Skip to main content

Finance Minister Bill Morneau answers a question during Question Period in the House of Commons, April 11, 2016.Adrian Wyld/The Canadian Press

Finance Minister Bill Morneau is counting on a drop in unemployment in the second half of the Liberal government's mandate, updating his budget numbers to include a more optimistic forecast that the rate will decline to 6.2 per cent by 2019.

The latest forecast comes on the heels of Statistics Canada's report last week that Canada's unemployment rate rose from 6.9 per cent to 7 per cent in August.

The updated estimate is buried in the latest projections for the Employment Insurance program. The estimate relies on unemployment forecasts from Finance Canada on the future cost of the program and to set the premium rate paid by workers and employers.

A report from the Office of the Chief Actuary that was released Wednesday concluded that the break-even premium rate for employees for 2017 will be $1.63 of insurable earnings, which is slightly more than the $1.61 that was projected in Mr. Morneau's March budget. The minister announced Wednesday that the government would adopt that recommended rate for 2017.

The EI program – which distributes more than $20-billion a year in income support and training benefits to unemployed Canadians annually and collects an offsetting amount in payroll premiums – is managed through Ottawa's general revenue. That means the program's revenue and expenses affect Ottawa's bottom line.

The Chief Actuary's report also said that the rate of $1.63 would be required each year over the next seven years for the fund to run on a break-even basis over that period.

A long-term forecast released in June by TD Economics projected Canada's unemployment rate would be 7.1 per cent in both 2019 and 2020.

Toronto Dominion Bank economist Brian DePratto said Wednesday that Finance Canada's projection "does not seem unreasonable." Mr. DePratto said TD Economics is considering a downward revision to its long-term unemployment rate forecast in part because of signs that the labour-force participation rate may be less than previously expected.

Wednesday's report says the premium rate is based on Finance Canada's assumption that the unemployment rate will average 6.3 per cent from 2017 to 2023. It also states that if the unemployment rate were instead to average 7.3 per cent, premiums would need to increase to $1.77 of insurable earnings. Employers must pay 1.4 times the rate for employees.

Finance Canada spokesperson Paul Duchesne said the department provided the forecast in July and it is based on the March budget numbers and Statistics Canada labour-force data that had since been released. The March budget projected an unemployment rate of 6.4 per cent in 2019.

Dan Kelly, the President of the Canadian Federation of Independent Business, said he believes Mr. Morneau is being overly optimistic about the direction of Canada's labour market. With coming changes that include Canada Pension Plan premium increases that will start in 2019 and moves by Alberta to phase in a $15-an-hour minimum wage, Mr. Kelly said some small-business owners are telling him they will have to lay off employees.

"We have close to a third of our members who say they will be laying off staff due to the CPP increase," he said. "It's anyone's guess where unemployment will land, especially given the seven years of payroll-tax hikes that will be put in place with CPP expansion."

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe