Proceedings of the Standing Senate Committee on
National Finance
Issue 19 - Evidence - Meeting of December 8, 2009
OTTAWA, Tuesday, December 8, 2009
The Standing Senate Committee on National Finance, to which was referred Bill C-51, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009, and to implement other measures, met this day at 9:35 a.m. to give clause-by-clause consideration to the bill; and to give consideration to the subject matter of Bill C-56, An Act to amend the Employment Insurance Act and to make consequential amendments to other acts.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Honourable senators, we can proceed clause by clause or by groupings and stop for comments, questions or concerns. The table of provisions is grouped into Part 1 and Part 2. Then there is the breakdown in Part 2. You can see the natural groupings, such as Bretton Woods, budget implementation, Canada Pension Plan, et cetera. I propose that we go through the bill by following the natural groupings.
Hon. Senators: Agreed.
The Chair: Honourable senators, is it agreed that the committee move to clause-by-clause consideration of Bill C- 51?
Hon. Senators: Agreed.
The Chair: Agreed. Shall the title stand?
Hon. Senators: Agreed.
The Chair: Shall clause 1, which contains the short title, stand?
Hon. Senators: Agreed.
The Chair: Shall clauses 2 to 17 — which is Part 1 and includes income tax and income tax regulations — carry?
Hon. Senators: Agreed.
The Chair: Shall clauses 18 and 19 carry? They are multilateral debt relief and offshore petroleum resources, Nova Scotia.
Hon. Senators: Agreed.
The Chair: Shall clauses 20 to 22, inclusive — which are Bretton Woods and related agreement act amendments — carry?
Hon. Senators: Agreed.
The Chair: Shall clause 23 — which is the Broadcasting Act — carry?
Hon. Senators: Agreed.
The Chair: Thank you.
[Translation]
Does clause 24 of the Budget Implementation Act 2009 carry?
[English]
Hon. Senators: Agreed.
The Chair: Shall clauses 25 to 43 carry? They involve the Canada Pension Plan.
Hon. Senators: Agreed.
The Chair: Agreed. Thank you.
Canada Pension Plan Investment Board Act, clauses 44 to 46 inclusive. Shall they carry?
Hon. Senators: Agreed.
The Chair: Carried.
Shall clauses 47 to 50 — which are the Canada-Nova Scotia Offshore Petroleum Resources Implementation Act — carry?
Hon. Senators: Agreed.
The Chair: Clauses 51 to 57 deal with a custom tariff. Shall those clauses carry?
Hon. Senators: Agreed.
The Chair: Clauses 58 to 61 deal with the Financial Administration Act. Shall clauses 58 to 61 carry?
Hon. Senators: Agreed.
The Chair: Carried.
Clause 62 is the Public Service Superannuation Act. Shall that clause carry?
Senator Ringuette: On division.
Some Hon. Senators: Agreed.
The Chair: Carried, on division.
Clause 63 to 66, amendments related to the Bankruptcy and Insolvency Act. Shall clauses 63 to 66 carry?
Senator Ringuette: I have two amendments to propose, which I will circulate.
One deals with page 46, article 62.1. Do you want the second amendment at the same time so we can look at both of them?
Senator Carstairs: One is the Public Service Superannuation Act.
Senator Baker: Clause 62 is the Public Service Superannuation Act.
Senator Carstairs: We just passed it.
Senator Ringuette: It is at page 46, line 28, at "bankruptcy." Read the first two lines.
Senator Carstairs: I think it is 63. Clause 62 is the Public Service Superannuation Act.
Senator Ringuette: Yes, it would be clause 63.
The Chair: You are creating a new clause at 62.1. We have only adopted up to clause 62 inclusive. Clause 62.1 is a new clause that follows.
Senator Ringuette: Yes. That is the legal advice I received.
The Chair: Do you want to explain what it is?
Senator Ringuette: Did you get the other amendment that I am proposing? They are interrelated.
The Chair: We have clause 62.1 in French and English.
Senator Ringuette: We will distribute the other one as well.
The Chair: Can you explain what we have here?
Senator Ringuette: These two amendments would be zero cost to government. They amend the Bankruptcy and Insolvency Act. These amendments include unfunded pensions of retirees and employees when a corporation files for bankruptcy on the same level as creditors. If one looks up the definition of creditor, it will generally describe a company that has provided goods or services and has not yet been fully or partially paid. Retirees and employees have provided services, too, most with contract stipulations in addition.
In recent months some major Canadian corporations have filed for bankruptcy: For example, Nortel, Abitibi Bowater, Fraser and CanWest. We estimate that more than 100,000 Canadian families are directly affected by a potential loss of jobs and, for many of them, loss of pensionable income, current and future. Last year the Bankruptcy Act was amended to protect employees' salaries. We fully agreed with protecting them as priority benefactors of liquidity provided by the Bankruptcy Act. These amendments do not change the priority for employee salaries.
For example, in my neck of the woods, the Fraser company — which also has branches in Quebec — filed for bankruptcy. For years Fraser Inc. has used funds that should have been invested by contract, as miscellaneous use, one of them being bonuses for CEOs.
Fraser has filed for bankruptcy. Their total debt is $300 million. Of the $300 million, $180 million is pension debt. Therefore, 60 per cent of their debt is the money that they did not put aside for employees' pensions. Notwithstanding that, they are also losing health benefit plans through this bankruptcy situation.
If these amendments do not pass, Fraser retirees and employees will lose 40 per cent of the pension fund.
I will wait for Senator Di Nino so he can understand what I am doing.
Senator Di Nino: I can double task; go ahead.
Senator Ringuette: For example, if your average employee earned $50,000 on average over the last five years of work and has worked for 30 or 35 years — overtime is not pensionable income — 60 per cent of their average annual income is the pension they would receive. That means that their pension is $30,000 a year. If they lose 40 per cent of their pension because their company is going bankrupt and they are not protected, they lose $12,000 a year from their pension. That means their new net family income is $18,000 a year. That is below the poverty line anywhere in Canada. In addition, if these pensioners lose that income from their pensions, the Government of Canada will not receive income tax from these funds.
In the case of Fraser Inc. and unfunded pensions of $180 million, even at the low rate of income tax payable to the federal government of 10 per cent, the federal government should be receiving $18 million in the foreseeable future, if this is corrected.
These amendments cost the government zero dollars. Fraser, Abitibi and CanWest are relatively small in comparison to the Nortel situation in Ontario — some in British Columbia, some in Nova Scotia — that this committee heard about last month.
Colleagues, I urge you to support these amendments because it is only fair. It means fairness and justice to all the employees who have been loyal to those companies for 30 or 35 years, companies that have not put into their pension fund the money they should have, as in the case of Fraser Inc. Sixty per cent of their bankruptcy debt is because they did not put the money into the pension plan. It is owed to the employees, and because it is owed to the employees, it should be recognized on the same level as other creditors in the bankruptcy act.
