HUMA Committee Meeting

STANDING COMMITTEE ON HUMAN RESOURCES DEVELOPMENT AND THE STATUS OF PERSONS WITH DISABILITIES

COMITÉ PERMANENT DU DÉVELOPPEMENT DES RESSOURCES HUMAINES ET DE LA CONDITION DES PERSONNES HANDICAPÉES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, March 21, 2001

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[English]

The Chair (Mr. Peter Adams (Peterborough, Lib.)): We have one or two housekeeping things while our guests get settled.

The plan for today is as we outlined the last time. We are going to meet this afternoon from 3:15 until 4:15 with the Auditor General and members of his staff. From 4:15 to 5:15 we have the two final witnesses in the series of 60 or 65 witnesses we have heard from. They are both here already, by the way. I think at least one of them is in the audience. So they are here.

At 5:15, if it's appropriate, I would suggest that we move in camera to have a general discussion about the clause-by-clause part of dealing with this legislation. I would suspect that for about twenty or thirty minutes we would discuss what we are going to do, discuss the matter of the second report as well as the first report and anything else related to the final processing of Bill C-2.

Then in public we will proceed with clause-by-clause consideration of this piece of legislation. That's what we have planned. The deadline tonight is nine o'clock. If we have not completed it by nine it is my understanding that we will meet again tomorrow morning. Normally that would be at eleven, but we can decide whether it's necessary for us to meet earlier tomorrow morning when we get closer to nine o'clock tonight.

Colleagues, is that everybody's understanding of what we're going to do today?

I would very much like to welcome the Auditor General on his farewell tour. I guess that's what it is. Mr. Desautels, we're pleased to welcome you to our committee again. We remember the last occasion with great interest.

In addition to the Auditor General of Canada, we have with us Nancy Cheng, who is the principal, audit operations. Nancy, we welcome you. And we have John Hodgins, principal, audit operations also. Also here is Anne Marie Smith, senior counsel to the Auditor General. We're very pleased to meet you.

Mr. Desautels, I don't think I have to give you any guidance as to how to proceed on these occasions. We look forward to what you have to say. When you and your colleagues have finished, we would be glad to ask you some questions.

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Mr. L. Denis Desautels (Auditor General of Canada of Canada): Thank you very much, Mr. Chairman.

I apologize for being slightly late. I'm programmed for 3:30 meetings with the public accounts committee, and I was assuming this one was at 3:30 as well. So I really apologize. I feel embarrassed.

I would like to thank you for this opportunity to appear before your committee to discuss Bill C-2 in relation to our audit observation on the lack of clarity of the basis used in setting employment insurance premium rates.

You have introduced my colleagues. Ms. Cheng has worked on the financial statements of the EI account, so she's responsible for that, while Mr. Hodgins has been responsible for our audit of the public accounts of Canada, the overall financial statements of the Government of Canada.

Bill C-2 contains several proposals. In particular, clause 9 proposes to suspend the existing process for setting EI premium rates. It would give the Governor in Council full authority to set rates for 2002 and 2003 on the recommendations of the Minister of Human Resources Development and the Minister of Finance.

The audit observation that I reported to Parliament early last month addresses the setting of premium rates and the balance in the EI account. And with your permission, Mr. Chairman, I would like to briefly discuss three points: first, the nature of the balance in the account and the related accounting treatment; second, the concern that we raised in our audit observation; and thirdly, the impact of Bill C-2 on our observation.

To start with the first, Mr. Chairman, it's important to clarify the nature of the balance in the EI account. We have used terms like “notional account” and “tracking account” to help explain that the balance of about $35 billion in the EI account does not represent cash sitting there to be used. There is no separate bank account.

The Employment Insurance Act requires that an accounting of EI revenues and expenditures be kept. The balance provides a basis for managing the account so that over time it breaks even.

There is also the question of consolidation. As you know, Mr. Chairman, since 1986 the activities of the EI account have been included in the accounts of the government—or, as accountants would say, consolidated with the government's general accounts. In our view, this is the correct method of accounting, as it is consistent with the accounting standards of the Canadian Institute of Chartered Accountants.

The EI account is an important component of the government's reporting entity and should be included in the government's accounts. As a result, any surplus in the EI account would be added to the government's annual surplus. Over time, if the account were to break even, as contemplated by the act, its inclusion in the government's accounts would have little effect.

[Translation]

Mr. Chairman, in recent years the growing surplus in the Account has helped reduce the government's net debt and contribute to its annual surplus. During that time, the EI surplus balance has been credited with interest revenue from the government's general accounts.

Mr. Chairman, this brings me to the concern that I reported in the audit observation. The Act requires that EI premium rates be set to ensure enough revenue to cover program costs while keeping rates relatively stable over a business cycle.

Although the Act provides no specific interpretation and definition, the Account should break even over a business cycle. The Account's accumulated balance would be a relevant and important factor in determining the premium rates.

To help achieve those objectives, the Department's Chief Actuary prepares annually an actuarial analysis to support the rate-setting process. The Canada Employment Insurance Commission, with representation from which is made up of employers, employees and the government, sets the rates. The rates are subject to approval by the Governor in Council on the recommendation of the ministers of Human Resources Development and of Finance.

However, in recent years the balance of the Account continued to grow, until it greatly surpassed the amount considered enough by the Chief Actuary. I started drawing attention to this situation in my auditor's report on the financial statements of the EI Account, first in 1999 and again in 2000.

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In our recently tabled audit observation, I reported that the balance at 31 March 2000 reached $28 billion, far higher than the maximum the Chief Actuary considered sufficient.

He estimated that a reserve of $10 billion to $15 billion, attained just before an economic downturn, should be enough. The Chief Actuary estimated that setting the employee premium rate between $1.70 and $2.20 per $100 of insurable earnings would meet long-term costs. Nevertheless, the employee premium rate for 200 was set at $2.40.

It is possible that other factors or assumptions entered into the setting of premium rates. In my auditor's reports and the audit observation, I urged the government and the Commission to disclose all the factors they considered in setting rates. In my view, a transparency is necessary to give Parliament assurance that the intent of the EI legislation has been observed.

In the meantime, the balance of the EI Account has continued to grow and will likely exceed $35 billion by the end of the month. At that level, I would be hard pressed to conclude that the intent of the law has been respected.

[English]

Mr. Chairman, let me now turn to Bill C-2. It essentially reintroduced the legislative changes proposed in Bill C-44, tabled in September 2000.

We refer to Bill C-44 in our audit observation. It provided for the Governor in Council to set the employee premium rate for 2001 at $2.25 per $100 of insurable earnings and to set the rates for 2002. The bill's explanatory notes stated that the government would review the process for setting premium rates and would complete the review by 2003. With the fall election, Bill C-44 died on the order paper and the Canada Employment Insurance Commission set the premium rates for 2001 as required under section 66 of the Employment Insurance Act.

Clause 9 of Bill C-2 proposes to suspend the existing process for setting rates and have the Governor in Council set the rates for 2002 and 2003. The introduction of Bill C-2 has not alleviated our concern. There is no requirement in the bill for the interim-rate-setting process to be more transparent. There's also no reference to any due process that needs to be followed, one that may include receiving advice from the chief actuary and consulting the commission.

Furthermore, unlike with the introduction of Bill C-44, there's no information on or commitment to review the rate-setting process while section 66 is suspended. In other words, the scope and nature of the review, if any, are unclear.

Even if this does not refer directly to Bill C-2, I would like to mention another audit observation. I refer to abuse and suspected fraud in the EI program. Again, this is to be found in chapter 34 of our December report. The abuse consists of some employers issuing false record-of-employment forms to employees or other individuals so they can obtain EI benefits. Both departments have known for many years of the abuse and suspected fraud relating to false records of employment in British Columbia. HRDC and the CCRA, the Canada Customs and Revenue Agency, need to implement an action plan that adequately deals with this problem. That plan could include legislative changes. This outstanding issue may be of interest to your committee.

This concludes my opening statement, Mr. Chairman. My colleagues and I would be pleased to answer the committee's questions.

The Chair: Thank you very much, Mr. Desautels. We do appreciate that.

I have a list. We'll have Val Meredith, Alan Tonks, and Paul Crête.

Ms. Val Meredith (South Surrey—White Rock—Langley, Canadian Alliance): Thank you, Mr. Chair, and thank you very much, Mr. Desautels, for appearing before the committee.

I want to ask you a general question about the EI legislation as it exists. I want to know whether or not the existing legislation is actually performing the service it was originally designed for and whether the bill, as we know it even with these amendments, can do the job adequately for the labour force in 2001 and in future years.

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Mr. Denis Desautels: Mr. Chairman, I'm reluctant to comment on the total EI legislation. I think I would be somewhat stepping out of my role as Auditor General to do that. I'm quite prepared to expand on the issues we've raised in the last few years in terms of our audit, but I feel that, in terms of the intent of the legislation, I do respect the legislators' right to decide that. I focus on implementation.

Ms. Val Meredith: Let me rephrase. Has an evaluation been done as to whether or not the EI legislation is meeting the goals it was intended to reach? Has there been any monitoring or an audit done on that?

Mr. Denis Desautels: Mr. Chairman, I could stand corrected, but I'm not aware that this has been done since the legislation was changed back in, I believe, 1996. Prior to the legislative changes that were made then, there were a number of studies and evaluations carried out on the effectiveness of the EI legislation that existed then and on some of the implementation problems that had been identified prior to the legislation being changed. I'm not aware of what's been done since then. I think that's a question that could be addressed to the department itself, or we could find out and get back to you.

Ms. Val Meredith: Okay. Thank you very much.

I do want to talk to you about this balance that is reported, the $35 billion surplus. I appreciate that it's not in a separate account and that it's not a big lump of cash sitting there to be spent. We've heard from other witnesses, particularly people in the business community, that they see it as an additional tax. They feel that it is not appropriate for employers to be putting 60% into the pot for employment insurance when it's being used for something else. They perceive it as an additional tax rather than an employment insurance premium. Can you comment on how you see it?

