits are going to suffer. I feel that you are well aware of that. They will have paid in twice, in two places.

Mr. Chair, because the Bloc Québécois and the NDP have been deprived of two minutes of their time, I am going to end by asking what happened to the report on older workers prepared by experts in the commission. I think that the report was submitted to you last February 8 or so. Some of its recommendations apparently advocate income support for older workers. It that so? Why have you not released that report. Mr. Minister?

[The Chair, Conservative, Dean Allison]

Minister, I'll let you finish the answer.

[Monte Solberg, Conservative, Medicine Hat, AB]

I'll just quickly say that we have the report. We are reviewing it and we will be releasing that report and responding to it very soon. We want to make sure we take the time to review it thoroughly. It's an important document. Once we've gone through that process it will be released, and certainly, I'm sure, you'll have many comments on it.

As a final point, Mr. Chairman, by reducing premiums, one of the most important things you can do when certain sectors are struggling is to reduce profit-insensitive taxes like EI premiums. That helps those in the forestry sector, in the manufacturing sector, in a very important way. I think we shouldn't lose sight of the ability to reduce premiums like these in order to help employers who want to not only retain jobs but also hire people.

[The Chair, Conservative, Dean Allison]

Thank you, Minister.

Now we're going to move to our next round.

Mr. Martin, sir, five minutes.

[Tony Martin, NDP, Sault Ste. Marie, ON]

Welcome, Minister, and thanks for coming.

I just have a couple of areas. I have no real difficulty--others have indicated this as well--with establishing this entity in itself to manage this important fund and to make sure it does what it was set up to do. But I have two concerns that were raised in the hearings. One is the makeup of the board, which I want to explore with you. The other is the concern raised by the actuary who came in here, that there won't be enough money in the fund if we run into some turbulent times. That concerns me.

On the first one, it seems to me that a fund that is contributed to by both employers and employees should make sure it's in the interests of both because each one is going to be concerned as to the contribution that each will make and then, at the end of the day, what benefit will accrue. And the benefit will be based primarily on the kind of money that's in the bank and coming in.

I want to explore with you a little further why we're not seeing here a commitment of some sort toward making sure there's a balance on this board, from both the employer side and the employee side.