The EI Premium Freeze – A Strange Form of “Stimulus”

Believe it or not, in 2011, the “new” EI Fund will begin life $10.5 Billion in the hole, setting the stage for a big job-destroying hike in premiums, even though there is a $57 Billion surplus in the “old” EI Account.

In the 2009 Budget (p 106) , the federal government announced that it would freeze the EI premium rate for 2009 and 2010 – at an estimated cost to the government of $4.5 billion compared to a break-even rate.  The (second) June report card on Canada’s Economic Action Plan revised that cost of the premium freeze skywards to a huge $10.5 Billion over 2009 and 2010. (p.103)  It would be interesting to know just how big a jump in the unemployment rate the government expects to drive such an increase.

The Budget referred to the EI premium rate freeze as a form of “stimulus”  and announced that the government – not the separate EI Fund – would pay for the cost of an extra 5 weeks of benefits and increased spending on EI funded training, to a total of $2.9 billion.  However, the Budget also made it clear that, starting in 2011,  the new EI Fund will have to repay the cost of the two year EI premium freeze. This was confirmed in a media release issued by HRSDC on June 25 announcing the Board of Directors of the Canada Employment Insurance Financing Board.

The “new” EI fund will have no access to the $57 Billion accumulated EI surplus which has been swallowed up in the consolidated Government of Canada accounts, but instead will begin its life at the bottom of a  huge $10.5 Billion hole.  To put this in perspective, $10.5 Billion amounts to more than 60% of total EI premium revenues collected in the pre recession year of 2007-08.

The new Canada EI Financing Board is manadated to set a break-even rate in 2011 – a mandate which will result in a huge EI premium increase just as Canada (let’s be optimistic) is limping into a recovery.

While the government retains the right to set a premium rate of its own choosing, it would be far, far  better to charge  the cost of the stimulus of the EI premium freeze to the 2009 and 2010 fiscal year stimulus package – drawing down the huge historic EI surplus.

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