How Ottawa has frequently changed employment insurance
TheGlobeandMail.com – news/politics/globe-politics-insider – The Conservative government is preparing to build on recent changes with a more sweeping reform
Sep. 11 2013.
OTTAWA — Employment insurance – or unemployment insurance, as it has been named for most of its life – is consistently one of the most controversial and challenging programs for federal governments of all stripes.
It affects people. It also affects Ottawa’s bottom line. And as a result, policy changes can impact voters. Unpopular changes have cost governments dearly at the polls.
Now the Conservative government is preparing to build on recent changes with a more sweeping reform of how EI helps train Canadians for new jobs.
Prime Minister Stephen Harper has placed senior minister Jason Kenney in charge of the EI file and gave him a new title: Minister of Employment and Social Development. His job is to work with the provinces on a new arrangement to boost training in Canada. Ottawa’s proposed Canada Job Grant is so far getting a cool reception.
Also this week, Finance Minister Jim Flaherty announced a three-year freeze on EI premiums, reviving debate over how those payroll taxes should be set.
Canadians will be hearing a lot more about reforming EI over the coming months. As a country, we’ve been here before. Many, many times. The history of EI is one of constant studies, debates and reforms – along with many quick fixes inspired by economic downturns.
As Ottawa and the provinces prepare for more change, here’s a primer on how we got here.
As a response to the Great Depression, prime minister R. B. Bennett’sConservative government passes the Employment and Social Insurance Act, launching a five-year debate over mandatory unemployment insurance. The law passes in June. By October, Mr. Bennett is no longer prime minister, replaced by Liberal leader William Lyon Mackenzie King.
After years of debate over whether Ottawa has the constitutional power to create a UI program, the King government secures a constitutional amendment and passes the Unemployment Insurance Act. Debate at the time focuses on how the program could help veterans find work. Premiums are invested into government bonds in order to help fund the war effort.
The original program specifically excludes a wide range of jobs, including agriculture, forestry, fishing, domestic service in a private home, teaching and government work.
In the first year in which workers are eligible to collect benefits, the UI program pays out $716,000 in benefits and raises a cumulative surplus of $114-million.
Several new types of jobs are made eligible for UI, including seasonal work.
The Liberal government of Louis St. Laurent expands the program with “supplemental benefits” for people who do not qualify for traditional UI. Though the fund was in a large surplus, premiums are raised to cover the new costs.
After 10 years, the EI fund had raised a cumulative surplus of $852-million. It pays out $135-million in benefits that year. Benefits are increased.
The fishing industry is added to the UI program, which one government history text describes as “a major departure from the past practice because most fishermen, including the self-employed, would be covered by treating their buyers as their employers.”
A provision restricting married women from the program is ended. Benefits to married women increase by 80 per cent.
In response to a recession, the Progressive Conservative government ofJohn Diefenbaker doubles payments for seasonal workers.
Diefenbaker government dips into UI fund to pay for technical and vocational training programs, including for individuals who are not eligible for UI.
The Adult Occupational Training Act comes into force, creating a joint program with the provinces in which job training is provided in provincial facilities. The program is paid through UI benefits.
Liberal prime minister Pierre Trudeau adopts most of the recommendations of a controversial White Paper on UI reform, bringing in new higher premiums for employers and expanding the program to include virtually all types of work. “The 1971 legislation created the most generous UI program in Canadian history,” according to The History of Unemployment Insurance, a 1993 report commissioned and posted by the former department of Human Resources Development Canada. The program was in a cumulative surplus of $235-million.
The cost of the program skyrockets and the UI fund plunges into deficit. The number of staff working on the program rises from 4,339 in 1970 to 10,088 in 1973. The cumulative UI balance stands at a deficit of $502-million.
Annual benefits paid hits $3.1-billion and the account remains in deficit, though a smaller one at $97-million. “The growing impact of UI on federal expenditures was becoming a major concern,” states the department-commissioned history.
Legislative changes bring the program back into a surplus of $414-million, as $3.9-billion in benefits are paid out that year.
Canada’s unemployment rate hits 11 per cent as the economy falls into a major recession, leading to $8.5-billion in payouts and a cumulative deficit of $2.4-billion in the UI account.