Mr. Denis Desautels: Mr. Chairman, my understanding of the legislation is that there is a special account set up to keep track of the premiums being collected, of the payments being made out of that account, and of the cost of running the program. There is therefore an implication that this is a specialized tax, a tax that is raised for a specific purpose and that should therefore be used for that purpose. That's why, I believe, the legislator wrote the act the way it's written now, although I would have preferred that it be a little more precise on the aspect of setting the premiums.

To the extent that there is a huge surplus being run in the EI account, of course that surplus basically adds to the general surplus of the government. It reduces deficits in other places and gives the government more room to manoeuvre fiscally, so at the end of the day the surplus helps finance other things.

Ms. Val Meredith: But the concern—

The Chair: Ask very briefly, now.

Ms. Val Meredith: The concern they raised is that it should not be up to the business community to add to the government surplus and that the amount that has been collected is far more than is necessary to sustain the account in years where there is higher unemployment. They just feel that if we're talking about paying down debt and going for other government services, it shouldn't be the business community that's covering that. All the taxpayers in Canada should be covering that.

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Mr. Denis Desautels: Mr. Chairman, I think that the moment you run such a surplus, it raises a number of questions and makes different groups of people question the appropriateness of that surplus. So it's not just the business community that would have a concern with that, but also the workers. And there could be arguments made for changing the benefits or lowering the premiums. So the fact that we're running such a surplus raises the question, obviously, “Is this right, and how long should we continue?”

Our own view is that there is a problem here, and until we know exactly what factors and what rationale went into setting the rates, we cannot say the current situation meets the intent of the legislation.

The Chair: Alan Tonks, then Paul Crête, then Mr. McGuire, then, if he's ready, Yvon Godin.

Alan Tonks.

Mr. Alan Tonks (York South—Weston, Lib.): Thank you, Mr. Chairman.

Thank you for your deputation. Let me try to, from a lay person's perspective, in a nutshell....

With respect to the running calculations of the contributions as they are reported out and are actuarially compared to the requirement of draw on the fund during a normal business cycle, your major concern is that a surplus is being generated by rates that exceed those you thought were reasonable under the actuarial circumstances. That is, in a nutshell, what you have said.

Mr. Denis Desautels: Mr. Chairman, let me reformulate that in my own words. We're saying that the rates are now being set at a level that is generating a surplus in the account in excess of what we think was contemplated by the legislation.

Mr. Alan Tonks: But you're not questioning the principle of the government's taking whatever surplus there is into general revenues and a general consolidated fund. It's a quantitative issue you have, not a qualitative one.

Mr. Denis Desautels: We said quite clearly, I think, Mr. Chairman, that we agree with the accounting being followed by the government on this issue.

Mr. Alan Tonks: From that I take it you're most concerned with the manner in which the rates then will be set. You're concerned, in your deputation, with the consultation that presently goes on between the members of the commission, and so on. You're concerned with that. It seems to me the intent of your concern is that in the next cycle the rates be brought more in keeping with a surplus you feel is sufficient. That's the intent of the consultation you are concerned about. Is that correct?

Mr. Denis Desautels: Mr. Chairman, as I said in my opening statement, I could accept that there are other factors that are being considered in setting the rates. But these factors, if there are such other factors, have not been explained, have not been transmitted to Parliament and to the public at large.

Mr. Alan Tonks: I read from your point number 10:

To help achieve these objectives, the Department's Chief Actuary prepares annually an actuarial analysis to support the rate-setting process. The Canada Employment Insurance Commission, with representation from employers, employees and the government,sets the rates. The rates are subject to approval by the Governor in Council, etc., etc.”

Then you call for transparency—you're concerned that there isn't transparency. You say in point 19, “There is no requirement for the interim rate-setting process to be more transparent.” If we could clarify that in the bill, you would take that as having connected with the concern you've raised and the transparency you're seeking.

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Mr. Denis Desautels: Mr. Chairman, I would welcome anything that could clarify the rate setting process.

Mr. Alan Tonks: We'd just do it according to what's been suggested here, it would seem to me.

One final point, if I may.

The Chair: Please.

Mr. Alan Tonks: It's a question that has been put many times. We have this surplus. The surplus is an indirect payroll tax. It's a surplus that belongs to the contributors, the employees. That should be used to fund a reduction in the rated hourly requirement. So the bar is lowered, and more people will qualify.

Would you support the setting up of a different relationship, more arm's length even than that you have suggested? Do you think that's a direction in which the government should go? We heard from employer and employee organizations alike that they would like to see that funded and arm's-length relationship established, and any benefits coming from contributions going directly into the fund and back into lowering the bar with respect to accessibility.

The Chair: Alan, I'm afraid that's a rather long question. The answer has to be rather short. I'm sure it's something we could come back to. We have a system going here, Mr. Desautels. So fairly short.

Mr. Denis Desautels: I'll probably be very quick, Mr. Chairman.

I think the first part of the question might be what do we think should be done with the surplus. On that we have not expressed any views. We feel that's a policy decision that probably belongs to parliamentarians.

As for moving this into a more arm's-length entity, if I understood the question, I don't think that would settle the basic problem we're raising. Whether it's within the general accounts of Canada or set up in a separate entity, the balancing of the rates, the premiums, and the benefits will still have to be dealt with. So I don't think that would solve the problem. Indeed, I also have concerns about these so-called arm's-length entities. I think they're really part of government.

The Chair: Thank you. Paul Crête, and then Joe McGuire.

[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you, Mr. Chairman. I would like to thank Mr. Desautels and his delegation for coming here today.

You have mentioned several times that you are concerned that we had no assurances that the spirit of the act, in terms of premium levels, had been complied with. I understand from what you have said here today that Bill C-2 has not allayed your concerns on this issue.

I would like to know whether you believe that clause 9, as it currently stands, will serve to make things even more unclear rather than clarifying the issue and making the situation transparent. A period of two more years has been allocated. The government will use this time to establish the rate and to suspend those rules where there has been insufficient transparency. Don't you think that at the end of the day, that will serve only to make things less transparent, rather than improving the situation?

Mr. Denis Desautels: Mr. Chairman, as I said in my statement, Bill C-2 does not allay our concerns. The bill is not clear on the way premium levels will be set while section 66 is suspended. Obviously, that in itself is not of great assistance to us.

However, if I understand correctly, while section 66 is being waived, the government will look at the various methods for setting premiums later on, when section 66 comes back into force, so that the necessary changes can be made to reflect this new mechanism for the setting of premiums. However, if the government is to be believed, when it says that this is only a temporary measure, I would suppose that we will end up with something better.

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Mr. Paul Crête: However, section 66 stipulates that rates must be set based on the business cycle. We are currently coming to the end of a business cycle. Let's imagine that a major economic slowdown is on the horizon, although we can't say whether it will take place or not. Given this hypothetical situation, do you think that the government's decision to implement a two-year suspension of the mechanism for setting premiums based on the business cycle will not mean that two years down the road, when the government has looked at ways of setting these rates, it will not be at all possible to establish whether the government has complied with the act? Don't you think this will be possible because during that two- year period, the government will not have been required to comply with section 66 and to consider the business cycle issue and that it will quite possibly have used different criteria in setting the rates? You are telling us that it is quite possible that this was done in the past without us being made aware of these different criteria. Don't you think that we can suppose that we will be forced to experience this situation?

Mr. Denis Desautels: Mr. Chairman, if section 66 is indeed suspended, I don't know what our position will be. We have criticized the government for its current calculations based on section 66. Now, obviously, if section 66 is suspended, that does not necessarily solve the problem.

Mr. Paul Crête: But that would perhaps be a good way of avoiding the issue.

Mr. Denis Desautels: I hope that at the end of the suspension period, we will have a mechanism for setting premiums which is clearer and which considers the Actuary's recommendations.

In the meantime, one of the consequences of Bill C-2 will be that it will be more difficult to see how the government set the rates.

Mr. Paul Crête: It will be more difficult.

Mr. Chairman, I would like to know whether the Auditor General's Office has thought about how clause 9 is to meet our long-standing demands for transparency. Do you think that it would be quite simply better not to have a clause 9 for the next few years? That's the first theory I would like to throw out. Therefore, do you think that we should remove clause 9 from the bill, or have you thought about a definition for clause 9 which would make it more transparent than it currently is? Do you have a preferred option?

Mr. Denis Desautels: One of the options would have been to quite simply leave section 66 as it was until a new mechanism for setting premiums could be tabled. Consequently, we could have kept the status quo. I have been told that the government is not prepared to suggest a new mechanism for setting rates and that it wants to undertake studies. One option would have been to leave section 66 intact in the meantime.

Mr. Paul Crête: Mr. Chairman, I wanted to know whether the Auditor General would prefer that clause 9 be removed from the bill and whether section 66 of the existing legislation should continue to be implemented.

Mr. Denis Desautels: Despite the shortcomings of section 66 and the fact that it is unclear in certain areas, I think that it is, nevertheless, clearer than the system which would be implemented under clause 9.

Mr. Paul Crête: Thank you.

The Chair: Joe McGuire, you have the floor, followed by Yvon Godin and Raymonde Folco. Joe.

[English]

Mr. Joe McGuire (Egmont, Lib.): Thank you, Mr. Chairman.

I was reading in today's paper that the Auditor General said he needed some more time to lapse before he would endorse the six-point plan of the Minister of HRDC. I was wondering, in his consultations or his investigation into the six-point plan and the effect it was having on the department and their clients, whether or not he saw any deterioration of service.

It appears to me, from the phone calls I'm getting in my riding office, that if I hired Yvon here on a wage subsidy program, and it might amount to $1,500 or $2,000, that little transaction would go through seven hands. Everybody seems to want to go over everything two dozen times to make sure every t is crossed and every i is dotted.

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The person who is looking for the service and applying is getting pretty frustrated, to the point where he just says to hell with it. He'd rather not have a wage subsidy than go through the hassle he would have to go through in order to get one.

I think this is a reaction from what has been going on in the last year in Parliament. In an effort to be more accountable and every penny accounted for, we're losing sight of the fact that the services we're supposed to be providing are not being provided.

This might not be strictly in your line of work, but maybe it should be, in one way of thinking. There there has to be a way for public servants to deliver a program so that the money, the service, the costs are accountable, but in a way where the clients, the people of Canada, are willing to participate in the program. Do you have any reaction to that?

