moved:
That, in the opinion of this House, the government should establish a Yearly Basic Exemption (YBE) within the Employment Insurance program whereby the first $3,000 of earnings is not subject to Employment Insurance premiums, similar to the YBE of $3,500 allowed by the Canadian Pension Plan program.
Mr. Speaker, this appears to be the last day of Parliament and I am up on the last piece of private members' business. It might be appropriate for me to state at this time that what happens so often in life is that we save the very best for last.
Motion No. 300 reads:
That, in the opinion of this House, the government should establish a Yearly Basic Exemption (YBE) within the Employment Insurance program whereby the first $3,000 of earnings is not subject to Employment Insurance premiums, similar to the YBE of $3,500 allowed by the Canadian Pension Plan program.
This is not a new proposal. It has been proposed or endorsed by groups including: the Retail Council of Canada, the Hotel Association of Canada, the Canadian Tourism Association, the Canadian Federation of Independent Business, and the Canadian Restaurant and Foodservices Association.
This proposal is known as the yearly basic exemption for the EI program. It has been studied by the all party House of Commons Standing Committee on Finance and the Standing Committee on Human Resources, Skills Development, Social Development and the Status of Persons with Disabilities, both of which recommended that the federal government consider implementation of this concept.
The main reason why I believe that the yearly basic exemption would be a very positive measure for government to take is because excessive payroll taxes are recognized to have a serious detrimental effect on job creation, business expansion and economic growth. The service and hospitality industry is labour-intensive and is a major factor in job creation. Anything we can do to reduce payroll burden, particularly for these entry level jobs, is positive.
The YBE targets payroll tax benefits to those most punished by current EI levies. These include lower income workers and labour intensive businesses. Universal application of the yearly basic exemption makes it fair to all and simple to administer. The way it stands now, employees earning less than $2,000 per year can apply for a full refund of EI premiums. Employees earning more than $2,000, but less than $3,000, cannot apply for a premium refund despite the fact that they have virtually no chance of qualifying for EI benefits due to the number of hours required for eligibility.
It is a fact that it is highly unlikely that those earning less than $2,000 per year will qualify for employment insurance. The minimum number of insured hours required to qualify ranges from 420 to 700 hours, depending upon the rating for the economic region within Canada.
For retail, service and hospitality industry jobs, it is likely that $3,000 in earnings will still not be based on enough hours to qualify for EI benefits. These same individuals are allowed an EI premium refund on their first $2,000 of income, but the reality is that one-third or more of these eligible individuals never apply for it and therefore never receive it.
This premium refund, when it is given, applies only to the employee contribution and not the employer contribution, so essentially what we have is a hardship on low income earners with no benefits, and an increased burden on the business which creates no gain for their employees and is a cost burden to them.
The yearly basic exemption for EI is consistent with the yearly basic exemption which is already in existence in the CPP and QPP programs. Surely, if it works for the Canada pension plan program, it will work for the EI program. The yearly basic exemption for EI refers to the annual earnings within which premiums are not applied, and I am recommending that this be only for the first $3,000 of earnings.
The implementation of this yearly basic exemption requires no change in the calculation of EI benefits and the $3,000 exemption should be included in the contribution base.
Who would be the major beneficiary of such changes? Students, part time workers and new entrants to the workforce, including immigrants. The latter is a group who the government has an obligation above all else to treat fairly and not to penalize as they are the least well armed and well prepared to deal with government bureaucracy and government forms and complexity.
I think government should remove the necessity for students and other low income earners to pay premiums in the first place, rather than have them claiming them at tax time.
Some people argue that unscrupulous employers might terminate employees as they approach the yearly basic exemption threshold of $3,000, as this would add a payroll burden to their costs. However, this same argument is applicable to the CPP and QPP programs, and in that case employers are paying a much higher rate per $100 after the minimum threshold of $3,500 is reached. Yet, this phenomenon has not been a concern and the advantage of the exemption for simplicity of administration has been recognized.
The Canadian Restaurant and Food Association has been the main proponent of the EI yearly basic exemption, believing that this policy change would increase the disposable income of low income Canadians who also have the highest propensity to spend, while increasing the ability of labour intensive businesses to retain staff.
People in the business only predict positive outcomes. Predictions of increased staff turnover are incorrect and staff turnover would actually decrease. Most employers in the hospitality and service industry recognize that staff retention, training and upgrading would all benefit from this policy change, and would be a net benefit to the business and the overall industry.
The 2002 Standing Committee on Finance report predicted that the cost of the yearly basic exemption for EI would be about $2.2 billion annually, which at that time would still have led to annual surpluses in the EI program.
Since then, the government has added parental and compassionate leave benefits via the EI program. The government has funded the parental and compassionate leave program from the EI program to blunt criticism of its string of surpluses, which has grown to almost $45 billion in a straight line since 1995.
I would have much preferred to see the parental and compassionate programs funded on their own merit, rather than from an EI program designed to protect workers from unanticipated job loss.
The yearly basic exemption for EI may not be sexy, but it would have major positive consequences for job creation, business expansion and growth of the economy, and it is still something the government should adopt.
The finance committee report had some further important points to make. For example, the yearly basic exemption would reduce administrative complexity and ensure that all individuals, not just those who apply for a premium refund by filing an income tax return, are treated equally.
The report also noted that the YBE would not only be fairer to workers with low earnings but also to employers because as it is now they continue to pay premiums for those lowest income employees who do end up filing for and receiving a refund for their premiums. Some of them actually do.
Another observation made to the committee was that the yearly basic exemption will provide a financial incentive to create a bias for full employment because employers will save money by reducing hours instead of reducing the number of employees during recessions. They will also have a natural incentive during good times to save money by hiring rather than relying on overtime. For this reason, the finance committee recommended that the EI Act be amended to create a yearly basic exemption to stimulate consumer spending and employment creation.
The Standing Committee on Human Resources Development studied the subject of employment insurance in 2001 and summarized its objectives by saying that the EI program should provide adequate access and income support to unemployed workers while maintaining incentives for individuals to secure jobs and invest in skills required in the workplace. Of equal importance, EI should be fair to all premium payers.
In terms of fairness to ensure that everyone is treated equally, the all party Standing Committee on Human Resources did recommend an EI yearly basic exemption, which would make the EI program progressive in the same way as CPP or QPP. The committee report suggested that the yearly basic exemption be set at $2,000 to be consistent with the current refundable level. The committee clearly saw the benefits to retaining the money in the employee's hands and the employer's hands and simplifying administration.
Rather than argue whether the yearly basic exemption for EI should be $3,000 or $2,000, I think the principle is what is important to establish and this motion urges the government to consider this positive change.
The Standing Committee on Human Resources Development did recommend that since the $2,000 limit fails to capture many individuals, especially students, who earn more than $2,000 a year but are unable to obtain enough hours of insurable employment to access EI, the government should consider increasing the current earnings threshold for an EI premium refund to $3,000, as well as to consider converting this refund to a yearly basic exemption.
These recommendations from the two standing committees and from many other groups are now several years standing. I think at this time the merits of such a program are obvious and I do believe it will occur. I hope to bring some light to this issue and to urge the government into action rather than inaction on this very important and fiscally smart change that could be adopted with very little in the way of complexity.
I will be interested to hear what the government spokesperson has to say on this motion.