The two amendments I have just tabled recognize that fact.
On Friday of this week, the bankruptcy hearing for Fraser will start. It is a question of sending the right message in a timely fashion with respect to protecting the pensions of those employees. It is only fair, and I urge senators to give them their support.
Senator Di Nino: I thought we had passed the Public Service Superannuation Act, which refers to clause 62. I thought we had dealt with that clause and approved the changes. Therefore, I am not sure that this is in order.
Having said that, I believe this issue is complex and difficult. We were all here when the people from Nortel appeared, and anyone who heard them must have sympathy for them.
My recommendation to Senator Ringuette would be to make these amendments observations to the bill as opposed to trying to change the bill. Senator Ringuette says no money is involved. Well, this is all money.
My other concern is that the one authority the Senate does not have is the authority to make money bills or to introduce changes to money bills.
Out of courtesy to my colleague, my thought would be to make the amendments into general observations and work with the government in that way.
We all know a huge discussion is taking place with regard to pension issues. Not only has the government set up a couple of committees, but we also have a motion in the Senate that says we should study pensions. There is an amendment as to which committee it should go, but the motion, I suspect, will pass because I do not think there will be opposition.
My strong recommendation to Senator Ringuette is to put these amendments in the form of observations, and we can move on. It is more complex than trying to deal with them today.
The Chair: I will call on Senator Ringuette at the end to close off the debate.
[Translation]
Senator Carignan: My comments follow along the same lines to some extent with regard to the complexity of this issue, the current capacity, given the little evidence on this, to assess the impact of such changes. Obviously, I am a new senator, but when I see such an amendment, I wonder how applicable it is to the bill currently before us.
[English]
Senator Carstairs: Regarding the comments that Senator Di Nino made with respect to the fact that we have passed 62 are not relevant because this is a new clause. It is clause 62.1, and it falls not under superannuation but under pensions.
In terms of whether this is a money bill, the only restriction constitutionally on the Senate is that we cannot have a money bill that imposes a financial cost to the government. This is not a financial cost to government but a financial cost to corporations to honour their commitment to their own employees in terms of pensions.
As to the issue of the complexity of the bill or the clauses that have been introduced, they are not very complex. All it says is that if you are a corporation of this country and you have employees, you are supposed to treat those employees decently and you are supposed to put monies aside to cover appropriately all of their benefits, including pensions. The concept of complexity is not very deep. I would suggest that it is a very simple concept.
Senator Gerstein: I would like to support Senator Di Nino's approach. I suggest it is a complex issue because it is not unlike a balloon that if you push it in one place, it has implications in any number of other places and that makes it complex. It is not simply an issue that one can make a decision about in two or three lines. It is being studied in other places. There are reports coming back on pensions. I support the concept that this be a recommendation.
Senator Callbeck: I support the amendments. They are about fairness. The amount owed to employees should be recognized the same as creditors. I would therefore support them.
Senator Lang: One must be careful with this type of amendment that comes in at the last moment on something so important by recognizing that government may be taking on obligations that are unforeseen in an amendment of this kind.
It is simple to say that the amendment is simple, clear and concise, but when dealing with legislation, other sections are affected. We do not have the expertise in front of us right now to be able to ask what the implications will be.
To the senator who brought these amendments forward, without question, every member of this committee is sympathetic to this kind of situation. It is important to reiterate what Senator Gerstein has stated. I believe the Department of Finance will be receiving the results of an intensive pension consultation that took place across this country over the past year. It will be interesting to see the results of that particular report with respect to the implications on a situation such as this, where employees are forced into reduced pensions because of bankruptcy and their plans and dreams are shattered in many ways.
From the point of view of the committee and of the Senate at this stage, the issue could be pointed out as an observation, one with which all members would agree. The issue must be addressed, but I do not necessarily think this is the way to do it.
Senator Di Nino: I have one further comment afterwards.
The Chair: I would like to rule on the first point that was made in relation to this first amendment at clause 62.1. I find it quite clear that the amendments are to be added after the heading "Bankruptcy and Insolvency," and the appropriate place would be before clause 63 of this bill, because it deals with section 60 of the Bankruptcy and Insolvency Act. You will see where clause 63 of this act deals with section 65 of the Bankruptcy and Insolvency Act. The appropriate place is after the heading "Bankruptcy and Insolvency," and I believe it is numbered properly.
Senator Ringuette, I would appreciate your comments with respect to an observation as opposed to an amendment.
Senator Ringuette: I appreciate Senator Lang's comments on these amendments. Your observations are goodwill suggestions. That being said, I want to remind you that time is of the essence because, as I said earlier, the bankruptcy proceeding for Fraser Inc. is starting on Friday. The amendments in this bill are necessary so that the current employees who are facing job loss and the retired employees who have lost the health benefits they were promised by contract and whose pensionable income of roughly $30,000 puts them in the lower ranks of the scale on Canadian income, are facing a situation where they will fall below the poverty rate.
In regard to the point on complexity, this is not complex at all. This is very straightforward. It simply amends the bankruptcy act so that the unfunded pension has the same status under the bankruptcy act as all other creditors to that corporation.
The case of Fraser Papers Inc. is in my hometown. I see my neighbours of 67, 68, 70 years old who are in a time in their life when they may get sick and need medication. They are losing prescription benefits. One of my neighbours has monthly prescription costs of over $900. That is already gone. Now he is facing a situation where his average income will be roughly $1,000.
This is exactly the same situation when we passed the legislation to protect employees' salaries as the first priority in bankruptcy situations. That was a good bill. It did not take us long to look at that and see the benefits of it.
This is not exactly the same situation because the priority of paying back the salaries to employees remains a priority. This causes the unfunded pension plan to become part of the list of entitled creditors in bankruptcy situations.
With all due respect, this is not complex. Time is of the essence. This is so simple, and we need to do it before Christmas. Put yourself in these people's shoes. You cannot say to them at 68, in a time of recession and in a time when there are no jobs for their skill set, "Go find yourself another job."
What income are they left with for the next 20 years of their lives? We owe more than that to our fellow Canadians, especially those who have been loyal to corporations that have not been loyal to them.
Colleagues, with all due respect, I appreciate your comments, but I move these two amendments that have been tabled and circulated in both official languages.
Senator Di Nino: Mr. Chair, I am having a little difficulty. I do not disagree with the intent of Senator Ringuette, and I would like to see these things recorded as a concern of the committee, particularly if they will be studied by the Senate through whichever committee the chamber mandates.
However, I truly believe that these amendments may be out of order. I was just looking at the bill itself, Bill C-51, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and to implement other measures. As it relates to the Bankruptcy and Insolvency Act, Part 2 says to correct unintended consequences resulting from inaccurate coordination of two amending acts.
