---

Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology

Issue 10 - Evidence

---

OTTAWA, Wednesday, May 2, 2001

The Standing Senate Committee on Social Affairs, Science and Technology, to which was referred Bill C-2, to amend the Employment Insurance Act and the Employment Insurance (Fishing) Regulations, met this day at 3:45 p.m. to give consideration to the bill.

Senator Michael Kirby (Chairman) in the Chair.

[English]

The Chairman: Senators, we have a quorum. I will bend the rules a little because the people over there are not running the place properly. We were told categorically that the Senate would adjourn at 3:30 p.m. We do have the minister here and I do not like wasting the time of ministers.

We are dealing today with Bill C-2, an Act to amend the Employment Insurance Act and the Employment Insurance (Fishing) Regulations, an act of not insignificant consequence for the East Coast, from where a number of senators present come. As Senator Lawson is here, the West Coast is also represented. We have the country covered from sea to sea.

Our first witness is the Honourable Jane Stewart, Minister of Human Resources Development. She has with her a number of officials.

Thank you for the coming, minister. Please proceed with your opening statement and we will then go to questions.

The Honourable Jane Stewart, Minister of Human Resources Development Canada: Thank you, Mr. Chairman and honourable senators, for the opportunity to appear before you on legislation that is important to me.

With me today are Deputy Minister Claire Morris; Wilma Vreeswijk, Acting Director General of Labour Market Policy; Gordon McFee, Director of Policy and Legislative Development; Luc Leduc, Counsel, Legal Services and from the Department of Finance, Réal Bouchard, Director of Social Policy.

The amendments contained in Bill C-2 are very important because they will help to make the Employment Insurance Program responsive to the needs of working Canadians.

[Translation]

Back in 1996, we made the change from Unemployment Insurance to Employment Insurance. The overall goal was to shift the emphasis from passive income support for unemployed workers towards active measures to get them back to work as quickly as possible.

[English]

The 1996 reforms introduced a number of active measures, delivered through the provinces and territories, to provide support in such areas as training, as well as a number of other changes designed to encourage a greater attachment to the workforce. A family supplement was also introduced to help claimants from low-income families with children. Under Employment Insurance, claimants in that category can receive up to 80 per cent of their insured earnings as opposed to the normal 55 per cent benefit.

At the time, we realized that making such fundamental changes would also mean that we would have to monitor the program very closely to ensure that it was working effectively and achieving the intended results. We set up a system of monitoring and assessment to track the impacts of all the changes and report them to the department and to Parliament.

One of the things this legislation will do is extend that very important work of monitoring and assessing until the year 2006. The annual monitoring and assessments reports have shown that, taken together, the reform is working well. However, those reports have also shown us that there are some specific areas that need improvement, areas where the 1996 changes have not had the intended effect.

First is the intensity rule. Designed to promote work attachment, the rule has not been effective. In fact, it had the unintended effect of being punitive, particularly for people living in areas with very limited opportunities for work. We know this from the annual monitoring and assessment reports which show that the proportion of frequent claimants has remained relatively stable before and after the reform, at 40 per cent of all claimants. We also know this from listening to workers in seasonal industries. Therefore, if senators agree with this legislation, the intensity rule will be eliminated retroactive to October 1, 2000.

Changes are also needed in the repayment provision of the act known as the clawback, which was introduced to discourage claimants with higher incomes from repeatedly collecting benefits. People in that situation are required to repay a portion of the EI benefit that takes them over a certain income level. We still believe that it is a good idea to discourage higher income individuals from making repeat claims. However, to ensure that the provision is properly targeted at higher income workers, all those who earn less than $48,750 will no longer have to repay benefits.

At the same time, we are also exempting entirely certain categories of claimants from the provision. For example, it will no longer apply to first-time claimants who are obviously not repeat claimants. Also, those receiving maternity, parental or sickness benefits will not longer have to repay any of their benefits. Parents who stay home with their newborn children, or workers who are too sick to work, are clearly not dependent on EI.

Another important change in 1996 was to increase the eligibility requirements for new entrants and re-entrants to the program. The idea was to discourage young people from getting into a cycle of dependency on Employment Insurance, something that was identified as a real problem with the old system. However, parents who come back into the workforce after an extended absence to raise their children are being treated in the same way as new entrants who had no labour force attachment, although they often had significant previous work experience.

The bill will adjust the new entrant and/or re-entrant provision to ensure that parents returning to the workforce will qualify for regular benefits with the same number of hours as all other claimants.

Finally, there is an issue of how premium rates are set. As I am sure honourable senators know, the House of Commons Standing Committee on Finance and the Auditor General recommended revising how the rates were set. In fact, in December 1999 the Standing Committee on Finance recommended:

...the federal government should consider revising the accounting practices related to Employment Insurance and the manner in which the premiums are set. Specifically, it should contemplate a rate setting procedure based on a forward-looking basis.

The government also agrees that such a review of the premium setting mechanism is warranted. As such, this review will be carried out over the next two years and it will led by the Department of Finance and supported by my department.

Following the release of a position paper this fall, the government will consult with interested individuals and groups, members of the House of Commons and the Senate and the Employment Insurance Commission, which has representatives of both employers and employees.

[Translation]

To ensure predictability and stability in the premiums while the review is being completed, rates would be set by the Governor in Council.

[English]

I should add that those rates have been dropping steadily since 1994 when the rate was $3.07 per $100 of insurable earnings. Last December we announced a further reduction from $2.40 to $2.25. That means that, at the new rate, employees and employers will save about $6.4 billion in 2001 compared to the 1994 rate.

[Translation]

I believe what we have with this legislation are balanced proposals to make a good system even better.

[English]

This is not the first time we have made adjustments. In 1997, for example, we introduced the "Small Weeks" pilot project, and in December of last year we provided greater support to parents in balancing work and family responsibilities by enhancing Employment Insurance maternity and parental benefits.

I have made a point of meeting Canadians across Canada - in New Brunswick, Quebec, Ontario and British Columbia - and hearing their views on Employment Insurance. With a program of this size and scope there will be always be room for improvement and fine tuning to ensure the program is evolving with changing labour market realities.

[Translation]

So the work continues as it should to ensure we have a responsive EI program.

[English]

Last fall, Canadians let us know that they supported the government in its willingness to bring forward these important changes. Today, I am pleased to present these amendments to the honourable senators on this committee. With your support we will be able to move forward and implement these changes that will benefit workers almost immediately upon passage.

[Translation]

I look forward to your comments.

[English]

Senator Murray: I have just a few questions to begin.

I tipped my hand on my first question to your cabinet colleague, Senator Carstairs, a while back. It concerns the judgment of a tribunal in Winnipeg to the effect that the EI laws are unfair to women because, as primary caregivers, it is harder for them to work the hours needed to qualify. The tribunal found that the EI laws violate the equality provisions of the Charter.

Your options seem to be - and you can correct me if I am wrong - to appeal the decision to the Federal Court of Appeal or to change the law.

Have you decided which course to take?

Ms Stewart: Indeed, senator, we have received the judgment of the umpire in the case of Ms Lesiuk and are reviewing it in the greatest of detail. We will be making our decision known very soon. However, you will be aware that we have already made changes to the act, particularly with regard to the number of hours required for special benefits. As you know, originally the requirement was 700 hours. It is now 600. We are reviewing the decision, as you can imagine, and we will respond with our assessment very soon.

Senator Murray: Do you think the changes being made here might satisfy the objections of the tribunal?

Ms Stewart: I do not want to comment in the context of the Lesiuk case, as you can understand. However, in the context of recognizing the importance of the challenges that exist between workplace and family, I am very proud of some of the changes we have made, not the least of which is the change in the number of hours required to receive special benefits. There is also the doubling of parental benefits which ensures that Canadian parents have the choice of staying home for up to a year with newborn children.

As well, with regard to re-entrants, we have come to appreciate that women, in particular, often have a very strong attachment to the workplace. If they leave employment to raise their families, come back into the workplace and then find themselves in the situation of needing Employment Insurance, rather than treat them as new entrants we will trace their careers and recognize that because they have, in the past, had a strong attachment to the workforce they should be dealt with on the basis of the entrance requirements associated with such Canadians.

Senator Murray: You have 30 days to decide whether to appeal. That time must be running out very soon.

Ms Stewart: That is indeed the case and we will be making our decision very soon.

Senator Murray: With regard to the premium setting process and the provision in the bill that the Governor in Council will set the premiums for the years 2002 and 2003, you have told us that the reason for doing this is that you are undertaking a review of the premium setting mechanism to be carried out over the next two years, led by the Department of Finance and supported by your department. That answers two or three of the questions I wanted to ask, but I still wonder what issues are subject to review. The process seems quite simple, as set out in the current act.

You refer to what the Auditor General says. In a nutshell, he says that the process should be more transparent. He wants to know on what basis the commission formulates its recommendations. You refer to the commons committee, which has a somewhat different view, not about transparency but about the criteria. What issues specifically are being reviewed? I presume it is an interdepartmental committee?

Ms Stewart: As you point out, senator, we are responding to what is becoming quite a common point of view, that the premium setting structure and process must be reconsidered in the context of modern times.

The Minister of Finance will be leading the consultations and the assessment. The department will be in a supporting position.

Perhaps Mr. Bouchard would like to make some comments in the context of preparations for consultations and the paper that will be provided in the fall for consideration.

Mr. Réal Bouchard, Director, Social Policy, Department of Finance: Honourable senators, the purpose of the review is to establish a way of setting premiums differently from what we do now.

Two fundamental objectives will be pursued. The first is a premium rate-setting procedure to ensure that the premium rate covers program costs only. The second objective is to ensure stability in the premium rate over what economists would call a business cycle.

There is a trade-off between covering only program costs and ensuring stability. Those are the two objectives that will be pursued in setting out the issues and alternative ways of setting the premium rate.

The Chairman: This paper will be made publicly available in September or October, but is the intent to make it a public document? It is not an internal government document, is it?

Mr. Bouchard: That is right. The paper is to be released in the fall and we will set out a consultation plan to describe the way in which the views of interested parties will be heard. Our plan is to hear those views next year.

The Chairman: Does a change to the rate-setting process require a change in legislation? In other words, once you go through this process, will you then have to change the bill?

Mr. Bouchard: If the changes are significant legislation will be required once the review is complete and once the report has been tabled in Parliament.

The Chairman: Are you referring to the report after the consultation procedure?

Mr. Bouchard: Parliament will be informed of the results of the review.

The Chairman: As a piece of advice, consultations can go on forever. Generally, one can get 80 per cent of what one needs in the first two months. You said "next year." I believe you ought to complete the consultations by Christmas, get the results and solve the problem as opposed to letting it stretch out.