The Trudeau government freezes premiums in an effort to boost employment, recognizing that this will likely create a deficit of nearly $5-billion in the UI fund.
On the advice of the auditor-general, the government begins recording the UI account as part of the government’s overall budgetary results,affecting the overall surplus or deficit figures.
The re-elected Progressive Conservative government of Brian Mulroneyintroduces new changes called the Labour Force Development Strategy aimed at helping unemployed workers receive training in new occupations. The change also makes parental benefits under UI more generous.
The cumulative UI account is back in surplus, at $2.2-billion. Annual benefits sit at $13-billion and the premium rate is at $2.25 for every $100 earned.
Another major recession hits. Annual benefits rise to $19.1-billion, the unemployment rate hits 11.3 per cent and the UI account faces a $4.7-billion deficit. Ottawa raises premiums to $3. This hike in premiums would ultimately lead to large surpluses in the account later in the decade.
The economy rebounds and the operating deficit is erased. Liberal finance minister Paul Martin states in the 1995 budget that the government would build a $5-billion surplus as a buffer for future economic slumps.
Prime minister Jean Chrétien’s Liberal government restricts access to the renamed employment insurance program, imposing an “intensity” rule that makes benefits less generous for repeat users.
Atlantic Canadians punish the Liberals at the polls, as the government loses 20 seats in the 1997 federal election. The reforms would later be reversed.
The auditor-general raises the first of what would be repeated concerns about the growing size of the EI surplus, which stood at $21-billion in 1999.
The finance minister confirms in Question Period that the government is using the EI fund for general government spending.
“Mr. Speaker, first of all, as the hon. member is well aware, the surplus in the EI fund is being used for health, for infrastructure programs, and for job creation,” Mr. Martin said on Oct. 3, 2001 , in response to a question from the Bloc Québécois.
Mr. Martin’s Liberal government is defeated in January, 2006. The EI surplus in the final fiscal year of the Liberal government stood at $50.8-billion.
As part of a pledge to restore “federal balance” by empowering the provinces, the 2007 budget approves $500-million a year in new transfers to the provinces for jobs training. The second Conservative budget under Prime Minister Stephen Harper also moves to “complete the transfer of responsibility” for EI job training to the provinces, affecting the full $2-billion a year in EI-related job training funds.
Under the Harper government, the EI surplus continues to grow, reaching $57-billion in 2008. The Supreme Court rules unanimously that year that the government is not required to spend the surplus on EI, though the court found the Liberal government collected premiums illegally in 2002, 2003 and 2005 because premiums were set by cabinet rather than Parliament.
Finance Minister Jim Flaherty’s 2008 budget announces a new EI reform, effectively erasing the historical surplus and starting anew with a fund that would have $2-billion set aside as a cash reserve. It promised a new independent Crown corporation called the Canada Employment Insurance Financing Board that would set premium rates so that the fund breaks even over time.
In response to the recession, the government freezes premiums at $1.73 for two years (overruling the new Crown corporation) and boosts benefits, at a projected cost of $4.5-billion.
The two omnibus budget bills connected to the 2012 budget contain several significant policy changes to EI. The EI financing board was sidelined again, as the government announces annual five-cent increases to premium rates until 2015.
The government redefines what constitutes “suitable employment” and creates a system in which unemployed workers must broaden their job searches the longer they are on EI. Further, repeat users of the program would receive less generous benefits.
The 2013 budget signals a return of the federal government into job-training programs and a reversal of the direction announced in 2007. The budget announces a plan to divert some federal transfers to the provinces into a new Canada Jobs Grant. The budget also signals a desire to renegotiate the $2-billion-a-year transfers of EI funds to the provinces under Labour Market Development Agreements.
The 2013 budget makes no reference to the still never-used Crown corporation on EI rate setting, but an ensuing budget bill officially shut down the office.
On Sept. 9, Mr. Flaherty announces that premiums would be frozen at current rates because employment has improved and the cost of the program in terms of benefits being paid out is less than expected. Economists predict the government will be in a position to cut rates before 2015, the date of the next federal election.
- The History of Unemployment Insurance, a 1993 policy paper commissioned by Human Resources Development Canada
- A Look Back and a Way Forward: Actuarial Views on the Future of the Employment Insurance System. November, 2007. The Canadian Institute of Actuaries.
- Archived federal budgets