Mr. Denis Desautels: I do, because I'm fresh from a meeting yesterday with the public accounts committee on this particular subject.

I believe the headline Mr. McGuire is referring to is one that appeared in the Ottawa Citizen. I wish to say that it does not reflect what was said at that meeting. Indeed the point we made at the meeting, quite clearly, and both the department and ourselves are in agreement on that, was that the six-point action plan of the department, as it said itself back in January 2000, would take three years to implement fully. They're on track and we're supportive of what they're doing, but we just wanted to remind the committee that it's not something that can be completely finished next week; it's still going to take a little while to run its course and be completed with satisfaction.

The whole issue of the deterioration of service is very much a concern. One of the dangers we are concerned about ourselves is excessive red tape and lack of discrimination between small grants and large, complicated ones. We think there's a need to introduce some sound or intelligent risk-management guidelines in that department, so we don't put every single contribution agreement through the same filter. We are very much in favour of a balanced approach, one that takes into account the relative risks of different kinds of contributions.

I think we in the department are quite in agreement on that, that it's possible to achieve good service while at the same time respecting some of the minimum requirements, the absolutely important requirements of the Financial Administration Act, and the conditions imposed on the department by the government itself, by Treasury Board in particular.

Mr. Joe McGuire: So you've made some suggestions to the department, or to the public accounts committee?

Mr. Denis Desautels: We've made our position quite clear, and we have warned people of the danger of overreacting and causing the kind of situation that Mr. McGuire is describing. We have also undertaken to go back later in 2001 and review the progress made by the department on that front and on the whole six-point plan.

Mr. Joe McGuire: To conclude, the summer student season is coming upon us, and from what I can gather it's going to be a real bureaucratic nightmare for somebody to hire a kid for the summer. I hope the department is listening to the Auditor General and really puts in place a system that will work this summer.

The Chair: It has been suggested to me—before Paul Crête says it publicly—that this line of questioning might have been out of order. As the questioner began with the wage subsidy program, that ties in with EI and I think it is in order. We try to be as broad as we can with these matters.

Yvon Godin is next, and then Raymonde Folco and Greg Thompson.

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[Translation]

Mr. Yvon Godin (Acadie—Bathurst, NDP): Thank you, Mr. Chairman.

I would like to welcome you here today.

In item 21, you mention fraud and abuse. You made reference to British Columbia but nowhere in your report do you mention fraud by the Human Resources Development Department. I want to speak to the way the department treats people. I will give you an example, but I don't know if this is your responsibility. People who work in family-run companies apply for employment insurance benefits. Each year, their applications are sent to Revenue Canada, which checks for fraud or for an error somewhere which will allow the government to grab $10,000 or $15,000. Then, an audit of the preceding three years is carried out.

Let's take the example of someone who owns a company. Imagine that his wife does the books and that the company closes down in September or October. Imagine that they send their files, as is common practice in such cases, to Revenue Canada. Let's imagine that they had deposited a payment by a customer in November. I want to quote a specific case to you just to prove that that does happen on a regular basis in the regions. The husband asked his wife to deposit money in the bank because she was going into town. As soon as she makes the deposit and is issued a receipt by the bank, it is deemed to be her deposit and... [Editor's Note: Inaudible] She has not been treated in the same way as she would have if she had not been related.

The government conducted an audit of the last three or four years and consequently, demanded $10,000. I consider that government fraud. People seem to believe that only employers and employees can defraud a system that belongs to them, because the government does not pay premiums. Only employers and employees pay contributions. However, there are investigators whose sole purpose is to uncover fraud.

During a trip that I made across Canada, I visited Prince Edward Island. While there, employees at Human Resources Development gave me a letter. In the letter, it stated that they had been asked to reach certain targets in terms of cuts. This went quite beyond simply insuring people were not defrauding the system. It was now a matter of how much money could be recovered, and how many savings could be made. If you look at what has happened to the Employment Insurance Program, it seems to have become the Ottawa Liberals' cash cow. For me, that is quite unacceptable, and I would appreciate it if you could comment on what I have just said.

The Chair: You have two minutes.

Mr. Denis Desautels: The point that you are talking about here deals with a particular case, in two companies, in a specific province. There was a major problem here and we felt that it was our duty to report it, not only with a view to correcting the problem, but also to address similar problems that might potentially arise elsewhere.

That does not mean however that these are the only cases that we have noted. We have conducted other audits of the department. We are auditing the quality of services provided to contributors and to benefit recipients. If it is true that in some cases, such as the ones you have mentioned, there is abuse, I don't think that one excuses the other. It is possible that other cases of abuse will be included in a future audit. The type of situation that you have described is not excluded from future audits.

Mr. Yvon Godin: Perhaps you could answer later. I think that there is a problem when a person applies for employment insurance benefits and that his file is sent to Revenue Canada every year, and when the file of all those working in family-run businesses are automatically forwarded to Revenue Canada for investigation.

Mr. Denis Desautels: I have taken note of what you said and it is quite possible that the Auditor General's Office will look at this aspect of operations in a future audit.

Mr. Yvon Godin: Thank you.

The Chair: Raymonde Folco, you have the floor, followed by Greg Thompson and Anita Neville.

Ms. Raymonde Folco (Laval West, Lib.): Thank you, Mr. Chairman. Good afternoon Mr. Desautels.

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I would like to quote not what you have said but what you wrote regarding the employment insurance Account. This is taken from testimony to the Standing Committee on Public Accounts regarding the Public Accounts of Canada, 1998-99. What you wrote was as follows:

“[...] when we talk about a surplus of $21 billion, it simply says the government has collected $21 billion more than it has paid out on a cumulative basis. So there's no debt created to anybody by that operation”.

I would like to ask you two questions. Firstly, do you still think that the employment insurance account reserve is not a legal obligation for the federal government in terms of employment insurance contributors? Secondly, if the federal government is not legally bound to use this reserve to fund spending under the employment insurance program, why does it pay interest on the surplus?

Mr. Denis Desautels: In reply to the first question, I do indeed still believe what I said.

Why does the government pay or credit interest to the employment insurance account? Well, the Employment Insurance Act stipulates and requires that interest be paid on employment insurance surpluses. In the same way, when there is a deficit which is financed by general funds, the employment insurance account must be debited the appropriate interest.

[English]

The Chair: For this requirement, by law doesn't it imply there is a debt? Does one pay interest on something that is not a debt?

If you'll excuse me, Raymonde, it's just it gets to a point.

Mr. Denis Desautels: Well, this is the way the whole EI account is structured.

[Translation]

The Chair: [Editor's Note: Inaudible]

Mr. Denis Desautels: Yes. The employment insurance account is structured in such a way as to take account of income and expenditures and the balance of the account. If there is a surplus in the account, the act provides that the general fund credits interest to the employment insurance account. This is the structure which is provided for under the act. We might challenge the rationale of this type of structure, but it also means that employment insurance recipients at least receive credit for funding other government operations. I would not go as far as to say that there is automatically a legal obligation—

Ms. Raymonde Folco: That is exactly the question that I was going to ask you.

Mr. Denis Desautels: —of the government to a group of taxpayers. That is what I meant in the extract that you quoted earlier.

[English]

The Chair: Raymonde, I apologize for interrupting, but I thought—

Ms. Raymonde Folco: It's all right; it clarified the....

The Chair: Okay.

Greg Thompson, Anita Neville, Carol Skelton, Georges Farrah.

Mr. Greg Thompson (New Brunswick Southwest, PC): Thank you for your generosity, Mr. Chairman, in coming down and personally inviting me to answer questions after my being late for the meeting.

Mr. Auditor General, I want to go through section 34 of the Auditor General's report referring to the problems in tracking abuse and successfully prosecuting on the west coast of Canada.

I'm going to summarize your own words acting from memory. I don't have it with me here, but I think one of the things you'd mentioned in that report was that CCRA and HRDC officers lacked the training and expertise to actually successfully prosecute. You do refer to that.

In your 22 points here today, you're mentioning that they should implement an action plan that adequately deals with this difficulty in uncovering fraud. But you do specifically mention training, lack of training, and a lack of hours that are spent on specific cases in the Auditor General's report.

• 1615

What I'm getting at here is a double-edged sword that comes with this lack of training and sophistication in uncovering fraud. I refer to such a situation in P.E.I. that Mr. McGuire would be aware of and one that's happening in southern New Brunswick at the present time, and the unsophisticated approach by officials within CCRA and HRDC in terms of how they proceed to investigate and the violation of even basic charter rights when they do this.

In addition to all the comments I have made, my question is whether or not you are privy to some of the internal documents under which HRDC operates—guidelines or documents, which actually lay out the course of action individuals in the department would take. I'm referring specifically to the investigative control officers. For example, they have a caution statement within that department, which clearly states that when individuals are being questioned by HRDC officials they should be read their rights. In these internal documents within the department, which I have in my possession, they actually issued a waiver—what they call a regional discretion—to be used when they read charter rights to individuals.

The Chair: The chair is here.

Mr. Greg Thompson: Sorry, sir—after giving you all those compliments.

The Chair: That's all right.

Mr. Greg Thompson: They actually were telling their officials, Mr. Chairman, to waive the charter rights, because they're saying in this internal document that the object is to get these people comfortable. Let them fess up. Do whatever you can to admit guilt, because the truth is that very few of these reach the tax court of Canada, as you well know. In fact in the ones I refer to in Mr. McGuire's home province that did reach tax court, the judge came down very heavily on HRDC officials for abuse of human beings. Many of these people are at the lower levels of educational skills, communication skills, and social skills.

So it's clearly abuse of human beings at a very high level—at a very sophisticated level of incompetence and abuse of even charter rights by HRDC officials. So again that's the double-edged sword I speak of when I'm talking about the lack of training and sophistication of officials within the department.

Are you privy to those internal documents? Do you have the luxury of examining some of those internal guidelines within HRDC, which truly skirt and violate charter rights?

The Chair: Mr. Desautels, again it's a very long question, so it needs be a shorter answer, please.

Mr. Denis Desautels: Firstly let me say very quickly that the situation in B.C. that we've described in our chapter 34 did not deal really with that same kind of issue. It dealt with investigative training, but as well it dealt with the sharing of responsibilities between two departments in terms of how to deal with a suspected case of fraud or abuse.

