:
I would like to call to order the meeting of the Standing Committee on Human Resources, Social Development and the Status of Persons with Disabilities.
Pursuant to Standing Order 108(2), we are studying the Canada Employment Insurance Financing Board.
I want to thank you once again, Minister, for appearing before us. This committee has been seized with this particular issue over the last couple of meetings, and I know that there were a couple of additional questions. I also realize how busy your schedule is, so it's great to have you back in such a short period of time to discuss some of these issues.
I realize you have an opening statement, sir, so why don't we just get started with that. Then we'll go around with a few rounds of questions. We only have one hour, so we will try to get everyone as many questions as we can.
Minister, the floor is yours, sir.
:
Thank you very much, Mr. Chair.
I'm pleased to have with me today Mr. Paul Thompson, associate ADM for skills and employment at HRSDC.
[Translation]
Thank you for the opportunity to appear before this committee regarding the proposed Canada Employment Insurance Financing Board, or CEIFB.
[English]
The governance and management of the EI account has been an issue for several years. In 2005 the standing committee heard from stakeholders through the study, and subsequently reported its findings in “Restoring Financial Governance and Accessibility in the Employment Insurance Program”. Views have also been expressed regarding EI financing through annual sessions on rate-setting.
Bill addresses concerns expressed by a wide range of stakeholders representing workers, employers, experts, and elected officials regarding how the EI account should be managed.
As a small crown corporation working at arm's length from the government, the CEIFB will ensure that EI financing decisions are taken independently and separate from the government's responsibilities regarding benefit determination and payout.
The proposed Canada Employment Insurance Financing Board will be responsible for implementing an improved EI premium rate setting mechanism that will ensure EI revenues and expenditures break even over time; managing a new bank account, separate from the government's general revenues, where any excess EI premiums from a given year will be held and invested until they are used to reduce premium rates in subsequent years; and maintaining a $2 billion cash reserve as a contingency fund that will support relative premium rate stability.
In addition, the EI premium rate-setting mechanism will be improved so that any surplus premiums and income from investments from one year will be taken into account when setting the subsequent year's rate. This measure will ensure that premiums collected over time will not exceed benefits paid.
[Translation]
To contribute to the relative stability of employment insurance premium rates, the board will be limited to the extent to which it can change the rate by a maximum of 15¢ per year.
[English]
It is important to note the Government of Canada's contribution of $2 billion to establish a real cash reserve. This money, coming from existing government revenues, will provide a contingency fund in support of relative premium rate stability. If, in a given year, the EI premiums does not collect enough money to cover the cost of EI benefits to be paid that year, then the money in the reserve will be used to offset premium shortfalls that could arise as a result of the 15¢ limit in premium rate increases.
It is important to recognize that the $15 billion reserve figure mentioned in 2000 by the chief actuary was characterized as the amount required to avoid raising premium rates throughout a severe economic downturn, similar to that experienced in the 1980s. This is not a figure that is consistent with the government's approach, which aims to match program revenues and expenditures each year. Nor does this figure take into account changes to the EI program structure, size, and clientele, or today's significantly improved economic conditions.
With respect to the $54 billion notional cumulative surplus prior to 2009, this is simply a bookkeeping entry reflecting the difference in prior credits and debits in the account. We are improving the system going forward by creating a separate account with a real cash reserve. The Canada Employment Insurance Financing Board will be run by seven part-time directors who have the necessary skills and expertise to effectively carry out the organization's mandate.
Qualified members will be selected, following recommendations made by a nominating committee that would include the commissioner for workers and the commissioner for employers, and will be appointed through governor in council.
[Translation]
Through this process, business and labour can be assured that the most qualified individuals are selected to manage decision-making on the financing of the employment insurance program.
[English]
It will be up to the board of directors to develop a corporate plan and a budget for consideration of the Treasury Board, and Parliament as part of the estimates process. The incremental costs of operation for the new activities and responsibilities of the CEIFB are expected to represent only a fraction of the additional returns on investment not previously realized under the old system.
I wish to emphasize that the CEIFB will have responsibilities related only to EI financing. HRSDC will continue to have policy responsibility--related to EI benefits and through Service Canada for program delivery--to ensure that the program remains responsive to the needs of Canadians and is delivered efficiently and effectively.
Our plan is one that looks to the future and ensures independent decision-making regarding the management of EI funds and making sure that these funds are used only to pay for EI benefits;
[Translation]
that premium rates reflect actual program costs and take into account investment returns so that Canadians pay the right premium rates, just sufficient to cover the cost of benefits received;
[English]
and ensures that the program is on a firm financial footing going forward, well positioned to withstand changing economic conditions.
Mr. Thompson and I will be pleased to address the committee's questions.
Thank you. Merci.
