Thank you, Mr. Chairman.
The Canadian Restaurant and Foodservices Association appreciates the opportunity to present the views of the nation's restaurant and food service operators on part 7 of Bill C-50. I'm here today on behalf of Canada's largest hospitality association, which has 33,000 members right across the country. We represent a $59-billion industry with more than a million employees.
I have been before this committee many times on the subject of employment insurance. Because of the labour-intensive nature of our business, where $3 out of every $10 in sales goes to payroll, restaurant operators pay a disproportionate amount of taxes as payroll taxes.
Recognizing the burden artificially high employment insurance rates place on labour-intensive industries, CRFA is on record as objecting to the setting of EI premiums at excessively high levels and has argued against the use of EI funds for purposes unrelated to EI.
CRFA, long ago, concluded that the only way to ensure employment insurance premium rates were set on a break-even basis was to establish a dedicated trust fund that is separate from Canada's public accounts and operated at arm's length from government.
Over the last 10 to 12 years, EI premiums have been set at rates that consistently far exceeded program costs, resulting in the accumulation of a $54-billion surplus in the EI account. This has resulted in an enormous financial obligation to the employers and employees who exclusively fund the program.
In principle, building up a surplus during times of economic growth makes sense, so that premium assessments do not have to increase during a prolonged recession. In practice, the intention behind establishing surpluses has not been respected.
As far back as 1994, in a submission to the Standing Committee on Human Resources, CRFA expressed concerns about this approach. We said at that time:
Unfortunately, our experience has been that surpluses have been too irresistible for government, and have been diverted to other initiatives. CRFA cannot support the anti-cyclical financing approach unless there is a statutory guarantee that the surplus would be accumulated for an economic downturn only.
Our fears back in 1994 were obviously well-founded. Governments quickly became dependent on the funds in the EI account.
The 1986 directive of the Auditor General to integrate the employment insurance program into the overall finances of the government has been used as an excuse to justify the diversion of EI funds. It has been clarified many times by the Auditor General that it was never the intent of the Auditor General to have EI revenues as part of the government's general tax revenue stream, nor was it the intent to have them used for purposes unrelated to EI. The only reason for the directive was that back in 1986 the EI account was in a deficit and contributed to Canada's overall deficit, which in turn impacted the overall borrowing requirement of the country. As we all know, there has been an enormous improvement in federal government finances since then.
We also know there will always be pressure on any government to increase spending on a multitude of programs and activities and to lower taxes in a host of areas. As a result, we are very pleased that part 7 of Bill C-50 will no longer allow the EI program to be treated as a cash cow. Payroll taxes are profit-insensitive and regressive, and should never have been part of the government's general tax base.
A counter-cyclical approach to rate-setting was pointless, as long as the EI account was consolidated with general revenue, because government's accounting principles do not allow surpluses to be carried forward from year to year. Employers and employees were always vulnerable to premium rate increases when the unemployment rate went up, regardless of the reserve in the EI account.
CRFA recognizes that the $54-billion EI surplus is a notional account and, given fiscal realities, cannot easily or immediately be turned over to the proposed Canada employment insurance financing board. We could debate whether the $2-billion reserve to be provided to the new crown corporation is adequate. The long-term economic outlook suggests low unemployment levels and intensified labour shortages. This is in stark contrast to the double-digit unemployment rates during the 1981-82 and 1991-92 recessions, which significantly reduces EI reserve requirements.
In the case of a prolonged or severe recession resulting in a significant increase in EI expenses, CRFA would certainly expect the federal government to make up for the revenue shortfall. Given the $54-billion surplus, the federal government would be expected to respect its obligations to employers and employees even if it meant raising other taxes or cutting spending.
To conclude, CRFA supports the establishment of the Canada employment insurance financing board and a stand-alone EI fund to be administered at arm's length from government. This is the only fair and responsible way EI premiums can be set on a counter-cyclical basis. It also allows the program to be maintained on a sound financial footing without temptations for government.
CRFA believes that part 7 of Bill C-50 provides necessary statutory protection for employers and employees by removing the option of having their hard-earned premiums used for other purposes.
Thank you.