In terms of Mr. Thompson's last question, we are privy to all material within a department—any department. So we can ask for that information, and we have to be supplied with that kind of documentation on their processes or on their guidelines to their people. However, we have not in the very recent past done an audit of the enforcement processes you're talking about, so I'm not in a position to comment on how widespread the kind of situation you're describing might be.

I guess, Mr. Chair, that's all I can say for now. This would have to be a subject for another audit some day.

The Chair: Thank you.

Mr. Greg Thompson: I would welcome that type of review, because there certainly has been an abuse of some very desperate people. There's been abuse by officials of people who are not at the higher skills of education, social skills, and so on. I think it's not right, and I hope you investigate it.

Thank you, Mr. Chair.

The Chair: Thanks, Greg.

We've completed a round of the parties, and as you know, we have witnesses waiting. As we proceed now, I think we should pick up the pace.

Anita Neville, Carol Skelton, Georges Farrah, Monique Guay, and Jeannot Castonguay. But if we can't get to the end, I'm going to cut it off somewhere around 4:30.

Anita.

Ms. Anita Neville (Winnipeg South Centre, Lib.): Thank you, Mr. Chairman.

• 1620

I'm going back, sir, over some of the materials that you presented. My question relates to the review-setting process. I have to tell you that I'm new to this whole process, and was not here when Bill C-44 was discussed. You quite clearly do not like the process in place for setting premiums at the moment—that is, the Governor in Council.

I would ask what your advice would be on the process of setting the new premium-setting process. Who should be consulted? Who should conduct the review? Who should have input into it? It is the process of establishing the new process I'm interested in. Then if we have time, I'm interested in what your view would be of the organizational structure that might be in place on an ongoing basis.

Mr. Denis Desautels: Mr. Chairman, our main concern with the rates—the premium-setting process—at this point is the lack of clarity and transparency of the process. I think the process should be clearer in terms of the involvement or the consultation of the chief actuary, and it should give recognition to his analysis.

Anything that could be done, on the one hand, generally to make the process more transparent, and at the same time to recognize a role of some kind for the chief actuary as to how his recommendations are to be taken into account, would be a step in the right direction.

Ms. Anita Neville: Can you comment beyond that? In the process of setting the review process, how wide should the consultation be? The Department of Finance will be conducting the process. Have you any comments on that? I'm concerned about the review process.

Mr. Denis Desautels: I did not have a particular problem, Mr. Chairman, with the provisions for consultation. It seemed to me that the previous legislation provided for various parties to be consulted and have input into the rate-setting process. I think our concern was what was done afterwards with the information—how we got from there to eventually setting a specific rate.

The Chair: Val.

Ms. Val Meredith: Thank you, Mr. Chair.

I'd like to follow up on some of the questions on your paragraph 21 reporting the fraudulent—or suspected fraudulent—behaviour in the Fraser Valley. There were a couple of things. You mentioned that it involved two departments—CCRA and Human Resources. I guess I'd like to know whether there was an unwillingness to deal with this problem, or whether there was just a lack of communication—or the ability to communicate—between the two departments that caused or exacerbated the problem.

Mr. Denis Desautels: Mr. Chairman, to try to put it as simply as possible, it was more of a problem on how the responsibilities are split between the two departments concerned. CCRA does a fairly good job of analysing applications in the documentation that's submitted to them, but it then has to transfer that information for an insurability ruling to.... Sorry, HRDC first does the upfront work, and then has to transfer the request or the application to CCRA to rule on the insurability.

Whenever HRDC communicates a problem or concern about the validity of the application, CCRA says that it's not their job to investigate. They say they don't have the investigative resources to do that work, that their people are more arbitrators on the insurability aspect of the application. So it's a matter of when it goes from one organization to the other, there's a vacuum, if you wish, between where one leaves the case and the other takes it up.

• 1625

Ms. Val Meredith: So should it be clarified in legislation that only one department deals with the insurability? Why would CCRA be involved in determining who is or who isn't insurable?

Mr. Denis Desautels: Mr. Chairman, I think the legislation was written in a particular way for valid reasons. I'm not suggesting here that the only way to cure this is through legislative change. There could be some administrative changes or protocols that could help alleviate the problem—for example, by allowing HRDC the right to appeal a decision if they really are in disagreement. So you can have certain changes made to solve the problem without changing the legislation, but changing the legislation could also be an alternative.

Ms. Val Meredith: Thank you.

The Chair: Next is Georges Farrah, followed by Monique Guay and Jeannot Castonguay. That's the end, and be fairly quick, please. Georges.

[Translation]

Mr. Georges Farrah (Bonaventure—Gaspé—Îles-de-la- Madeleine—Pabok, Lib.): Thank you, Mr. Chairman. Good afternoon, everybody.

Mr. Desautels, several witnesses who came to testify at hearings on Bill C-2 said they wished to see the federal government withdraw from employment insurance. They said that it belonged to employers, employees and contributors, and that it is a system which should be administered on an independent basis, if you will excuse the expression. Therefore, I would like you to comment on that. Do you agree with them? If you do, what type of structure should be set in place so that the system can be managed in this way?

Mr. Denis Desautels: Mr. Chairman, the issue raised by Mr. Farrah has been widely debated over the last few years. Should the employment insurance account be a distinct account administered by a completely arm's length body? I think that this is a political decision which has to be taken by members of Parliament. Right now, it is difficult to see the employment insurance account as a separate entity because the government has complete control over all areas of the administration of the program, such as the setting of premium and benefit rates or the levying of premiums. Consequently, there would have to be drastic change for it no longer to be considered a government program but rather an entity administered entirely at arm's length from the government.

[English]

The Chair: Be very brief, Georges, please.

[Translation]

Mr. Georges Farrah: I would like to know your point of view. Would it be more effective to take it out of the government's purview or to change it so that the government has some control, since it's perhaps easier for government to establish inter- regional rules much as an arbitrator, or, in your opinion, would it be more effective if it was administered outside of government institutions?

The Chair: Your answer must be very brief.

Mr. Denis Desautels: Mr. Chairman, generally speaking, I am not in favour of public interest activities being outside of the government's ambit, as they are responsibilities of government and Parliament.

[English]

The Chair: Thank you. Next is Monique Guay and then Jeannot Castonguay.

[Translation]

Ms. Monique Guay (Laurentides, Lib.): Thank you Mr. Desautels, for appearing before us.

We were discussing the concept of an independent fund. It's a topic which was raised on several occasions. You say that you cannot envisage the administration of the fund by an outside organization, but if it was administered by an entity which was not necessarily independent from government, yet had a certain autonomy, that would avoid using the employment insurance fund for other purposes such as paying down the debt. Would you not agree, Mr. Desautels?

• 1630

Mr. Denis Desautels: Mr. Chairman, if we create an entity which is said to be outside of government, but the government appoints the members of the board and sets all the rules, at the end of the day I think we can conclude that it is still part of the government, and that if there are surpluses these surpluses are part of the government entity. That is no guarantee that it would solve the problem you mentioned.

Ms. Monique Guay: No, but if we say that this fund, which we would like to be independent, regularly reports to government, without its appointments being made by the government, that would leave a much clearer picture and it would avoid the surpluses being invested elsewhere than into employment, into the employment insurance fund. This would allow more people to have access to the fund, since it would truly be an employment insurance fund. Currently, a large number of people don't have access to these funds. We have heard from witnesses who wanted self-employed workers to be covered. The self-employed now represent a 10% of our population. It is a reality both in Canada and in Quebec. We have to be in a position to deal with this reality. If we cannot do it through the employment insurance program, perhaps with an independent fund, we could take that into consideration and truly invest in employment insurance.

I have a last point, very quickly. There are people who appeared before us and raised an issue of some concern—I am very happy that you're here—for small family businesses, when it is a family, and there are members of the family, whether cousins or distant relatives, who work for the business. As soon as anyone makes an application for employment insurance there is an investigation. These people are considered guilty right from the outset. They must prove that they are innocent in order to be able to receive employment insurance benefits. This is perhaps an area where the Auditor General could carry out a bit of an investigation to see how the situation could be remedied and whether it does truly happen on a massive scale.

Mr. Denis Desautels: Mr. Chairman, I am making a note of Ms. Guay's comments, which are along the same lines as those made by Mr. Godin earlier.

[English]

The Chair: Thank you. Jeannot Castonguay.

[Translation]

Mr. Jeannot Castonguay (Madawaska—Restigouche, Lib.): Thank you, Mr. Chairman. I thank Mr. Desautels and his team for appearing.

We have often heard evidence that access to the employment insurance plan is not easy. If this access was improved, and if we considered reducing the premium rates for both employees and employers, would the current surplus diminish rapidly? That is my first question.

My second question deals with the deficit. We are now in a situation where there is a surplus, but if at some point in time there was a deficit, who would be responsible? Would it be the government or employers and employees?

Mr. Denis Desautels: Mr. Chairman, Mr. Castonguay has asked two questions. The first was whether we could reduce the accumulated surplus in the employment insurance fund. Yes, it's possible. But you have to realize that in reducing the surplus in the employment insurance fund, you would have to create an annual deficit in the operations budget of the employment insurance account, which would have an impact on other government operations. Therefore, that has to be kept in mind.

The second question was, if there is a deficit, who would be responsible? Basically, the Canadian government must finance any deficit of the employment insurance fund. We were in this type of situation into the 90s, where there was indeed quite a large deficit and it is the Consolidated Revenue Fund which loaned the money, if I can put it this way, to the employment insurance account. And the employment insurance account paid interest on the loan.

[English]

The Chair: Mr. Desautels, and your colleagues, Nancy Cheng, John Hodgins, and Anne-Marie Smith, we want to thank you for being here.

Mr. Desautels, we thank you for this, of course, and for previous contributions to this committee and others. We wish you well as you ride off into the sunset. I don't know exactly what you're going to do in the sunset, but I hope it goes well for you. We do appreciate this. So thank you again for being here.

Mr. Denis Desautels: Thank you, Mr. Chairman.

Some hon. members: Hear, hear!