Ms Stewart: That is why we prepared for a two-year window in the process, recognizing that this is a topic of broad interest and that the Minister of Finance will play a lead role. However, recognizing the potential for legislation, we felt that we needed to take two years.

Senator Murray: The Auditor General is not the legal adviser to the government but he has considered the present law, examined the current level of premiums and the size of the surplus in the fund. His conclusion, which I think is rather understated, is that he would be hard-pressed to state that the intent of the law is being respected.

Ms Stewart: In that context, senator, I wish to remind the committee of the not-too-distant past when, in a very short period of time, there was a change from a surplus in the account to a significant deficit. Within the course of a few months there was an $8 billion transition. That is why we talk about stability and predictability. We have been through that experience. That happened in the middle of a recession when premium rates had to be changed to accommodate the rapid use of the benefits. If I am not mistaken, according to outside assessments, there was a loss of 200,000 jobs as a result of that rapid premium increase. We know the volatility that can occur with this account.

There are discussions about what is the length of a business cycle. That will be part of the review.

We must accommodate past experiences when circumstances changed rather dramatically. That experience will form part of the consultations that will be held.

Senator Murray: I will not ask you to comment on what you think the impact of the current, unnecessarily high premiums might be on job creation in the country. Your colleague, Mr. Martin, used to be, until quite recently, fairly clear on what he thought of payroll taxes and their impact on economic growth.

On the point you made about the surplus that turned into a deficit, I well recall that, for some years during the recession, the previous government swallowed the deficit because it did not want to increase the premiums and thereby create more unemployment. In considering the history of the fund, I was struck by how very quickly the deficit turned to a surplus. In two years, a very large deficit became a surplus of $0.5 billion. That is quite remarkable.

Some of your colleagues in the House referred to the fact that there has been a deficit in 10 of the last 18 years. I do not believe that is a justification for keeping the premiums at the level they are now, nor the surplus either.

However, with regard to the premium-setting exercise that will take place for 2002 and 2003, if we pass clause 9 of the bill and suspend the present provision of the act, we will suspend with it the criteria that the act sets out. Will the government commit to be bound by the set of criterion that is now in section 66, that is, to set the premium rate for 2002 and 2003 to ensure that there is enough revenue over the business cycle to pay for the program and to maintain relatively stable rates over the business cycle?

Ms Stewart: We have already indicated our intention to continue to reduce the premiums, as we are able.

You talked about the level of premium rates. I would be remiss not to remind the committee that every year we have been able to reduce EI premiums. You made reference to what that has done to the number of jobs created. The number of jobs created in the current economy is well over 2 million.

We must look at all aspects of this issue. I think the direction the government has taken to date has been positive. It is doing its best to reduce premiums and make important new investments, not the least of which is the doubling of parental benefits. As the economy moves through its cycle, we want to make sure we have predictability and stability as we review the overall process, which is fundamentally where the Auditor General and Canadians want us to turn our attention.

Senator Murray: Do you have any plans to do a more thorough review of the entire Employment Insurance regime? The CLC and other organizations state that only 37 per cent of the unemployed are now receiving benefits under this program. If you can test that statistic, say so.

Ms Stewart: The figure of 37 per cent comes from the BU ratio, which is a very broad measure of all citizens. A better way to measure the effectiveness of Employment Insurance is to consider the numbers of Canadians who are in paid employment and paying premiums and the percentage of Canadians who would be eligible for benefits should they need them. That number is about 88 per cent.

In response to your first question about whether we want to do a fundamental review, the approach that we have taken since the amendments in 1966, which has been to recognize that we should assess the impact of Employment Insurance and its provision for Canadians on an annual basis, is a good approach. The inclusion of a monitoring and assessment regime then, which, with the agreement of senators on the passage of this bill, will be extended to 2006, is a very good component. Every year the commission does an assessment of Employment Insurance. We have recognized experts look at different parts of the act and present papers on its impacts. That process of annual review and presentation to Parliament keeps us focused on the ball and has led to changes, not only in the context of Bill C-2 but previously with the introduction of the "Small Weeks" pilot project and changes to the hours required to receive special benefits.

I like that continuous review and assessment approach and the ability for the Houses of Parliament to consider changes in the context of the dynamic and changing workforce and marketplace.

Senator Robertson: I want to return to the question Senator Murray raised about the percentage of unemployed people who are not eligible for Employment Insurance.

If my research is correct, 34 per cent of those who are ineligible rely on their parents - often aging parents - to get by. Do you think, minister, that the government has an obligation to design an EI system to accommodate the percentage of workers that is not eligible now? The number is really quite high and it is hurtful to family units.

Ms Stewart: This is an important question. Employment Insurance exists to cover those Canadians who, through no fault of their own, find themselves without work. It exists to respond to the needs of Canadians in paid employment who are paying their premiums with the support of their employers. It is focused and for those Canadians it is intended to serve, it does a very good job.

With regard to the broader question of whether there should be other programs and services to assist Canadians when they find themselves without work, programs of social assistance, for example and others, our approach beyond Employment Insurance has been to recognize that there are certain groups of Canadians who, from time to time, need more strategic investment and support. Human Resource Development Canada has programs such as the Opportunities Funds to help Canadians with disabilities find their way into the workforce. Our youth programs are focused primarily on helping young people to get that important first job, be it through a summer student program or through the Youth at Risk Strategy. We have, through our grants and contributions regime, identified programming to help, in partnership in many circumstances, groups of Canadians who find themselves less able to get into the Canadian economy.

Senator Robertson: Perhaps, minister, you could advise us what percentage of young people have been able to find gainful employment after their first experiences with your department.

Ms Stewart: We have a very high success ratio through these programs. Very often this involves youth at risk, those who have not been able to naturally find their way into the economy. Through very inventive partnerships and projects, we have, in some cases, 60 per cent success in very challenged areas. I am thinking of a project I visited recently in Edmonton with Senator Fairbairn. There was another in Victoria that had a 95 per cent success rate. The rate of success is well above 50 per cent and very often, is higher than 75 per cent.

Senator Robertson: That is encouraging.

We have a lot of entrepreneurs in Canada, many of whom are women. They move into areas of small business that can accommodate their lifestyles, their families, et cetera. Are they still ineligible? If so, why?

Ms Stewart: Employment Insurance is not for the self-employed. We continue to poll and talk to Canadians, particularly self-employed Canadians, about whether they are interested in paying premiums and they continue to tell us that they are not.

Senator Robertson: That is not the answer I get.

Ms Stewart: There are changes in the workplace with regard to the self-employed. There are increasing numbers of contract positions in the context of entrepreneurs, although that may not be described in the same way as we have been understanding self-employment. We will continue to follow what is happening in the Canadian workplace to see whether there are more appropriate strategies that are in the context of good public policy.

Employment Insurance exists, as it has in the past, for those in paid employment and not for the self-employed.

Senator Robertson: You say that the people to whom you have spoken say they do not want to pay premiums but my information is that there is a large group that would like to pay premiums. Perhaps there could be some flexibility there.

Ms Stewart: Of course, you would agree that if they are going to receive benefits they should be contributing to the benefit regime.

Senator Robertson: Yes, by all means, under strict policy provisions but they should be given the opportunity to contribute should they wish to do so that they have that protection.

Senator Lawson: Minister, I want to talk about the employment assistance services that we have on the Lower Mainland of British Columbia. I am sure the matter has been raised with you before. You and I have had brief discussions about it. Some contractors and some employees of contractors have talked to me about their concerns. Some of them leave me with the feeling that they are fearful to express their concerns lest they be punished by being removed as contractors. Whether that fear is founded or unfounded, it should not exist.

Without identifying the sources, I have been told that job-finding clubs and career and transition planning programs in the Vancouver area are not wasteful but give the country short and long-term gains in helping unemployed people get on their feet again and benefit the overall economy. I have been told that their budgets are bare bones and their staffs work flat out at salaries that would not meet union standards. There are few raises to keep up with the increased cost of living. There is no job security as contracts are renewable yearly and there are no benefits. I have been told that the public needs to be reminded of the successful records of many of these funded programs and the accountability and dedication demonstrated by most HRDC staff and service providers.

On the issue of contracts, people have to bid contracts at such low levels that they cannot pay for basic things. They have no medical coverage. They certainly have no pensions. They are on one-year contracts, renewed maybe as many as 10 times. After 10 years of service, individuals in that position have no medical coverage and no benefits. If they take holiday leave, to which they are entitled by law, they must find replacement employees. There are not sufficient moneys in the contract to cover that.

An atmosphere has been created whereby contractors have to bid low to win contract. It seems to me that for those who are adjuncts or contractors to the government certain minimum standards should apply. I am not saying they should be unionized however, certain minimum standards should apply. Rates should be the same or similar to what a department would pay if it were to do the work internally. There should be provisions in contracts to cover questions of medical and pension benefits.

One recommendation I have heard is that contracts of two to three years should be offered, subject to regular monthly and quarterly reporting, review, evaluation and accountability checks.This would enable service providers to keep staff, do long-term planning and concentrate on serving clients, which in the end would save time and money. There is a lot of merit in doing that.

Qualified staff is hard to keep. The department finds qualified people - which is the object of the exercise - and then they are gone because they find better opportunities at higher wages, which are available because of the low-priced contracts.

Those are my concerns. Is it possible to bring all of the contractors into a new social policy or a new public policy? If you bid contracts, do not do it so cheaply that there are no minimum pay standards. We will all be better for that. The government will be better equipped. It will be able to keep employees on a long-term basis and counsel people on the basis that they will not be gone next week. You can put many more people back to work, which is the object of the whole exercise.

Ms Stewart: Senator Lawson and I had the opportunity, before the committee started, to talk about the third-party contracts that we issue. If I am not mistaken, we have approximately 46,000 individual contracts across the country. This strategy has been effective at helping us to work at the community level to provide services reflective of community needs.

The issue raised by the senator is this: When we are tendering these arm's-length contracts, should we have within our requirements minimum standards in terms of wages and benefits.? We have a supply and demand arrangement now. If organizations and communities apply for a contract, it is up to them to determine how they pay employees and what benefits are available. They must respond to the contract requirements in that way.

You raise an interesting point as to whether the government should make a determination on how employers treat their employees. I can take that question under advisement. Essentially, it is a point well taken. It would take broader consultation and thinking, in terms of public policy, to determine whether we want to dictate wages and benefits in contractual arrangements.

Senator Lawson: This system has evolved in such a way that you are exploiting people who are working in the system and keeping them at low levels of pay.

Prior to the cutbacks, these programs were advertised so that unemployed people could go somewhere to get help finding jobs. People under contract are in no position to draw to anyone's attention that these services were provided. There was a time when programs were referred by other offices but that was cut back.