I suspect this is also out of order in the sense that it introduces a new purpose; it is outside the scope of the bill. I do not think we can deal with this kind of amendment, but we could deal with it more properly through observations.
The Chair: Could I consult with my clerk on that submission, please. We will pause for a short period while I research this point.
Honourable senators, Senator Di Nino raises a fine point. The rules are not clear. It is clear that if the Bankruptcy and Insolvency Act had not been included in Bill C-51, this amendment would be out of order. That is clear. However, Bill C-51 does include debate the Bankruptcy and Insolvency Act. If I were to rule conservatively and restrictively that amendments could only be proposed to certain sections that are actually brought into question under the Bankruptcy and Insolvency Act, then that would bring an end to the debate. However, in my view, if there is any question on a matter such as this, I should err on the side of continuing the debate.
Honourable senators will know that should these amendments be adopted by this committee there will be debate in the chamber at report stage and then at third reading, if need be. There will be ample opportunity to raise these fine points again.
I rule that because the Bankruptcy and Insolvency Act has been brought into question in Bill C-51 that these amendments as proposed by Senator Ringuette are in order.
Are we ready to proceed with the question, honourable senators? Senator Carignan.
[Translation]
Senator Carignan: I have a question for Senator Ringuette. What do the words "current assets" mean?
The Chair: To which amendment are you referring?
Senator Carignan: I am talking about section 81.3.
At clause 63.1, the same act is amended, by adding, after subsection 81.3(1) the following:
The claim of a clerk, servant . . . by security on the bankrupt's current assets.
What is a current asset? What are long-term assets?
Senator Ringuette: Just to make sure that I have correctly understood your question, you are talking about section 81 of the amendment?
Senator Carignan: Yes.
Senator Ringuette: You are talking about subsection 81.3(1.1)?
Senator Carignan: Yes.
Senator Ringuette: A company's short-term assets are usually monies in a bank account, something that can be quickly paid out, compared to long-term assets which are buildings, equipment such as copiers or a Cogen generator.
Senator Carignan: Are you saying that bank accounts are current assets?
Senator Ringuette: Among other things. In business, current assets include all assets that can be rapidly liquidated.
Senator Carignan: Typically when a company goes bankrupt, there is not a lot of money left in its bank account. Do you believe that a security on limited current assets will be sufficient to guarantee such a significant amount for pension benefits to cover a pension plan shortfall?
Senator Ringuette: Let me remind you that, when a company goes bankrupt, all its assets be they current or fixed assets, are part of the bankruptcy.
Senator Carignan: I apologize. Unless I have not understood your amendment, it concerns only the security for claims by employees or clerks that concerns solely the current assets. That is what is written here.
Senator Ringuette: No. That's one of the assets mentioned. If you look at both motions, they cover all assets set out under the Bankruptcy and Insolvency Act.
Senator Carignan: I do not understand because if I reread the clause, it states:
"The claim of a clerk, servant, travelling sales person, labourer or worker who is owed termination and severance pay, less any amount paid by the trustee or by a receiver for that termination or severance pay, is secured as of the date of the bankruptcy by security on the bankrupt's current assets as of the date of the bankruptcy."
First, it is not clear what is included in current assets. Does the security concern only the current assets?
Senator Ringuette: No, the security does not pertain to that alone.
Senator Carignan: Then you will have to show me a clause that indicates that it pertains to something else.
Senator Ringuette: We are looking at all of the assets covered by the Bankruptcy and Insolvency Act.
Senator Carignan: That is not what your amendment says.
Senator Ringuette: Senator Carignan, I truly appreciate your questions and concerns. Should you feel that an additional amendment is required, you will have an opportunity to present amendments when this bill is at report stage in the Senate.
Senator Carignan: This is difficult for me. As I did not receive complete information since we had not looked at this issue in an in-depth fashion, I do not know how one determines the current assets of a company in order to assess whether or not there is adequate security.
May I suggest an amendment that calls for long-term assets instead? Because I do not know what long-term assets are. Will this claim have priority over a government claim for taxes owed or for deductions at source?
Senator Ringuette: The claim will be treated the same way as the claims from all the other creditors. The bill approved last spring gave priority to the unpaid wages of employees. In the event of a bankruptcy, the number one priority remains the unpaid wages of employees.
Senator Carignan: And we are adding to that?
Senator Ringuette: We are not adding to the number one priority, namely the wages. We are adding pension fund shortfalls which will now be treated on an equal footing with creditors. The agreement between an employer and its employees with respect to pension funds is also a contractual agreement, just like any agreement with another creditor. All that this does is ensure that the bill, during the bankruptcy process, treats the corporation's pension fund shortfalls the same way it treats creditors.
Senator Carignan: If I am distributing current assets and I run across a government debt, are they at the same level?
Senator Ringuette: That does not change anything at the government level.
Senator Carignan: Does this debt get taken care of before or after the government?
Senator Ringuette: Honourable senator, I would invite you to present amendments if you do not agree or vote against the amendment.
Senator Carignan: I am asking questions.
Senator Ringuette: I asked the question; everyone spoke and we even asked questions about whether or not presenting these two amendments to Bill C-51 was in order.
The Chair: This is starting to turn into a debate.
Senator Carignan: This is a complex issue. We were told that this is not complex, but I am asking questions and I am not getting any answers.
The Chair: In English, "court terme" is "current assets," and it is highly probable that there is an explanation of what is meant by "current asset" and "court terme." I do not have the bill here in order to look into that.
Senator Ringuette: It corresponds exactly to the language used in the Bankruptcy Act.
The Chair: That is what I thought.
[English]
Senator Baker: It is an interesting question. I suppose the bankrupt's current assets, as of the date of bankruptcy, could be the date of voluntary assignment into bankruptcy, or the date of the assignment into bankruptcy. As we all know, as of the date of the bankruptcy, the assets are all in the hands of the receiver and the trustee.
I suppose the answer would be simple: We would interpret that to mean the date of the voluntary assignment into bankruptcy, or the date of the assignment into bankruptcy. It would include the assets being held by the trustee for the receiver at that time.
I suppose it could be refined to be clearer, as Senator Carignan has suggested. It is an interesting point and one with some substance.
I took it to mean, and I think the mover of the motion takes it to mean, all of the above; that is, the date of the either voluntary assignment into bankruptcy, the date of the assignment into bankruptcy or the current assets and the current assets of the trustee and the receiver.
The Chair: I think there has been enough discussion and that members understand the point. If there is a necessity for an amendment by drafting to ensure that the English and the French are properly reflective of one another, then that could and should be done.
