The Broadbent Blog


Flaherty's EI surplus sleight-of-hand

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The Parliamentary Budget Office has come out with a report suggesting that the Conservatives will likely balance the budget ahead of schedule. But, and it’s a big but, they also found there would be no balanced budget in 2016 if there were no Employment Insurance (EI) surplus. 

The Conservatives' use of the EI surplus to pay for a balanced budget deserves closer scrutiny.

The annual surplus in the EI Operating Account is no small potatoes – it’s forecast to be at least $3.5 billion in 2014. But this forecast is based on an EI coverage rate of 41%, and recently it’s been more like 38%, meaning the 2014 EI surplus will probably end up being over $4 billion. (How anyone with a heartbeat thinks it’s OK to rack up a $4 billion surplus in the EI account when coverage is only 38% is beyond me. But the media coverage on this suggests premiums are too high, not that EI coverage is too low. A whole other post, for another day.)

Premium rates over the past couple of years have been set with the assumption that coverage would be much higher than it has been. Too many precarious workers aren’t qualifying for benefits, and too many are exhausting benefits before finding work. Fortunately for Mr. Flaherty, that has saved the EI account billions of dollars. Decisions made by the Finance department have also saved the EI account money, while pushing these costs onto households and social assistance systems.

For example, stimulus measures to extend the benefit period recognized that spells of unemployment are usually much longer during a recession and recovery. These stimulus measures were cut in Budget 2011, even though they are still very much needed. One in five unemployed workers has been out of work for more than six months, compared to a pre-recession rate of 1 in 8.

Migrant workers were cut off from receiving parental and other special benefits, even though they pay into the system, and cannot access regular benefits. This decision certainly was made with only the bottom line in mind, fairness to workers be damned.

Meanwhile, EI call centres and claims processing departments don’t have the resources to meet demand. This means that workers trying to navigate the system often have difficulty contacting a real person to help them. If everything fits in the right blocks in the automated system, you’re golden, but if some piece of information is missing, or incorrect, you’re waiting months before you receive a decision, let alone payment. If you have to appeal your decision, it could be several more months before the case is resolved. More and more workers are needing to turn to other support systems in the interim, such as personal debt or social assistance. More resources are desperately needed in the system to ensure timely service for workers needing EI, but Employment and Social Development Canada (ESDC) and Service Canada are facing cutbacks just when their services are needed the most.

Flaherty, meanwhile, claims that the increasing stinginess in the EI system, and corresponding rapid accumulation of funds, have nothing to do with balancing the federal books. It’s just a coincidence that the EI fund was able to pay back its accumulated deficit from the recession so quickly, and that helpfully, that amount is enough to bring a balanced budget a year early (and in time to fight an election).

Little solace for those actually feeling the impact of the Conservative's EI suplus sleight-of-hand.

Angella MacEwen is a senior economist at the Canadian Labour Congress and a Broadbent Fellow

A version of this article originally appeared on the Progressive Economics Forum.

Photo: Tania Liu. Used under a Creative Commons BY-NC-2.0 licence.