Ms Stewart: We are talking about the provision of Part II benefits. There is usually a good relationship between the department, which is providing benefits under Part I - the actual dollars - and the consultation with individual beneficiaries about what the appropriate next steps might be for them in terms of active measures. Perhaps there should be broader information, but the benefit of Part II support really goes to those receiving the actual income support. The conversations actually occur at the local human resource centres.

Senator Lawson: There seems to be a breakdown in that communication with respect to what services are available for people who need to be retrained to find jobs. Those who are working in seem to have a high success rate.

Ms Stewart: Indeed.

Senator Lawson: There is the need for an examination of that issue.

Ms Stewart: Perhaps we can get the details from those who talked with you directly about that matter to see if that experience can afford us some direction.

Senator Lawson: Perhaps there is some way that we could bring them all together. I would be very happy to participate in an observer role.

Ms Stewart: I wonder what the Competition Bureau would think about that.

Senator Graham: Minister Stewart, you will know that many of us have agonized since 1996 over the changes that took effect at that particular time. I am glad you are here to make new changes.

I have a simple question related to the estimated cost of eliminating the intensity rule. Do you have the estimated cost? My expert number cruncher and I estimate that the cost will be approximately $250 million a year.

The Chairman: When you make public your document for consultation next year, could the officials make sure that they send it to the clerk of the committee for distribution to the committee? It may well be that we would like part of your consultation exercise to be a consultation with us.

Senator Murray: I wish to raise one more matter, on which I do not want to deprive the minister opportunity to comment. She may wish to refer the matter to the representative from the Department of Finance.

I thought she might want to say something about the IMF report that has criticized our approach to employment insurance as counterproductive, et cetera. What leapt off the page of their report entitled "World Economic Outlook" was the comment that to enhance labour market flexibility and lower structural unemployment, new measures are needed to reduce the frequency of employment insurance use and eliminate regional extended benefits. The inference is that the IMF thinks there is not enough labour mobility in this country; What does the Department of Finance think?

Ms Stewart: In responding to what the International Monetary Fund has said, as you point out, they actually give us credit for building increased flexibility with the amendments that were introduced in 1996 and the National Child Benefit. Those measure have had a positive impact in encouraging low-income Canadians to leave social assistance and get into the workforce.

The message that I would convey is that with these changes we are not backtracking on the fundamental principles that drove the changes in 1996.

With regard to decreasing dependency on employment insurance, I would remind you that a number of changes were implemented, not the least of which was the divisor rule. I can tell you that this measure is encouraging Canadians to find more work. In that regard, we are finding that indeed, they are finding extra weeks of work.

In our continual assessment of the intensity rule we have found that it is perceived only as being punitive. It is not changing the fundamental numbers of frequent claimants and so it is ineffective.

Senator Murray: Regional benefits.

Ms Stewart: They are available across the country.

I cannot believe that the IMF would want us to continue with a program that has proven ineffective.

Senator Murray: With regard to labour mobility, are there enough Quebecers, Cape Bretoners and Newfoundlanders in Fort McMurray, Alberta, or do they require more?

Ms Stewart: This is a very important question To allow for labour mobility, with the table of labour market ministers, we are responding to the direction of first ministers to deal with the interprovincial borders that have been put up. By July 1 of this year, it is incumbent upon us to have looked at all the barriers to labour mobility across the country and to have methods of reducing them. It is a priority.

Senator Murray: Do you think there are barriers to labour mobility?

Ms Stewart: As recently reported in a study by Statistics Canada, fundamentally, something that we recognize is that Canadians are quite prepared to take options. Our challenge is to recognize that we can diversify far more in communities across the country. From my point of view, we must consider options that will allow for communities across the country to broaden and deepen the economies that they want to have in place. I think we have done good work in that regard but much more needs to be done. I believe technology will help us with that, quite frankly.

Senator Fairbairn: I wish to piggyback on the question of Senator Murray. When you talk about barriers to labour mobility, is not one of the barriers a lack of skills, especially in communities such as Fort McMurray where there is a technological workforce to work in the oil sands?

Ms Stewart: Indeed, one of the things that we recognized and addressed very clearly in the Speech from the Throne was that people drive the economy in a knowledge-based economy. The extent to which we can improve and increase every single Canadian's skill base will ensure a soft landing as the economy continues to ebb and flow.

I was remiss when responding to Senator Robertson about grants and contributions. Fundamental literacy skills are essential to groups of Canadians who need broader support so they can get into the labour market and be eligible for Employment Insurance. We must work more closely with the provinces and territories in that regard. We recognize the reality in Canada that our levels of literacy are not as high as they must be and that we must make additional investments in this area.

The Chairman: Thank you, minister.

Honourable senators, our next witness is Ms Sheila Fraser, the Interim Auditor General of Canada. She is replacing Mr. Denis Desautels.

Ms Sheila Fraser, Interim Auditor General of Canada, Office of the Auditor General of Canada: Thank you, honourable senators, for the opportunity to discuss with you today our observation on the lack of clarity of the basis used in setting employment insurance rates.

Accompanying me today are Nancy Cheng and John Hodgins, who are two principals from our office. Ms Cheng is responsible for the audit of the EI account and Mr. Hodgins is responsible for the audit of the Public Accounts of Canada.

The audit observation that we tabled in Parliament this past February addressed the setting of premium rates and the balance in the EI account. Just six weeks ago, Mr. Desautels appeared before the House of Commons Standing Committee on Human Resources Development on that subject. He briefed the members of that committee on our concern that we raised in the audit observation and the impact that Bill C-2 would have with regard to that observation. Today, I would like to highlight that observation for members of this committee to consider in your deliberations on Bill C-2.

The Employment Insurance Act requires that EI premium rates be set to ensure that there is enough revenue to cover program costs while keeping rates relatively stable over a business cycle. Although the act provides no specific interpretation and definition, the EI account should break even over a business cycle. The account's accumulated balance would therefore be a relevant and important factor in determining the premium rates.

To help achieve those objectives, the department's Chief Actuary prepares annually an actuarial analysis to support the rate-setting process. The Canadian Employment Insurance Commission, with representation from employers, employees and the government, sets the rates. The rates are subject to approval by the Governor in Council on the recommendation of the Minister of Human Resources Development and the Minister of Finance.

In recent years, the balance in the Employment Insurance account has continued to grow until it has greatly surpassed the amount that the Chief Actuary considers is enough. The growing surplus in the account has helped to reduce the government's net debt and has contributed to its annual surplus. During this time, a surplus in the EI account balance has been credited with interest revenue from the government's general accounts.

We started drawing attention to the situation in our auditor's report on the financial statements of the EI account in 1999 and again in 2000. We also raised this issue in our observations on the 2000 public accounts report.

[Translation]

In our audit observation, we reported that the balance at 31 March 2000 reached $28 billion, far higher than the maximum the Chief Actuary considered sufficient. In fact, he estimated in his most recent report on premium rates for 2001 that a reserve of $10 billion to $15 billion, attained just before an economic downturn, should be enough. The Chief Actuary estimated that for 2001 setting the employee premium rate between $1.75 and $2.10 per $100 of insurable earnings would meet long-term costs. In fact, the employee premium rate for 2001 was set at $2.25.

It is possible that other factors or assumptions entered into the setting of these rates. In the auditor's reports and the audit observation, we urged the government and the Commission to disclose all the factors they considered in setting rates. In our view, transparency is necessary to give Parliament assurance that the intent of the EI legislation has been observed.

In the meantime, the balance of the EI Account has continued to grow. It likely exceeded $35 billion at the end of March 2001. At that level, as was mentioned by Mr. Desautels, we would be hard pressed to conclude that the intent of the law has been respected.

Let us now turn to Bill C-2. It essentially reintroduced the legislative changes proposed in Bill C-44, tabled in September 2000.

The introduction of Bill C-2 has not alleviated our concern. Clause 9 of Bill C-2 proposes to suspend the present way of setting EI premium rates for two years. It would give the Governor in Council full authority to set rates for 2002 and 2003, without the participation of the Commission. There is no requirement for the rate-setting process to be more transparent.

[English]

In our view, there are a couple of points that may be worthy of consideration and inclusion in your committee report.

First, there needs to be a commitment to review the EI rate-setting process, as was described in the explanatory notes to Bill C-44. I am pleased to note that the minister has committed to such a review. Without that review, it would be meaningless to suspend section 66 of the act for two years.

Second, the review should result in a rate-setting process that provides greater transparency and one that provides a due process with appropriate and clear reference points. Such reference points are necessary to ensure the fiscal integrity of the Employment Insurance program. They could include representation from employers and employees upon consulting the commission, advice from the department's Chief Actuary and the level of the existing reserve, among others.

Finally, the review should address the burgeoning balance that has been accumulated to date in the EI account.

That concludes our opening comments.

We would be pleased to answer questions.

The Chairman: I believe you were in the room when Senator Murray raised the rate-setting issue with the previous witness when the minister was here.

Ms Fraser: Yes, I was.

The Chairman: Would you like to comment on the approach that is being used to develop a new rate-setting process? The minister and officials from the Department of Finance talked about a document being made public in the fall, followed by a consultation process and so on. What do you think about the process in general and, in particular, are you part of the interdepartmental group that is actually helping to develop this paper?

Ms Fraser: Mr. Chair, I learned of the process today.

The Chairman: That certainly answers my second question.

Ms Fraser: To my knowledge, this office has had no participation in that process. I certainly have no objections to the process or comments to make on it, as it was described here today.

The Chairman: I am surprised by your answer to my second question. Is there some reason why the Auditor General would not be involved in that kind of process? As an example, when looking at changing the law affecting financial institutions, the Office of the Superintendent of Financial Institutions, even though it is a regulatory agency, is very much involved in the negotiations. It is not uncommon to have the CRTC involved in discussions with interdepartmental groups on changes to acts affecting the broadcasting industry or telecommunications.

Is there any reason, historically, that the Auditor General would not be involved in such an accounting type of issue - one on which you have spoken out?

Ms Fraser: The office takes great care not to get into policy issues per se. We will advise on implementation or give our comments where we think it is appropriate. However, we do not think that we should be involved in determining policy.

The Chairman: To that extent, you are truly the outside auditor as opposed to the internal auditor in the business concept of the role.

Ms Fraser: That is right. We rigorously maintain our independence.

Senator Murray: Mr. Ken Dye, the Auditor General who preceeded Mr. Desautels, was sufficiently strong in his representations that the government of the day consolidated the EI account into the general account of the government. As I understood his argument at the time, it was that as long as the government had to pick up any deficit and as long as the government could lay hands at will on any surplus, the EI fund ought to be consolidated into the government accounts. At the time, the EI account was running a deficit and Mr. Dye said that that deficit should be added to the budget deficit of the Minister of Finance, so they were consolidated.

At about the same time, the government stopped making contributions. To some extent, that has led to the situation in which we are today and that whole chapter in the history of the fund.