• 1635

The Chair: Colleagues, in a moment I'm going to suspend for five minutes. As you know, we continue here. We have two witnesses. I know Professor Nakamura is here. I've not met

[Translation]

Mr. Ronald Drisdelle, but he may be here.

[English]

We resume here in five minutes, and we continue for one hour. Then we continue until nine o'clock this evening.

• 1636

• 1646

The Chair: Colleagues, can we resume?

I want to welcome our witnesses, both of whom I have now met. We have

[Translation]

Mr. Ronald Drisdelle, Executive Director of the Conseil économique du Nouveau-Brunswick. I welcome you. We also have

[English]

Professor Alice Nakamura of the University of Alberta. Professor Nakamura, we welcome you as well, and we appreciate your patience in waiting for us here. We're sorry to begin a little late, but I think you understand the circumstances we were dealing with.

To my colleagues and to you, I have to say—you've probably heard—we're going at least until nine o'clock this evening. We're going to proceed, and I'm going to keep the proceedings going as well as I can.

It has been suggested to you both that you make a short presentation, perhaps five minutes. You've observed that I try to keep the members' questions and replies also to about five minutes. So I'm not discriminating against you, but we'll proceed as quickly as we can.

I want to say to my colleagues that we've assigned an hour to this. I'm going to go an hour or perhaps a little bit less, if we find that's the way it works out, in order to proceed with this evening's business.

I note that in our agenda Ronald Drisdelle is first. We would begin with you, Mr. Drisdelle, and then go to Professor Nakamura.

[Translation]

Mr. Ronald Drisdelle (Executive Director, Conseil économique du Nouveau-Brunswick): Mr. Chairman, ladies and gentlemen, and in particular, Mr. Godin from New Brunswick, please allow me at the outset to state that our association supports the federal government initiative to review the employment insurance plan.

The reform had serious negative consequences in certain regions of New Brunswick. The decrease in the amount of the benefits, the increase in the number of hours required to qualify and the decrease in the number of insured weeks had an effect not only on the people who are receiving benefits, but on the economy of the regions where a large number of beneficiaries reside. Indeed, the total amount of money received by beneficiaries in New Brunswick decreased by $237.5 million between 1993 and 1998. This money was not reinvested in the province's economy.

We are particularly pleased to see the amendments being proposed to clauses 4 and 5 of Bill C-2. The characteristics of the program dealing with the work history of the beneficiaries did not have the intended effect, namely eliminating habitual users. Rather, they punished seasonal workers and people returning to the labour force after parental leave. We therefore unreservedly support the changes being made to eliminate this unfairness.

Seasonal work makes a great contribution to the economy of New Brunswick and it is an important ingredient for the proper operation and management of many companies. We therefore maintain that any proposed change must introduce a mechanism to prevent this type of labour force from disappearing. We are of the opinion that to identify declining sectors would be a good idea. The employment insurance plan could then be structured in order to discourage people from entering into these sectors while ensuring that other sectors will not be deprived of the workers needed to maintain productivity. For example, the fisheries industry is currently facing problems given a lack of resources, but while the Department of Fisheries and Oceans is buying back permits to try to solve the problem, the current employment insurance plan encourages people to try their hand in the field.

• 1650

While there are fewer young people who have chosen to go into seasonal work since the reform to the employment insurance plan, the number of new entrants younger than 25 in the fisheries industry continues to grow. While certain other sectors, such as agriculture, have depended less and less on manual labour over the years, the number of workers in the fishing industry continues to increase. The situation must be studied and mechanisms must be implemented in order to solve the problem.

We are not willing to adopt the position that all aspects of the reform have had negative consequences. Changes to the plan have succeeded, in certain situations, in creating the expected positive results. A study carried out in Atlantic Canada by two professors from the University of New Brunswick demonstrates that the participation rate in secondary or post-secondary education in the 18-to-29 age bracket increased by 50% between 1987 and 1997, and that the number of people in this age bracket receiving employment insurance benefits decreased by 18% during the same period.

We feel that, apart from some necessary changes such as the ones proposed to clauses 4 and 5 of Bill C-2, the Employment Insurance Act as it stands today is appropriate to the needs of the new generation of workers. A return to the old system would only encourage our young people to continue to choose occupations which would leave them no other choice than to apply for assistance from the plan.

If the reform has had so many negative repercussions and if the positive effects are barely recognized today, it is because of the way the changes were implemented. A lot of people were unable to adapt for many reasons: the economic situation in their region, their level of education and training, their age, their family obligations, and so on. For these people, the reform could not have the desired effect and the results were disastrous in certain regions. Young people, however, have been able to prepare themselves based on the changes which were made and were able to choose their career path while taking into account the changes made to the plan. We are therefore not proposing that the level of benefits be re-established, that the number of hours required for eligibility be reduced, or that we increase the length of time that benefits are available for the new generation of workers or for people who are currently in the labour force who do not use the plan. We do however favour the implementation of initiatives which would support the group of people who were the most severely affected by changes made to the plan.

Over and above the funds necessary to implement such initiatives, we would hope that the accumulated surpluses in the employment insurance fund would be returned to the workers and to the employers who paid into it in the first place, either as a reduction in premiums or in the form of measures which would support business.

The size of the surpluses is a clear indication, in our view, that the premiums are too high for the needs of the fund. The amounts amassed cannot be used to replenish other, less-well- balanced budgets. We do not entirely understand the objective of clause 9 of the bill. We hope that the government will use this new responsibility to set fair premiums which are adapted to the requirements of the plan.

One of the objectives of the reform was to increase employment stability. We feel that this objective would be better achieved by furthering the development of industry, which is the true engine of job creation, by creating a more favourable climate for business. The change to the taxation structure could encourage investment in new businesses and could foster research and development among existing businesses, for example. That is one way that the government could promote entrepreneurship and consequently encourage hiring, as well as tax reductions and investment in infrastructure. Reducing employment insurance premiums would also be another way.

Thank you, Mr. Chairman.

The Chair: Thank you very much, Ronald.

[English]

You both know that we do appreciate receiving the written briefs, and all the material in the written briefs is incorporated into our deliberations.

Alice Nakamura, University of Alberta.

Professor Alice Nakamura (University of Alberta): Thank you very much for having me here today.

I was on the Axworthy task force for social security reform. I was part of the reform effort. I chaired the committee that was responsible for bringing forward the insurance-side measures that went into the EI Act. I brought forward many of those measures myself.

I'm a professor in the university. I do research on employment and earnings, on productivity, and on income support measures to help families and individuals who are in need. I began my professional life that way as a research assistant for a U.S. commission on negative income tax, a means of trying to make it easier for people on welfare.

• 1655

I come to you in this capacity: I've been involved as a researcher in most of the previous reform efforts of the Canadian EI program.

There was a long-running systemic problem in Canada from 1971 on where our employment insurance caseloads and expenditures began to grow very rapidly compared to those of the United States, and there were easily identified reasons for this, which had to do with changes made in the early 1970s.

I've come here today to urge you to amend Bill C-2. I particularly would urge you to reform rather than to drop the experience rating of the EI intensity rule, and particularly the clawback. I'd like to point out that the clawback only applies to those who are above a certain threshold of income and you can change that threshold. Make the maximum insurable earnings higher if the current threshold is not your idea of where a person begins to be no longer in need.

I have come here to voice absolute disagreement with the idea that these provisions have been shown to be ineffective, that they are only serving the purpose of punishing those who are already struggling in the labour market. These measures have been effective in reducing EI expenditures, particularly those on higher-earnings repeat users.

To say that there are many repeat users who are in need is absolutely the case. But if you look at the clawback, it does not apply to anybody below the insurable maximum. Neither the clawback nor the intensity rule have anything whatsoever to do with who does and doesn't qualify for EI. In fact, if you save money there, you could reduce that very high 950-hour barrier to new and re-entering workers, which was wrong when we passed that bill in 1996 and is still wrong.

If you take the budget figures of Canada, you can see that the clawback and the intensity rule save money, but if you feel that some of those getting caught by it are lower-income and you wish to do something else about it, then fix that. Don't get rid of the rules.

If you take out the experience rating on the clawback and the intensity rule, you will have produced a fundamental imbalance in the EI program. The EI program was put together to try to balance the needs and situations of different groups within Canada—men versus women, different parts of the country, different occupations, to look at the cross-transfers between industries and occupations. When that bill was put together there were repeated simulations—what would happen if we do this, what would happen if we do that. Each one of these measures impacts some groups adversely and helps other groups.

There are many things we would like to do that are good, but there is no way of doing these things that doesn't catch somebody we wish hadn't been caught. That bill was carefully looked at to try to balance those trade-offs, and the idea when it was passed was to have ongoing review and study, so if that balance wasn't right it got fixed. There have been no studies released and discussed since the bill was passed, as there were prior to the 1996 reform. I think that's wrong.

In an information age, when all countries are out there competing for investment dollars and ideas, what's happened since Bill C-12 was passed? Who benefited from the work of my colleague Erwin Diewert and myself on this bill? Countries around the world have been coming to us and asking us to speak and write on this. There is an OECD publication on it. There is a chapter now in a major book brought out in the United States, the other ten chapters of which were all commissioned by the U.S. commission examining unemployment insurance issues. So we will benefit from this whether or not Canada does.

In the United States the UI program is state-based. There are 50 programs. Every one of those 50 programs is experience-rated. We have never had the type of experience rating the U.S. has because in the United State the premiums are paid entirely by the employer. Here they are paid by the employer and the employee. One commission after another struggled with the conundrum of what to do in this situation and finally found a way of handling it.

Payroll taxes must be paid by businesses from the day they first hire workers. You say new businesses are the engine of growth, but a new business must pay payroll taxes from the first day it opens, long before it makes any sort of profit. Payroll taxes are regressive. They are regressive because these are capped. Somebody like myself pays almost none of these things. We only pay it up to the $750 within a month. These taxes hit minimum-wage, full-time workers the hardest.

• 1700

If you take the testimony that you've already had before you, you've been told by Ms. Joyce Reynolds of the Canadian Restaurant and Foodservices Association that:

Basically, with the clawback provisions in this bill, you're saying that...there should be a transfer from employees in our sector—employees who may be making only a few thousand dollars.... They have to pay on every dollar they earn at work, and that money is being transferred to those employees who are earning on a seasonal basis four or five times what employees in our sector are earning.

