Thank you, Mr. Chair.
My name is Diane Carroll, and I'm the assistant deputy minister for employment programs with the Department of Human Resources and Social Development Canada. I'm joined by my colleague, Réal Bouchard, from the Department of Finance, and by Bill James, also from Human Resources and Social Development Canada.
The individuals at the table are here to talk about the first item on the EI account and the premium rate-setting mechanism. We have handed out a short presentation deck that I will walk you through in no more than 10 minutes, as a way of doing the presentation. There are some colleagues in the back who will deal with the summer career placement issue.
In terms of purpose, the deck sets out to give you a sense of how the EI account works in the context of the EI program and to give a bit of information about the new premium rate-setting mechanism that was put in place for the first time this current year. There's a new mechanism that sets the premium rate for 2006.
First, I'll give you some background on the account. As I'm sure most members of the committee recognize, the EI account is an integral part of the fiscal framework of the Government of Canada. Since 1986, it has been integrated with the books of Canada, which means it is not an account that holds cash but one that tracks how much is collected in premiums for EI and how much is paid out in benefits.
The account's resources are integrated with CRF, which means that if you spend more on EI, you impact the overall fiscal situation of the Government of Canada. It is integrated, which was a recommendation of the Auditor General back in 1986. Given that the EI program is an integral policy for the Government of Canada, it should be integrated with its overall spending plan.
Page 4 gives you a bit of background on the new rate-setting mechanism that was launched by Budget 2005. What it did was address five key principles that had been set out by the government at the time in Budget 2003, stating that the premium rate-setting process needed to be more transparent, that the premium rates needed to be based on independent expert advice, and that the expected premium revenue should correspond to expected program costs. We should try to set the premium rate so that the expenditures on the program are equal to the premiums collected.
The premium rate setting should allow for mitigating the impacts of the business cycle, and we should create some kind of stability in the premium rate over time. This is a particularly important issue for employers, because you don't want to be in the situation where you're constantly changing employer cost from one year to the next, and particularly you don't want to be doing that when you're moving into a downturn in the economy.
The rate-setting mechanism, which was set out in Budget 2005, also took into account many of the views of the standing committee that had looked at the entire EI account and premium rate setting.
Slide 5 sets out what the legislation actually provided for that set the new premium rate. What it basically requires is for the Department of Finance to provide the chief actuary with all the relevant forecasts: the economic variables for the upcoming year. That has to be provided by the Ministry of Finance by September 30 of the preceding year. The chief actuary then prepares a report that is forward-looking and designed to be break-even, meaning that the premiums to be collected in the upcoming year will come as close as possible to equalling the benefits to be paid out that year.
He has to submit a report to the commission by October 14 of each year. The commission must make that report public and consult with the constituencies. They can hold very broad public consultations with the public, but the key constituencies are obviously the representatives of the premium payers, which are the workers, unions, and employers organizations.
The rate is then actually set by the commission itself, and it must set the rate by November 14. The government does have the ability to change the rate. The legislation basically says it can be done if it is felt it is in the interest of the public to do so. The government would have to have a rationale that the premium rate the commission set is either too high or too low due to situations that are projected for the future year.
In terms of the principle of transparency, the legislation sets the timelines. They are defined fairly clearly and give a lot more certainty to employers and employees. It ensures that the rate is set much earlier than it has been in the past. There have been years where the premium rate has actually been set as late as mid and late December. This gives very little time for employers to prepare for the collection of different premiums that have to start on January 1. The lead time for employers is extremely important.
The chief actuary's report is actually made public; one was released last year. It sets out how he set the rate. There is broad consultation authority that the commission must lead. The Governor in Council can substitute a rate, if it so decides, but again, they have to demonstrate that it's in the public interest to do so.
In terms of the principle of independence, this new rate-setting mechanism ensures that the commission has the full legislative authority to set the premium rate. In setting the rate, the commission is required to take into account three basic things: the principle that revenues will equal program costs in the upcoming year; the actuarial perspective; and what it has heard from the public, from the representatives of the two key constituency groups.
In matters related to setting the rate, the chief actuary has a functional reporting relationship directly to the commission. The chief actuary is actually an employee of Human Resources and Social Development Canada, but in his role in terms of setting the premium rate, he has a direct reporting relationship to the commission. The commission itself, for those who don't know, is made up of a representative of employers--somebody who represents the employers in the business community--and a representative of the workers and unions. The chief commissioner is also the Deputy Minister of Human Resources and Social Development. It's a tripartite commission, and it makes decisions by a majority vote.
On slide 8, in terms of premium rate stability, there were a number of things put into the legislation to ensure that the premium rate did not dramatically fluctuate from one year to another. There is a maximum change that the commission can actually make in setting the rate. It cannot increase or decrease the rate by more than 15¢ from one year to the other. There was also a ceiling put on the premium rate for both 2006 and 2007, that the rate could not be higher than $1.95. If the government were to decide to substitute its own rate for the commission's rate, it is restricted by those two rules as well.
In terms of next steps, 2006 was the first year for the new rate-setting legislation. Last year, the commission set the premium rate for 2006 at $1.87. This followed a consultation process with representatives of the payers. It was consistent with the break-even rate that was calculated by the chief actuary and actually decreased the rate from $1.95 to $1.87. In 2005, the rate was $1.95 for employees. It dropped to $1.87; the employer's rate dropped from $2.73 to $2.62. This was the 12th year that the premium rate has actually declined. If you look back to 1994, the premium rate was $3.07 for employees. It has now gone from $3.07 to $1.87 over that 12-year period.
Although the commission continues to consult its constituencies throughout the year, the substantive work by the chief actuary and the commission for the 2007 rate will start this September. The first step is the receipt by the chief actuary of the economic forecast for 2007 from the Department of Finance. That's when the chief actuary can actually start the process of analyzing what his recommended rate would be for 2007.
That is just to give you a sense of how the process works.
We can turn back in terms of any questions, but I'm not sure if you are moving on to the second presentation first.