Mr. Desautels told the House of Commons committee that it is a notional fund, a notional account and that there is no separate bank account. It is consolidated. He then said, however, that there is a law about how premiums should be set and so on and that we must abide by the law.

I suppose that you will not comment on this, but it is fairly apparent to me and to many people, that EI premiums are, more and more, simply a payroll tax and are being used for the general purposes of the government in various departments of the government.

Where will this review lead us? I wonder whether it will lead us to a situation in which we will have, in law as well as in fact, simply a payroll tax and whether we will do away with the fiction that there is an EI account and simply impose a payroll tax like any other tax to use for whatever purposes the government wishes.

Would the Auditor General, in your field of responsibility, have concerns about that and, if so, what would those concerns be?

Are there any arguments from your perspective, as opposed to from a policy perspective, against what will be recommended by the next set of witnesses at the table, that being that we have an EI fund which is at arm's length from the government? Are there serious arguments, from the Auditor General's point of view, against that?

Ms Fraser: On the consolidation of the EI account, Senator Murray, you are correct that there is no bank account per se. It is a notional account that is basically used to determine, in many ways, the experience of the EI plan and which we believe should be used in determining the rate process.

Auditors general have been consistent in the view that Employment Insurance is a government program like many other government programs. It is funded somewhat differently because there is a special rate for it, but it is a program of government. Government can change it at will. Therefore, that program should be included in the Public Accounts of Canada.

As long as it is subject to change by government, whether it is an arm's-length organization is a moot point. It would still be considered a government program, in our view. As you may have seen in some of Mr. Desautels' last reports, we are increasingly concerned about organizations and entities that are being created outside the sphere of the central government, on which there is very little information or accountability to Parliament.

Our concerns about some other organization being created are with regard to accountability. As long as the government can set rates and determine benefits, it is a government program and those amounts should be included in the Public Accounts of Canada.

I cannot really comment on where the review will lead us. If it should become a tax, as you have hypothesized, it would be a revenue in the Public Accounts of Canada, the expenses would be paid out and I presume that there would be no more tracking of an EI account - but we would have to see.

Obviously, this is a suspension for two years. If the law is not changed, we will go back to the way it currently is with an EI account and a rate-setting process, as is described in the current legislation.

Senator Murray: Is the tracking element important, from the Auditor General's perspective?

Ms Fraser: It is important when we refer to the text regarding the establishment of the rate and when we say the rate should ensure sufficient revenue over a period of time. That is the issue we have.

Senator Murray: In effect, you are quoting the law. I wish to know, from an auditor general's point of view, given the way the money is raised for the supposed purpose of the EI program, is it important to have a law, which provides for tracking and all of rest of it, with the criteria set out? Would you advise against bringing in a law that would do away with that?

Ms Fraser: I would not be concerned if there were not an account, if, on the other hand, there were clear definitions as to how the rates were to be established, with some kind of benchmarking or reference points as to how rates are established.

Senator Murray: Does that exist for any other tax? I am obviously being the devil's advocate - and I do mean the devil, the Department of Finance. There is no such criteria for any other tax that is imposed by the government.

Ms Fraser: Your are right.

Senator Murray: Why would it be important for a payroll tax at this time?

Ms Fraser: I do not have an answer to that.

Senator Murray: That depends on several hypotheses that I put forward.

Are you concerned about the purposes for which the fund is used by the government? It has grown from a simple insurance fund to cover all kinds of government programs. There is almost $1 billion that goes to transfers to the provinces. Perhaps the figure is less than that. Anyway, much of the money in that fund goes to transfers to the provinces for various HRDC programs. All these changes have been made by legislation. Parliament has decided. Does it not concern you, in view of the way that the money is raised and the ostensible purpose for which it is raised, that Parliament - let us not blame governments - has decided to use the fund for other purposes? Is that a concern of the Auditor General?

Ms Fraser: I have two responses to that. First, in the actual tracking of the EI account, only certain expenses, which are specified in the act, can be charged to that account. Expenses that have absolutely nothing to do with employment insurance programs cannot go to that account, so expenses seen in the financial statement of the EI account per se are those that are directly related to that account.

If you apply the theory that the rates would be set so that over time it would balance out, there would be no issue because the revenues over time would equal those expenses that have been deemed appropriate for that account.

Senator Murray: Who decides what is appropriate?

Ms Fraser: It is specified in the legislation.

Senator Murray: Yes. In other words, you are giving me the answer I suggested right off the top. The legislation has decided. The fact is, when it comes to designing the programs under the legislation, you will find that the EI fund is being used to finance most of the labour market training and development programs of the federal government. Money is being transferred to the provinces for this purpose - to benefit people who are not eligible for EI at all.

Ms Fraser: As the good senator can appreciate, we cannot comment on policy.

Senator Murray: We will leave it at that for the moment.

The Chairman: I wish to follow up on two points made by Senator Murray.

Even though you cannot comment on policy, once the document is made public in the fall that deals with options to the review process, would you have any reluctance to appear before a committee like this to give your views on the options in the paper?

Ms Fraser: None at all.

The Chairman: We have no disagreement on the issue of the size of the surplus.

With regard to breaking even over the business cycle, there are two ways to do that.One is to require that, over the business cycle effectively, the net balance should be zero. Another way of doing the same thing would be to say that under no circumstances should the fund ever have a deficit. In other words, this is more than breaking even. The fund should never be in arrears.

Either of those methods could be called balancing the fund over the business cycle. Do you have a view on which of those is the appropriate measure for balancing it over the business cycle?

Ms Fraser: No, I do not.

The Chairman: Do you understand my distinction?

Ms Fraser: Yes. I would refer the committee to the Chief Actuary's Report, which indicated a balance of $10 billion to $15 billion immediately before a recession. That would be the latter case that you mentioned, that it could never go into a deficit.

The Chairman: That is the classic actuarial position on many other insurance issues.

Ms Fraser: It would almost be the worst-case scenario. He is recommending a balance of $10 billion to $15 billion.

The Chairman: I was simply trying to understand the definition you were using. Chief actuaries of insurance companies do not take breaking even as being zero. They take breaking even to mean that in the worst-case scenario you never actually go below zero. Is that a reasonable interpretation? Do you mean the same thing?

Ms Fraser: Yes. I think, Mr. Chairman, that is the most prudent position to take. Going into a downturn, you would not want to go negative.

Senator Graham: You made reference to the Chief Actuary's estimation of $10 billion to $15 billion that would be necessary in the reserve. The reserve now stands at an estimated $35 billion. Does the Auditor General have an amount in mind that would provide an adequate comfort zone for the government of the day?

Ms Fraser: We do not have an amount in mind. We are asking that the process used to establish the rates indicate how those rates were established. The Chief Actuary is recommending $10 billion to $15 billion. There could be other factors that are being considered such that the greater reserve is necessary but we have not received an explanation of that.

Senator Graham: In effect, you would not be in a position to say that the current $35 billion reserve would be excessive?

Ms Fraser: I can only comment that we have not received sufficient explanation to justify $35 billion, nor the establishment of the rates as they currently are. We, therefore, are not able to conclude that the rate-setting process meets the legislation, as it currently stands.

Senator Graham: In your opinion, does the reserve represent a legal liability on the part of the government to EI contributors?

Ms Fraser: No, it does not.

Senator Robertson: I have a statement. I do not expect you to answer it now. I will make it anyway.

I am learning some interesting things. If we are moving in the direction that I understand, why call it Employment Insurance if your policies are moving to a tax on the employed and those who employ? We had better change the name and let the public know. It is unclear where we are going.

The Chairman: I think calling it a tax was introduced by Senator Murray, partly tongue in cheek. Nevertheless, I think it is fair to say that the government witnesses did not call it a tax.

Senator Robertson: I do not expect you to respond to that. I will think more about this.

The Chairman: There are no further questions. Thank you for coming, Ms Fraser, and thank you to your staff.

Our final sets of witnesses are from the Canadian Labour Congress and from the Canadian Restaurant and Foodservices Association. From the Canadian Restaurant and Foodservices Association we have Joyce Reynolds, the Senior Director of Governmental Affairs and Mike Ferrabee, who is Vice-President of the Governmental Affairs. From the Canadian Labour Congress we have Kevin Hayes, who is the Senior Economist and Nancy Riche, Secretary Treasurer.

I will begin with the witnesses from the Canadian Restaurant and Foodservices Association.

I recall lengthy conversations with your organization when we were attempting to deal with the harmonized sales tax issue in the Atlantic region. The committee was instrumental in solving a problem that you raised.

Mr. Mike Ferrabee, Vice-President, Governmental Affairs, Canadian Restaurant and Foodservices Association: Mr. Chairman, I would like to acknowledge the wonderful work that this committee did when we dealt with the issue of tax-included pricing in Atlantic Canada.

The Chairman: It was actually the Banking Committee.

Mr. Ferrabee: My apologies, you are right, it was the Banking Committee.

Honourable senators, our industry represents 15,500 members who control 46,500 outlets across Canada. Most important, in the context of Bill C-2, our industry employs almost 1 million Canadians, or approximately 6.5 per cent of all employees in Canada. A disproportionate percentage of our workforce is young people, women and first-time entrants into the labour force. Our industry pays $535 million annually into the program. As employers, we pay 60 per cent of the costs of the EI program.

I am sure you can well imagine that, as an industry that is dominated by small businesses, we have strong opinions on the existing EI program and views on how it should be reformed. We believe it is in desperate need of reform but that is not my focus today. We have come here today to draw your attention to one simple clause - seemingly innocuous in some people's minds - in the bill. However, we believe the clause is profoundly anti-democratic and, I would maintain, dangerous.

I think you all know, as legislators, that we, in Canada, have the greatest concentration of power at the executive level of any democracy in the Western world. Clause 9 of the bill suggests that this executive control be further enhanced by having the rates set for the next two years by Order in Council. This clause will allow the government to completely bypass the EI Commission.

You must ask yourself why the government would suggest this. We ask whether the EI account perhaps is in deficit. That would perhaps be an understandable reason. I think we all know that that is hardly the case. There is a $35 billion surplus in the EI account so, clearly, it is not an issue of the fund being in deficit. Are the country's finances perhaps in jeopardy? We all know the answer to that: Of course not. They, as well, are in a surplus. As far as I am concerned, it is simply a power grab by the executive.

Where there once was a consultative committee that examined and recommended a rate, there will now be one more decision made behind closed doors. This committee should send a message back to the executive that consultation and democracy are important, that the executive already decides most things and that it should take its mitts off this decision making.

This committee should further recommend that an arm's-length commission should be set up to ensure the grabbing hands of the executive do not, over time, whittle away at the right of those who pay for the program to have input into the EI rate.

I will turn to Joyce Reynolds now.