Honourable senators, the way I am advised we should proceed is to vote on the first amendment, which is section 62.1. It is on page 46 and would be the words which would appear after "bankruptcy and insolvency" in section 62.1 of the Bankruptcy and Insolvency Act. I have determined that everyone who is sitting at the table is entitled to vote.
All those in favour of the motion to amend will signify by saying, yea.
Some Hon. Senators: Yea.
The Chair: Contrary-minded?
Some Hon. Senators: Nay.
The Chair: Honourable senator, can we have this passed on division?
Senator Ringuette: I want a recorded vote.
The Chair: A recorded vote has been requested. The clerk will proceed with a recorded vote.
Adam Thompson, Clerk of the Committee: The Honourable Senator Day.
The Chair: Yea.
Mr. Thompson: The Honourable Senator Baker, P.C.
Senator Baker: Yes.
Mr. Thompson: The Honourable Senator Carignan.
Senator Carignan: No.
Mr. Thompson: The Honourable Senator Carstairs, P.C.
Senator Carstairs: Yes.
Mr. Thompson: The Honourable Senator Di Nino.
Senator Di Nino: No.
Mr. Thompson: The Honourable Senator Finley.
Senator Finley: No.
Mr. Thompson: The Honourable Senator Lang.
Senator Lang: No.
Mr. Thompson: The Honourable Senator Mitchell.
Senator Mitchell: Yea.
Mr. Thompson: The Honourable Senator Ringuette.
Senator Ringuette: Yes.
Mr. Thompson: I apologize. I missed the Honourable Senator Callbeck.
Senator Callbeck: Yes.
Mr. Thompson: I also missed the Honourable Senator Gerstein. My apologies.
Senator Gerstein: No.
Mr. Thompson: Yeas six; nays five; abstentions nil.
The Chair: The motion is therefore carried.
We will now proceed with clause 63 of Bill C-51. Shall clause 63 carry?
Hon. Senators: Agreed.
The Chair: I will now proceed with the second amendment, which should appear after clause 63; 63.1.
All those in favour of the motion will please say, yea.
Some Hon. Senators: Yea.
The Chair: Contrary-minded, if any, nay?
Some Hon. Senators: Nay.
The Chair: On division, this time?
Senator Ringuette: I want a recorded vote.
Mr. Thompson: The Honourable Senator Day.
The Chair: Yea.
Mr. Thompson: The Honourable Senator Baker, P.C.
Senator Baker: Yes.
Mr. Thompson: The Honourable Senator Callbeck.
Senator Callbeck: Yes.
Mr. Thompson: The Honourable Senator Carignan.
Senator Carignan: No.
Mr. Thompson: The Honourable Senator Carstairs, P.C.
Senator Carstairs: Yes.
Mr. Thompson: The Honourable Senator Di Nino.
Senator Di Nino: Nay.
Mr. Thompson: The Honourable Senator Finley.
Senator Finley: Nay.
Mr. Thompson: The Honourable Senator Gerstein.
Senator Gerstein: Nay.
Mr. Thompson: The Honourable Senator Lang.
Senator Lang: Nay.
Mr. Thompson: The Honourable Senator Mitchell.
Senator Mitchell: Yea.
Mr. Thompson: The Honourable Senator Ringuette.
Senator Ringuette: Yea.
Mr. Thompson: Yeas six; nays five; abstentions nil.
The Chair: I declare the amendment adopted.
Honourable senators, going back to Bill C-51, shall clauses 64 to 67, as presented, carry?
Hon. Senators: Agreed.
The Chair: Shall the schedule carry?
Hon. Senators: Agreed.
The Chair: Carried. Now I will go back to clause 1, which contains the short title.
Shall clause 1 carry?
Hon. Senators: Agreed.
The Chair: Carried. Shall the title carry?
Hon. Senators: Agreed.
The Chair: Shall the bill, as amended, carry?
Hon. Senators: Agreed.
Senator Di Nino: On division.
The Chair: On division.
Honourable senators, does the committee wish to consider appending any observations to this bill?
Senator Ringuette: No.
The Chair: We will not append any observations.
Honourable senators, is it agreed that I report the bill, as amended, to the Senate at the earliest opportunity?
Hon. Senators: Agreed.
The Chair: Agreed, on division. Honourable senators, that concludes the clause-by-clause study. Let me double check with the clerk.
Mr. Thompson: Yes, it does.
The Chair: We continue our pre-study of Bill C-56, an act to amend the Employment Insurance Act and make consequential amendments to other acts.
Yesterday we heard from department officials, and today we will be hearing from the Canadian Federation of Independent Business and the former chief actuary of the Employment Insurance Fund, Mr. Bédard.
From the Canadian Federation of Independent Business, I would like to welcome Lucie Charron, Senior Economist and Ian Dawkins, Policy Analyst.
[Translation]
We are also pleased to welcome the Former Chief Actuary of the Employment Insurance Fund, Mr. Michel Bédard.
[English]
As always, I would appreciate your cooperation in keeping questions and responses as brief as possible.
Lucie Charron, Senior Economist, Canadian Federation of Independent Business: I first want to thank you for the opportunity to present CFIB's perspective on Bill C-56. Throughout my presentation, I will be taking you through a slide deck. Before I get into it, I want to ensure everyone has a copy of the slide deck, either in French or English. I also have a research report called The Nation of Entrepreneurs, which highlights 2006 census data on self-employed. You should all have a copy.
The Canadian Federation of Independent Business represents over 105,000 independently owned small and medium-sized business owners across Canada, all of whom are self-employed. Our members come from every region of the country and every sector of the economy. While all 105,000 members are self-employed, about 12,000 of them have no paid help.
In October 2009, the labour force survey from Statistics Canada showed that there were over 2.7 million self- employed Canadians. This represents about 16 per cent of the total workforce. From September 2009 to October 2009, we saw an increase of about 27,000 self-employed individuals. This increase partly offsets some of the job losses in October.
If you take a longer term perspective, over the last 12 months, we saw an increase of about 100,000 self-employed individuals since October 2008, about a 3.9 per cent increase in the number of self-employed in that period. We see these numbers as good news. These Canadians have opted to go out on their own, and it is these enterprising Canadians who will create new ventures and jobs.
In fact, Canada has seen significant growth in self-employment over the last couple of decades, especially among those who incorporated. The chart on slide 4 is from the 2006 census, and it shows that there was an 8.5 per cent increase in the number of employees between the 2001 to 2006 period and, more significantly, an 18.6 per cent increase in the incorporated self-employed during that same period.
Who are these people? Today, about two thirds of self-employed are men and one third are women. As you can see on slide 5, the greatest growth in self-employment is among those in the 45 to 64 age group. This is partly due to the demographic shift in the boomer population and partly because successful business creation often requires significant technical and management skills, as well as good networks, which are often acquired through experience.
