Good morning, Chair, Vice-Chair, and members of the committee.
Thank you for the invitation to appear before the committee today.
I will make a few brief remarks to set the context for the questions that you may have regarding the small business job credit.
While PBO shares parliamentarians' concerns with the cost-effectiveness of the small business job credit in improving employment outcomes, I would like to stress the importance of the bigger picture.
This proposal and any proposal that would affect the premium rate paid by employers or employees acts against the legislation that has been established over recent years for the purpose of detaching the EI program from discretionary policy decisions and ensuring that the contributions from workers are used only for expenses of the EI program.
Following a number of interventions in the premium-rate setting process, in 2012, Bill C-38 provided for the premium rate to move to a 7-year break-even rate after the account came into balance. The Economic Action Plan Act, No. 2, 2013, Bill C-4, amended the Employment Insurance Act to freeze the EI premium rate at $1.88 in 2014, 2015 and 2016. The policy announcement was accompanied by a report from the chief actuary updating the status of the EI operating account.
With the data in this report, PBO was able to show that barring a significant unexpected economic decline, a rate of 1.88 in 2015 and 2016 would be a premium rate increase compared to the rates that would have been set prior to Bill C-4, and that it would contribute considerable extra revenue to the budget outlook over the period of 2015-16 to 2016-17.
The PBO reported this in its fall economic and fiscal outlook update on October 25, 2013, and updated it in its October 2014 economic and fiscal update.
The government has never provided an explanation for why the premium rate is set well above the level required to eliminate the surplus in the EI operating account in 2015 and 2016 or why the break-even rate is not set immediately after the account goes into surplus in 2015. This is contrary to the government's stated objective of having a transparent premium-rate setting process.
It is important to underline that, given the requirement that the premium rate is set to balance the operating account over a seven-year period, any changes to the premium rate now must be offset by a change in the opposite direction later, and any impact that the rate change has on job creation today will be offset in the future. This applies to the small business job credit.
According to the PBO's estimate, this measure has a small temporary impact on the level of employment of 800 jobs in 2016, but this increase will be offset by a slightly higher than required EI premium rate for all employers and employees when the government sets the seven-year break-even rate in 2017 or earlier.
I am pleased to answer any questions you may have on this topic.