Ms Joyce Reynolds, Senior Director of Governmental Affairs, Canadian Restaurant and Foodservices Association:As Mr. Ferrabee mentioned, our purpose for appearing here today is to convey our concerns about the diversion of EI premiums to purposes unrelated to employment insurance and to appeal to honourable senators to omit clause 9 of the bill, which strips the EI commission of its rate-setting powers.

There was not a single witness in the other place who supported this section of the bill and almost every single group that appeared expressed its adamant opposition. Business and labour are united in denouncing the government's plan to shut employers and employees completely out of the premium rate-setting process.

All four opposition parties have attacked this undemocratic and gratuitous provision, which will allow the government to overcharge premium payers indefinitely and, even worse, allow the government to confiscate the money currently owed to premium payers.

We do not agree with labour on the need to eliminate the intensity rule and reduce clawbacks for high income seasonal workers. This will help relatively well-off Canadians who work only part of the year and hurt low-income Canadians in our industry who work year round.

We are in agreement with the IMF assessment of Bill C-2 and its call for new measures to enhance labour market flexibility and to lower structural unemployment. It is our hope that this committee will recognize the need for a thorough study of the EI program and that your efforts will lead to a serious re-examination of the program.

We believe there is not much that can be done at this point to prevent reversals to the 1996 legislative changes contained in Bill C-2 from being passed. We therefore will focus our time today on the provision that all premium payers to this insurance program agree must go, which is clause 9. We believe this is the area where the Senate, which does have the opportunity to provide sober second thought, can make the most difference.

The Canadian Restaurant and Foodservices Association, CRFA, is also asking the Senate committee to support CFRA's proposal for the introduction to the EI program of a yearly basic exemption, YBE.. Bill C-2 focuses exclusively on the benefit side of the Employment Insurance program and fails to address the cost side. The 1996 legislation added huge costs for entry level employers in labour-intensive businesses such as food service. A YBE within the EI program will make this payroll tax less regressive and less punishing to labour-intensive businesses and low-income Canadians.

As everyone knows, employment insurance was established as an insurance program and the premiums supporting this program are now paid exclusively by employers and employees. Until 1990 the federal government contributed up to 20 per cent of EI receipts to defray the costs of regionally extended benefits and benefits for self-employed fishermen. Now not only do employers and employees bear all the costs but more than 40 per cent of their premium payments are being used by government for programs which have no relationship whatsoever to employment insurance. There is approximately $35 billion currently sitting in the EI account. This will increase to $39 billion by year end - and that is using the most conservative estimates of the unemployment rate.

The government has indicated its motivation for stripping the commission of its rate-setting powers is to establish a new rate-setting process on a moving forward basis. This moving forward basis means that rates would be set without taking into consideration the cumulative surplus in the EI account or the interest owing to the EI account. This would simply wipe out a $39 billion moral obligation to the employers and employees of this country. That is unconscionable.

This would be like a bank confiscating my savings. Sure, I know that the bank account is only a notional account and that money that I deposit to the bank is used for other purposes but there still is legislation protecting my investment, just as there is legislation protecting the investment of EI premium payers.

According to the Auditor General:

The Act stipulates that all premiums must be credited to the Employment Insurance Account and the Account may be used to pay benefits and cover support measures and administration costs. It would, therefore, not be legal to use the premiums or make payments from the Account for purposes other than those described in...the...Act.

Government has got around this legal obligation by maintaining a bookkeeping entry but irresponsibly amassing close to $40 billion in this notional account. Now that the reserve has reached an embarrassingly high amount and there is no hope of government being able to pay it back, it is trying to change the rules.

Some members of Parliament tried to justify this approach as a result of the integration of the Employment Insurance account in 1986 with the Consolidated Revenue Account. They say that the government has taken responsibility for the EI account in 10 of the last 18 years, implying that the EI account benefits from interest payments when it is in surplus but is bailed out by government when it is in deficit. In reality, the opposite is true.

Figure 2, on page 7 of our submission, shows the years that the account was in deficit. Those deficits were all paid back with interest. However, now that the EI account is in surplus, the government is proposing to set premium rates without taking into account the interest owing premium stakeholders. Using the bank analogy again, this would be like my bank saying to me that it was justified in confiscating my savings account and the interest it owed me because of a bank loan that I took out a decade earlier which I had paid back in full with interest.

By stripping the EI commission of its rate-setting powers, Bill C-2 gets rid of the limited accountability left in the EI program. The parliamentary process and these hearings are about accountability and integrity. There is an opportunity for the Senate to stand up for these important principles. We are appealing to you, as parliamentarians, to stop what will amount to the theft of EI premiums which have been paid in good faith by millions of working Canadians and their employers.

CRFA was asked in 1994 for feedback on a counter cyclical approach to premium rate setting. We agreed it made sense but said we could not support it unless there was a statutory guarantee that the surplus would be accumulated as a cushion for an economic downturn only. We said that surpluses have become too irresistible for governments and they have been commandeered for other initiatives.

It appears, seven years later, that our fears were well founded. That is why we appeal to you today, as guardians of the public trust, to have EI re-established as a truly stand-alone account, operated at arm's length from government, so that it is responsible to the needs and concerns of premium payers.

If government insists on viewing Employment Insurance as just another tax, then government must stop pretending it is employment insurance and make it a more progressive tax. Bill C-2 simply accelerates a disturbing trend whereby the tax burden is shifted from companies that earn income to companies that employ people. The payroll tax burden in Canada has been growing four times faster than in other G7 countries and Canada's payroll tax growth rate was third highest of 25 OECD countries between 1980 and 1996.

Payroll taxes punish labour intensive companies and lower income workers. They have a particularly negative effect on the food service industry, where a large proportion of employees are young and the tax rate, compared to their wages, is disproportionately high. This creates a disincentive to the hiring of young, inexperienced workers. As a result, young people suffer the greatest job losses when payroll taxes increase.

Minister Martin acknowledged this in 1994 when he said:

We believe there is nothing more ludicrous than a tax on hiring. That's what high payroll taxes are. They have grown dramatically over time. They affect lower wage earners much more than those at the high end.

This statement is even truer today as the payroll tax burden has continued to grow. The 1996 legislation heaped more costs on entry level workers and their employers by eliminating the 15-hour week EI exemption. In recognition of this additional payroll tax burden, government legislated an EI rebate for employees earning less than $2,000 per year and introduced the New Hires program and then the Youth Hires program for employers. The rebate does not help employees earning $2,500 or $3,000 or $7,000 who still pay a disproportionate amount of their income to EI compared to higher income earners. Both the New Hires and the Youth Hires programs have expired, although the problem they were designed to address has grown.

A yearly basic exemption is incorporated into the Canada and the Quebec Pension Plans whereby the first $3,500 of earnings is not subject to CPP/QPP premiums. CRFA proposes the establishment of a $2,000 yearly basic exemption on EI premiums to make this program more progressive as well. A yearly basic exemption would be the simplest and most efficient way for government to target permanent EI premium relief to labour-intensive businesses and the companies hardest hit by profit-insensitive payroll taxes. It would be easy for employers and employees to administer because the precedent already exists within the CPP and the QPP. The costs, advantages, and ease of administration are outlined in our brief.

Again, we appreciate the opportunity to appear before you today. We urge the committee to restore integrity and accountability to the EI system by removing clause 9 from the bill and, instead, recommending that EI be restored to a stand-alone account administered at arm's length from government.

We trust that you will consider making the EI payroll tax burden less regressive by recommending the establishment of a yearly basic exemption. This will boost take-home pay and job opportunities for low income Canadians.

Ms Nancy Riche, Secretary-Treasurer, Canadian Labour Congress: Honourable senators, we support the bill, for the most part, because of a couple of things in it but having listened to the preceding brief I am almost ready to ask you to vote against it. Although I did not agree with that presentation totally, there were certainly some good points in it.

The Canadian Labour Congress is the national voice of organized labour in Canada. We represent and speak on behalf of about 2.3 million Canadian workers and their families.

We are pleased to present to you today. We have spent much time over the years on legislative changes to EI legislation, when sometimes our only hope was the Senate. I do not think we ever succeeded in anything more than delaying some of the bad things that have happened.

Bill C-2 is very disappointing legislation. We were adamantly opposed to the bill in 1996 and the few changes that are being introduced here are not enough. The bill contains some provisions that we support, some that we oppose and some that we would like to have amended.

This legislation does not go far enough to satisfy the obvious need to modernize Employment Insurance. Canadians want a modern EI program that deals with the realities they face in today's working world. They want a program that deals with the evolution in working time and distribution of work. They need a program that provides a better balance between work and family responsibilities. They need a program that encourages workplace training and education. They want a program that is honest with the money they pay into it and that returns money to workers and their communities when they need it.

This legislation represents a very small step toward that goal - too small a step to make a real difference to today's working families and those who look to this program for help. That is why we are disappointed.

I will start with what we support in the bill. We, unlike the previous presenters, fully support elimination of the intensity rule and elimination of clawback penalties. Indeed, these are changes that we have being calling on members of Parliament to make for quite some time. Bill C-2 removes four of the most unjust penalties in the program. Two of these penalties were brought in with the 1996 Employment Insurance Act - the intensity rule and a penalty on claimants who previously received more than 20 weeks of benefits and who earned incomes over $39,000. These odious measures were added to punish repeat offenders - workers in seasonal industries who are repeatedly laid off and claim insurance protection when their source of employment goes into hibernation. They targeted people who work in the most vital sectors of our economy: tourism, construction, automotive, education, transportation, government services, forestry and the fishery.

The intensity rule hit 500,000 million claimants a year. Tens of thousands of workers have had their rate cut to 50 per cent of weekly earnings. For workers who had their benefits taxed back under the seasonal clawback penalty, the losses have been in the thousands of dollars.

Bill C-2 also changes other clawback penalties that were introduced in the mid-seventies and made even more punitive in 1996 by lowering the income threshold for benefit taxbacks. Most of the dollars clawed back come from claimants in Ontario, Alberta, British Columbia and Quebec. We believe all clawbacks should be eliminated.

The government itself acknowledged that clawbacks apply to pregnancy claimants. Parental and sickness benefits make no sense. We are pleased to see these clawbacks removed and an exemption allowed for first-time claimants but we argue that taxing back benefits from claimants due to layoffs makes no sense either. We recommend to this committee that the exemption from the 30 per cent tax-back on specific benefits be extended to regular claimants.

Regardless of a worker's income, layoff is not a factor within his or her control. That is really important. We have had an incredible public relations campaign against unemployment insurance recipients for a number of years in this country. These people were called "repeat offenders." To pay into a trust program and then be called an offender when you receive the money was something that was planned for a long time before the Liberals came into government.

Claimants with above-average earnings already get a smaller portion of their earnings covered because of maximum benefits. They pay a large portion of their benefits back in taxes because of the progressive income tax system.

