PACC Committee Report

Pursuant to Standing Order 108(3)(e), the Standing Committee on Public Accounts has the honour to present its

SECOND REPORT

The Standing Committee on Public Accounts has considered the December 2001 report of the Auditor General of Canada (Chapter 13 — Other Audit Observations: Clarity and Improved Transparency Needed to Demonstrate Compliance with the Employment Insurance Act in Setting Premium Rates), and has agreed to table the following report.

INTRODUCTION AND BACKGROUND

Since 1999, the Auditor General has expressed concerns about the premium-setting process of the Employment Insurance program, and the size and rate of growth of the accumulated surplus in the Employment Insurance Account.

The Canada Employment Insurance Commission (CEIC) administers the Employment Insurance Act. The objective of the Act is to provide short-term financial assistance and other forms of aid to eligible workers. Employers and employees pay all program costs through premiums. According to the Employment Insurance Act, the CEIC will, to the extent possible: 1) maintain relatively stable premium rate levels, and 2) ensure that program revenues cover program costs over the business cycle.

The Employment Insurance (EI) Account records all financial transactions related to the EI program. The Account balance is the cumulative program revenues deposited in the Consolidated Revenue Fund (CRF) minus the EI program costs paid out of it. Thus the EI Account is essentially notional in nature, as it is contained within the CRF. The tracking of the Account is important to meet the objectives of the Act — that is, to ensure the fiscal integrity of the Account and the relative stability of premium rates over the business cycle.

As of March 31, 2001, the EI Account balance stood at $36 billion and, according to the Plans and Priorities document of Human Resources Development Canada (HRDC), the planned surplus would reach $42.8 billion by March 31, 2002.^[1] The current and planned surplus balance are both considerably in excess of $15 billion, the maximum amount considered necessary by the Chief Actuary of HRDC to cover program costs over the business cycle.^[2]

According to the Auditor General, the Commission did not provide adequate justification for the size and rate of growth of the EI Account balance. Therefore, the Auditor General was unable to conclude that the intent of the Act had been observed in setting the 2001 premium rates.^[3]

Recent amendments to the Act suspended the Commission’s rate-setting authority for 2002 and 2003, allowing the Government to undertake a review of the premium rate-setting process. For both years, the rate will be set by the Governor in Council on the recommendation of the Minister of Finance and the Minister of Human Resources Development.

Given its concern over the increasing surplus in the Employment Insurance Account and the lack of transparency in the establishment of premium rates, the Committee decided to meet on March 19, 2002 to consider the findings of the Auditor General’s report. Ms. Sheila Fraser (Auditor General of Canada), Ms. Nancy Cheng (Principal) and Mr. Yvon Roy (Director, Audit Operations) represented the Office of the Auditor General of Canada. Mr. John McWhinnie (Assistant Deputy Minister, Insurance), Mr. Michel Y. Bédard (Chief Actuary, Actuarial Services, Insurance) and Ms. Wilma Vreeswijk (Director General, Labour Market Policy) represented the Department of Human Resources Development. Present for the Department of Finance were Ms. Susan Peterson (Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch) and Mr. Peter DeVries (Director, Economic and Fiscal Policy Division).

OBSERVATIONS AND RECOMMENDATIONS

The issue of the EI rate-setting process retained most of the Committee’s attention. Given that the existing provisions of the Employment Insurance Act have been suspended for 2002 and 2003 to permit the review of the rate-setting process and allow the Governor in council to set the EI premium rates according to government decree, the Committee enquired as to how the Government intended to maintain transparency and clarity in the setting of the EI rates. In the 2001 Public Accounts of Canada, the Auditor General could not conclude that the setting of the EI rates had respected the intent of the Act because of the lack of clear benchmarks in the legislation. Ms. Fraser went on to say that her Office had been given a response from the Government “which would seem to indicate that great attention has been paid to stability [of the EI rates], but does not sufficiently address the question of sufficient revenues to meet program costs over an economic cycle.”

