Should Ottawa be balancing budgets by collecting EI?

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Hard-working Canadians should feel justifiably proud of the small budget surplus the federal government has reported for 2014-15. After all, without our over-contributions the Employment Insurance plan, the surplus wouldn't have happened at all.

The Finance department this week published its Annual Financial Report, revealing a $1.9-billion surplus for the budget year ended March 31. The report also shows that the EI program collected $22.6-billion in premiums in the year, but paid out only $18.1-billion in EI benefits to unemployed Canadians. Even once you add in administrative costs for the program (about $1.7-billion), you're still left with $2.8-billion more collected in EI premiums than the program spent last year.

Those surplus EI payments don't just sit in a special, segregated account for the EI program; they are essentially part of the general revenue collected by the federal government. Without them, Ottawa would still be reporting a small deficit for fiscal 2014-15.

It's the fourth straight year that EI has run a surplus for the government. These surpluses, cumulatively, have all but wiped out the cumulative deficit the EI account rang up in the Great Recession. More to the point, those surpluses have been used to help wipe out the budget deficit, thus meeting a long-standing Conservative campaign promise in time for next month's election.

The Harper Conservatives have said they intend to hold EI premiums steady for two more years yet – thus all but guaranteeing two more years of surpluses. (Starting in 2017, they've pledged to adjust premiums based on maintaining a cumulative balance in EI over the course of a seven-year cycle.)

This understandably irks many observers, particularly the Tories' political opponents, who charge that the government's zealous pursuit of balanced budgets has come on the back of workers and their employers, who year after year are being forced to pay more into EI than the program requires.

That would be scandalous if, in fact, the EI account were operated as an insurance plan outside of the government's general operating budget, like, say, the Canada Pension Plan is. It's not; EI premiums are essentially just another tax, even if the name implies otherwise, and any government is free to use those revenues any way it likes.

There are precedents – and not just Tory ones. The Chrétien Liberals leaned on a big EI account surplus to help bring the budget into balance in the 1990s, and the Supreme Court of Canada ruled it was within its rights to do so. In 2010, the Harper government shut down the old EI account and absorbed a $57-billion surplus, using it to pay down debt.

Nevertheless, the broad public perception is that revenues raised in the name of EI should be reserved for EI, even if it really never has been. And the Harper government has essentially agreed (though not yet!), through its proposed seven-year plan starting in 2017. (It agreed to do the more or less same thing in 2008, even setting up an independent agency to oversee the EI account, but the agency was more are less stillborn, scuttled by the Great Recession and the government's own heavy-handedness.)

If you adhere to that philosophy, then the real issue is, what should we do with EI surpluses?

The Conservative plan is another tax cut. Under the plan set to take effect in 2017, the government will set premiums annually based on a break-even calculation for a seven-year business cycle; in its last budget, it estimated that this will result in a 21-per-cent reduction in the premium rate.

This has the support of Canada's small-business lobby, whose share of contributions for their employees would shrink correspondingly. The Canadian Federation of Independent Business recently argued that this tax relief would free up more funds for hiring and training by its members.

But forgotten in this argument are the roughly 40 per cent of Canada's 1.3 million unemployed who, under the current structure of the program, receive no regular EI benefits. (There are several reasons for this, but certainly the tightening of EI eligibility rules by the Chrétien and Harper governments is a key one.) Some argue that rather than reducing premiums – which are already relatively low by historical standards – we should be expanding accessibility, giving more support to more people who need it, for longer.

But there is a third option. The EI program already provides some funding for retraining of the unemployed, but it could do more. This would address a pressing problem in the Canadian labour market, which is increasingly plagued with an ill-fitting combination of vacancies in skilled positions and long-term unemployed lacking the skills to fill them. Justin Trudeau's Liberals are promising an additional $500-million in the EI program to fund training agreements with the provinces, but that's still small potatoes given the size of the EI surplus. (Mr. Trudeau also promises to cut EI premiums, but not as deeply as Mr. Harper.)

For employers and the unemployed alike, a comprehensive retraining initiative would move the EI program into the 21st century. We could use EI's structural surplus to make the "employment" part of "employment insurance" more than just a euphemism.