We would like to point out to the committee what Bill C-2 does not do. It does not make it easier for workers in seasonal industries to qualify for benefits. It does very little to reverse eligibility rules that currently disqualify almost 1 million unemployed workers per year from regular insurance - 1 million unemployed workers who would have been covered and eligible for insurance under the rules that were in place during the last recession. It does nothing to address the disproportionate numbers of women, youth and older workers who find themselves cut off from coverage, in spite of the claims. Bill C-2 does precious little for most people starting families.

Up to 100,000 women still will not qualify for pregnancy and parental leave benefits after the bill becomes law. Eighty per cent of women between the ages of 25 and 44 are members of this country's paid workforce. Less than half who have new babies have EI benefits.

Bill C-2 also does nothing for the 600,000 unemployed workers who are not eligible for coverage in spite of years of work and years of premiums paid into the EI program. Many are older workers. It takes them longer to find a job because of family responsibilities, housing, community connections and age discrimination. In our view, workers who have been working and paying premiums for years should not be treated as new entrants to the labour force. It is arbitrary and it is unfair.

More and more of the workforce and those preparing to enter the workforce are engaged in lengthy education and training. Curiously, Bill C-2 ignores this reality. It offers little protection against job loss to workers who are under increasing demands to invest time and money in so-called lifelong learning.

Another major campaign over the last number of years has been telling Canadian citizens about how much high-tech training and lifelong learning they need. Again, we penalize the person who tries to do that.

Finally, this legislation fails to acknowledge the explosive growth in non-standard forms of work: part-time work, temporary contracts, on-call schedules and self-employment. While nearly half of Canadians work under these conditions, Bill C-2 leaves untouched many rules, definitions and standards that favour workers who have a full-time, permanent, year-round job.

We ask the committee to recommend abolishing the 910-hour re-entrant requirement. Such a move would allow thousands more unemployed workers who have been out of the workforce for a year or more to qualify for insurance. We are also asking the committee to recommend that the variable entrance formula of 420 to 700 hours be replaced with a uniform, national entrance requirement of 360 hours with a longer benefit period. We do know for sure that the government cannot say it cannot afford this any longer. EI belongs to workers.On this we passionately agree with the previous presenter.

Part of this presentation deals with the massive $36 billion so-called surplus that has built up in the Employment Insurance Fund. Let's get this straight right from the start. It is not a surplus. It is an accumulation of unpaid benefits. These are benefits for which workers and employers have paid their premiums.

We are opposed to the provisions in Bill C-2 that would transfer the power to set premiums for 2002 to 2003 from the Canada Employment Insurance Commission to the Minister of Finance, not to say that he has not been doing it for the last number of years. We do all understand that too.

We recommend that the Canada Employment Insurance Commission keep its power to set premiums. We are opposed to provisions that allow the government to take over $7 billion a year from the unemployed as a source of revenue. We recommend that provisions be made in the bill to secure the integrity of the fund for unemployment insurance.

Employment insurance is insurance, not a fiscal policy tool. It is a vital part of the country's social safety net and it belongs to the workers and employers who pay premiums. The money collected toward the payment of EI benefits should be held in trust. It should not be handed over to the government without credit. Today, more insurance money goes to government revenue than to laid-off workers receiving regular benefits.

The interest on the cumulative so-called surplus of $36 billion is now greater than what the program pays out in pregnancy and parental benefits. We ask the committee to recommend adding provisions to Bill C-2 to give the Canada Employment Insurance Commission greater authority and autonomy and to create an arm's-length employment insurance trust fund.

The current glut of unpaid benefits should be returned to workers and their communities. It should be used to insure workers against a total loss of earnings when they lose their jobs. It should be used to increase insurance coverage from 37 per cent to at least 70 per cent of the unemployed.

In closing, we want to thank the Senate for hearing the Canadian Labour Congress. as we said at the start of this presentation, the bill is a disappointment. It was offered as redress for the odious measures introduced in 1996 but it barely scratches the surface - not to mention the number of Liberals defeated in Atlantic Canada. That is okay. I actually support that. The citizens spoke and the government attempted to act.

Canadians want and need an employment insurance program that offers security when they are out of work. They need a modernized program that supports training and makes lifelong learning accessible to working families. They need a program they can count on to help them when they need it.

I would like to make a couple of more points. Attached to our brief are our suggestions for modernizing EI. We really do believe it is time to look at reform of unemployment insurance in view of the changing workforce. We will see this kind of workplace for a long time.

I suspect that many of you know the Lesiuk case in Winnipeg. The umpire in this case said that this woman did not receive benefits because she was 33 hours short of 700 hours and that she was entitled to be paid for her the benefits based on the legislation that was in place prior to 1996.

The latest rumour is that the government will appeal that case. Their deadline would be sometime this week. They had 30 days from the date of the ruling.

I would urge the Senate committee to look into that. It is very pertinent to Bill C-2. It is the provisions in the bill that the government did not change this time that the umpire is asking the government to consider.

That is our presentation. Mr. Hodgins is prepared to answer any questions. I am the reader.

Senator LeBreton: Mr. Ferrabee and Ms Reynolds, when you talk about labour intensity and low incomes, you specifically mentioned young people. Within your population of workers, what percentage would be women?

Ms Reynolds: I do not know exactly but women would be somewhere between 60 and 65 per cent of our workforce.

Senator LeBreton: We have the added problem of not only young people breaking into the labour force but also, of women who are in lower income brackets, often single mothers, or those who contribute very much to a two-income household. I think this is worth noting. I would appreciate any comments you have with regard to women, particularly, as to the impact this has on their economic viability, their families and also their communities.

Ms Reynolds: Certainly there are many working women in our sector. Many of them try to balance home responsibilities with part-time work in our industry. They are now required to pay into the program even though their opportunities to ever collect from the program are extremely limited. Prior to 1996 those who worked under 15 hours a week were not required to pay into the program.

The other group that is penalized as a result of the 1996 legislation is students. We appeared before this committee in 1996 and suggested that one of the alternatives to the 15-hour week exemption was a student exemption. There was a fair amount of support for that. One of the difficulties was how to administer that type of program.

We think that the yearly basic exemption provides the best alternative to help both students and women who are working part time, whose incomes are much lower but who are paying a higher percentage of their incomes into the EI program.

Ms Riche: We would disagree. When the figure was 15 hours a week, we were one of the groups pushing for the first hour coverage that was broadly touted by Mr. Axworthy when he brought in his changes. With not being eligible under 15 hours a week, our sense was and the research showed a number of people being hired for 14 hours a week as long as there was a limit.

With regard to women, I would think the percentage of women would be much higher in the retail and service sector. Approximately 70 per cent of part-time workers are women.

The solution is not to exempt but to make it easier for people to qualify for the benefits, as was supposedly the principle in the beginning. Our recommendation is 360 hours and provision of decent benefits.

I would assume that when your group is asking for exemption for the worker, you are also asking for exemption for the employer. The Canadian Federation of Independent Business, CFIB, was pushing the same line so the government exempted it, expecting that would create more jobs. That did not happen. We contend that with first hour coverage everyone qualifies and everyone benefits. The idea is to make them eligible and not kick them out of the program.

Senator LeBreton: The payroll tax is a tax they pay for which they get no benefit. Are you are referring to that?

Ms Riche: It is interesting that it was called a payroll tax. It was always a premium but it has become a tax now. That is a language thing.

In regard to the intensity rule being lifted under this bill, I am told by one woman in Newfoundland that would give her $27 more a week, which would make it easier for her to pay her electric bill. We cannot not support some of the changes here because they do make a big difference.

We simply need a few more changes so that people can get back what they pay. Of course many people do not pay in what they get back. I have never had a major car accident but someone is benefiting from the insurance that I pay when they have accidents. That is the way it works.

Senator LeBreton: That is a true insurance program.

Mr. Ferrabee: We are in total agreement with setting up a true insurance program.

Senator LeBreton: In your presentation, Ms Reynolds, you strongly urged the removable of clause 9. I must admit that my reaction was: Have we not turned over enough to the Minister of Finance without turning over the right to set premiums? Is removing that clause something that the Canadian Labour Congress supports, as well?

Ms Riche: Absolutely. We are very much in agreement on the arm's-length commission. In previous years, we all received letters noting that the premiums were about to be changed and asking for our recommendations. We each have a representative on the commission. There is a worker's commissioner and an employer's commissioner. We think that is too few. However, we are in total agreement with removing clause 9.

Senator Murray: Ms Riche, the reason some of us are calling this a payroll tax is precisely the reason you have identified in your brief, that the money is being used for the general purposes of the government. What else would you call it but a tax?

Ms Riche: It was called a tax before that. Perhaps they did that first and then used it.

Senator Murray: Mr. Hayes was here when the minister testified. He would have heard her make no real commitment as to what course of action the government will take with regard to the tribunal in Winnipeg.

The news reports indicate that there are 60 other cases lined up and waiting to see what will happen. Her options are to appeal to the federal appeal court or change the law. Do you know of any other options?

Ms Richee: The decision on case, which is on appeal at present, could actually agree with the umpire and say these benefits will be paid based on the previous legislation, which is bizarre. That was the original decision.

Senator Murray: She seemed to think, although I could not get her to say, that there would be provisions in Bill C-2 that might go some distance to satisfying the tribunal.

Ms Riche: I suspect she would be talking about the decrease from 700 hours to 600 hours.

Mr. Kevin Hayes, Senior Economist, Canadian Labour Congress: The 600 hours was reduced last spring in the budget implementation bill. The Lesiuk issue before the tribunal involved regular benefits and the 700-hour figure. There is nothing in this bill that affects that situation.

Senator Murray: You were also here, Mr. Hayes, when I asked the minister about the number that I gleaned from some of CLC's documents - that were eluded to by Ms Riche earlier - that only 37 per cent of unemployed people in the country are actually receiving benefits.

The minister countered that the more relevant statistic is the percentage of people in paid employment. You heard what she had to say.I want to give you an opportunity, for the record, to defend your position.

Mr. Hayes: I came in late so I did not hear her say that.

Our numbers are based essentially on dividing the number of beneficiaries who receive regular benefits by the monthly unemployment level. The number of regular beneficiaries that we count are those who do not get earnings while on claim. When Statistics Canada does the labour force survey every month it counts as employed those who earn as much as a dollar. Our numbers are simply that ratio.

Senator Murray:If you use the minister=s statistical basis, her view is that the percentage is up to 88 per cent of those in paid employment.

Mr. Hayes: I saw the study that came out a couple of years ago. It was a very convoluted argument and it was essentially those eligible - eligible meaning those who are eligible under the rules, even in the past and the present. What we are questioning is the eligibility.

Senator Murray: We will leave it at that.

