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Finance Minister Jim Flaherty’s 2010 budget promised the EI fund would be balanced in 2014. A year later he set a target of 2015. And March’s budget pushed it back yet again, to 2016. (Yuri Gripas/Reuters/Yuri Gripas/Reuters)
Finance Minister Jim Flaherty’s 2010 budget promised the EI fund would be balanced in 2014. A year later he set a target of 2015. And March’s budget pushed it back yet again, to 2016. (Yuri Gripas/Reuters/Yuri Gripas/Reuters)

BARRIE McKENNA

Ottawa kneecaps EI fund's quest for balance Add to ...

Sometimes it’s about what governments don’t do, rather than what they do.

Recall that the recent federal budget killed off a raft of agencies doing credible work, including the National Aboriginal Health Organization, the National Council of Welfare and the National Roundtable on the Environment and the Economy.

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And yet an agency whose work the Conservative government repeatedly and unapologetically ignores lives on.

Meet the $2.6-million-a-year Canada Employment Insurance Financing Board.

The seven-member, arm’s-length board was created in 2008 with two vital jobs – setting EI premium rates free of political meddling, and managing a $2-billion contingency fund to help keep premiums stable for workers and employers.

It hasn’t quite worked out that way. The government has never given the board a cent to manage, and has consistently limited its ability to set premiums.

“We’ve gone through this process, I don’t how many times, of trying to set a break-even rate and making it immune from political interference,” lamented Peter DeVries, a former director of fiscal policy with the Finance Department. “We haven’t been able to do it yet.”

Ottawa insists its goal is to keep the EI fund roughly in balance over business cycles. During recessions, it will run a deficit as payouts soar and premium revenue falls. In good times, the fund would take in more than it paid out, reimbursing the government for the lean years.

Yet with the recession over, the quest for balance remains elusive. The EI fund is $8.8-billion in the hole, and the date for getting back to balance is a moving target.

Finance Minister Jim Flaherty’s 2010 budget promised the fund would be balanced in 2014. A year later he set a target of 2015. And March’s budget pushed it back yet again, to 2016.

That would be eight years after the recession. And, based on historical patterns, possibly near to when the next economic slump hits.

The reason for Ottawa’s struggles is pretty simple: EI is an insurance plan in name only.

The board still goes through the annual fiction of doing an actuarial calculation of where premiums should be to keep the EI fund roughly in balance. Chief actuary Luc Taillon determined last year that would require a rate of 2.56 per cent of insurable earnings for 2012 – all carefully detailed in his hefty 99-page report.

Ottawa promptly ignored that advice, imposing a much lower rate of 1.83 per cent, up modestly from 2011.

The March budget perpetuates the board’s impotence until at least 2016. The government is capping annual EI premium hikes at 0.05 per cent, or five cents per $100 of insured earnings until the fund is balanced. That’s about an extra $150 a year for most workers.

Mr. Flaherty now says he’ll review “the size and structure” of the EI board to ensure rate-setting is done more cost effectively.

EI premiums are an inconvenient reality for the government. Ottawa isn’t eager to upset businesses, particularly smaller ones, which see premiums as a job-killing payroll tax. So it keeps rates low.

Contrast Ottawa’s management of EI and Old Age Security. Inaction on EI means all taxpayers bear the burden of knowingly and unrealistically low premiums. Meanwhile, the government is making OAS less generous for future generations on the grounds that it’s fiscally unsustainable.

In the end, there may little point balancing the books if Ottawa isn’t sure what EI is.

The program has morphed over the decades from a national employment insurance scheme into a system of transfers – to parents (in the form of maternity benefits) and to chronically depressed regions, where seasonal workers are often paid not to work.

Fewer than half of working Canadians are actually eligible for benefits even though everyone pays in. Among the chronically under-covered are young people, new immigrants, part-time workers, and urban dwellers.

The government is promising EI reforms, including removing disincentives to work as well as better matching of workers to available jobs.

But it’s not clear if Ottawa is committed to fundamental reform – rethinking what it pays and to who – or just tinkering while it fantasizes about balancing the EI account.

Follow on Twitter: @barriemckenna

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