Auditor General Denis Desautels said last week that the federal government may be illegally hoarding billions of dollars in Employment Insurance (EI) premiums. The auditor general reported that, last year alone, the federal government collected $7.2 billion more in EI premiums than Human Resources Minister Jane Stewart managed to shovel out the door in unemployment benefits and various other sundry programs.
This works out to an over-collection of $236 for every man, woman and child in the country.
The cumulative surplus in the EI account is now $35 billion. And, contrary to the impression left by the auditor general, that $35 billion is not in a savings account somewhere in Ottawa. Instead of saving these surpluses, the federal government has been redirecting EI surpluses into general revenues and spending them on an annual basis.
The Ontario Tories have been making the loudest complaints about this EI ripoff, and for good reason. EI premiums per Ontarian amounted to $667, while total EI expenditures in Ontario amounted to $256 per person. In other words, the federal government is skimming more than $400 in EI premiums from every person in Ontario to fund programs in other areas.
EI treats the other provinces better than Ontario, but only in the sense that four cat-tails hurt less than nine. The federal government skims $284 for every man, woman and child in Manitoba, $240 in Saskatchewan, and $254 in British Columbia. Alberta is in the eight cat-tails range of paying $360 more per person than it gets back in total EI program payments.
These net contributions are not just due to differences in unemployment rates. If you strip away what the EI defines as “regular benefits” (basic unemployment benefits which include different rules for high unemployment regions), the same five provinces are still getting ripped off.
Alberta and Ontario get $70 per capita in other benefit programs (including maternity, parental, sickness and fishing benefits) while the national average is $78. And when it comes to labour force programs, which are also funded by EI premiums, the federal government shovels between $100 and $275 per capita to the five eastern provinces, but only between $54 and $77 to Ontario and the West.
Since, regular benefits are the only portion of EI spending that can really be called “insurance,” Ontarians are in reality paying $534 more per person than the federal government spends on bona fide unemployment insurance in that province. Alberta’s net contribution per person on this basis rises to $492.
Given that the federal equalization program redistributes revenues across the country so that all provinces have access to comparable revenues, what possible defense is there for this “super-equalization”? It is nothing short of a vote-buying exercise, where Ontario and the West get snookered.
But what can be done? The federal government controls the EI levers — it sets the contribution rates and recently relaxed the rules to make the redistribution outlined here even worse.
It turns out that provinces could make some trouble for the federal government on the EI front, if they were willing to be creative with the rule in our constitution that says the federal government cannot tax provincial or municipal governments — the Crown cannot tax the Crown. This is why provincial governments do not pay GST, and why the feds do not pay PST.
Provincial governments do, however, pay the employer portion of unemployment insurance premiums on behalf of their employees. They do this on the basis that EI premiums are not a tax, but a cost for a benefit plan for their employees.
But the current EI program has become quite different than a group health-insurance plan. A significant portion of EI premiums do not fund a program for employees, but are a tax levied by the federal government for general revenues and other sundry non-insurance EI programs.
What provincial governments should do, therefore, is stop paying the “tax” portion of employer-funded EI premiums on behalf of their own employees. For Ontario, this would mean withholding the employer portion of the $534 per Ontario resident that the federal government is skimming off the program for non-insurance purposes. The Ontario government could do this only for its own employees, but doing so would send a powerful message to the federal government.
Mike Harris would then wait for the federal government to react, confident that he could win any constitutional challenge, and relishing the public exposure that would follow any parliamentary debate to change the rules. The only real question is whether Mike Harris or Ralph Klein will be the first to act.
Ken Boessenkool is a private sector economist in Calgary and co-author of The Alberta Agenda, urging the province to make full use of powers granted to it under the constitution.