Based on these statistics, we would suggest that among the special benefits included in Bill C-56, the option to access sickness benefits may be of greatest interest to the self-employed, given the aging demographics of this population and the difficulty for some of them to purchase private health care coverage.
Why do these people become self-employed? Slide 6 shows the results of a national public opinion poll of 900 small business owners on reasons why they became self-employed. As you can see in the results, the majority did so to take control of their own decisions. About one third did it for lifestyle choices or to better use their skills and knowledge or as a path to financial freedom.
These results are not surprising when coupled with the next slide, which shows that those who are self-employed tend to have the highest level of job satisfaction. In fact, more than half said they found being self-employed to be very rewarding. The reason we are sharing this information with you is that we want to make it clear that the vast majority of people who become self-employed do so because they want to and not because they have to. We think that recognizing this motivation is important to understanding how to approach the idea of accessing EI special benefits on a voluntary basis as proposed in Bill C-56.
Earlier this year, CFIB asked its members about the concept of extended EI and parental and maternity benefits to self-employed on a voluntary basis. Slide 8 outlines how the question was asked at the time, given how little we knew about how this proposal would work. While the question focused only on parental and maternity benefits, it did address the voluntary aspect of the bill. Therefore, we believe it provides a good indication of what Canada's self- employed may think about Bill C-56.
Slide 9 shows the results of this question, which are based on more than 10,000 responses. On the left-hand side where all the respondents are, we have a small majority who support the concept, about 53 per cent. If you break it down a bit more and you look at the top right-hand side, you see stronger support among female self-employed members, where about 67 per cent said yes. At the very bottom, there is a bit stronger support from the smallest business owners, where 60 per cent of them said yes.
As a result of this member feedback, CFIB supports Bill C-56 and recognizes that it fills the gap among the self- employed to access EI special benefits should they choose to do so. However, it is essential that the program remain voluntary and that it meets its objective to be self-financed. These principles are key to CFIB's support of this bill.
It is very important for this program to pay for itself as the general EI account is about to enter a period of steep premium increases come 2011. I want to say that the current EI rate freeze, which is in effect until the end of 2010, has been a very welcome policy as it has allowed many business owners to hold onto their employees during these difficult economic times. However, it has become clear that the government plans to charge back the two-year EI rate freeze to the EI account, which would require the new Canada Employment Insurance Financing Board to pay back an additional $10 to $13 billion to the government, with interest. The only way they can do that is through increasing EI premiums.
As they are limited to annual increases of 15 cents for employees and 21 cents for employers, we foresee maximum premium rate increases for both employers and employees for many years to come, as illustrated in the graph on slide 10. This is at a time when the economy is starting to pick up again, and it should be noted that this type of payroll tax is seen as the most harmful for the growth of business. What makes this scenario even worse is that there has been a $57- billion surplus accumulated in the EI account from 1994 to 2008, as shown on the next slide.
We would have no objection to government requiring the CEIFB to pay for the additional EI costs as a result of the current recession if they would repay the $57-billion surplus first. Instead, the new CEIFB was provided $2 billion as initial reserve, which, given the scenario I just described, will be easily wiped out in the first year. We strongly believe that the federal government has a moral obligation to pay back the surplus accumulated from employers and employees by absorbing additional costs and maintaining our premium rate freeze until the $57-billion has been paid back.
Given this scenario, we feel that it would be unacceptable to add more costs to the CEIFB by subsidizing Bill C-56 through the general EI account. Nor would it be acceptable for the self-employed to be subsidizing the general EI account, given the problems it currently faces.
As a result, CFIB is calling for strong metrics regarding monitoring of the voluntary EI special benefits program for the self-employed so that this does not happen. It should be accounted for separately from the general EI account, and premiums for the self-employed should be adjusted accordingly so it remains self-financed.
To conclude, CFIB supports Bill C-56 as long as it remains voluntary and self-financed. In addition, we would like to see strong metrics implemented to review its costs and adjusted accordingly so as not to have it subsidizing the larger EI account, and vice versa. We believe this must be analyzed in the context of skyrocketing EI rates come 2011. Therefore, we encourage the government to maintain the EI premium rate freeze beyond 2011 and ensure that the CEIFB is properly funded to withstand future downturns by repaying the $57 billion surplus over time.
The Chair: Mr. Bédard, if you could give us the benefits of your thoughts on this particular bill and the costing and how well the costing has been done, it would be very much appreciated.
[Translation]
Michel Bédard, Former Chief Actuary, Employment Insurance Fund, as an individual: Mr. Chairman, my name is Michel Bédard and I would like to thank you for inviting me to testify before your committee with respect to Bill C-56.
I am an actuary by profession and I am appearing here as an individual. I was the Chief Actuary of the Employment Insurance Fund from 1991 to 2003. I have also had several assignments, as an employment insurance consultant, for the International Labour Office.
I support the principle of the bill, namely, the extension of special employment insurance benefits to self-employed workers, but a certain number of aspects of this bill create problems.
My first comments will focus on the financial aspects of the system. First of all, these new benefits will cost approximately $305 million, in 2014. I am using the year 2014 because this is when the department has said that the system will achieve some stability and maturity. Approximately $212 million will be allotted for parental benefits — by that I mean maternity, paternity, adoption benefits — $93 million has been earmarked for sick leave benefits and less than a million dollars for compassionate care benefits.
These amounts will be distributed as follows: $285 million outside of Quebec — these are parental and sick leave benefits — and $20 million in Quebec for sick leave alone. These calculations are based on data from the Department of Human Resources and Skills Development as provided to a House of Commons committee.
Essentially, the department is assuming that those who sign up for the plan to receive parental benefits will either receive such benefits or opt out of the plan, whereas in the case of sick leave benefits, approximately 10 per cent of the newly insured will be paid benefits.
What should the contribution rate in order to cover all of these costs? For combined parental and sick leave benefits, a rate of 3.4 per cent outside Quebec; for sick leave benefits alone, a rate of 0.90 per cent in Quebec, in order to fully fund the plan.
What is Bill C-56 proposing? In 2014, the contribution rates will be set at 2.33 per cent outside of Quebec and 1.96 per cent in Quebec. That is assuming that the government will increase the employee rates by 0.15 per cent per year as of 2011, under the act establishing the Employment Insurance Financing Board.
In 2014, these rates would produce revenues of $240 million, $200 million outside Quebec, $40 million in Quebec. I apologize for throwing so many figures at you, but I think it is important to have an idea, a financial sense, of what these benefits entail.
We will therefore have a deficit of $85 million outside Quebec, and a surplus of $20 million in Quebec, that is, a net deficit of approximately $65 million.
The department is saying $78 million, my calculations tell me that it will be $65 million; I believe that these figures are close enough to give us all a comfort level.
