$2.7B employment insurance surplus balanced Joe Oliver's books

Remember 20 years ago, when big surpluses in the employment insurance fund gave the Chrétien government billions in extra federal revenue? For two years only — just until 2017 — those days are back. And it's just enough to nudge Finance Minister Joe Oliver's books into the black in time for this year's election.

New 7-year break-even system doesn't start until 2017

Joe Oliver's April 21 federal budget was the Harper government's first set of balanced books since 2007. It got there with a little help from an old friend of revenue-seeking federal governments: the EI surplus. (Justin Tang/Canadian Press)

Remember two decades ago, when surpluses in the employment insurance fund started giving the Chrétien government billions in extra revenue to repay debt, cut taxes or fund other things?

For two years only — just until 2017 — those days are back. And how convenient: it's just enough to nudge Joe Oliver's books into the black in time for this year's election.

The last recession dipped the EI account balance into the red, accumulating a deficit of $9.2 billion by 2011. But as of 2015, that's paid off. 

A rate freeze by former finance minister Jim Flaherty in 2013 — ostensibly to protect employees and employers from more rate increases — is keeping contributions higher than necessary to maintain that balance.

That translates into an extra $2.7 billion for 2015-16. Without it, Stephen Harper wouldn't have his balanced budget.

Next year, it'll be worth $1.4 billion extra.

Then starting in 2017, contribution rates will be based on a seven-year "break-even" formula. Premiums will drop to a level that keeps the account in balance, not surplus.

The overall goal? More transparent rates. And an end to multibillion-dollar dipping into EI funds to finance the ambitions of future governments.

But first, a final windfall.

'Slush fund … needs to stop'

The Canadian Federation of Independent Business was among those "screaming and yelling" about payroll tax unfairness.

But president Dan Kelly says that while his members want lower premiums, they understand you need surplus years to balance out deficits.

"I am generally supportive of the government's approach," Kelly said, "and I say that with a bit of a heavy heart, because this year and next, because of this new formula, rates are not coming down as much as they could come down, and so the economy is missing out on that benefit."

"Right now, the EI surplus is subsidizing the books of the government of Canada, I think that's a fair statement," Kelly said.

But by that logic, in bad times the government subsidized the EI account.

"That's why we haven't been lighting our hair on fire on this," he said, emphasizing that consistent rates are what counts.

Kelly said his group asked for a chart in the budget to track the EI account over time. (And sure enough, there is one.)

"We wanted to have that accountability," he said. "EI has been used as a bit of a slush fund for decades and that needs to stop."

Election 'jiggery-pokery'

Liberal deputy leader Ralph Goodale said that while in theory the idea of a seven-year rate-setting mechanism is anti-cyclical — stabilizing rates over time rather than making them rise and fall with economic fortunes — the way the Harper government implemented this was pro-cyclical, making things worse at a time when job creation was supposed to be the priority.

"This is not a time to play jiggery-pokery with EI rates," he said.

Leading up to 2013, the revenue from payroll premiums increased by $600 million in each of the years 2011, 2012 and 2013. Then premiums were frozen at that "artificially high" level. Add it together up to 2017 and you've got $14.4 billion in additional revenue for the Harper government, Goodale said.

The former Liberal finance minister — who also enjoyed a hearty EI surplus in his budgeting days a decade ago — said Tories have "used it in such a shameful fashion, all the while proclaiming that they weren't."

"This one was deliberately contrived to suit their election timing," he said. "It was clearly intended to pad the government's books."

Come 2017, Finance Canada confirmed Friday it will not apply its five cent cap on premium increases or decreases. Instead, premiums are expected to drop more substantially — from $1.88 to $1.49 per $100 of insurable earnings — to begin the new break-even strategy. 

"They'll drop the rates in a dramatic fashion and say 'Oh my! What a good boy am I!" Goodale said,

'Almost like a tax'

The Canadian Taxpayers Federation is disappointed that the government continues to treat EI surpluses like general tax revenue.

"The current government is not going quite [as far as previously], but the principle is the same," said federal director Aaron Wudrick.

"Our big fear is that governments become dependent on it, and start to bake it into their assumptions," he said. 

Extra revenue risks government "getting a little loose" with spending, Wudrick said. But if surpluses were used to pay down debt, he'd support that.

"Some people might argue that it's not a big deal that it goes into general revenue," he said. "But we think it is reasonable that the government be honest about what it's doing with the money."

In 1998, former Reform party critic Monte Solberg told then finance minister Paul Martin the government had a "moral obligation" to pay back the extra billions belonging to the "waitresses and plumbers and all those people who have contributed to the EI fund."

Few Conservatives of Solberg's vintage are left to feel discomfort now that the shoe is on the other foot.