Human Resources Committee on May 1st, 2008

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

I just want to get a sense of the dollars here. I've heard, and my colleague from West Nova, who knows these things quite well, has heard that a half-percentage-point drop in employment equates to roughly $1 billion on the benefit side.

Is that a number with which you're familiar?

[Yves Giroux]

I don't think you can make that simple an equation, because a change in the unemployment rate in itself does not necessarily mean the EI benefits will be affected. It can vary greatly, according to the length of unemployment, who is suffering from unemployment.

On your point about the 1991-92 deficit, I'd like to point out that the economic structure back then was significantly different from what it is now. For instance, the unemployment rate was significantly higher in the early 1990s than it is now. So all of the things being equal, even if we were to go into an economic downturn, the impact on the EI benefits and the surplus or the deficit of the account would be way, way smaller, in my opinion.

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

I'll come back to that.

Thank you very much.

[The Chair, Conservative, Dean Allison]

Thank you, Mr. Savage.

We're going to move to Mr. Lessard for seven minutes, please.

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

Thank you, Mr. Chairman.

I would like to welcome you and thank you for appearing this morning to provide us with this information.

I will follow up with Mr. Savage's line of questioning. I understand that Bill C-50 provides that when the fund does not have a sufficient reserve, for example, in the event there was a significant change to the employment rate, amounts could be advanced from the Consolidated Revenue Fund to the employment insurance account. Once the premium rate is adjusted, according to those new responsibilities, the CRF will be refunded.

Are the $2 billion that are transferred from the CRF, to establish a reserve, considered as an advance?

[Yves Giroux]

No, the bill provides that the $2 billion are considered as a reserve. To my knowledge, the bill does not contain a provision for those $2 billion to be refunded. So, this is a transfer. The bill does provide for the $2 billion reserve to be indexed. There is no provision requiring the money to be returned to the government, to the CRF, in any well-defined timeframe. The $2 billion are not considered as an advance, but as a transfer.

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

So, the amount is deemed to belong to the employment insurance account.

[Yves Giroux]

I don't want to get into that type of technicality, namely whether it belongs in the employment insurance fund, but I believe that people would indeed think that it does belong there, if it was transferred and if the bill contained a provision calling for indexation each year. So people would certainly believe that the money would belong in the employment insurance fund, but since I am not a lawyer, I cannot give you a legal opinion as to whether the money should legally be in the Employment Insurance Fund. But I certainly believe that people think that's where it belongs.

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

Given the position you hold, I imagine that you were involved in the drafting of this bill.

[Yves Giroux]

Indeed, you need lawyers to draft a bill, but I certainly was involved with regard to the measures which were included in the budget.

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

So you are very familiar with the preparation of the framework, etc.

[Yves Giroux]

When I appear before a committee as I am today, I have the impression that I don't know enough, but...

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

The Auditor General reminded us that in 2004, $46 billion were stolen from the Employment Insurance Fund—really, it was theft—and in the course of its work in 2004-2005, this committee recommended that those $46 billion be put back into the Employment Insurance Fund at the rate of $1.5 billion per year.

This money rightly belongs in the fund. The committee had also recommended that the amount, which today is $54 billion, be considered as a loan to the government that should be repaid into the fund.

How can you argue that the money should not go back into the fund, when the reverse applies, namely that the money which will be taken from the Consolidated Revenue Fund and put into the fund, will have to be repaid to the government with interest? How does that stand to reason?

[Yves Giroux]

The amount of $54 billion, which was $46 billion at the time, was not in a specific account, but it was simply an accounting entry, as you probably know. The consolidation of the employment insurance fund had been strongly recommended by the Auditor General of the day, Mr. Denis Desautels. This was a time when the Employment Insurance Fund was in a chronic deficit situation. So the Auditor General recommended to the government that the fund be integrated into the Consolidated Revenue Fund, and that the deficit be entered as a liability of the government of Canada, which the government of the time actually did. The situation changed afterwards, as the Employment Insurance Fund began to accumulate a large surplus. Since the successive surpluses were integrated and consolidated into the Consolidated Revenue Fund, they were not put into a separate account. So the $54 billion do not actually exist in a dedicated account.

