Finance Committee on May 6th, 2010

[John McKay, Liberal, Scarborough—Guildwood, ON]

So you will carry a deficit in the account until you are able to raise rates--

[Mark Hodgson]

Yes, to recover that deficit. That's correct.

[John McKay, Liberal, Scarborough—Guildwood, ON]

How will the deficit be shown on the government's books? Will it be part of a consolidated deficit?

[Mark Hodgson]

Yes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So really, for the purposes of this exercise we are setting up a lot of notional accounts and real money is staying where it is.

[Mark Hodgson]

It's always been the case that premium revenue is paid into the consolidated revenue fund and benefits are likewise paid from the consolidated revenue fund. This is an accounting mechanism to keep track.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It is entirely an accounting mechanism. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

Monsieur Paillé, s'il vous plaît.

[Daniel Paillé, Bloc, Hochelaga, QC]

Ultimately, there's no money in a bank account; this is essentially an accounting entry.

We know that only employees and employers have been contributing to this since 1990. We can say there was more or less a balance from 1972 to 1995. In the 1990s, there was already a $2.2 billion surplus; in 1993, it was -$5 billion. From 1995 until the end of 2008, there was cumulative surplus of $57.17 billion. Is that correct?

[Mark Hodgson]

That's correct.

[Daniel Paillé, Bloc, Hochelaga, QC]

So that $57.17 billion amount, which isn't money that you find in a specific account, invested at the Bank of Canada or a bank, disappears because we're scrapping the account—pardon the intention—but that's essentially what we're doing.

[Mark Hodgson]

The creation of the account is not the mechanism by which the money, to mirror the phrase, disappears. In each year where there was a surplus recorded, those surplus funds were part of the CRF.

[Daniel Paillé, Bloc, Hochelaga, QC]

While I do understand, having played in this kind of film, there's no $57 billion amount that suddenly appears or disappears. So we can't say that, from 1995 to 2009, the government, whether it be the Liberal Party or the Conservative Party, enjoyed that surplus of premiums, essentially from employers and employees, none of which came from the government.

To all intents and purposes, we are recreating another account. As you told my Liberal colleague—and we see it on pages 197 and 202 of the budget volume—in the government's budgetary revenues, a line underlining the employment insurance premiums of $16.9 billion, $16.6 billion, etc. and that goes up to $26.6 billion. On page 202, there are employment insurance benefits, which, as if by chance, are slightly lower.

So to make the account balance, despite the 500 pages we have here and the nearly 900 pages of the bill, there isn't a little line indicating that premiums less benefits equals the balance, and the cumulative balance. That wasn't done.

Do you intend to suggest to your minister that it be done?

[Mark Hodgson]

I guess that's two questions in one.

First, the numbers that are presented in the budget showing premium revenues and program expenditures: there's a footnote to indicate that EI administration costs are not included in the program expenditures line, which adds another $1.6 billion to $2 billion per year. The numbers are closer together than they appear.

[Daniel Paillé, Bloc, Hochelaga, QC]

I agree with you. That leads me to say that you have benefits payable because that's included. In one way or another, does that include the program administration cost? Is that under “benefits” or “premiums”, or somewhere else?

[Mark Hodgson]

The forecast of the administration costs, to my knowledge, does not appear in the budget plan, but in each year in the public accounts there is a detailed accounting of all the transactions in the EI account, as there will be in the EI operating account, where the administration costs are shown year by year.

[Daniel Paillé, Bloc, Hochelaga, QC]

In the budget, we see that, starting in 2011-2012 until 2014-2015, so in four years, we will amass $19.2 billion, which yields an average surplus of $4 billion or $5 billion a year. That corresponds roughly to $57 billion that the Liberals had amassed to 12 years.

I'd like to know what model was used to forecast both unemployment insurance premiums and benefits. Was it one model in particular? How did you proceed?

[Mark Hodgson]

The cost of benefits is derived from the average that the private sector forecasts that underpins all the budget documents, which provides an unemployment rate, which provides a forecast of the number of unemployed, which can be used to calculate the number of beneficiaries. That's how you essentially calculate the cost of benefits.

The assumption was that the rate-setting mechanism that will be employed by the CEIFB will be in place. With their mandate to break even over time from January 1, 2009, onwards, there is the accumulated deficit in the EI program from that date forwards because the premium rates being held at $1.73 as part of the economic action plan—well below break-even—are generating significant deficits in 2009 and 2010. So the rate-setting mechanism in the legislation was assumed to apply. The premium rates will increase by 15¢ per year for four years.

[The Chair, Conservative, James Rajotte]

Thank you.

Merci, Monsieur Paillé.

Monsieur Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chairman. I'm going to pick up where Mr. Paillé left off.

I'd like to go back to comments made earlier. I'm going to cite them in English to avoid any translation problem. It was said:

“It doesn't represent real money”.

He said it was more an

“accounting mechanism”.

We can nevertheless agree on the fact that the $57 billion is real money that was deposited by real employees and real employers to a real government. They had no choice but to pay that real money.

[Mark Hodgson]

I'm sorry. To clarify, it's not “real money” in the sense that it is cash in a bank account that could be spent on something. It certainly represents real premiums paid by employers and employees, but those premium revenues have flowed to the CRF in each year they were paid, as the legislation requires.

The EI account keeps track of those premium revenues and program expenditures. It's a running total of the program since I think the early 1980s, I'm not sure—possibly 1973.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you for your answer. It was very complete, but that in no way alters the fact that it was real money, real amounts that were paid. Even if you call it an accounting mechanism, we can nevertheless agree that, when an amount is intended for a specific purpose, in this case to provide compensation for potential unemployment in a cyclical employment market, that money is set aside. In English, you used the words “flowed to”, as though some pieces of cork were floating on a river toward an undetermined location. No. It was the government of the time, a Liberal government—today the Conservatives want to close the two-way door—that stole $57 billion and put it in the government's Consolidated Revenue Fund. Now that money was used to provide $60 billion in fiscal room that, amazing to say, represents exactly the tax cut granted to the largest corporations, that is to say that the fiscal room was created by robbing the employment insurance fund. The money that was supposed to be there for unemployed workers is no longer there because it has been stolen and used for another purpose. It's a bit like in China, where they make you pay for the bullet they use to execute you.

All employers lost as a result, even the forest companies and the manufacturing companies in Beauce, which lost money and therefore didn't have to pay taxes. Those businesses paid into the employment insurance fund for every employee. That money was taken to create the fiscal room necessary to grant tax reductions. So, by definition, a company that lost money did not have to pay tax. So who benefited from the money that was stolen from the employment insurance fund? It was the richest businesses, such as in Canada, in Alberta, and other businesses in the oil industry that had paid taxes. They benefited from it.

In short, that money set aside was stolen and paid for the creation of fiscal room for the major corporations. In fact, it was the businesses that were already losing money that financed the rich oil companies in the west. That's the sad reality that we're trying to launder here today. We're talking about money laundering, but it's being done here today, a laundering by terminology, when we're told that

it “flowed to” and “it doesn't represent real money”.

That was real money. In addition, there will be a $19 billion deficit that, once again, will be paid for by businesses, regardless of whether they make money or not, and by all Canadian employees. It will be a punitive tax that, according to the Canadian Federation of Independent Business, will cost 200,000 jobs. That's what we're trying to launder today through a dismal terminology. We're saying there's no problem since it wasn't real money. I'm scandalized by this, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

You have one minute.

Mr. Hodgson, do you want to respond to that?

[Mark Hodgson]

I'm sorry, I didn't hear a question in there.

[The Chair, Conservative, James Rajotte]

Mr. Mulcair.