Mr. Speaker, I have spoken on the subject of the budget before and I was going to cede my place to my colleagues, but a new development has taken place which has very serious implications for the budget.
The Minister of Human Resources Development has joined a chorus of demands by labour and employers that there is a need, if not an obligation, on the part of the government to lower premiums on unemployment insurance contributions made to the unemployment insurance fund.
If these premium rates are lowered, as I think they should be and I think they will be, then the government's vaunted target of 2 per cent deficit of GDP in two years' time cannot be met. There is even doubt that this year's projections can be met. This is a very serious matter.
According to the budget document, the government will violate tradition. For reasons I will indicate in a moment, it is almost illegal. However, I do not know if I can call it illegal. On the one hand by keeping up the premiums or on the other hand it does the right thing with respect to premium rates, the government will not be able to meet its target.
This is a summary of what I would like to include in my speech. I would like to build to a conclusion and support it with some more careful analysis and numbers.
Let me first remind people that the unemployment insurance system is an independently funded account which by law has to balance over time. I took the trouble of calling the solicitor for the Department of Human Resources Development to ask what the law is. He told me that it should be balanced over time. A few years ago the auditor general required that the government adhere to this principle.
When the balance accumulates the government is, therefore, obligated to lower premiums. If the balance becomes negative, premiums have to be raised.
The government is making the argument that is really pro-cyclical, that is, it aggravates the business cycle because the funds accumulated in the UI system are likely to become negative when there is a recession. If during this recession the premium rate is raised, it will result in the further withdrawal of purchasing power. It therefore aggravates the size of the business cycle.
Therefore, I agree with the government that we should accumulate a certain reserve during good times so that the fund would be able to ride out the next recession without having to raise premium rates again. However, there ought to be a limit to the amount which the unemployment insurance system can accumulate.
Why is this system separate and is there this rule that the balances must come to zero through time? The reason is quite obvious. The unemployment insurance premiums have two very serious characteristics. First, they are regressive. The maximum contribution that individuals pay to the fund is $1,320 a year. This $1,320 a year is paid by someone making $30,000, someone making $100,000 and someone making $1 million. The percentage which this $1,320 represents of total income is much higher for lower income earners than for higher income earners. This is clearly a regressive tax.
The reason why the rule exists that this must not be used to finance general government expenditures is that general government expenditures accrue to everyone and they are part of a system income redistribution, and so on. Therefore, this is not money that should be used to finance general government pensions and various other things. Those government functions should be financed by general taxes in the form of personal income taxes, the GST and corporate income taxes because all of those benefits are accruing to all Canadians. All are paying for it and it accrues to all of them.
The UI contributions, on the other hand, are simply for providing protection against the risk of becoming unemployed.
The second damaging characteristic of unemployment insurance revenues is that over one-half of them are paid by employers. People who go out and think that they can afford someone to work in their donut shop for $10 an hour will be deterred from doing so because the government says: "That is not enough. You have to pay the 3 per cent to the government in the form of a contribution to UI". This is why it is widely known and has been given the name by the government of a job killing tax.
Any time that the government legislates increases in the cost of labour which have not been negotiated in the labour market, it raises the cost of labour and is therefore detrimental to employment.
It is quite clear that it is not in the interest of society. It is not legal for the unemployment insurance fund to be in surplus for a prolonged time or in a surplus that is used to finance general government expenditures. That is why the representatives of labour and employers have been coming in droves to the hearings of the human resources development committee and have been asking for a reduction in the premium. That is why recently the Minister of Human Resources Development noted that he too believes the premiums are to be lowered.
Just to give an idea of the magnitude of this effect, the revenue from insurance premiums in 1995-96 will be $18.5 billion. People have great difficulty envisioning what $18.5 billion is. Let me compare this with what is expected to be collected from corporations. Corporations are expected to pay $14.5 billion. The UI system is expected to contribute $18.5 billion to total revenue.
On it goes through 1997-98. It is expected that by 1997-98 the unemployment insurance contributions revenue collected by the government will be $19.5 billion. That may or may not be a lot; it all depends on what the obligations of the UI system are.
