by Charles Cirtwill

Great News! According to the latest Fiscal Monitor (the quarterly financial update that our federal government sends out), Ottawa is in the clover. Apparently we ran a $2.7 billion surplus in April 2007, up $0.1 billion from the surplus we had in April 2006. In fact our revenues are up some $2.4 billion over last year (our spending is also up some $2.3 billion, but that’s a column for another day).

The Fiscal Monitor tells us that most of this growth is driven by federal corporate taxes but that personal and other income tax revenues are also up while GST revenue is down because of the recent cut in the rate from seven to six percent. So far, so good, but then the Monitor takes a very disturbing turn, telling us:

“Employment insurance (EI) premium revenues increased by $0.2 billion, or 6.7 per cent, through April and May, reflecting improvements in employment and wages and salaries, which more than offset the decline in the premium rate from $1.87 to $1.80 per $100 of insurable earnings, effective January 1, 2007.”

Read that passage again very closely, especially the part that says “which more than offset the decline in premium rate from a $1.87 to $1.80”.

In reading that clause there are a few things you should keep in mind.

First, EI premiums are collected to support EI payouts, not to fund general government revenues. EI premiums should not be treated, and they definitely should not be discussed by our financial managers, as if they were just another line item on a revenue statement. They are not a tax akin to business and personal income taxes – at least successive governments of all stripes have been telling us that they are not a tax. So we should not be seeking to “offset” losses. The goal of the EI managers should be to balance premiums with expected payouts plus a prudent reserve.

Second, there is a current surplus in the EI account of some $51 billion. That is $5 billion more than the $46 billion the government had already racked up in 2004 when Auditor General Sheila Fraser called the government to account over the massive surplus. At that time she indicated that the government had not observed the intent of the Employment Insurance Act because “Parliament did not intend that a surplus would accumulate beyond what could reasonably be spent on Employment Insurance”. The government already has more money than it needs to run the EI program, maintaining the flow of cash to federal coffers is a failure in good management, not something to be celebrated.

Third, that paltry $46 billion surplus was already three times larger than the chief actuary of Human Resources Development Canada considered sufficient to cover expected liabilities and to provide a prudent reserve in 2001. Presumably, with the passage of time that prudent reserve figure has adjusted itself somewhat. There has also been some discussion of late about adding new programs or extending various allowances for compassionate leave and the like and paying those costs out of the accumulated EI funds. Even with the passage of time and the introduction of generous new benefits, however, it is unthinkable that the liability would have quadrupled in six years.

Finally, let’s be clear. Contrary to what governments have been saying for a generation, EI premiums are a tax, a tax on jobs. Organizations like the Canadian Federation of Independent Business and the Canadian Taxpayers Federation (CTF) have made that abundantly clear time and time again. The higher the premiums, the higher the cost is for employers to have employees, the fewer jobs – simple.

Giving back the accumulated surplus is probably too much to ask for, but cutting premiums and ending the gouging once and for all is certainly within reason. The CTF recently estimated the necessary premium rate to sustain current payouts and a prudent reserve at $1.59 per $100 of earnings. For individuals, that is twenty-eight cents lower than it is now. That’s about $50 savings for someone making $24,000 a year. It is $220 for their employer, who pays a considerably higher premium. Multiply that by 10 employees, or a hundred, and soon you are talking about some real money.

I don’t think the Fiscal Monitor should mention EI again until they can trumpet achieving a balance between what they collect and what they pay out. Our governments have introduced legislation to stop private sector insurers from price gouging, why should public insurers be any different?

Charles Cirtwill is the acting President of the Atlantic Institute for Market Studies,, a non-partisan public policy think tank based in Halifax.