Human Resources Committee on May 15th, 2008

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

—I know within my office, to e-mail rather than use mail now.

[Garth Whyte]

I could do that, if you want.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

To the topic at hand, back in 1995, I think you both talked about some good changes that were made. I agree with that. I refer often to a report by John Richards, talking about the importance of those changes in terms of it being kind of a win-win. What we've found is that given the increase in employment, we've seen a decrease in poverty, actually as a result of some of the changes that were made. It may not be quite so intuitive, but it works out.

One of the wins that didn't happen but should have, though, is that the savings from EI should have been passed on to workers and employers. I think you've said that. When I look at your chart, I'm just struck by the fact that around the time those changes were made, we should still have had a horizontal line—this is on page 9—and instead the line just shot straight up to $54 billion. In calculating that, I see that about $31.7 billion would have, should have, been saved by businesses during that time.

I guess the question would be how the organizations you represent would feel about the fact that $31.7 billion was collected from them under the guise of an EI program and then spent on things like a gun registry, a sponsorship program, a bunch of random programs under human resources that weren't even accounted for at some point, and other things.

Second, if they'd had that money, what productive things could they have done with it in terms of hiring workers or training workers and things like that?

[Garth Whyte]

Well, you can also argue that it went to tax reduction and to debt reduction, but the fact was that it went to general revenues. We were outraged. We told Finance Minister Martin several times when we were outraged, and he knew. Recently we've told Minister Flaherty we are outraged that it continues to grow.

We asked our members, “What would you do with the savings, if you had some tax savings?” You can see, on page 5, they've told us what they would do. They would invest in new equipment, they would increase employee wages, they'd pay down their debt, they'd hire additional employees, they'd do additional employee training. It is counter-intuitive.... This is why we were arguing...and we've pushed this issue for many, many years. It was a tax, a tax on employment. The more people you employed, the more you were taxed. It was outrageous. We didn't agree with it.

That's why we're happy to at least see the tap turned off. We're not happy to see all that money just gone, notionally gone, and then all of a sudden, if there's a downturn, there's only $2 billion. How do we pick that up?

I like what David was saying: we've got to do some more brainstorming on how we can ensure employers and employees aren't on the hook. The worst time to raise rates is during a downturn.

[David Stewart-Patterson]

As I said in my initial remarks, we certainly argued in favour of bringing employment insurance premiums into line with costs, all the way through that period. On the other hand, we were arguing about the importance of reductions in other tax rates as well. EI premiums act as a tax on the creation of jobs. Capital taxes, corporate income taxes, act as a tax on the investment in productivity and new machinery and equipment and so on.

The fact is, again, that we look at it from a more holistic kind of perspective there. Whatever we thought of the decisions that were made at the time, those decisions were made that the government allocated the money that flowed through EI into general revenue in the manner it saw fit at the time. Those decisions are made; those decisions are past.

I think the main concern right now is how we make sure the EI system works properly moving forward. Setting up the segregated account is the right thing to do. The one concern I think both of us share here in the transition to the segregated account is whether we are doing enough to make sure there's sufficient backstop that we're not going to get into a situation within the first couple of years of setting up this account...because, face it, we are in a period where there are signs of economic weakness, certainly in the United States, and worries about whether that may spill over the border here. So we're setting up this account at a time that may be towards the end of a long cycle of growth. Are we doing enough to make sure it has that rate stability through its first business cycle?

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

You may know that the $2 billion reserve has been set by the EI chief actuary. The mechanisms are in place to make sure that account stays in balance. It will be backstopped by the consolidated revenue fund, if necessary, through a loan, but the idea is that it would always remain in balance. Of course, the mechanisms are there, the mathematical formulas are there for adjustments in rates to make sure, if there are shortfalls, for example, they're not all borne immediately by the workers and employers, that there's something there to kind of smooth it out over time.

But from here on forward, of course, we know that account will stay in balance, and what's collected for EI will be spent on EI. The remainder of what would have been the equivalent of the $54 billion moving forward can be spent on things like new equipment. I'd like you to maybe talk about that, give—

[The Vice-Chair, Liberal, Michael Savage]

We'll have to pass on that. Thank you, Mr. Lake.

We'll go to Mr. Lessard for the last round of questions.

