20 September 2022
Hon. Chrystia Freeland, Minister of Finance
90 Elgin Street
Ottawa, Ontario K1A 0G5
Via email: firstname.lastname@example.org
Dear Minister Freeland:
Re: Employment Insurance Deficit
I am writing today on behalf of our more than 1,000 members businesses and not-for-profit organizations to add our voice to the national business community’s request that the Government of Canada pay off the current Employment Insurance (EI) deficit, incurred by temporary measures resulting from the COVID-19 pandemic, through general revenue, and that EI premiums are maintained at their current – or a lower – rate.
These enhanced benefits were provided as an emergency measure through the EI system during the pandemic partially because the mechanism to get funds in people’s hands quickly already existed. It would be a mistake moving forward to think of EI as a program meant to cover a wide breadth of situations. We must protect vulnerable citizens in need, but through the appropriate mechanism, not necessarily the Employment Insurance system – which should only be used for employment and as insurance. Because of this, it is not fair for employers, who pay a disproportionate amount, and employees, to pay off this deficit through increased premiums. We respectfully request that the current deficit be paid in full by the federal government and that the premium rate be maintained at its current level.
As part of the Government of Canada’s COVID-19 Economic Response Plan, a series of temporary measures were introduced to make the EI Program more accessible and generous for Canadian workers. According to the 2022 Actuarial Report on the EI Premium Rate, these measures will lead the EI Operating Account to a projected cumulative deficit of $33.9 billion by the end of 2022. Budget 2022 projected that the premium rate will need to be gradually increased from $1.58 in 2022 to $1.73 per $100 of insurable earnings in 2025.
Our members, especially small businesses and non-profits are worried about the projected EI premium increases noted in Budget 2022. The Budget suggests that rates could increase 15 cents (at 5-cent increments from $1.58 to $1.73) over the next 3 years and then remain at the 2025 level until the fund gets back to balance. The impact of these proposed increases will be significant for employers. As the premium rate is multiplied against Maximum Insurable Earnings (MIE), which is indexed to average weekly earnings, the actual cost to employers per employee making the MIE will increase from $1,332.63 in 2022 to $1,574.12 in 2025. This is an increase of 18 per cent. EI premium rates have been frozen before, during recent economic downturns (2008/2009 and COVID-19 2021-2022) to ensure that they did not increase at the lowest points of economic downturn. The proposed increases to EI premiums are ill-timed and unsustainable at a period when most businesses are struggling to resume normal business operations.
I also want to reiterate our concerns from Phase 2 of the EI reform consultations that are exploring ways to enhance accessibility to the program, which will ultimately lead to increases in costs for both employers and employees. This would further exacerbate the need for premium increases, as the projections in Budget 2022 did not consider modernization efforts and the costs to implement reforms. A recent report from the Institute for Research on Public Policy estimated that raising the replacement rate from 55% to 67% would add approximately $4 billion in additional costs to the EI Program per year. This measure alone is an unsustainable cost, considering the total cost of the program was $21-22 billion in 2019 (pre-pandemic data).
Additionally, the current high-inflation environment is expected to push up wage growth this year. This would typically result in an increase in the MIE for 2023. The cumulated effect of an increase in the MIE, an expansion to eligibility, an increase in the replacement rate, and/or a longer maximum duration of a claim, combined with increased premiums would bring unbearable burdens to employers during this already challenging time. To maintain the sustainability of the system for all parties, any increase in the MIE overriding the wage increases should be offset by decreasing the premium rate.
Having an effective and financially sustainable EI system is a benefit to both employees and employers – however, the way the reform consultations have been framed suggests that it is the government’s intention to make it easier to get EI benefits, to make them more generous and to provide them for longer. This will materially affect the sustainability of the fund, employers’ ability to attract workers and the economy’s ability to grow.
Coming out of a pandemic with highly unusual economic and market conditions as the contextual backdrop is likely the worst possible time to embark on serious reform of such a critical program. Our members are currently experiencing unprecedented workforce conditions that are negatively impacting small business’ ability to compete or even exist. From coast-to-coast labour has become the top issue for employers and expanding EI access will make this situation even worse.
If there is one guiding principle that should be followed, it is that EI is insurance and should be treated as such. It has a distinct purpose and limited scope – straying beyond that makes it a social program that employers should not be responsible for funding. Accessing benefits should be available for those who need it, but enforcement of the rules at a much higher level is needed to maintain the integrity of the fund – however the program looks moving forward.
Krista Ross, CEO, Fredericton Chamber of Commerce
cc: Hon. Carla Qualtrough, Minister of Employment, Workforce Development and Disability Inclusion of Canada
cc: Hon. Dominic Leblanc, Minister of Intergovernmental Affairs, Infrastructure and Communities
cc: Nancy Healey, Commissioner for Employers, Canada Employment Insurance Commission