Payroll taxes go up but jobless relief deteriorates

TheStar.com – opinion/editorialopinion
Published On Thu Jan 05 2012.  By Carol Goar Editorial Board

Look closely at your first paycheque of 2012 and you’ll find you’re paying more for employment insurance.

The increase is not onerous, about $2.75 a week. But over the course of a year it adds up to $143 in lost income. The extra money won’t improve jobless benefits; they’ll continue to deteriorate as the economy languishes.

Liberal Leader Bob Rae is calling for a review of Canada’s expensive but inequitable employment insurance (EI) system.

“It’s crazy to make payroll taxes the basis of employment insurance,” he says. “We have to get ourselves back into a situation where we recognize that people need support when they’re out of work.”

His appeal is all but certain to fall on deaf ears. During the 2008-2009 recession, both Michael Ignatieff and Jack Layton made heartfelt pleas to the government to modernize the EI system, which excludes more workers than it serves. Neither made any headway.

This time, a spokesman for Finance Minister Jim Flaherty is summarily brushing off Rae’s request, saying Canadians should be grateful the government didn’t raise EI premiums by the full amount its advisory board proposed.

“Because the recovery is fragile, we keep overruling the EI board’s maximum increase,” he said.

Barring a change of heart, working Canadians will contribute more to perpetuate a broken system in 2012. And that’s the least of the problems with EI:

• It was designed for an era of permanent, full-time jobs that paid enough to support a family and came with health and retirement benefits. That Canada is long gone. Most of the jobs available now are part-time, short-term or casual. They seldom last long enough to provide workers with the hours they need to qualify for EI benefits.

• Rates of coverage vary widely across the country. In Ontario, less than 40 per cent of the jobless receive EI benefits. In Newfoundland, almost 100 per cent do. This may reflect the job market of previous generations, but with new-found offshore oil wealth and a shrinking manufacturing sector, employment opportunities have shifted.

• Successive governments have pared EI benefits. In the 1970s, laid-off workers were entitled to 66 per cent of their insurable earnings. Today’s wage replacement rate is 55 per cent.

• At the same time, policy-makers have loaded the EI system with social programs — maternity benefits, parental benefits, adoption benefits, sickness benefits and compassionate care leave. Worthwhile as these add-ons are, they deplete the funds available for laid-off workers.

• The rate-setting mechanism no longer functions as intended. Four years ago, Flaherty decreed that the EI program must break even every year. He set up a Crown corporation, the Canada Employment Insurance Financing Board, to set premiums at the rate required to make that happen.

Under this new regime, surpluses cannot be accumulated in good years to use in lean years. What this means is that when the economy slumps EI premiums go up, forcing workers to pay more when they can least afford it.

Rae is right.

Canada’s EI system badly needs an overhaul. It’s a relic from the industrial age. It excludes the workers who need help most. It exacerbates poverty. It is confusing, discriminatory and economically perverse.

There is no shortage of sensible, affordable ideas about how to improve the system. But don’t hold your breath. Prime Minister Stephen Harper thinks the current model “meets the needs of the market”; Human Resources Minister Diane Finley refuses to “make it lucrative for them (the unemployed) to stay home and get paid for it”; and Flaherty is content to charge more and deliver less.

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1 Comment

  1. I want to know why my measley bonus of $400 was so heavily taxed? They took $140 out just for federal taxes, and the rest State etc. My check netted only $222.00! This is crazy! I have one dependant at home, and the only breadwinner in this family! I make less than $40,000 a year too!

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