On the business of an arm's-length EI account, witnesses from both the restaurant association and the CLC seem to be in agreement. The Auditor General has expressed an opinion that, from its perspective, as long as the government is raising the money it is a government program, and arm's length does not mean anything.. The Auditor General holds the government responsible.

If you are to have an arm's-length fund with the government out of it, who will design the programs? What will be the role of the government? Who will pay the deficit, if any?

Ms Riche: We have always said it should be an arm's length organization that reports to Parliament. We have never said that it should be off by itself. We have said that it would be accountable to Parliament. We would expand the size of the commission so that it has all the stakeholders, including government. We believe, as we have always believed, that government is a stakeholder. It is bigger than the unemployed workers now because it is getting more money. We never believed it should be excluded.

The system that we had where the government actually put money, in addition to the premiums, into the fund for the regions of the country that had high unemployment rates and for fishery benefits over the years was a good practice. As Ms Reynolds said, we did pay back all of the deficit from the government payment when the unemployment rate was high and it had contribute. That was paid back. We have never imagined the government being out of the picture. We are opposed to Minister of Finance taking the workers and employers out of the picture.

Senator Murray: What would the arm's-length commission report to Parliament about?

Mr. Reynolds: We would see it established somewhat the same as the Canada Pension Plan. We would like to see a separate fund, quite frankly. I understand the fears of the Auditor General about the program going into deficit but we are looking now at close to a $40 billion surplus in the account. There are guidelines that could be established so that the program did not go into deficit but was still a separate fund.

Ms Riche: You asked what the arm's-length commission would do. We would certainly start with modernizing the program. Nothing that has happened over the last number of years has considered where the workforce is going, what we will face in the next 10, 20, 30 years or what an EI program will do for people. That would help establish the premiums.

Prior to 1996 there was a business reference group, as it was called, that worked with HRDC when legislative changes were considered. Changes were effected almost as the business reference group recommended. We asked for but never have received equal treatment.

I have worked on a number of worker-employer bodies and they quite often agree and they can quite often work together. On, what used to be the Canadian Labour Market Productivity Centre, the Canadian Labour and Business Centre we quite often agree on the big issues. Currently the chair of the commission is the deputy minister at HRDC. I do not know why we could not work out the premiums together, work out the changes, recommend legislative changes on EI, as opposed to how it works now in HRDC, top down - from bureaucrats, quite frankly.

Senator Murray: I have not read all your brief but I heard what you said and I did read your testimony at the House of Commons committee. You were one of the few, if not the only witness, who addressed yourself to the longer term changes in the labour force and so on. Still, you say that it is wrong for the government to be using $7 billion a year from the unemployed as a source of revenue. I agree with that but then somewhere you are talk about other uses to which the fund could be put, such as workplace training and that kind of thing. If you get into things like that it is an open invitation to the government to use of the funds for other things.

Ms Riche: No. It is a big difference to provide EI benefits for someone to receive training to get another job. We equate that with job search. You need things to search for a job. Sometimes that is skills. That is somewhat different from Paul Martin, the Minister of Finance, paying off the deficit. He said, in writing, to a mayor in Saskatchewan, that we could not do anything else with EI because we needed the money to pay down our deficit. That is totally different from helping a worker get retrained.

We have accepted, even though we must continue to fight, that maternity parental is an interruption in earnings. I am sure my colleagues would disagree with this. This is where we get into insurance and social insurance. We have already accepted that there are certain things under an unemployment insurance program that are an acceptable use of the trust fund. However, there are things, like paying off the deficit, that are not.

We talk about $36 billion but I do not know if we figured out the interest owed. That amount still appears as a loan on the books.

Senator Murray: Do you think premiums should be reduced?

Ms Riche: That is always a problem for us. We wrestle with that every year. Sometimes they need to be reduced. Sometimes they need to be increased. From their present level, if you base it all on how the fund is doing, you could probably reduce them to almost nothing if there is still lots of money but we do not agree with that.

Mr. Ferrabee: Absolutely. It is great that you are in agreement with us.

Ms Riche: I am not in agreement with you.

We may agree to reducing the premiums a bit. The FTQ, the federation of labour in Quebec, has agreed to decreasing the premiums. We get nervous though.

Senator Murray: I will close with one general policy question.

I know what you thought of some of the recommendations of the Forget Commission. Your people on that commission brought in a separate report. I am not so clear about your opinion on what the royal commissioner, Donald Macdonald, had to say but what about the general principle of separate income support programs outside of the Employment Insurance context for seasonal workers, fishermen, et cetera.

Ms Riche: We have had that in the past. We had the fisheries benefits program.

We are open to considering anything if we think those to whom we are talking are really listening. We are open to considering research, to modernizing the program and what that means.

Now the government's line is there are no seasonal workers, there is seasonal work. I think we told the government that it would not be a problem if we did not have seasons in this country.

All this should be open for discussion - but discussion with whom and who will be heard? One gets nervous about saying yes, that is a good idea, because next week that will be it in legislation without having had a full discussion.

I do believe employers and workers organizations can come to agreement. We have come to compromise at the end of the day. I think we should look at everything.

Mr. Ferrabee: I would not lose sight of exactly what we are doing. We agree that there should be some type of process. This is a democracy. One would hope for an opportunity for input on both sides of the equation. That is what clause 9 is about. For some inexplicable reason the Minister of Finance has decided that he does not need to consult anyone on this.

Senator Murray: I know you do not have a suspicious mind but what do you think the government is up to with this two-year suspension and handing over the responsibility to set the premiums to the Governor in Council? What is the result apt to be?

Ms Riche: I think the government wants to move the EI fund into general revenues. The balloon was floated about two years ago. It currently sits as a loan. I think it wants to move the fund into general revenues and treat it totally as a tax and do what it wants with the money. I do not think there is any big secret. The power rests totally with the Minister of Finance and supposedly, with Parliament. Of course, you were not in Quebec so you do not know much about Canadian democracy.

The Chairman: Mr. Ferrabee, were you here when the minister testified?

Mr. Ferrabee: The minister was leaving when we came into the building.

The Chairman: In, approximately, September the government intends to consult on a paper that it will put out to deal with the way in which rates ought to be set in the future. We specifically asked that document be made available to us and we asked the acting Auditor General whether she would testify about it. We are fully in agreement with the points that the CLC has made with respect to consultation. My sense, from what the minister and her officials said, is that the intention is to start that process in the fall. You may want to look at the transcripts of this meeting because she dealt with that in some detail.

Ms Reynolds: Our concern is that when the legislation was first tabled the government announced what its intentions were and that was to follow the recommendations of the finance committee to set rates on a moving forward basis. From our presentation you know that we feel there is a moral obligation for that $39 billion, by the end of this year, to be retained exclusively for the premium payers.

Mr. Ferrabee: Why would one get rid of a consultation process in order to later decide on a new consultation process?

The Chairman: I do not know. I was simply advising you of some information that we received before you came into the room.

Senator Graham: I must say that I was not happy with the legislation of 1996. Ms Riche made reference to a campaign against recipients of employment insurance across the country. She also made reference to the demise of many Liberals members in 1997, which may have been directly attributable to the changes in the legislation of 1996.

Employment Insurance, or Unemployment Insurance as it used to be called, had a rather profound effect on my political life. I was a candidate in 1958. The main plank of my platform in that great and historic constituency, that today is Pictou-Antigonish-Guysborough, was to do away with unemployment in the riding. I lost by 191 votes in the Diefenbaker sweep and the opposition railed against me. In those days we had a rally every night in the parish hall or the local schoolhouse. The opposition railed against me because I was going to do away with the unemployment - meaning Unemployment Insurance.

Senator Murray: You should have been more clear.

Senator Graham: Quite obviously, my platform lacked clarity.

I now come to the election of 1997, to which reference was made by Ms Riche. All the Liberal members in Nova Scotia were wiped out in that election and it is because they were wiped out that I got into cabinet.

Ms Reynolds: Are you saying that every cloud has a silver lining?

Senator Graham: As I emerged with the silver lining, Senator Fairbairn graciously exited, taking her cloud in tow.

Having said that, what the government does and does not do has great influence on the lives of millions of Canadians and we have a great responsibility in that respect. I am happy with the changes that have been made and I pushed rather forcefully for them.

Ms Riche, I would like your opinion on a question that I put to the acting Auditor General. Does the reserve in the EI account represent a legal liability, on the part of the federal government, to EI contributors?

Ms Riche: I think that is legislated. It has a legal liability to the premium payers.

Ms Reynolds: That is my understanding.

Ms Riche: Where else would the moneys go? This is such a simple program. You pay the money in, you get the money back. It has always been understood that the administration of the fund comes out of the fund, by law. It is for nothing other than what is decided by legislation. In 1996 it was decided that far less was covered by the fund and therefore the government earned a surplus.

Senator Graham: I thank you for your opinions, which are directly opposite to those of the acting Auditor General. In her response she said she did not think it was a legal liability, if I recall correctly what she said.

Ms Reynolds: The Auditor General said that it would therefore be illegal to use the premiums or make payments from the account for purposes other than those described in the act. That is a direct quote from the Auditor General.

I think I can help to clarify this. The words you quoted were from Mr. Desautels. In response to Senator Graham, Ms Fraser, who is the Interim Auditor General now that Mr. Desautels has retired, took a different position from what you just quoted.

Ms Riche: It would make sense to get a legal opinion on this. I do not want to say that the Interim Auditor General is wrong.

The Chairman: We should not get bogged down in this argument, which is very similar to the discussion that Ms Riche and I have had over the years about the so-called contributed surplus issue in pension plans and who owns the surplus.

Ms Riche: It is more complicated, however. When legislation actually provides for a surplus, the intent is to have a surplus to help pay off the deficit. We may never prove that, except through the letter that the minister wrote. We are talking about pretty immoral stuff here.

Ms Reynolds: Earlier we had a $5 billion or $6 billion surplus and then an $8 billion or $9 billion surplus. We were told that it was being accumulated as a rainy day fund to protect employers and employees against premium increases in case of an economic downturn. Then we reached $15 billion, which the Chief Actuary said was the maximum amount to prudently keep as a surplus. At that time, the story suddenly changed and it was no more a rainy day fund. Then it was needed to pay off the deficit and for other activities. We feel we were somewhat misled in terms of the motivation for accumulating a surplus of the size it is today.

Senator LeBreton: The chief actuary suggested that a figure of between $11 billion and $15 billion would be sufficient to cover the unemployed in a recession.

Mr. Ferrabee: That would include any circumstance.

Senator Graham: Let me address that, then. If the Chief Actuary said that the amount would be, in his judgment, $10 billion to $15 billion, do your economists have an amount in mind that would provide an adequate comfort zone for the government of the day?