The budget again has an answer for that. In the year 1995-96, the $18.5 billion is required to provide unemployment insurance benefits worth $13.8 billion. The difference between revenue and expenditure is $4.7 billion. It is in the budget which is being debated today that over this year and the following two years the excess of revenue collected from workers and their employers minus what is being paid back to them through unemployment insurance benefits will contribute to the nation's surplus $4.7 billion, $4.6 billion and $5.0 billion in each of those years respectively.
A surplus also existed in 1994-95. At that point it was the highest it had been in a long time, $5.4 billion. It was used to reduce the accumulated deficit of the system, but by the beginning of this year the surplus, the reserve of the system, has begun to grow. It is estimated that by the end of this year it will be about $4.5 billion, the following year $9 billion and thereafter $14 billion.
Again, people have very great difficulty relating to these numbers. The $14 billion at the end of 1997-98 is equivalent to one full year's outlay in the budget for unemployment insurance benefits, one full year of reserves, the highest these reserves have ever been in the history of Canada. I have a graph which shows this.
It was $2.2 billion. The government has predicated the achievement of its deficit target on the assumption that this accumulation of surpluses will go to $14 billion. It is not reasonable. The largest cumulative deficit that ever existed was $5.8 billion.
These premiums by all standards must be lowered. They cannot go on like this. It is almost illegal. It is killing jobs and it is unfair. As some people have said, the money in the UI fund does not belong to the government for its general programs, it belongs to the workers. I have made that case and it is fair and justified.
A very great problem is developing for the country and for this government. This is what it will mean two years from now using the government's figures. If the government did the right thing and lowered the unemployment insurance premium, there would be no addition to the system's reserves. In 1997-98 the deficit is projected to be $17 billion. If the $5 billion generated as a surplus by the UI fund were not available, the deficit would be $22 billion, just a little bit less than the preceding year, which is next year. There would have been no improvement.
The Minister of Finance brags on Wall Street and everywhere else: "I have achieved our target. I have broken the back of the deficit". The entire government plan and the minister's proud achievement are predicated on keeping money that does not belong to the government but belongs to the workers. It is in the books. The auditor general said so. It makes complete economic sense. The government is coming close to the mistake it made on the GST.
I cannot believe that a man with the intelligence, background and integrity of the Minister of Finance and with the huge resources he has available in terms of this country's best economists would say in front of investors on Wall Street that he has broken the back of the deficit, without acknowledging that his prediction is based on the assumption he will have $5 billion in each of the next two years coming in as revenue he knows does not belong in that account. That revenue belongs to the workers.
That revenue should not accrue because by tradition in the way the UI fund has been set up the premium rates should be lowered. Again I have a graph. It shows that whenever the cumulative deficit was large enough the rates would be raised. If there was a surplus, the rates would be lowered. I have not had time to look at the speeches made by the Liberals when they were in opposition,
demanding I am certain the lowering of benefits because the money belonged to the workers. However, here they are using it to achieve their target.
What are the Liberals going to do? Are they going to shamefully make that fund grow to $14 billion when the highest ever in the history of Canada has been $2.2 billion? It certainly is in the budget. If we do not do it, the target is not going to be met.
Where have the media been? Have they not noticed this? Where are all the incisive analyses that should be going on about this subject? If they would like some background information, they could call me.
There is no way in which this government should resist the supremely justified demands of employers and employees, and organized labour is adding to the chorus that the Minister of Human Resources Development do the right thing and lower this regressive tax which is killing jobs. The government should be lowering the premium rates which are taxed rates. They are regressive because they fall so heavily as a percentage of income on workers in the lower echelons. They are killing jobs and they add to the cost of employing labour. This is a major scandal. It is a scandal which I predict will become very similar to that of the GST.
I know the minister in response to questions on this subject will say that the government has plenty of reserves built into the system. Let us look at that. He has built into the 1997-98 budget a $3 billion contingency reserve. Part of that will already have been eaten up by the money which he has just committed to pay as an inducement-and some people in the Government of Ontario are calling it a bribe-