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

Thank you, Mr. Chairman.

The unions and the employees that testified before the committee agreed that the creation of the board was a step in the right direction and that the money from the surplus had been diverted and should not have been used for that purpose. The minister himself acknowledged that. As Mr. Whyte said earlier, this is virtually a tax on employment.

You also told the committee something on which there seems to be a consensus, with the exception of one discordant note: the $2 billion reserve isn't enough and the diverted funds should first be used to constitute the reserve. Perhaps you read the December 2004 and February 2005 report of the Standing Committee on Human Resources, Social Development and the Status of Persons with Disabilities, which contained 28 recommendations. Eight of those 28 recommendations were unanimous. The purpose of one of those recommendations was to return the diverted funds to the fund at a rate of $1.5 billion a year so as not to affect the Consolidated Revenue Fund.

Why $1.5 billion a year? Because that represents 50% of the Canadian government's usual reserve for contingencies, which is never used. This $50 billion must be recognized as a loan, in the same way as when the Canadian government borrows in the financial markets.

What do you think of that? Should we continue in this direction? What you're saying makes me think that perhaps we should continue along this path. The employment question must also be considered, which I'm not sure about, but I'm prepared to listen to suggestions. One of the suggestions is that we draw on Ireland's model and put a flexible security system in place. I don't know whether you understand. In other words, it was suggested to us that we use part of that money to train people so that they can redirect their careers and enter the labour market.

Have you thought about that question? What do you think, Mr. Stewart-Patterson?

[David Stewart-Patterson]

You've asked several questions there, which are very interesting ones.

In terms of repatriating the past surpluses, again, I think my attitude is that what is past is past. On the notion of adding a bit more into the account in the transitional years—if there's a consensus that $2 billion, despite what the actuaries say, is a bit dicey and we need a little more—yes, whether we're talking about $1.5 billion or whatever is available out of a year-end surplus for a couple of years, I can see that kind of repatriation, if you want, as a transitional measure.

But when it comes to considering whether we should set up some kind of long-term mechanism to pay back $50 billion over the next generation, all that really boils down to is asking if that's the best use of that money in that year. In other words, if we're going to say governments in years ahead are going to spend $1.5 billion to put back into the EI fund to do things through the EI fund, that's money that's not being spent on increased transfers to the provinces for health care or education. It's money that's not being used for cuts in other federal taxes. It's money that's not being used for other federal programs.

In other words, any use of a new dollar going forward is a policy decision of the day. It's what is the best use of taxpayers' money, and I don't want to say automatically that for years to come that's going to be the best possible use.

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

You didn't seem to agree that much with Mr. Whyte that it was a tax on employment. And yet, from what you tell me, you quite agree that this money is being for other purposes.

[David Stewart-Patterson]

Yes, and frankly, as you say, employment insurance premiums are a tax on jobs.

But what matters I think to Canadians is not just how many jobs we have; it's how well-paid those jobs are, how highly skilled those jobs are. Going forward, as more and more we face a shortage of qualified people, I think we are going to have to pay more attention to the quality of jobs and not just to the number of jobs.

That's where I'm saying I think as we go forward we need to make good policy choices about how to invest in Canadians and the skills of Canadians and the skills Canadians bring to the workplace, rather than set up an automatic formula that says we're going to take money from one account and put it into the other account regardless of what it's going to be used for.

[The Vice-Chair, Liberal, Michael Savage]

Thank you very much, Mr. Lessard. We're finished. I will have to stop you there.

I want to thank Ms. Pohlmann, Mr. Whyte, and Mr. Stewart-Patterson for joining us today. We appreciate that you were able to make some time to be with us.

I think this brings to a conclusion the witnesses we're going to have on our study of the new employment insurance crown corporation, with the exception, members, that Minister Solberg will be here on May 27.

Again, on behalf of the committee, thank you very much for joining us.

We're going to break very briefly and come back with clause-by-clause consideration of Madame Beaumier's Bill 362. We'll take two minutes.

Thank you.

[The Vice-Chair, Liberal, Michael Savage]

I will ask members to come back to the table.

Pursuant to the order of reference of Wednesday, November 29, 2007, the committee will now proceed with the clause-by-clause consideration of C-362, An Act to amend the Old Age Security Act (residency requirement).

