Issues: Canada’s EI Surplus – Now You See It, Now You Don’t

By February 7, 2013Issues

By Gregory Thomas, Federal Director CTF. Now that you’ve likely seen a couple of pay stubs in 2013, you may have noticed that your employer is deducting more than they did last year for Employment Insurance.

In fact, anybody earning $47,400 or more in 2013 will pay $891 in EI tax. Last year’s maximum was $840.

This year, every Canadian employee will team up with their boss to send $2,139 to the EI fund, up from $1,706 five years ago.

Finance Minister Jim Flaherty blames the financial meltdown of 2008 and the resulting rise in unemployment for the rising taxes.

The government likes to take credit for steering Canada through the worst of the worldwide recession. So you might think you could go back to the 2008 federal budget speech, and read about Flaherty’s plans to hike EI taxes. Something like “to better prepare for the slowdown ahead, your government will hike EI taxes 25 per cent over the next five years, pulling an additional $433 from every Canadian worker earning at least the average industrial wage by 2013. Tough times require tough tax decisions.”

Don’t spend a lot of time poring over old budget documents. The words are not in there.

The finance department expects a major EI tax haul in the next fiscal year, with revenues rising $1.7 billion to $21.8 billion, while EI benefit payments go up only $700 million to $18.9 billion.

“Wait a minute,” you might be saying to yourself. “Why is my tax-hating Conservative federal government jamming payroll taxes higher? Why are employment insurance taxes going up, when unemployment is going down? And why do they need $21.8 billion to run the EI program, when they only expect to pay $18.9 billion in EI benefits?”

Last year, the Employment Insurance program’s administration budget – what business people refer to as overhead – was a staggering $1.9 billion. For every dollar of EI benefits the federal government delivered, it cost them nearly 11 cents in overhead to get those cheques in Canadians’ bank accounts. Given that the average federal worker takes 18 paid sick days and the cost of an average federal government employee is $114,000, it’s not surprising that billions are being wasted on administrative overhead.

Even after subtracting all the bureaucratic waste, the Harper government should still clear a profit of about $1 billion on its Employment Insurance program this coming year.

This makes no sense, especially for self-professed friends of the taxpayer like Stephen Harper and Jim Flaherty. Payroll taxes kill jobs, by creating a big gap between what bosses can afford to pay and what workers can afford to live on – the difference between the top and bottom line on everybody’s paycheque.

Mr. Flaherty points to big losses in the EI fund stemming from the financial meltdown: $4.9 billion in 2009, another $2.5 billion in 2010 and $550 million last year – nearly $8 billion in losses that need to be recovered through higher payroll taxes.

So next paycheque, when you look at that hefty EI deduction, just remember the federal Employment Insurance Operating Account, with its deficit of $7.9 billion, and take some pride that you’re doing your part for the country.

Whatever you do, don’t confuse the new federal Employment Insurance Operating Account with the old federal Employment Insurance Account.

Mr. Flaherty’s 2010 budget closed down the old federal EI Account, with its $57 billion surplus ($57,859,571,696, to be exact), transferring the money into the government’s general revenues.

Years of gouging Canadian workers created a massive EI surplus, perfect for an economic storm like the 2008 financial meltdown. And in the blink of an eye, it was gone, replaced with an imaginary $8 billion EI deficit. Adding insult to injury, after seizing the EI surplus, Ottawa stopped paying interest on the funds in the EI account. After all, they’re gone!

One day, and many EI tax hikes in the future, Canadians may pay off the $8 billion deficit in the new EI Operating account. But based on this government’s history, don’t hold your breath.

Gregory Thomas is the Federal Director of the Canadian Taxpayers Federation. He can be reached at:
613-234-6554 (office) or 800-265-0442 (toll free)

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