Folding CERB into EI may come at major cost

• A new plan by the federal government to fold its key COVID-19 assistance program into employment insurance could come at immense fiscal cost if Ottawa does not rein in benefits for laid off workers, industry groups and budget experts warn.

Prime Minister Justin Trudeau last week said his Liberal government would be transitioning its Canada Emergency Response Benefit ( CERB) into EI around the end of August, when government is expected to terminate the $ 80- billion program.

Trudeau revealed very few details about the scope and administration of the transition, but said his government intends to “cover every Canadian who is looking for work with a better, 21st-century EI system.”

Winding down CERB represents one of the single-biggest challenges facing the Trudeau government this summer, as it seeks to wean Canadians off of financial assistance programs and usher them back into the workforce.

Industry lobby groups say they support a shift toward employment insurance, as it should go some way toward incentivizing people back to work. Some business owners say their former employees have declined returning to the workforce, citing the $ 2,000- permonth CERB benefit.

Trevin Stratton, chief economist for the Canadian Chamber of Commerce, said his lobby group had “serious reservations” about an updated EI program that adopts pandemic- era benefits, the cost of which could fall largely on the private sector. Such a move could also create new disincentives in the EI system.

“Having something like subsidies become permanent is definitely a concern for our fiscal sustainability, and for impacts or distortions in the labour market as well,” said Stratton.

The Liberals have not said when the new EI system will be unveiled. Trudeau last week said the new regime would include a “transitional, parallel benefit” for gig economy workers, contractors and self- employed who do not typically fall under EI.

Parliamentary Budget Officer Yves Giroux has repeatedly warned against making emergency programs like CERB permanent, saying it would eventually push Ottawa beyond its fiscal capacity.

“We have to avoid modifying or amending EI in such a way that it makes it more generous than what it currently is,” Giroux said.

The federal government is projecting a $343 billion deficit in 2021, which will cause its total debt as a percentage of GDP to balloon to 49 per cent — up from around 30 per cent today.

The PBO has stressed Canada is within its fiscal limits, and remains shy of the 66 per cent debt- to- GDP ratio that forced the government into years of cuts in the 1990s.

But Giroux and others have also been clear Canada cannot shoulder the weight of continued pandemic spending, even in the case of a second wave of COVID-19. A report by the C.D. Howe Institute earlier this year argued a second lockdown was fiscally unfeasible, and governments should instead use “more targeted approaches that are effective and avoid further erosion of public finances.”

Unions have been pushing government to boost benefits under a more generous EI program. Jerry Dias, national president of UNIFOR, said benefits programs like CERB and EI will play a crucial role in reinvigorating the economy as it gradually reopens. He pushed back against claims they have acted as a disincentive for some to return to work.

“We’re in a situation now where the economy needs a complete jumpstart,” he said. “Do we actually believe that the federal government, and frankly the provincial governments, should sit as cheerleaders on the sideline, crossing their fingers and hoping that the business community steps up?”

Dias also rejected assertions by some the CERB was overly generous, arguing families have continued to struggle under the benefit.

“Try living on $ 500 per week,” Dias said. “$ 500 a week is like $ 12.50 an hour. You’re not exactly living in a penthouse on $ 12.50 an hour.”

Some observers remain unclear on how much of the cost of CERB will eventually fall on the private sector. In its fiscal update earlier this year, the federal government estimated that nearly half of the cost of its $ 80 billion CERB program would in fact be “charged to the EI Operating Account and reflected in EI benefits.”

Dan Kelly, head of the Canadian Federation of Independent Business, said the cost of broader EI coverage would ultimately fall on business owners, who have already been hammered by COVID-19 lockdowns.

He said there are concerns in the business community that Ottawa will introduce broader EI coverage that will raise overhead costs for owners. Such administrative and other costs have already been on the rise, he said, like higher Canadian Pension Plan premiums set to come into force in 2021, for example.

“What really worries me is that we may be making decisions on the fly to provide permanent EI coverage, and perhaps even require premiums from a group for whom premiums have never been required,” Kelly said. “How far are we going to go in extending mandatory coverage?”