The Parliamentary Budget Office says a large part of Ottawa's planned surplus is based on keeping Employment Insurance premiums at higher rates than necessary.
Thursday's PBO report takes a close look at the impact of Finance Minister Jim Flaherty's Nov. 12 economic update and the minister's recent omnibus budget bill, C-4, as well as the government's Public Accounts.
The PBO report raises serious questions about the accounting around Ottawa's planned surplus for 2015-16 – an election year.
"If direct program expenses do not materialize as planned, if a Governor in Council decision is made to reduce EI premiums, and if sales of public assets are delayed or do not occur, most if not all of the $3.7-billion surplus the government projects for 2015-16 would be eliminated," states the report.
In spite of these concerns, the PBO report projects Ottawa will post a surplus of about $4.6-billion, which is above Mr. Flaherty's latest estimate. The report also says there is 65 per cent chance that Ottawa will return to surplus in 2015-16.
The report supports accusations made by Liberal finance critic Scott Brison, that the Conservative government's pledge to freeze EI premiums for three years would keep premiums at a higher level than necessary.
The PBO says this move accounts for an additional $1.8-billion in revenue for 2015-16. The PBO report also notes that a further $1.5-billion of the planned $3.7-billion surplus for 2015-16 is dependent on asset sales, such as the sale of General Motors shares, Ridley Terminals and Dominion Coal Blocks.
The PBO reports that it "has been provided with insufficient information to assess the likelihood and potential value of the sales."
There has been considerable confusion in recent years over the way Ottawa sets EI rates.
Mr. Flaherty announced a new regime in 2008 in which rates would be set by an independent Crown corporation called the Canada Employment Insurance Financing Board. The board's mandate would be to set rates so that the EI fund balances over time. However the government regularly over-ruled the board's recommendations because of the economic downturn. The 2012 budget announced rates would be set so that they break even over a seven-year period. Then this year Mr. Flaherty announced a three-year rate freeze at $1.88 and his latest budget bill officially shuts down the board.
During a Nov. 25 appearance before the House of Commons Finance Committee, Mr. Flaherty said the plan to balance the fund over a seven-year cycle would only begin in 2017.
During that appearance, Mr. Brison questioned the minister on the EI rates.
"Why not simply allow EI premiums to self-balance with payouts as the account moves into balance in 2015?" Mr. Brison asked. "If your argument to the provinces is that artificially high premiums on jobs or wages will hurt the economy, why are you keeping them high yourself in Bill C-4?"
"To provide certainty so that businesses, especially small businesses, know that they will not be faced with increases, which has been the history," Mr. Flaherty replied. "I don't need any lectures from you about how to run an EI system."
The minister flatly denied that his government would "steal" money from EI to balance the books.
"The freezing of EI premiums will save employers and workers about $660-million in 2014 alone, and we'll be able to still go forward with our 2017 plan about balancing the EI fund. The Canadian Federation of Independent Business is entirely supportive," he said. "We will not ever again do what the previous Liberal government did, and that is, we will not steal money from the EI plan in order to balance our budget."
On Thursday, Mr. Flaherty's press secretary Marie Prentice responded to the PBO report by stating that premiums will not be used for spending in other areas.
"Unlike the old Liberal government which raided the EI fund for their pet projects, we are ensuring that EI premiums are only used for EI payments," she said in an email.
Dan Kelly, the President of the Canadian Federation of Independent Business, said his members support the rate freeze for 2014 but will be watching to see if the rate should be lowered for future years.
He noted that Liberal finance minister Paul Martin used EI revenues for non-EI spending in the 1990s.
"We want to ensure that EI is never again used as a slush-fund to support general government spending or help politicians artificially balance the books," he said.
Mr. Brison said Thursday that the PBO report confirms his concern over Mr. Flaherty's numbers.
"This is a shell game where they're using the term 'freezing' as if it's a positive, when in fact they're freezing EI premiums unnecessarily high," he said.