According to Ms. Susan Peterson of the Department of Finance, during the ongoing review process the Government is taking into account a range of factors, including the economic uncertainty caused by the events of September 11, 2001, the impact of national and international economic conditions on domestic labour markets, EI program costs, the Government’s overall fiscal situation and the desirability of maintaining stable EI rates. The current growth and size of the EI Account surplus is essentially the result of higher-than-expected economic growth that has led to higher-than-expected EI program receipts over program costs. Because the EI Account is consolidated into the CRF, the EI Account balance has major repercussions for the federal government’s overall budgetary balance. The Committee is concerned about the lack of clear requirements and provisions in the EI legislation concerning the appropriate size of the surplus of the EI Account balance and its disposition and thus makes the following recommendation:

RECOMMENDATION 1

That the Government clarify and disclose to Parliament and the Public Accounts Committee all the relevant factors used in setting the Employment Insurance premium rates, particularly with regard to determining the nature of the Employment Insurance Account balance and deciding on its disposition. That the Government table the relevant information to Parliament and the Committee no later than March 31, 2003.

Ms. Fraser told the Committee that the review of the EI premium rate-setting process needs to be open and include consultations with key stakeholders. She was concerned that the review could preclude meaningful consultations with key participants, and Canadians in general, on the EI premiums to be established in 2002 and 2003,^[4] and she suggested that the Department of Finance include employer and employee groups along with the EI Commission and the Chief Actuary of Human Resources Development Canada. Ms. Peterson indicated that no decision had been made with respect to the exact form of the proposed public consultations, but she assured the Committee that there would be opportunities for all stakeholders to make their views known, including speaking before parliamentary committees. She mentioned that both the Standing Committee on Finance and the Standing Committee on Human Resources Development and the Status of Persons with Disabilities had already expressed interest in participating in the EI review. In the interest of maintaining transparency and accountability in the EI rate-setting process, even during the government’s review, the Committee makes the following recommendations:

RECOMMENDATION 2

That during the review of the Employment Insurance premium-setting process, the Government take all necessary steps to include consultations with employee and employer groups, along with the Canada Employment Insurance Commission and the Chief Actuary of Human Resources Development Canada and all other relevant stakeholders.

RECOMMENDATION 3

That the Government prepare a status report on these consultations, summarizing each participant’s position, contribution and conclusions to the review of the employment insurance rate-setting process, and table the document to Parliament and the Public Accounts Committee when the review is complete.

Every year, the Chief Actuary prepares a report and provides forecast information on the EI program to assist the CEIC in setting premium rates. The report is later made available to the public on the HRDC website. However, it was noted that no such report was prepared in advance of the setting of EI premium rates for 2002. According to Ms. Fraser, the actuarial analysis would have provided valuable information for setting the rates. Mr. John McWhinnie of the Department of HRDC indicated that since the CEIC’s role has been suspended by legislation for the duration of the review, a formal report by the Chief Actuary was not required. However, the Chief Actuary did provide an information document on the outlook for EI premium rates in 2002 to support the CEIC informal consultations, with its constituents and the document was made available on the HRDC website following the setting of the 2002 EI rates in December 2001.

While acknowledging that the Chief Actuary is not legally required at this time to produce every year a detailed and complete actuarial report, the usefulness of the information contained in such a report is invaluable for all stakeholders, providing the economic and financial context within which EI rates are established. It can also provide essential benchmarks to compare the evolution of EI rates over time. Therefore the Committee makes the following recommendations:

RECOMMENDATION 4

That the Government formally reinstate the requirement that the Chief Actuary of Human Resources Development Canada prepare and produce full and complete actuarial reports for the EI program for 2002 and 2003. That these reports be made available in a timely fashion to all stakeholders and the public on the Human Resources Development Canada website.

RECOMMENDATION 5

That the Government consider legislative amendments that would require the Chief Actuary of Human Resources Development Canada to produce on an annual basis actuarial reports on the EI program. That these reports be made available in a timely fashion to all stakeholders and the public on the Human Resources Development Canada website.

CONCLUSION

The Committee is very concerned about the Auditor General’s findings regarding the Employment Insurance program, specifically about her inability to confirm whether the EI rates in 2001 were established in conformity with the legislative provisions of the Employment Insurance Act. It is hoped that the current review will provide the necessary clarifications to the EI program to improve transparency and clarity in the interpretation of the Act, particularly with regard to the size and growth of the EI Account balance and how such surpluses are to be disposed.

Pursuant to Standing Order 109, the Committee requests that the government table a comprehensive response to this report.

A copy of the relevant Minutes of Proceedings (Meetings No. 44 and 62 of the 1st Session of the 37th Parliament and Meeting No. 3 of the 2nd Session of the 37th Parliament) is tabled.

Respectfully submitted,

JOHN WILLIAMS, M.P.

Chair