Ottawa will get $3.5-billion too much from EI premiums in 2015, report says

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An independent report shows Ottawa will collect $3.5-billion more in Employment Insurance premiums than necessary in 2015, a year when the Conservative government is expected to release a pre-election budget jammed with tax cuts and new spending.

Finance Minister Joe Oliver denied this week that his government is using E.I. premiums as a "slush fund," but the actuarial report released Friday is fuelling criticism that the Conservatives are tapping into E.I. funds meant for the unemployed in order to pay for other priorities.

The findings are contained in a report from Michel Millette, who works for the chief actuary in the Office of the Superintendent of Financial Institutions Canada. The report was quietly posted on the OSFI website Friday afternoon, one day after Mr. Oliver announced a Small Business Job Credit that would partly offset the cost of E.I. premiums over the next two years.

The cost of the new credit is estimated at $225-million a year, meaning Ottawa will collect $3.25-billion more than necessary in E.I. premiums in 2015, a move that would make the federal surplus appear larger than if the account was managed to break even.

NDP Leader Thomas Mulcair accused the Conservatives are playing a "shell game" with E.I. revenue in order to announce a surplus in the 2015 budget.

"What they're trying to do is to build to a number this spring. So all of this is going to be robbing Peter to pay Paul," he said in an interview Friday. "They're heading for a situation where they're going to be able to say, with great fanfare this spring, that 'Lo and behold, after all this great work,' they've got a surplus. But it's a surplus that's completely phoney."

The government' explanation is that it is transitioning to a new approach for setting E.I. premium rates that will start in 2017 and will aim to balance the cost of E.I. benefits with revenue from premiums over a seven year cycle.

But rather than heading into 2017 with the account in balance – which the actuarial report shows is possible – the government is planning on entering the seven-year cycle with the account in surplus and then winding that surplus down over seven years.

Mostafa Askari, the Assistant Parliamentary Budget Officer, said the report shows E.I. revenues are coming in stronger than expected. Mr. Askari said it is not clear why Ottawa is waiting until 2017 to operate the account on a break-even basis.

"The question that I have is why do we wait until 2017 to do this?" he said. "I still have not seen any explanation as to why that rate cutting is not done right away."

Revenue from E.I. premiums flow into general revenue, but are accounted for separately as an E.I. operating account. A report from the chief actuary with an update on that account is released every September.

The actuarial report shows that (not accounting for Thursday's announcement) Ottawa plans on collecting $4.6-billion more in premium revenue in 2015 than it will likely pay in benefits, which would erase the account's $1.1-billion deficit and create a $3.5-billion surplus.

The report indicates that Ottawa could have afforded to announce a major cut in the E.I. premium rate for 2015 from the current $1.88 per $100 of insurable earnings down to $1.62 per $100 for all provinces except Quebec, where the program is managed separately.

Instead, the government chose to provide small businesses a credit that effectively drops the rate to $1.60 for qualifying businesses. All other businesses and all employees will continue to pay premiums at the existing rate of $1.88 until 2017, when the government says it would drop the rate to $1.47.

Liberal finance critic Scott Brison said the report is evidence that the government is putting politics ahead of the economy.

"They're padding their books on the backs of workers and employers to fund a pre-election spending spree," he said. "At a time when employment numbers are soft and growth has stalled, it's irresponsible for the Conservatives to maintain high job-killing payroll taxes just to fund their pre-election budget."

Mr. Oliver insisted during his Thursday announcement that E.I. premiums would only go to E.I. benefits.

"We will not be using any excesses in the E.I. account for other purposes, like the previous government," he said. "We're not going to create a slush fund from E.I. premiums."

A spokesperson for the minister said Friday in an email that "any cumulative surplus achieved by the EI Operating Account will be returned to employers and employees through lower EI premium rates once the new seven-year rate-setting mechanism takes effect in 2017."

The actuary's figures are based in part on forecasts provided to the actuary by Finance Canada. For instance, the report says Finance Canada expects the unemployment rate in 2015 to be 6.6 per cent, an improvement over the 2014 forecast of 6.9 per cent.

The report notes that the ratio of unemployed who qualify for E.I. benefits has been on a downward trend. In 2006, 46.9 per cent of all unemployed Canadians qualified for E.I. In 2014, that percentage is expected to be 38.6 per cent.