Flaherty’s inconvenient EI surplus
ormally an embarrassment of riches would delight Jim Flaherty. Finance ministers like nothing better than surging revenues and subsiding costs.
But when Ottawa takes in billions more in employment insurance ( EI) premiums than it hands out in benefits, he has a problem on his hands.
Flaherty publicly pledged in 2008 to keep the EI fund in balance. Never again, he promised, would Canadians see the massive surpluses ($ 54 billion) that the Liberals chalked up.
But five years after Flaherty’s announcement, the EI fund is growing at an accelerating rate. Last year the government took in $ 2.6 billion more than it paid out. This year, Flaherty projected a $ 3.6- billion EI surplus, but it is already clear it is going to be much bigger than that. In the first three months alone, Ottawa collected $ 6.5 billion from workers and employers and doled out $ 4.2 billion to the jobless claimants. At this rate, the surplus would be $ 9.2 billion by year’s end — on top of the $ 3.6- billion buildup from previous years.
To resolve this dilemma, Flaherty announced a three- year freeze in EI premiums. “More people are working so more people are paying into the operating account of the EI plan and fewer people are claiming. It’s two sides of the same coin,” he told Canadians last week.
Business cheered. “Whenever a government is cancelling a tax hike, that’s good news from my perspective,” said Dan Kelly, president of the Canadian Federation of Independent Business.
The media were caught off- guard. Earlier in the year, Flaherty had suggested he would keep raising EI premiums by five cents a year until 2016.
Workers were relieved, although the savings amounted to a modest $ 24 a year.
A few shrewd number- crunchers recognized that political necessity — not government generosity — was behind the freeze.
Flaherty’s explanation was true as far as it went. Employment has edged up this year. EI claims have declined. But the real story lies in what he left out.
A large proportion of jobs that have come on- stream in 2013 have been parttime, temporary, short- term, casual or intermittent. Last month, for instance, 41,800 of the 59,200 new jobs Statistics Canada reported were part- time. People who don’t work full- time seldom qualify for EI. ( They can’t accumulate enough hours of paid employment to meet the eligibility criteria). But they have to pay into the fund.
More contributors and fewer beneficiaries add up to a rising EI surplus. But that’s only half the story. The federal government has systematically restricted access to jobless benefits this year. It imposed a requirement that repeat EI claimants accept any job within 100 kilometres of their residence that pays as little as 70 per cent of their previous wage. It launched a crackdown on “false and inappropriate claims,” visiting EI recipients at their homes, unannounced, to check whether they were out looking for work — and grill those who were not. And it raised the threshold to get full EI benefits in all but a handful of regions.
These measures had exactly the effect the government intended: payouts declined.
The awkward reality is that the EI fund has never broken even since Flaherty announced his reform. He suspended the directive himself in 2009, fearing the political consequences of raising EI premiums during a recession. Two years later, the freeze was lifted revealing a $ 9.2- billion shortfall in the fund. Ottawa boosted rates in 2011 and 2012 to mop up the red ink. Now Flaherty has suspended his own rule again, imposing a three- year rate freeze.
It is unlikely this gentle restraint will bring the fund into balance. The surplus is growing too fast.
What it will do is position the finance minister perfectly to announce on the eve of the 2015 election that the Conservatives are cutting EI premiums.
N