Minister, thank you very much for coming. You have made yourself available to this committee on a number of occasions, quite voluntarily, which I appreciate; I think we all do. Thank you for that.
In terms of the background on this issue, as you know, we had proposed some hearings on this new Employment Insurance Commission. Even among many people who support the idea of a separate fund for EI, there are concerns about just how arm's-length this commission is going to be. While we understand it's on the “setting of the premium” side and not on the benefits side—that would be a parliamentary responsibility, a government decision, a minister's responsibility—there is some concern that some decisions of the board may end up impacting on the benefits side as well--either purposely or, more likely, not on purpose. So there are a number of issues.
I know that colleagues will ask you about the $2 billion reserve and whether that's sufficient, and people will ask you about the accountability side of this fund.
I want to talk about two things, first of all. One is that when we did these hearings, on very short notice a number of people made themselves available. We heard from employers, from employees, from CFIB, from the Canadian Council of Chief Executives, from the actuaries, from a number of people. So there seems to be a lot of interest in this.
I wonder whether you think, especially in light of the fact that if we had not had these hearings at this committee there would have been no public or national dialogue of any kind around the setting up of this corporation, there's room for more input from Canadians on the composition of the board and the set-up of this new crown corporation.
:
First of all, thank you for the question.
Mr. Chairman, this is an important issue, but I would point out that this has been discussed for a long time. First of all, the principle of having a separate arm's-length body has been discussed for some time. The actual makeup of the board is to a large degree governed by the Crown Corporations Act, and a precedent in establishing other crown corporations.
Because the function of this board is quite narrow, we think we have put in place all the safeguards and the proper mandate to get the outcomes we want, which is to have premiums and benefits brought into balance in a consistent way.
:
I guess what I would say is that I don't want to send the message that this is about benefits by putting in place people who have opinions and axes to grind on the benefits issue. What we're really looking for are people who are experts when it comes to investments. That's why, in the terms and conditions for establishing who this committee would be made up of, we talk about people with a background in forecasting, insurance business, banking, and these kinds of things. It's really all about the investment, similar, again, to the CPP Investment Board.
That's part of the reason why I'm not anxious to bring forward people just on the basis of positions they've taken in the past on really what amounts to the benefits side of it. I would be quite concerned about that.
So while I'm not unsympathetic to your concerns, my focus is really about making sure that this is done professionally, that benefits and premiums are brought into balance consistently year over year, that the money is invested well, that there is a return, and that any extra premiums are returned back to workers and employers.
:
Mr. Chair, I am totally opposed to this way of conducting business. As I have already said, this change in the rules has the effect of depriving the two opposition parties of the time set aside for their questions. I do not appreciate that approach at all. I suggest that, next time, our Liberal friends remember what I have just said. Otherwise, there is no point in establishing the rules at the beginning. I find this situation annoying.
Mr. Minister, clearly, we support the idea of creating a fund and we support the contributions of employees and employers being used exclusively for the purposes of the employment insurance fund. But we would like you to explain the functions of the new board compared to those that the commission presently fulfills.
The other day, you told us that the objective was to make the operation more transparent, specifically when it comes to setting contribution rates. The reason why this function is being taken away from the commission is not clear to us. We are not opposed to the idea, but we would like to understand clearly the roles of each of the two bodies.
:
Thank you for the question.
I think the most important way in which the process will be made more honest, if I can put it that way, is that the new commission will look both forward and backward when it comes to setting the rate. So that's one of the most important changes being made. Today the commission does not look backward at, for instance, surpluses that have occurred in the current year. The new EI Commission will look forward and backward when it sets these rates, and of course it will be subject to scrutiny by this committee and by others who question whether or not it's meeting its objectives.
As the EI Commission, it will have the same scrutiny and will be subject to all the regular terms and conditions that any crown corporation will be subject to. So there will be the same transparency, but because it's arm's length, it will be independent and ultimately it will have that extra ability to look backward as well and make better judgments, I think, on what premium levels should be.
:
First of all, the way this will work is that the funds will pass through the CRF to the account.
Our concern going forward is to make sure we don't end up in the same situation we've ended up in the past. The way we think we need to do that is to establish a cash reserve, and the best way to ensure that funds are protected is to turn them back to the people who earned them in the first place: workers.
So if we reduce premiums, that's the best way of all, in my judgment, to ensure that workers are protected, instead of taking the approach you're arguing for, because of course that $54 billion you're talking about would still be within the government. I'm arguing that the best way to protect workers is to give that money back to them.
:
Welcome, Minister, and thanks for coming.
I just have a couple of areas. I have no real difficulty--others have indicated this as well--with establishing this entity in itself to manage this important fund and to make sure it does what it was set up to do. But I have two concerns that were raised in the hearings. One is the makeup of the board, which I want to explore with you. The other is the concern raised by the actuary who came in here, that there won't be enough money in the fund if we run into some turbulent times. That concerns me.