It should be noted that, if we were to keep the same contribution rates as in 2010, namely 1.73 per cent outside of Quebec and 1.36 per cent in Quebec, the net deficit would be almost double, namely $130 million, with Quebec generating a slight surplus of $5 million. On this issue, the department even indicated to your committee that with a rate of 1.36 per cent, and here I am quoting one of the departmental officials, Mr. Verbaeten:
[English]
The typical self-employed individual in Quebec will receive benefits roughly equivalent to what the individual pays in premiums.
[Translation]
If that is the case, why would we think that this rate will increase in the future? Why a surplus in Quebec and only in Quebec? It is because the break-even point for the new sick leave benefits is, in fact, approximately 0.9 per cent, in a voluntary plan. The rate currently included in the employment insurance contributions is only 0.41 per cent.
A rate of 1.96 per cent, in 2014, for self-employed workers in Quebec would therefore represent more than double the cost forecast for this type of protection alone and four times the amount that contributors, salaried employees, are currently paying. Consequently, all of these financial impacts constitute, in my opinion, the first stumbling block.
Second, the voluntary nature of the proposed system forces the government to impose severe conditions on those who would like to sign up in order to protect itself against opting out and abuse. Hence there will be a 12-month probation period, which is much longer than those provided under private plans. Even in California, where they have a similar voluntary system for self-employed workers, the comparable period is six months.
A third component poses a problem and will discourage participation in the plan, and that is the rule which would oblige someone who receives benefits, even a minimal amount, particularly with respect to sick leave, to sign up for a lifetime subscription. Have you ever seen, for example, an automobile insurance policy that compels someone to have a lifetime policy as a result of a minor claim? That is what will happen if someone claims two weeks of sick leave benefits; the person will have to contribute for the rest of his or her life.
In California, the public disability insurance plan allows for an opting out after two years.
Fourth point: According to Bill C-56, if someone were to sign up mid-year, he or she would have to wait 12 months before receiving coverage, but would have to pay contributions for the entire year. Why not provide for prorated contributions in this case? As an alternative, the bill states that those who sign up from January to March 2010 will be eligible for benefits as of January 1, 2011. Why not have such a clause for every year?
Fifth and final point: The employment insurance system already provides for a refund of contributions to those employees earning less than $2,000 per year, as they cannot qualify. Should we not have a similar clause for this voluntary plan, but based on $6,000?
What are we to make of all of this? Financially speaking, the artificial adoption of the general employee rate for these new benefits is not proper. Instead, we should be choosing a way to finance this system that is in keeping with the cost of the new benefits and relatively stable.
Second, in order to finance social benefits while at the same time keeping the system voluntary — parental leave benefits — the government has had to impose harsh restrictions. These restrictions will, among other things, discourage a certain number of potential participants and render the system much less effective as a means to protect income.
The Chair: Thank you very much, Mr. Bédard.
[English]
Senator Gerstein: Will Mr. Bédard be circulating his remarks? In ten minutes, I heard over 100 numbers. Frankly, I cannot follow it as quickly as that.
Mr. Bédard: There is no problem with that.
The Chair: We will see that any documents produced will be circulated to everyone. We will have the transcript of your presentation, which honourable senators will be able to reference. I as well was having difficulty taking down all of the points you made, but it shows that you have done some serious thinking about this. We very much appreciate that.
[Translation]
We will begin with Senator Carignan from Mille Isles, Quebec.
Senator Carignan: My question is for Mr. Bédard and it pertains to this distortion with the premiums in Quebec. I understand that you are not the one who created the system, but, to your knowledge, is there a specific fund for Quebec in the event of a contribution surplus, and will the surpluses continue to apply only to the Quebec fund, or if these funds are distributed amongst the rest of Canada, would a surplus in Quebec compensate for a deficit in the rest of Canada?
Mr. Bédard: There is no separate fund. These amounts, both the premiums and the benefits, will be part of the general employment insurance fund. All I did was look at revenues and costs in Quebec and the rest of Canada to see where these amounts were coming from and where they were going. So this means that if there is a surplus in Quebec, clearly, this will help fund the rest of the plan.
Senator Carignan: Does that mean that you have validated a process with regard to premiums? If I use myself as an example, I was self-employed, with a spouse who was also self-employed; we obviously would have liked to have benefited from EI benefits during parental or maternity leave. Unfortunately, this did not exist when we had our children. But the main reason we supported this bill was the maternity leave. Is there not an additional factor regarding the formula in Quebec, given the fact that the bill is less attractive and perhaps the bill will not be as attractive in Quebec as in the rest of Canada, which would lead to a higher rate? Has the fact that this factor could act as a disincentive in Quebec been taken into consideration?
Mr. Bédard: In Quebec, the only benefits offered are sick leave benefits. People can only opt for those benefits. A disincentive, yes, because if someone wants to be covered against illness, they will have to look carefully at whether it is a good plan for them because once they will have taken out $2 or $50 or $100 in benefits, no matter what the amount is, they will then have to pay premiums for life. I do not understand that thinking. I understand it when it comes to maternity or parental leave benefits.
In fact what the plan provides is a refundable loan, it is not a public benefit. The plan will provide benefits, then the individual will have to repay those benefits over the course of their lifetime. That is in fact what we are talking about.
In Quebec, sick leave coverage is truly an insurance policy, the private sector issues such policies.
Senator Carignan: Was the take-up rate for the sick leave and compassionate care leave program calculated as being the same in Quebec as in the rest of Canada?
Mr. Bédard: The department has not provided such details.
Senator Carignan: I think that it would be different.
Mr. Bédard: I think it would be quite similar; time will tell. At present, the general take-up rate or the sick leave rate is approximately 4 per cent. The department has set it at 2 per cent, but it is in fact 4 per cent taking into consideration the existence of private plans.
Senator Carignan: Which reduces this rate.
Mr. Bédard: True. This pushes the benefits under employers' plans.
Senator Carignan: I had thought that the plan would be less attractive in Quebec, and that this would justify higher rates to make up for the fact that fewer people will need it.
Mr. Bédard: The department has said that it will be a revenue-neutral plan at $1.36. So why anticipate raising these rates in the future? A dollar thirty-six is not very much. And it is already a little more than this plan will cost on a national average. I really cannot see Quebec exceeding the national average in this area. Time will tell, of course.
The Chair: Thank you, Senator Carignan.
[English]
Before I go to the next intervener, Ms. Charron, could you look at page 4 of your slide deck? I find it quite interesting that over five years there was only an increase of 1.6 per cent for unincorporated self-employed, but a huge increase of 18.6 per cent over five years for incorporated self-employed. These are individuals who incorporate. I would have thought there would be many more self-employed individuals who did not go to the bother of getting incorporated. Can you read anything into these statistics?