I'm not against seasonal workers. One of the reasons I pushed for the conversion to the hours of work rather than the weeks of work is because many seasonal workers work extremely long hours during their weeks of work and they were unable to collect under the old UI program. So we made it so that seasonal workers could collect. When the bill was first phased in, the situation then was that we didn't bring in the clawback and the experience rating immediately. And if you look at the data for that first part, before the phase-in was complete, it hurt women rather than men. We will go back to that if you simply take it out.

The Chair: Thank you, and I do appreciate it. Again, I really appreciate the written version of the paper.

On my list I have Val Meredith, and then Jeannot Castonguay, Paul Crête, and Joe McGuire.

Ms. Val Meredith: Thank you, Mr. Chair.

Thank you both for appearing before the committee. I have insisted all along that we need a balance of presentations, and I think you've helped with that balance.

I guess what I heard from you, Ms. Nakamura, is that there were some things brought in by the changes in 1996 that were good, but there are some that need to be changed, but not to throw away the baby with the bath water. Do you feel that the 910 hours needed to qualify for new and re-entry is wrong?

Prof. Alice Nakamura: Yes.

Ms. Val Meredith: How do we go about fixing something that's been amended and amended? There's been conversation around this table that maybe the whole act needs to be revisited, that it doesn't seem to be working for the workforce in today's society. Do you feel that this is necessary?

Prof. Alice Nakamura: I feel that the act as a whole is performing fairly well. I feel that unemployment insurance is of fundamental importance to this nation. If we look at the macro-economies of the United States and Canada, back before the Great Depression we had much wider fluctuations than after unemployment insurance became part of both the United States and Canada. I think the program is very important. I think that by maintaining this huge surplus and by some of the other things that are happening, we are threatening the public support for the program as a whole.

I think that the 950 hours is a terrible barrier to entry. It had nothing to do with anything structural in the 1996 reform. You could get rid of that in a minute. With experience rating there, there is no reason to have such a high barrier to entry. It is the high barriers for the new and re-entering workers that are more responsible than anything else for the low participation rate.

Ms. Val Meredith: What do you mean by experience rating for us all? How would you define “experience rating”?

Prof. Alice Nakamura: Experience rating means that if a person uses a program more or is at more risk of an insured hazard, then either they get less in the way of coverage, or they pay higher benefits.

We have two fundamental ways of having social income support. One is through an insurance program and the other is through some sort of transfer or grant, the way we would have with welfare but also with pension programs. It's a grant of some sort if it's a public pension program that wasn't paid for by the individual.

In either way, we need a mechanism of control to keep it so that people don't start basically just dipping in without thinking of who's paying. In the case of an insurance program, the reason it's so important to have the UI program stay as an insurance program is because when it's insurance, rather than something where you do a means check, the money starts going out immediately when you go into a downturn. That prevents a spiral that causes many other people to get laid off.

On the other hand, though, you need some way of controlling the situation for people who need long-term income support. There are many people who need long-term income support for many reasons. The advantage of the 1996 reform is it lets money begin to be paid out immediately to people in need. It then gives a chance for those who need more than what that system pays out to be taken care of by other programs. It can't do it both.... You need both the steady support and you need the insurance-based one.

• 1705

Ms. Val Meredith: Thank you.

The Chair: Jeannot Castonguay and then Paul Crête, Joe McGuire, Yvon Godin.

[Translation]

Mr. Jeannot Castonguay: Thank you Mr. Chairman. I would also like to thank our guests.

On the matter of the intensity rule, I am very sensitive to this because I come from a region where there is a great deal of seasonal work and where there are no seasonal workers. The work is seasonal but the workers are not. What we are trying to do, ideally, in my community, Mr. Chairman, is to have different seasons where a worker can work to increase his number of productive hours by being gainfully employed.

I am convinced that it is not because someone has to turn to employment insurance year after year, at 55 or 50% of wages that are often minimal, in New Brunswick, that this person necessarily wants to use the program.

Madam Alice, you were talking about reforming rather than eliminating things. I would like to know what you mean by reforming the approach rather than eliminating it.

[English]

Prof. Alice Nakamura: First of all, the clawback is vastly more important than the intensity rule. Most of the testimony you've heard is about the intensity rule.

The thing about the clawback is that it only applies to those people above whatever limit you've set. If you think that the maximum insurable earnings limit is too low, raise it. But surely there's a point at which you would think that a person shouldn't be dipping into the program year after year. What we've found from the data is that there are people making over $100,000 dipping into the program year after year.

There are families where the family itself is quite well off and they're dipping into the program year after year. They aren't criminals. It's allowed.

I think the clawback is easily reformed, simply by saying that you will leave the clawback but you want it to only apply above a certain amount. That would then give more money for helping people of the sort you were talking about. They could be helped either through more generous treatment under the UI program, such as reducing that entrance number of hours for new and re-entering workers.

Take a worker who has worked for twenty years in a steel plant paying UI and then EI every single year, and then the plant closes and that person loses their job. They're older, they have trouble getting into other employment, and they maybe have a stretch of more than a year. Now they come back in as a re-entry worker and you make such a high threshold for them.

The purpose of the experience rating is to make it so that we don't have to have those high barriers. If you already have adequate controls within the program for repeat use by people who shouldn't be doing that to it, then you don't need to have those very high barriers.

Mr. Jeannot Castonguay: Yes, but I'm talking about the intensity rule. After four years of operation, there are about 40% of repeaters. It's not because they want to be on EI, because you don't make a living on EI, between you and me.

Prof. Alice Nakamura: That's right.

Mr. Jeannot Castonguay: I don't know how they can make a living on that. Why are you talking about getting rid of them?

Prof. Alice Nakamura: In the case of the intensity rule, think first of all about a disability insurance program. Almost every disability insurance program I know of has a high replacement rate for short-term disability, a somewhat lower replacement rate for longer-term disability. It is not because we want to punish the person who is disabled, who had an accident or an illness. It's to keep the program itself more affordable.

If you can put more money into the program, then raise the replacement rate. If you raise the replacement rate to 60% and then let it come down a little for people who use the program more regularly, that would be one thing you could do. A second thing you could do is to say that there are people, just like you've said, who year after year are in a situation where they simply can't find enough work. In that case, perhaps those people should be applying to a program where there's at least some means check so that if a family has an income, like mine, they are not eligible for that even if they couldn't find work.

I think that when you have ongoing, continuing support by some workers to others, you just have to have some sort of control over who is dipping into that year after year. The data shows clearly that many of those receiving payments year after year are better off than many of those you're taxing to pay the money.

• 1710

Regarding the taxing, your region also has struggling businesses. Just as many of you have noticed that if you take an individual who is struggling, what some people might call little amounts of money that were taken away by the intensity rule make a great deal of difference to that person, it's the same for a struggling business. If you have a struggling business, these taxes make a great deal of difference to that business.

With the intensity rule, you could do several things. If you think it's too steep to come down one percentage point for every 20 weeks of work, you can make the time interval longer. You could make it that for every 50 weeks of time they've been on EI, it comes down something. You can make the step by which it comes down less than one percentage point. You could make it so it's very small. But I think it will still be helpful in terms of reducing the costliness of the overall program and hopefully go back towards the day when we're constraining the use of the program by those who shouldn't be repeating on it. We make our economy stronger, and then we can have a better replacement rate. I agree fully that 55% is not a good replacement rate.

The Chair: Jeannot, I'm afraid we have to move on. It was an interesting exchange.

We'll go to Paul Crête, Joe McGuire, Yvon Godin, and Diane St-Jacques.

[Translation]

Mr. Paul Crête: Thank you, Mr. Chairman.

I would like to thank you for your testimony today, particularly Ms. Nakamura, because I had been waiting for some time to see somebody who could embody the view according to which we should improve the lot of the poor by penalizing those who are even poorer. As far as I am concerned, the intensity rule is just about the most regressive rule that I have seen in the 20th century as an example of humanity exploiting humanity. I find this sentence in your conclusion quite surprising:

If you save the experience rating of at least the IE clawback, [...] including the intensity rule,

[...] this will help enable other important reforms, now or subsequently, such as eliminating the very high EI qualifying thresholds for new and re-entering workers.

Are you aware, madam, that this year, last year and next year, we will have collected some $18 billion in premiums and that we will pay out approximately $12 billion? Would the solution not be a fair distribution of some of these $6 billion in order to correct the situation, such as discrimination toward new workers and those who return to the labour force, rather than trying to fund them with money that is usually given to the poorest in society?

[English]

Prof. Alice Nakamura: I think the key here is that the reason people thought they needed and wanted those high rates for new workers in the first place was because of the long-established pattern of increasing repeat use. This didn't just include people who were down and out; it included Alberta oil workers, all sorts of educated women, many sorts of people. If you have a program with no means check whatsoever, you get many people who are not poor using that program.

To do something for the poor is obviously extremely important, and one very regrettable thing is that some years back you changed the welfare rules for this country so that there's no cost sharing. The cost sharing is not equal the way it was from the federal government. That could be reinstated.

Through an unemployment insurance program, I don't think you can go very far to solve the problems of the people who are truly down and out.

[Translation]

The Chair: Paul Crête.

Mr. Paul Crête: Mr. Chairman, is our witness unaware of the fact that that is the same rule that is at the heart of this question? The intensity rule, the 910 hours required for someone arriving on the labour market before being able to qualify, is the same principle essentially. It took four years to convince the government to abolish the intensity rule, and I am willing to predict that within two years, the government will also have to abolish the rule about the 910 hours because we will demonstrate through studies as we did for the intensity rule that that does not have the desired effect. As to the 910 hours, we will go through the same thing, but all this time, for all these years, people will have been systematically penalized, because they are being treated as economic guinea pigs rather than as citizens.

[English]

Prof. Alice Nakamura: If you wish to make the intensity rule more mild, do so, and realize that it has nothing to do with who gets EI in the first place. It has nothing to do with qualifying for benefits. I don't understand the focus on that when you have that 950 hours sitting there as the real barrier to entry.

• 1715

Then, if you don't like the intensity rule, let the intensity rule go. Get rid of it, but don't get rid of the experience rating on the clawback. The only people you're catching there are higher-income repeat users.