On the first one, it seems to me that a fund that is contributed to by both employers and employees should make sure it's in the interests of both because each one is going to be concerned as to the contribution that each will make and then, at the end of the day, what benefit will accrue. And the benefit will be based primarily on the kind of money that's in the bank and coming in.
I want to explore with you a little further why we're not seeing here a commitment of some sort toward making sure there's a balance on this board, from both the employer side and the employee side.
:
Thank you very much for that question, Mr. Chair, through you.
I think we need to be clear about what it is we're trying to do here. What we really want is for those people who pay into the fund to get the best professionals possible in terms of managing that funding. And remember, there are four main objectives that have been established for the people who make up that board: to set the premium rate under section 66 of the act; to maintain a reserve in accordance with that section; to manage amounts paid to it under section 77; and to invest its financial assets with the view to meeting its financial obligations.
I would argue that the positions people have taken in the past--they come from the labour side or they come from the employer side--really aren't relevant to those rules. What we're looking for are people who truly are professionals when it comes to managing those funds, similar to what we've seen on the CPP Investment Board. I think it's entirely appropriate for people from labour and people from business to make their arguments when it comes to the benefit side. That will of course continue to be in the realm of my ministry and Parliament as a whole, but when it comes to this, what we're really concerned about is that this money is properly managed.
:
I guess I would say that nothing we're proposing precludes anybody coming from a labour background, for instance, from being involved. I'm simply arguing that their background in that regard isn't nearly as relevant as the skills they bring to the table when it comes to managing the account. Their job is to ensure that these things are brought into balance, which benefits both employers and employees over time. It's in everyone's interest to make sure that is done.
We want to make sure that, on the one hand, we don't take any more money than is necessary from employees so that we can, over time, if situations warrant, reduce premiums, which helps workers. On the other hand, we want to make sure that we have adequate revenues coming in to pay for the benefits.
You know, when the mandate is so narrowly described--and I think it's appropriate that it should be--what becomes a lot less relevant is your previous attachment, whether it's labour or on the government side. It's really the skills that you bring to the table when it comes to managing these funds that become very important. But again, it doesn't preclude people from labour being involved in this, which I'm guessing would be your interest.
:
I would like to thank you very much, , for attending today. You have always made yourself available, as was mentioned. On this particular issue, I think you've already given us quite a bit of time, so I was surprised you were asked to return. I thought you did a very good job in your first presentation.
At any rate, we will see if there is anything to clear up today. Mr. Lessard complained about the time he had, and yet he started on another topic. Obviously this topic isn't as important as it was perhaps let out to be. I think it would be nice if you would tell the committee that it isn't easy being called in front of them all the time. There's a lot of preparation, and you do have a very big department. It might be helpful if you would remind them that this isn't always easy.
That said, my main question will be about the board, because people are dubious about the board and their mandate. Could we just walk through the duties and the mandate of the board? I understand there will be three committees: the investment, the audit, and, I think, the human resources.
So perhaps you could just walk through the duties of the board as it breaks down into the individual committees. Then I will defer to Mr. Tilson.
:
Sure, I am happy to do that.
All three of those committees are extraordinarily important. Human resources is, for instance, because you want to find the best possible talent in terms of the people who are working for the board. We're talking about substantial amounts of money. We're talking about the funds of workers and employers. We want to make sure we're very careful about how that money is invested.
It's obviously important to have an audit committee that ensures, again, that all the proper procedures are being followed. It's also important to have an investment committee that on one hand ensures prudence for these funds and on the other hand works to get a decent rate of return for workers and employers who pay into this account. Of course, any revenues that come in from investments ultimately will be used to help reduce premiums.
So those are all important committees of this governance board. Again, they have four main jobs--to set the premium rate, maintain a reserve, manage amounts paid, and invest the financial assets. These are the four main jobs of people on the committee. This is extraordinarily important, and we're looking for people who are of the highest calibre to fill those important roles.
:
Rates will be determined by the board and by the actuary who would be working for them and the staff. They would look at what has occurred in the previous year in terms of any excess premiums that came in because, for instance, calculations were not completely accurate for unemployment rates or for benefits that were paid out.
They would also look forward, and this information would come from a number of sources. It would come from the Department of Finance. It would come from the Department of Human Resources and Social Development, and, as it says in the act, from any other source that the board deems to be important.
They would gather all of this information, so it is important that they have expertise when it comes to things like forecasting. It's important that they have an understanding of economics, unemployment rates, the impact on benefits, these kinds of things. Then they would make a judgment, based on all of this information, regarding what the premiums would be so that they could maintain the reserve at $2 billion but also, of course, bring into balance premiums and benefits.