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

We know all that. We must remember two things. At the time, according to Mr. Desautels, consolidation would be the better solution because it would make managing the situation easier, given the huge fluctuations in the unemployment rate. At one point, it stood at 13%. The situation was out of control. Consolidation made managing the situation easier, but there were not surpluses at the time.

You say that this an accounting operation. But for a worker who paid $3.20 for every $100 earned, and for an employer who paid 40% on top of that amount, it was not virtual money. They did not send you numbers, but money. However, that money was spent elsewhere. What it really comes down to is that people who work hard to earn a living overpaid by $54 billion. It was not a surplus; the money should have been spent on supporting those who had lost their jobs.

Today, nearly 60% of people who are unemployed, and who paid employment insurance premiums, do not receive EI benefits. The surpluses therefore came as a result of cuts made in the employment insurance program. What is the rationale for this argument? You have to pay back what you have borrowed from the Consolidated Revenue Fund, but not what you have borrowed from the fund. We should have put the question to the minister, but we did not have much time, and it is a political matter.

[The Chair, Conservative, Dean Allison]

Mr. Giroux, that's all the time we have. I want you to answer the question, so you have time to do that, but that's all the time we have.

[Yves Giroux]

I'll do that very shortly.

[The Chair, Conservative, Dean Allison]

Take your time.

[Yves Giroux]

I mean briefly.

You are saying that the Employment Insurance Account should be reimbursed this $54 billion. You also appear to be saying that there is a dichotomy between the amount loaned and advanced to the Employment Insurance Account and that this amount, according to Bill C-50, should be reimbursed.

For explanatory purposes, I think that we should set aside this $54 billion. I can tell you what Bill C-50 will enable us to do in the future. Two billion dollars will be funnelled into the Employment Insurance Account. If surpluses are created, we will account for this in setting the premiums for subsequent years. If there is a surplus, it will be returned to the workers and employers in the form of lower premiums. Similarly, should we unfortunately incur a deficit, the new employment insurance board will advance money through this $2 billion and this amount will have to be reimbursed over subsequent years through higher premiums.

Why not transfer a higher amount? Why not use part of this $54 billion? You stated that this would be a good question to put to the minister and I can only agree with you on that matter.

[The Chair, Conservative, Dean Allison]

Thank you.

Thank you, Mr. Lessard.

We'll now move to Ms. Yelich. You have seven minutes.

[Lynne Yelich, Conservative, Blackstrap, SK]

Thank you.

I would like to talk about the crown corporation, the board, and the benefits of having this board. It's arm's length. It's a crown corporation. It's non-partisan. There are benefits from the merit-based nominating process. Do you believe this is more transparent? I would just like a comment on having this done in the form of a crown corporation, because I know there is some concern about setting up another crown corporation.

So would all of you care to comment on that?

[Louis Beauséjour]

The idea of having a crown corporation is to make sure that the rate-setting decision would be independent of government and that an independent body would oversee all of the considerations, taking into account the law, the fact that they have to take into account the level of the yearly investment income, the parameters of the benefits that have to be paid for coming years, and the level of the reserve.

[Sherry Harrison]

I would like to add to that regarding a few of the recording mechanisms. It is arm's length from the government. It will be accountable to Parliament via the Minister of HRSDC and will report publicly on activities and results. For example, quarterly financial statements will be made available publicly. The act does provide for a special examination of systems and practices of financial management control to be done every five years and the results of that to be tabled in Parliament.

As I said before, the premium rate-setting report will be provided publicly, and there is the requirement for an annual report and summary of the corporate plan and budget to be tabled in Parliament.

[Lynne Yelich, Conservative, Blackstrap, SK]

Would you care to comment, from Finance, on the benefits of having a crown corporation?

[Yves Giroux]

One benefit of having a separate crown corporation is that it allows the creation of a separate bank account that will be managed to the benefit of premium payers and benefit recipients, so that the rates can remain a bit more stable. Another advantage is that there will be additional predictability in the setting of the premium rate by having a clear set of guidelines for the crown corporation to set its premium rate going forward, as well as having premium rate payers benefit from any potential surplus that could arise in the future years.