The Chair: It's 910 hours.

Prof. Alice Nakamura: Yes, you're right.

[Translation]

Mr. Paul Crête: I just want to repeat that as far as I am concerned, the principle that was used to establish the intensity rule is the same as that used to establish the 910 hours. That is what you have to be aware of. The rationale behind the intensity rule was that by penalizing workers, they would work more. We are told that young people are required to work 910 hours, or else they will leave school sooner and we will loose them.

In both cases, a principle was applied whereby citizens who work are people who do not want to work. It has been shown in black and white, in studies, that that did not apply in the case of the intensity rule, and I am convinced that we will demonstrate that it will not apply for young people. I will conclude on this point.

I am very glad today to see someone who has participated in the study that led to implementing the intensity rule, especially on a day when we may see this rule abolished, either today, tomorrow or next week.

[English]

Prof. Alice Nakamura: First of all, there is no relationship between the 910 hours and the intensity rule. I brought the proposal for the intensity rule to that committee, therefore I know exactly where it came from.

I brought it to the committee because Canada had no way of having an experience rating. This is a way in which you can have some experience rating and some control without hurting people up front. That 910 hours thing walked in at the last minute, in terms of the task force deliberation, solely because of something coming from the finance department saying the bill cost too much. That 910 figure could be any number of hours; it has no bearing whatsoever on the intensity rule. But if you don't like the intensity rule, get rid of it. It is not the most important part of the experience rating. It is something that I believe helps.

I was standing in front of my class waiting to begin, and a student was saying to another student, well, I have a job now; I was thinking of not starting it for two or three months because I am in a position where I can collect EI because of my previous job, but I'm afraid it might damage my situation to collect later.

I think it does have some effect. That effect will only be found over many years. It took us many years to get in the situation we were with repeat use.

The Chair: Although I'm very interested in these exchanges, I'm going to try to speed it up and get back to our normal time.

Joe McGuire.

Mr. Joe McGuire: Thank you, Mr. Chairman.

On page 1 of your report you say that you want to transform Bill C-2 from an ugly duckling into a swan of beauty.

I suppose you're getting some of the presentations that have been made here over the past month. Most of those people would consider Bill C-12 the ugly duckling, and Bill C-2 as making the ugly duckling just a little bit prettier. They would go a lot further to make Bill C-12 prettier than we're prepared to go here, at least at this point in time.

You were saying that the hour-based system, which I think was a good system, was your idea, and the intensity rule was your idea—

Prof. Alice Nakamura: Yes.

Mr. Joe McGuire: —and that even though people who use the intensity rule are hurt by it.... They're repeat users because the jobs they have are repeat jobs that are only there for a certain amount of the year.

I'm not sure why you would want to do that. I can understand your clawback, because at the time of the changes, I think people who were making $64,000-plus a year were still eligible to draw EI, or UI at that time.

Prof. Alice Nakamura: That's right.

Mr. Joe McGuire: I don't think EI was ever designed or intended for people making that much money to be able to draw unemployment insurance. But as you say, they were not crooks; it was there, and they used it. It was completely legal.

Did you suggest that the clawback be dropped under $39,000? Where did that figure come from?

Prof. Alice Nakamura: The figure is in terms of actually where the dollars were set. It came from two things: they came to make a bill that would fit within what the finance department demanded for the total package, and secondly, they came to try to make the transition for regions as easy as possible, to make it so when they were changing a structure, they wouldn't all of a sudden change the knowledge.

• 1720

To answer your question on the intensity rule, the reason was that I had been a technical adviser to New Brunswick Works, I'd been a technical adviser to the self-sufficiency project, and I had become aware of where the money for those programs came from. It came from provincial governments taking people who were on welfare, putting them in jobs with employers who basically had to do what the provincial government wanted, and letting them work enough weeks to qualify for EI, so the money would be paid out of EI funds.

This is wrong, because EI premiums are a capped tax. Somebody like myself pays very little. We should help those people, but we should help them out of my income tax. Tax me more, and don't tax that person who is a minimum-wage worker more.

Mr. Joe McGuire: Was the divisor concept your idea too?

Prof. Alice Nakamura: No. The problem with the divisor is that when you change the bill from a weekly based program to an hourly based one.... Every country originally had something where the employer was the unit of account. We didn't have these big computers, and we needed to piggyback on the employers' record keeping. When we went to a world where many people had multiple jobs, that wasn't a good system any more. To try to help people in part-time jobs and so forth, they needed to go to an hourly based unit of account. But they didn't know how to switch over the payment thing immediately, so the payment thing was done based on weeks while the other was based on hours. It wasn't a perfect situation. The department and several people worked on that, but I did not.

It was the best people knew how to do. It wasn't perfect.

Mr. Joe McGuire: That is what is being blamed for the black hole—

Prof. Alice Nakamura: Yes, that's true.

Mr. Joe McGuire: —where people really can't get through a winter. If you only qualify for the minimum benefits, you really can't make it. You're reduced to applying for welfare before you can start your job again.

Prof. Alice Nakamura: Yes, that needs to be fixed, and there are things about the divisor which aren't good.

The other thing is the problem of regions where there is inadequate employment.

There's nothing worse than doing something you can see is going to hurt people. I took many trips out to the Maritimes, and besides that I worked on welfare issues. Welfare was the main thing I worked on before I started this.

Canada has one huge advantage over the United States, namely, at least the social insurance programs here are open to everybody, not just the single mothers. In a province like British Columbia, one-half the caseload consists of young men.

The Chair: I'm going to go to Yvon Godin, Diane St-Jacques, Greg Thompson, and Alan Tonks.

By the way, if I might, I'll try to draw to a conclusion there.

[Translation]

Mr. Yvon Godin: I hope that you will not go too fast toward the end, because as we near the end, it is always my turn to put questions and you speed things up.

[English]

The Chair: No, Yvon, I didn't say to pick up the pace. I said I was going to finish it. Okay?

Mr. Yvon Godin: No. I'm going with the first statement you made before.

The Chair: Okay.

Mr. Yvon Godin: You said that now we have to go a bit faster. Every time at every meeting I've gone to, you start going faster when you come to me.

The Chair: Listen, Yvon. You always have the longest questions, anyway.

Mr. Paul Crête: Four minutes to go.

The Chair: Okay. Yvon Godin.

[Translation]

Mr. Yvon Godin: Thank you, Mr. Chairman.

Mr. Drisdelle, I would first like to welcome you as well as Ms. Nakamura, even though you might be the author of many problems with employment insurance that occurred in our country. You are a part of the problems that I will describe later on.

Mr. Drisdelle, when you mentioned the funds that were spent since 1993, I do not know where you got your figures from, but maybe there was a mistake. For the sole region of Acadie—Bathurst, we lost about $483 million. According to Statistics Canada, employment insurance benefits in Acadie—Bathurst alone amount to $69 million per year.

Now, as you represent the Conseil économique du Nouveau- Brunswick, let me tell you that we are dealing with an amount of nearly $275 million per year for New Brunswick. So, I think that we are putting the cart before the horse. I said this at several meetings: small and medium-sized enterprises have suffered. This was really taken away from them. When people can no longer spend, it is as if the money were taken away from these businesses. These people used to spend their money as clients of small and medium- sized businesses.

• 1725

The solution really lies in creating more jobs. When more jobs are created, the number of employment insurance beneficiaries automatically goes down. This is the result we really want, rather than punishing the poor, as my colleague just said. The neediest people of our society were really affected by these changes to employment insurance.

Mr. Ronald Drisdelle: I understand your comments. I also appreciate them. I think that you may have misunderstood the presentation. If the figures are higher for Bathurst and the peninsula this also supports what I said. What I wanted to emphasize is that generally, New Brunswick has suffered a great deal from these changes. Now, the Conseil économique du Nouveau- Brunswick, in its five-minute presentation, did not choose to speak of specific regions.

What you said is true: when people have no money in their pockets, they cannot go shopping and they cannot support small and medium-sized businesses. The Conseil économique raised the point that fluctuation and change has always existed. We would not be sitting before this committee if we had not learned that there was a surplus and if we did not feel that there is lack of transparency from the government. That is why we are here today.

The Conseil économique is aware of this. Since companies, and especially small and medium-sized ones, hire many seasonal workers, we want them to access this resource. We do not agree with the lady who seems to want to penalize people who want to use it frequently. Mr. Godin, you know that there is work in New Brunswick, in your community. It is seasonal work and the employees have no choice but to work on a seasonal basis.

So, I have no problem with your comments. I think that they are very much in keeping with my presentation.

Mr. Yvon Godin: No, I only mentioned figures.

[English]

I have one question I want to raise with our professor from the University of Alberta. She said that she agrees and that she understands seasonal workers. My question is, do you really? Do you know that—I am pretty sure—you cannot catch any lobsters on the streets of Alberta, and that you cannot catch any codfish? In the Maritimes and in B.C. we have these seasonal jobs.

For woodcutters it's pretty hard if they don't have any quota to cut wood. In areas where we have tourists.... It could be in Quebec, in New Brunswick, in B.C., or anywhere across the country.

The answer is not welfare, because every province.... And I'm starting to worry, because you said you worked on employment insurance and welfare too. Even in Ontario, they have cut the number of people on welfare so much that you cannot even own a house or a car. Does that mean that our woodcutters, our fishermen, and our people working in tourism have no rights in this country? They are resources we need. Where are all those studies?

It was a big mistake in 1996, a big mistake. We live in one of the most beautiful countries, and as far as I am concerned, we're losing it because we cannot work together on it.

The Chair: Alice, we only have time for a short reply, I'm afraid.

Prof. Alice Nakamura: Get rid of the 910-hour thing. Keep the experience rating but take that down to the level of all the other workers, so that they can access it more readily.

Mr. Yvon Godin: What about the divider?

Prof. Alice Nakamura: In terms of the divider, change it. I don't see that in Bill C-2.

Mr. Yvon Godin: Get rid of it.

The Chair: We'll have Diane St-Jacques, Greg Thompson, and then finally Alan Tonks.

[Translation]

Ms. Diane St-Jacques (Shefford, Lib.): Thank you, Mr. Chairman.