Ms. Charron: It goes into more detail in the research study, but this trend is rather different from what we saw in the 1980s and 1990s. The 2001 to 2006 period is when we saw the greatest increase with respect to self-employed incorporated. I am not sure of the reason. We have looked at the numbers, but I do not have the reason. We find interesting also the percentage of those who have paid help, because not only are they creating their own jobs, but they are also creating additional jobs by hiring employees. I do know that 2000 onward is an interesting period, but I do not have the explanation for it. We thought it worth highlighting, because it does have a huge importance in our economy.
The Chair: Can you refresh our memories? Under the current regulations for employment insurance, how many people have to work at an entity in order for the employees to be covered by employment insurance legislation?
Ms. Charron: I do not know if there is a limit. I think as soon as you have an employee, you have to pay into it. It starts on the first $100 of payroll.
The Chair: Is that correct? Could one individual be an employee and an employer?
Ms. Charron: No, it is as soon as an employer has an employee. If you are self-employed and you have no employees, you do not pay into EI at all. As soon as you have an employee, you have to start paying.
The Chair: It is the one self-employed person who we are talking about with this legislation; is that correct?
Ms. Charron: That is right.
The Chair: That one person.
Ms. Charron: Yes.
The Chair: Either incorporated or not incorporated; is that right?
Ms. Charron: From my understanding of the bill, yes, it would include both.
Mr. Bédard: It could be the owner of a business also who has employees. They could become insured under this program.
The Chair: Exactly.
Senator Gerstein: Some of the opposition members have suggested that perhaps participation in this self-employed program should be mandatory. They believe that self-employed people should be forced to participate and pay premiums. Does your organization have an opinion on this?
Ms. Charron: We do not think it should be mandatory at all. We think it should be voluntary. First, if it is mandatory, it will be seen as an additional payroll tax. In fact, we did some surveying on this in early 2000, strictly in the province of Quebec.
It is quite dated, but the results were with respect to the question of being either voluntary or mandatory. The results overwhelmingly said they would prefer to have the voluntary option. We think this is a key principle of this bill and why we support it, because they have the ability to choose whether or not they want to be in it.
Senator Ringuette: It is nice to have Mr. Bédard and the CFIB together. You will recall both of your organizations were before us regarding the bill on the EI reserve. We accepted your recommendation because, and in our recommendations and observations in regard to that bill, the committee recommended that the federal government put, I think, $10 billion to $15 billion in the EI reserve. That was just before the economic crisis happened and unemployment went sky-high.
Yesterday, some senators described this program as "pure insurance" or "strict insurance," or something to that effect. My argument was that it is not because there is a shortfall. Therefore, it is not "pure insurance."
I asked the department officials if they had looked at the mandatory option, and they said no. That was case closed; there is no information available out there.
CFIB, you have put a strong emphasis on rising EI rates in the future for the employer portion, from $2.42 per $100 to $3.47. That is almost a 30 per cent increase in six years.
Yesterday, the officials said they foresee a deficit in that program that will be hard for us to identify because it will all be put together with the EI benefit distribution and the EI fund. How to you feel about that $78-million shortfall?
Ms. Charron: Correct me if I am wrong, but I thought it was to be a separate account. We want it to be self- financed. This is one of the reasons why we can support it. If it is self-financed and it is separate, it will not add to the current problems that exist.
This is something we feel would be important if this is to work. We also think that, if it is to be self-financed, it is important that there be proper metrics in place to look at whether it is being self-financed from year to year, and adjusted accordingly. When I say "proper metrics," I do not mean a review every five years. We would go as far as saying review it annually to ensure this is happening. The uptake is difficult to predict. That is hugely important for us with respect to that measure.
Senator Ringuette: The officials from the department yesterday told us that it is not a distinct program; the funds coming from the self-employed will be included in the general EI fund for employer-employee contribution. That is official.
It will be hard in the near future to understand the real social and economic impacts of that program.
[Translation]
Mr. Bédard, you mentioned a similar program in California?
Mr. Bédard: Yes.
Senator Ringuette: In the United States, there is a program that is equivalent to our employment insurance program. Is California's program separate from the United States' EI program?
Mr. Bédard: Yes, in California, there is a separate mandatory program. It is a mandatory public program for all employees; a health care insurance plan that gives, I believe, 39 weeks of benefits up to a maximum of $900 — and soon $1,000 per week — after a one-week waiting period. This plan is available on a voluntary basis for the self-employed.
Senator Ringuette: It is similar?
Mr. Bédard: Exactly.
Senator Ringuette: It is mandatory for employees, but it is voluntary for the self-employed.
Mr. Bédard: Yes, and the overall plan is separate from the unemployment insurance plan in California.
Senator Ringuette: Yesterday, after studying the data provided to us by department officials, we noted a $78-million program deficit. The officials told us that maternity leave and parental leave benefits were the most costly, but also the most attractive to claimants. They estimated that the cost of these two components represented approximately two- thirds of the program's costs. So approximately 67 per cent.
When I looked at the premiums in Quebec, of $1.36, I thought that if the portion of the program in Quebec is only 33 per cent instead of paying $1.36 in premiums Quebecers should pay a maximum of $1.16 per $100. So, Quebecers are paying 20 cents more per $100 in income compared to other Canadians for benefits provided under the program.
Mr. Bédard: I did a direct calculation, meaning that I assessed sick leave benefits, across Canada, to be approximately $90 million. Ninety million dollars, $100 million, the magnitude is the same.
Under this system, insurable earnings are approximately $10 billion. The department has confirmed this; it said that $0.01 in premiums will result in a million dollars in revenues. The department believes that its insurable earnings are $10 billion. If we divide 90 million by 10 billion, we wind up with 0.9 per cent as a sustainable premium rate to fund employment insurance benefits. I do not think that a higher rate should be implemented in Quebec, when we are talking about a predictable cost. From that perspective, it is a fairly solid insurance system.
Senator Ringuette: In your calculations did you also take into consideration the fact that the regular EI program provides maternity and parental leave, whereas Quebec is being charged $1.36 for the rest of the employment insurance program? Is this $1.36 sufficient for the entire EI program or are we charging people too much for regular EI benefits?
Mr. Bédard: This $1.36 includes all kinds of things, including the contribution of workers for ordinary benefits and sick leave and maternity benefits; they are all together. The $1.36 as such is not directly related to special benefits. When the department did the calculation, this amount corresponded quite closely to the cost of the new plan and they thought that it would be appropriate to adopt that rate. But there is no direct link. We see this when we hear that the rates will go up in the future. Why will they increase? It has nothing to do with the special benefits, and everything to do with the deficit generated by ordinary benefits. Establishing a rate on that basis makes no sense, it is not logical. It might be easy or administratively simple, but it is not the best reasoning.