Minister, thank you very much for coming again today.
You did a fine job when you were here on your first occasion briefing us. Following that, witnesses raised a lot of questions. I felt it was important to have you back to make sure that they get adequate answers and we're doing the job we're asked to do. EI is an extremely important thing. It's not something anybody wants to have to seek out, but the reality is that it's been a backstop for many people to bridge that day when they find themselves unemployed.
A significant issue that's been raised to us is the difference here between “shall” and “may”. I'll read you a portion of clause 131 that talks about the board's reserve. It says that in the event that it is not sufficient for the payment of the amounts authorized,
the Minister of Finance, when requested by the Minister, may authorize the advance to the Account from the Consolidated Revenue Fund
I'd like to see that word changed from “may” authorize to “shall” authorize. There's a very significant difference between those two words. Some people out there think this is moving one step toward the elimination of an EI program. It's really important to make it clear that is should be “shall” and not “may”.
Do you have any problems with that recommendation?
:
I have one very quick question.
Thank you, Minister, for being here, as always.
My question will deal with benefits. I think we've done some good things over the years with benefits. We've taken some of the disincentives out of the program, and it's making more sense now than it did a number of years ago. Such things as maternity benefits have encouraged more women to take part in, to engage in, the workforce during their childbearing years. Sick benefits have proven to be very beneficial to Canadian workers. I know there's a private member's bill to extend that for catastrophic health reasons. It's been talked about, through some of the testimony, that it would be reflected in some benefits, that this might be looked at as a straight insurance policy and workers in seasonal industries may be penalized for accessing the fund in successive years or subsequent years.
So my question to you, Minister, is this. When I see that this is all about making sure these funds are used only to pay for EI benefits, can you give us the assurance that the benefits side will still be a function of the department and will still be a function of Parliament?
:
Well, I think we have to be realistic about where we're at today. Of course, $54 billion is a lot of money, and I think the best way we can serve workers and employers today is to make sure that never happens again and to put in place an arm's length mechanism that really will ensure that, if we maintain a strong economy, those premiums will go down.
That's the best way to help workers and employers, in two senses. One, of course, is that they're allowed to keep more money in their pockets; and you know, EI premiums are a substantial tax on people. Second, when businesses have lower payroll premiums, of course that means they can hire more people. EI and other payroll taxes like that—if you want to call it a tax—are actually things that impede the ability of business to hire workers. It's a tax on jobs.
So we have to be very cautious about making sure we reduce those charges whenever it's possible, because they have an impact on the ability of businesses to hire workers.
First of all, I would like to correct a comment made by our friend Mr. Lake, who distorted the facts a little. I recall that a recommendation was passed unanimously by this committee to the effect that the money that had been removed from the fund would be repaid in the amount of $1.5 billion per year. This appears in the December 16, 2004 report and again on February 15, 2005. It was recommendation 3 in a unanimous report.
But when we debated Bill , Mr. , the government house leader, proposed putting funds into the fund to the tune of $4 billion per year. Our friend Mr. Lake was perfectly right to describe this proposal as quite irresponsible. But now he is sitting with the government, we are told that it is not responsible to put money back in the fund. When you are a member of the opposition, you sometimes say things that you do not hold to when you become a member of the government. I feel that the Conservatives are presently in that position.
That said, we are very worried about your reasoning on the responsibilities of employees and employers. I recall that, in Quebec, the CSST, like other large public and quasi-public organizations, has employees and employers on its board of directors. This morning, you stated once more that the board's directors, seven in number, would be part-time positions. We must therefore conclude that skilled and specialized people will be in place to advise them.
What is preventing you from adopting the proposals from employees and employers about the way the board's directors should be appointed? I am not talking about the entire board, but at least two people from each group.
:
I would make a couple of points about that.
First, the government still maintains the power to override the financing board in terms of setting premiums, so there are several levels of protection.
Currently premiums can go up by a limit of 15¢ to pay for benefits in the event of a downturn. Then there is a $2 billion cushion, the reserve, of course. And then ultimately it's backstopped by the consolidated revenue fund.
It's conceivable that if a government determines that raising premiums would be too damaging to the economy in a downturn, they could override that and say, no, we'll just pay for that out of the consolidated revenue fund because the impact would be too damaging.
I want to reiterate Mr. Savage's comments, Minister. You've been very accessible and you've come before us many times. We appreciate your candour and your willingness to be here answering our questions on a variety of topics.
Thank you once again for your accessibility. The committee always appreciates that, certainly when we need clarification of these new initiatives that governments are bringing forward.
Once again, Minister, thank you very much for taking time out of your busy schedule. I know that all of us appreciate your willingness to appear before us today.