My first question is for you, Mr. Drisdelle. In your presentation you mentioned initiatives to encourage people to go back to work. I was wondering what kind of initiatives you meant.

Mr. Ronald Drisdelle: I meant initiatives that would favour training. We spoke of the segment of the population between the ages of 25 to 40. We said that those people were probably most likely to be eligible for training, but that there were other categories of people.

I think that the initiatives that we are speaking of are those that have a direct relationship to the work that is reaching a peak on a seasonal basis. As for providing examples, I will not be doing that this afternoon, but I believe this is something that the committee should look into, because people are being penalized. That is what the amendments have done, especially in regions such as ours, in New Brunswick. People have been penalized.

In New Brunswick, where I come from, there are some regions where there is no work. It is not a matter of determining whether or not people are abusing the system; there is no work. But the small and medium-size businesses in those regions still need access to those people.

• 1730

There is the new technology as well as research and development that might interest people and where training could be offered. Those are a few examples that come to mind.

Ms. Diane St-Jacques: Thank you.

I have two short questions for Ms. Nakamura. The first one deals with what is on page 1 of your presentation. You said that you gave advice to the president of the United States on a negative income tax proposal. I just wanted to know which president was in office at that time.

[English]

Prof. Alice Nakamura: Ironically, it was Richard Nixon. It was a Republican administration that almost pushed through a negative income tax rule in the United States.

[Translation]

Ms. Diane St-Jacques: Along with many of my colleagues, I do not agree with a large part of what you have presented, but what really struck me is something you wrote on page 3 of your report: “The Canadian payroll taxes are regressive.” Does this mean that you would be in favour of eliminating payroll taxes? Is that what you mean or can you explain this further?

[English]

Prof. Alice Nakamura: I was trying to say that payroll taxes are regressive in Canada. The reason they are regressive in Canada is that all your payroll taxes are capped. You only tax up to a certain cut-off point of the person's income. So for me, I pay very little of the payroll taxes.

Now take where you're losing employment. You're losing employment for people who don't have much education, particularly for men. Look at the tax wedges you have in there. You have the EI, and they pay it on every hour of their work. But you also have the CPP or the QPP, and they pay that on every hour of their work. Then you have workmen's compensation. Those rates are low for desk people, but for men who are in jobs that are mostly manual, they're very high.

You have a huge tax wedge out there, and it is driving out that sort of employment. I work with engineers. It is much cheaper to hire a machine because of the huge tax wedge.

Ms. Diane St-Jacques: Okay. Thank you.

The Chair: Next is Greg Thompson and then Alan Tonks.

Mr. Greg Thompson: Thank you, Mr. Chairman.

It has been an interesting discussion. The question I have for you, Professor Nakamura, is what is the maximum benefit today you can receive under EI?

Prof. Alice Nakamura: It's very low because of the fact that the replacement rate is nailed down to just 55%, and the—

Mr. Greg Thompson: But what is that number?

Prof. Alice Nakamura: The maximum you could receive under EI would be 55% of the maximum insurable earnings.

Mr. Greg Thompson: But what would that be?

Prof. Alice Nakamura: I think the maximum insurable earnings amount is $39,000, so it would be half of that, roughly.

Mr. Greg Thompson: But what would that work out to in terms of a weekly benefit?

Prof. Alice Nakamura: It's very low. I don't understand the point.

Mr. Greg Thompson: The point I'm making is if I follow your logic—and I've been trying desperately to do that, and maybe I've missed the point—I think you're saying that some of the upper wage earners are the problem because the system allows them to fall back onto unemployment insurance.

Prof. Alice Nakamura: The problem is this—

Mr. Greg Thompson: Let me finish. The point I'm making—and it's a loaded question—is that the maximum benefit is $412, so, logic prevailing, how many high-income earners are going to leave a high wage and be happy earning a maximum of $412 a week?

Prof. Alice Nakamura: When I first discovered that, I was shocked. I was working with the 1971 U.S. and Canadian censuses and then the 1981 U.S. and Canadian censuses. The rates for women with small children had always been slightly lower in Canada than in the U.S. By 1980 and 1981 they were way above.

There are many people who, for whatever reasons, wanted to work the forward part of the year.

Mr. Greg Thompson: I don't think your logic prevails, but we'll have to disagree on that one.

The Chair: Greg, the chair is still here.

Mr. Greg Thompson: I'm sorry, Mr. Chairman. You've been so kind to me as well, and I—

The Chair: I know. I can't understand it.

Mr. Greg Thompson: Please forgive me.

The Chair: That's all right. I'm just mentioning the fact—

Mr. Greg Thompson: Looking at your presentation, I see Insurance to the Unemployed: Canadian Reforms and the Relevance for the United States. That was authored by you, Ms. Nakamura, and Erwin Diewert. Is that correct?

Prof. Alice Nakamura: Yes.

Mr. Greg Thompson: Was the idea of experience rating your discovery? Was that your idea?

Prof. Alice Nakamura: Only how to do it in Canada. Every state in the United States does have that.

Mr. Greg Thompson: The point I'm making is that was a model you adopted from New Zealand. Is that not correct?

• 1735

Prof. Alice Nakamura: Not at all. That's not true. No other country in this world has had workers' side experience rating.

Mr. Greg Thompson: The 50 states in the United States all have state-run systems.

Prof. Alice Nakamura: Yes.

Mr. Greg Thompson: Now, are you suggesting that all of those 50 states have a better system than Canada has, or are you just identifying some of the bigger states? For example, I do know that some states have what I would call a mean-spirited, punitive approach to EI benefits, if that's what they call them. But the problem then becomes that some of the workers resort to other means and become attached to programs that are a little more lucrative for them.

For example, I know that in the state of Maine workers' compensation is the program that's abused over there, where the premium rates are ten times higher than they are in most jurisdictions in Canada. So they have a mean-spirited program on one side and a system that's being abused on the other. Basically, we're talking in this case about low-income Americans who will do just about anything to receive income. Have you ever examined some of those problems?

Prof. Alice Nakamura: Yes. In both Canada and the United States I have looked at a lot of data on the the movement of people between EI or UI and welfare and workmen's compensation. Both countries have a large amount of shifting between those programs. Every time you tighten a rule, you get movement into the other.

In terms, though, of the mean-spiritedness, I very much prefer the Canadian higher replacement rate and longer term. We can't pay for it, though, without taxing somebody. It's like when your children are small, they have sympathy for other people and they want to give to anybody they see in need. But they don't necessarily see how to pay for it.

I think there should be better benefits for people in parts of the country where there's no work. I was dismayed when this nation decided not to put anything in from general revenues any more in terms of cost-sharing with the welfare programs, and I agree that it's not a good idea to take away a person's house to get on welfare.

The Chair: You have time for one comment.

Mr. Greg Thompson: Mr. Chairman, this is really an engaging discussion, and I wish our witnesses could be here a little longer.

I am taken by the research, and I did notice on your résumé that you received most of your formal education in the United States.

Prof. Alice Nakamura: Yes.

Mr. Greg Thompson: I also noted here that you've documented a number of studies you were engaged in and that you have taken the time to examine the situation in Canada. So I'm quite comfortable with your credentials.

But I think that in a couple of those areas, we're just going to have to disagree, Mr. Chairman. Thank you.

The Chair: Alan Tonks.

Mr. Alan Tonks: Thank you, Mr. Chairman, and also thank you to the witnesses.

This committee has been struggling with the transition from the weekly rated entry qualification to the hourly based qualification and the issue with regard to the number of first-time recipients who have fallen below the bar and cannot qualify. The committee has been consumed by—at least, we've been wrestling with—where the bar should be. We have used the 910 hours. We have looked at the statistics that have been provided by witnesses that show the number of first-time recipients is as low as 37% of those who would ordinarily have qualified in the past or who need the benefit due to falling below the poverty line and so on and so forth. Could you help the committee in terms of telling us what methodology you would recommend for an equitable bar on an hourly rated system?

Prof. Alice Nakamura: I think that's very simple: just make it the same as it is for everybody else. All regular workers have a bar that's between about 450 and 700 hours. There's a low end and a high end.

The Chair: It's 420 hours.

Prof. Alice Nakamura: Thank you. I'm bad on remembering numbers.

Make it the same for everybody, so long as you leave some experience rating in. It's affordable that way, and it's fair. In the old UI they always had a somewhat higher barrier, and they didn't walk away from that when they put in the experience rating. They could have.

• 1740

Mr. Alan Tonks: When Bill C-12 was being reviewed, did that methodology and those issues surface?

Prof. Alice Nakamura: Yes. It was there almost until the end. This very high number came in only at the end, and then only because the total bill cost too much. That was such an easy way.

The maternity leave for women was the other one that should never have been as high as it was. There was no reason to have that up as high as $700. It made for the awkward situation of some people being taxed to pay for something they then couldn't collect.

Mr. Alan Tonks: Can I conclude from this that the actuarial calculations with respect to the bar being at that level were too high, across the board?

Prof. Alice Nakamura: The actuarial calculations were totally disregarded. When that bill was passed, we were told on the task force—and I was asked to go and tell this to parliamentarians and to others in my testimony—that the tax rate would not be reduced at that time because of the desire to make a program that would be able to ride out a recession. It would build up a surplus for that purpose. The government seems to have subsequently totally forgotten that they used people like me to talk others into that.

The Chair: Okay.

Colleagues, on your behalf,

[Translation]

I would like to thank Ronald Drisdelle from the Conseil économique du Nouveau-Brunswick. Thank you very much.

[English]

As well, to Alice Nakamura of the University of Alberta, we thank you for your input.

I think you can both tell—in terms of the number of witnesses we've had, you're somewhere in the sixties—that our members are still very engaged in this matter. We greatly appreciate your written and oral presentations and your responses to our questions. We thank you very much indeed.

I now want to explain to my colleagues and to the other people here what we're going to do.

After I adjourn this meeting we will proceed to another meeting in about ten minutes' time. I would ask that the room be cleared. We will be going in camera for about twenty or thirty minutes, I suspect, although I don't really know. It depends on the discussion.

At the end of that discussion we will be in public again in exactly the same place. Then we will continue with clause-by-clause consideration of this legislation.

This meeting is adjourned.