Ms Reynolds: We think a $5 billion to $6 billion surplus would be sufficient. I direct you to figure 1 in the documentation. If you look at revenues and expenditures in the accumulative account in the balance, at page 4, you will see that the surplus never even reached $6 billion. The surplus almost got to $6 billion in the early 1990s, partly because the government withdrew 20 per cent of the funding for the program suddenly. Based on current circumstances, a figure of $5 billion to $6 billion would appear to be sufficient.

Mr. Hayes: The actuary spoke about a figure equal to roughly two years of regular benefit payout, which would be in the range of $7 billion a year at present, as a prudent amount. The sticky point in all of this is that in the legislation, "business cycle" was conveniently never defined. The sky is the limit, obviously.

If we are talking about a payout of regular benefits in that range, the kind of program that we want and that did exist would have more than a $7 billion a year payout. It is roughly a $7 billion surplus because the percentage of unemployed receiving EI has been cut from 74 per cent to 27 per cent.

In other words, the cut in unemployment benefits, on coverage alone, is around $7 billion. That does not include the other things that have been done - the maximum insurable level being reduced and the maximum benefits period being frozen and so forth.

Senator Murray: That was one of the factors in the turnaround. I talked about this with the minister. I did not have the numbers at the time, but it is quite remarkable, the account was in a deficit position of $5.8 billion in fiscal 1993 and by fiscal 1995 there was a surplus of $666 million. That reflects improvement in the economy, an increase in premiums and perhaps, mostly the 1994 changes.

Mr. Ferrabee: They were not in effect in fiscal 1994. Did they not go into effect in 1996?

Senator Murray: A figure of $2 billion was taken from benefits in the 1994 budget.

Mr. Ferrabee: That is right. The vast majority of that was as a result of premium increases, was it not?

Senator Murray: Perhaps so.

Ms Reynolds: One of the current concerns that we would like to register is that the counter-cyclical approach to premium setting was supposed to result in the accumulation of a rainy-day fund. If we adopt a moving-forward basis of setting premiums, employers and employees are not protected from premium increases if there is a recession. After having over-contributed for so many years, we risk having increases again if there is a recession.

Senator Murray: The minister is not bound by any criteria.

Ms Riche: Herein lies the problem. If you agree with us that the surplus is an obscenity, then what is to be done about it? Employers will call for a reduction in the premiums that may mean that down the road we will need to increase the premiums astronomically and you have us saying return the benefits to the workers.

We must be careful because to correct what the government has done on the surplus requires some discussion.

Mr. Ferrabee: Would you be opposed to returning the premiums to the workers?

Ms Riche: What do you mean? I want to return the premiums to the workers in the form of benefits. We try not to sign collective agreements that only give bonuses. We want an increase that is cumulative and goes on year after year. We need to change the system and there is money now to be able to do that.

Senator Murray: I think you agree that the premiums could be reduced.

Ms Riche: Possibly.

Senator Murray: No more than that?

Ms Riche: That could lead us down a terrible road. If we start reducing premiums based on the fact that we have a large surplus, that large surplus will not be there. If any changes are implemented, a decrease, with the repeal of the intensity in the clawback rule, could result.

Mr. Ferrabee: The premiums produce six or seven times what we need.

Ms Riche: There are some provinces in this country where less than 30 per cent are eligible.

Senator Graham: On one hand, the Canadian Restaurant and Foodservices Association believes that a $5 billion to $6 billion reserve would be sufficient. I am not clear what the CLC believes would be a sufficient amount.

Ms Riche: One must look at the programs. Now we are paying out $7 billion a year and nothing changes. If you think we should double that figure, it would be $14 billion.

However, we do not believe the present program is good enough. Obviously, the sufficient rainy-day amount we would base on the kind of program we would like to have. What we would pay out yearly would be determined by a modernized program.

Mr. Hayes: The regular benefits would probably be in the range of $10 billion or $11 billion as opposed to $7 billion.

Senator Graham: Are you speaking in terms of the present program?

Ms Riche: I am speaking in terms of a modernized program. It is not a simple answer for us because we disagree so profoundly with the current state.

Senator Graham: Under the program as it is today, do you have a figure?

Mr. Hayes: We would agree with the actuarial figure of $15 billion.

Senator Cordy: My question is for Ms Riche.

I found your presentation interesting when you spoke about modernizing employment insurance, particularly in relation to balancing work and family responsibilities. I have had that discussion on a number of occasions with friends in Nova Scotia and with co-workers in Ottawa.

When we consider young people entering the workforce, it seems, that to make a mark or to get ahead in whatever business or with whatever employer they happen to be, they must put in tremendously long hours. In the early 1980s, a very popular university degree was the degree in recreation. The theory at the time was that people were going to have so much free time that we needed many gradyates with recreation degrees to find things to do. I would love to have the use of a recreation director but none of us have time for that. Neither do young people entering the workforce. What changes could be made to create this balance, or would that be a whole other document to present?

Ms Riche: That would be a whole other document.

I would start from a different place. A national child care program would not hurt in this country. Under EI, having said many bad things about the government, I do commend it on the 52 weeks of parental leave. That was a wonderful idea. They could afford to take the time off if they had decent benefits, but the time and the principle is excellent. One of the things we would do is improve the benefits.

Many collective agreements now are allowing time off for family emergencies. For years we had unpaid leave, 10 days of unpaid leave. We may look at five days of unpaid leave for family emergencies, increasing the benefits and allowing for training and upgrading for the working family. One of the partners could go off on training and make use of the Unemployment Insurance Fund for six weeks or six months.

Mr. Hayes: We have in our brief a recommendation, which is partly dealt with in the bill, to get rid of the re-entrant rule. It is one of the most difficult qualifying requirements. It hurts women particularly. I think HRDC's own analysis shows the number of people returning to work after they have been out for an extended period. What the government is trying to redress in the bill will help only 100,000 people who happen to qualify for maternity and parental benefits. Actually, I should say that 100,000 will be left out who should be exempted as well. In other words, EI should not be based on the fact that there has been a previous claim of maternity and parental benefits. It should be based on the fact that the individual pays premiums and has children to look after. The Lesiuk case represents a good, strong analysis of the problems of the modern workforce. It typifies all the dilemmas that modern families face.

Mr. Ferrabee: In seeking the opinions of large labour organizations, large businesses and large governments, I would ask that you also take into account the real impact many of those policies have on smaller businesses and smaller operations of two or three people, as opposed to 3,000 people.

The Chairman: I thank the witnesses for coming. Your testimony has been entertaining and very instructive.

In light of the discussion that was held about the rate-setting process document that will be tabled, would it be useful for me to write a letter to the Minister of Finance, with a copy to the Minister of HRDC, making it clear that once that document is made public in the fall we intend to insert ourselves into the consultation process by being one of the groups with whom they consult? That would seem an obvious thing for us to do rather than wait for the government to get all the way through a consultation exercise, make a report and then we have to deal with a finished government position. The way to do that is for me to write the Minister of Finance on behalf of the committee, with a copy to the Minister of Human Resources Development.

Hon. Senators: Agreed.

The Chairman: I will do that, then.

The second question deals with the bill itself. I have circulated a one-page draft of observations, on which I would like your comments.

Senator Murray: I read through the draft quickly. My first comment is that I have not had enough opportunity to caucus with my Tory colleagues.

The Chairman: No one on my side has seen it either.

Senator Murray: I have not had an opportunity to consult. Anything I say may be overruled by the majority.

Second, if it is decided to go ahead and report the bill without amendment, I say for the record that this in no way precludes our right to present amendments at third reading.

The Chairman: I understand that.

Senator Murray: Third, as to the substance of the report, some senators may have other ideas. I would like to make a couple of changes to the final paragraph. I suggest to you that my logic is inescapable here. "Many members of the committee believe..." Many members of the committee? Why can we not say "The committee believes..."?

The Chairman: Fine.

Senator Murray: "The committee believes that the size of the reserve" - and there I would put a dash - "and, it follows, the level of premiums - are excessive in terms of what is required to satisfy the intent of the act."We cannot say that the surplus is too high unless we agree with the level of premiums.

The Chairman: The logic of that is inescapable.

Senator Murray: I would also extract the quotation from the Interim Auditor General to reinforce that paragraph. She made the same point made by Mr. Desautels that she would find it difficult to conclude that the intent of the law is being respected - or whatever it was she said.

Those are my only comments.

Senator LeBreton: Were we not going to comment on clause 9? I know we will not change the bill but is it possible in our narrative to say something about giving this responsibility to the Minister of Finance?.

The Chairman: The witnesses expressed considerable concern in that regard. We can add a paragraph which does that.

Let me suggest a procedure. In a moment we will need a motion to report the bill without amendment. I would like to have the authority to rewrite the comments but to clear them either with Senator Murray or with Senator LeBreton. I will have the report rewritten tonight. If that makes sense, the intent would be to report the bill tomorrow without amendment but with observations that we have agreed upon.

Senator LeBreton: I move that we report the bill without amendment but with observations.

Senator Cordy: I second the motion.

The Chairman: Is it agreed, honourable senators?

Hon. Senators: Agreed.

Senator Murray: Third reading would be next week.

The Chairman: Third reading could not be done tomorrow. Just as I received no indication that the Senate would not rise at 3:30 today, I have had no indication that the government would require leave tomorrow. I am assuming leave would not be granted. It would be foolish to move third reading tomorrow. I presume that third reading would be next week. If amendments are desired, none of this discussion precludes the notion that you might very well do that.

Senators, we do not meet tomorrow morning. We meet twice next week on the health issue.

I would like to ask the clerk if we can, as a matter of process, automatically every Tuesday introduce a motion that allows us to sit at 3:30 on Wednesdays?

Senator Fairbairn: We were told that it would happen and then it does not and we got stuck today.

Senator Murray: This particular committee, of which I am not normally a member, has a very heavy workload. I sympathize with you. Either you get up in the chamber every Wednesday or Tuesday and ask for permission to sit while the Senate is sitting, or a gentleman's understanding is struck, a house order that, come hell or high water, the Senate will rise at 3:30 p.m. on Wednesdays.

The Chairman: I am happy to rise in the Senate every Tuesday and make a motion. The other option, which would be much more simple, would be a house order.

The is the second week in a row where we have been embarrassed by having to hang around and wait for the Senate to adjourn before we commence our meeting. We have a bigger workload on Wednesdays, so it is often a bigger problem for us. I am embarrassed by what happened today.

Senator LeBreton: We have ministers appearing before the committee and people who have travelled across the country to be with us.

Senator Graham: I have an observation to make. Perhaps we should have discussions with the leadership on both sides of the chamber. Somehow we have fallen off the rails with respect to the understanding we had. The 3:30 p.m. adjournment on Wednesdays because it is a committee day must be reviewed at the leadership level. We must arrive at a clear understanding.

The Chairman: We have some very important witnesses scheduled on Wednesdays down the road.

The committee adjourned.

---