We have some witnesses with us today from the Department of Human Resources and Social Development Canada. We thank you for joining us, Nathalie Martel, acting director of old age security policy; André Thivierge, acting director of international policy and agreements; Michel Montambeault, director in the Office of the Superintendent of Financial Institutions Canada, Canada Pension Plan and old age security; and Cathy Doolan, senior counsel and litigation support specialist. We appreciate your presence here today.

We will begin. Colleagues, the preamble is postponed, pursuant to Standing Order 75(1), as I'm sure you're all aware. We shall vote on it after all the clauses have been dealt with.

We are on clause 1.

We have had no amendments submitted for this bill, so if there are any....

Madam Dhalla.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

I have a question. We have witnesses as well. I believe we have the acting director and other people from HRSDC. Would we be able to hear from them?

[The Vice-Chair, Liberal, Michael Savage]

They are here to answer questions, not to make comments.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

Can we ask them questions?

[The Vice-Chair, Liberal, Michael Savage]

You can ask them questions. That's what they're here for as we go forward.

So we're on clause 1. Do you have a question regarding clause 1, Ruby?

While we're considering that, you received three pieces of information during the break. Two are pieces of information we asked Madame Beaumier to provide, and her office has sent that. It's with regard to the costing of this bill. The other was a request to find out who Canada had international social security agreements with. Those pieces of information have been put in front of you, in both official languages, for your consideration.

On clause 1, Ms. Dhalla.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

Clause 1 speaks about the three years. Could the acting director, Ms. Martel, who has done a great job in terms of steering this file, perhaps tell committee members where we're at in terms of signing these agreements? What does Canada look for when these agreements are signed? And why is it that individuals from certain countries who came before us, as an example, India or China, don't have agreements signed with Canada?

[Nathalie Martel, Acting Director, Old Age Security Policy, Department of Human Resources and Social Development Canada]

Thank you for your question. I have with me my colleague, André Thivierge, who is the director of international agreements. If I may, I will ask André to answer your question.

[André Thivierge, Acting Director, International Policy and Agreements, Department of Human Resources and Social Development Canada]

Thank you.

As you see, we have agreements signed with 51 countries. We're limited to agreements with countries that have social security systems like Canada's so we can coordinate and we can add periods in the two countries to meet minimum requirements for a benefit.

Currently we have undertaken some negotiations with Argentina and Brazil, and we've begun discussions with Romania. Our goal is to have agreements with as many countries as possible, to protect the rights of our immigrant population.

Unfortunately, we are unable to have agreements with countries such as India or China. India in particular has recently instituted a pension system, and there are issues, in our view. We were in India about five years ago. There are issues with respect to administration, and they don't have a centralized social insurance index that would allow us to exchange information. We monitor developments in India very closely, with the hope that in the not too distant future we can begin discussions with India. China, on the other hand, does not have a social security system in place with which we can coordinate our pension system.

I don't know, Ms. Dhalla, whether I've responded to all your questions.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

In terms of the countries that don't have the social system and the infrastructure we have in Canada, the old age benefits that the seniors are advocating and fighting for are non-contributory payments. Could this bill, in essence, still move forward? Let's say it passes in Parliament and there is no agreement signed with these particular countries. What would be the costing for this?

[André Thivierge]

I don't have that information.

Perhaps I didn't understand your question correctly. You're saying that if this bill were to pass and we reduced the minimum residence period to three years, what would be the cost related to...?

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

What would be the cost in terms of ensuring that all of these seniors are receiving their benefits after three years instead of ten years? Then you wouldn't need agreements with any countries, because it would have gone through Parliament--providing the government had implemented it.

[André Thivierge]

There is the issue that we have 51 agreements. There's a question as to whether we would have to renegotiate some or review them to determine if there are any changes required.

The agreements, though, go beyond old age security. They also affect the Canada Pension Plan and Canada Pension Plan disability and survivor benefits. There are also provisions with respect to detached workers who can be exempted from paying social security contributions in the other country when they work there temporarily.

All that is to say that if these amendments were made we could still have social security agreements with other countries. In my view, it may create a disincentive for some countries, because there would be less in it for them; nevertheless, there is still a basis for negotiating agreements.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

But technically, for the old age security portion of it you wouldn't need any agreements.