[English]
Senator Carstairs: I would like to go to page 12 of your slide deck and your assertion that the Canadian Employment Insurance fund would have to be repaid $57 billion. In essence, this is a bit of a paper myth, because the monies have been in the general revenues for a great number of years. Since the general revenues are $55 billion in deficit, where do you anticipate the government will get the $57 billion to pay back this fund?
Ms. Charron: When we first read about the EI rate freeze for the two years, we saw it as an economic stimulus measure. Later on, when we looked into it further, we realized it was not part of these measures. It was simply a loan that would have to be paid back. One thing that we would like to see is that any leftover economic stimulus monies be put towards the fund. The other thing is, we would be okay with it being repaid over time.
We think this is an issue of principle. The thing that is most damaging is that these premium increases will occur at a time when the economy is picking up again. It could have a devastating impact on job creation. We think this possibility definitely needs to be addressed. The economic stimulus monies could be one way to look at it. We do not have all the answers, but definitely it should be considered.
Mr. Bédard: Could I interject? The Canadian Institute of Actuaries has taken a strong position on the general financing of the EI system and has said that, yes, there should be a surplus at least in the order of $15 billion to run us through recessionary times without increasing premium rates.
As to the $57 billion, where will the government come up with money to pay Canada Saving Bonds with all its obligations? These are promises that the government has made. Similarly, the government made a clear promise, written in the EI Act, that this money belongs to the EI system. Now the government is saying, and previous governments have said the same thing: We have spent the money, so no, it does not exist anymore.
That is like me going to my bank and saying to the banker: "I am sorry, I have spent all the money I borrowed from you, so I will not repay it."
Senator Carstairs: My other question has to do with the compassionate leave program, which is also to be extended to the self-employed. As minister responsible for palliative care, it was through my instigation that this benefit actually came about. It has never worked. It has not worked because it has not been well advertised. There has been little uptake. Even you identified a very small amount going to this. In this particular piece of legislation, we perpetuate the definition, where it says "with a significant risk of death within 26 weeks."
We know that parents simply will not admit that their children are going to die within 26 weeks. They will just not admit it, so they do not apply for it. Their doctors will not admit to them that their child will die within 26 weeks. The very people who need it the most are not applying for it.
Is that the reason why you put so little in your submission — I think you said $1 million — for compassionate leave?
Mr. Bédard: The compassionate leave system for the general EI system right now costs $10 million. Obviously, it will not cost very much in terms of this extension to self-employed workers. It is just the numbers.
Senator Carstairs: Exactly.
Senator Callbeck: Continuing on, Mr. Bédard, do you know why that compassionate care benefit has not been taken up more?
Mr. Bédard: That is not my particular area of expertise. I am sorry.
Senator Callbeck: For the benefits we are talking about in this legislation, if it was a stand-alone bill, you are saying the deficit in 2014 would be $68 million?
Mr. Bédard: It would be in the order of $70 million, yes.
Senator Callbeck: They told us yesterday $78 million. They said that the sickness and the compassionate care benefits would even out. Do your figures show that?
Mr. Bédard: Sickness would even out if the premium provision would be 0.9 per cent. Since premium rates will be higher than that, it will more than even out. There will be a small profit in that respect, because premium rates are going up.
Senator Callbeck: They also said that if it was a stand-alone program and the premium was increased by one cent, that would mean $1 million. If it is the whole EI, it is $110 million.
Mr. Bédard: Yes.
Senator Callbeck: You talked about prorating. I believe you were talking about the premium, that if you go out of business July 1, under this legislation, you will still have to pay the premium for the rest of the year, but you feel it should be six months.
Mr. Bédard: The prorating I was referring to is, if in future years someone joins in October, under this legislation they would pay premiums for the whole year. I would think there should be a simple prorating of three twelfths. However, they do have to wait 12 months, by the way. Why should they not, for the first year when they come in, pay a prorated premium? That is one thing.
For people who go out of business, say, on July 1, I assume there is no more income coming in afterwards, so are they really expected to pay premiums after July 1 if they are not earning any income?
Senator Callbeck: I thought they said yesterday they were.
Mr. Bédard: The income tax system runs on an annual basis. All of the income would have been earned prior to going out of business, I assume.
Senator Callbeck: You can only opt out at the end of the year.
Mr. Bédard: Yes.
Senator Callbeck: You pay the benefit for the whole year.
Mr. Bédard: You are paying the premium for the whole year, but I think the income effectively would have been earned before going out of business. Even though technically it applies to the whole year, in practice, I would think it only looks at the time when the business was operating.
Senator Callbeck: CFIB, you say the program should be voluntary and self-financing. You thought it would be a stand-alone program, which it is not. As I understand it, you want a two-year freeze on premiums, and yet there is a deficit. This will take whichever figure, $65 million or $78 million, out of the EI fund.
Ms. Charron: To be clear, in our consultation with Finance, we were told that this would be separate. That is the basis on which we are supporting this bill, because it would be separate and self-financed.
I have to be honest; the notion that it will not be separate is new to us. I think this could affect our support of the bill, if that is not the case.
Senator Callbeck: Yesterday when the officials were here, we were talking about how self-employed people would know that this program exists. This is now December. If you want to draw in 2010, you would have to opt in by the end of March of next year, which is a very short period of time.
One thing they mentioned is they thought that the businesses or organizations such as yourselves would play a big part in letting the self-employed know. Are you people planning a campaign on this program?
Ms. Charron: Typically, if it is something that we support, we have no problems doing that. We know that self- employed or business owners typically listen to their trade associations a bit more than government, if I may say so. Therefore, we would be open to promoting it.
That is something we have done in the past. We will work with the department in question in order to get the facts right and to ensure the message gets out, whether through the website, through newsletters or things like that. That is something we do regularly.
Senator Callbeck: Today you are not sure whether you would be supporting this legislation, is that right?
Ms. Charron: If it is separate and self-financed, we will support it. If it will add to the current problems with the EI account, then our support will have to be different.
When we consulted with HRSDC, it was explained that the program would be separate and self-financed. These were the principles we brought forward; we think it should be voluntary and self-financed. As I said in my presentation, these are the key principles as to why we support this legislation.
Senator Callbeck: You say your support will have to be different. Does that mean you will not be supporting it?
Ms. Charron: If it is not self-financed, it will be different.
Senator Callbeck: Thank you.
Mr. Bédard: Could I interject?
The Chair: Please.
Mr. Bédard: If this program is to be self-financing with respect to parental benefits, what it amounts to, in effect, is that people will be paying back the benefits they receive. In that sense, this is an advance on benefits which people then repay over their lifetime.
In respect to sickness benefits, it is an insurance program. Only a small portion of people receive benefits and there is a premium involved. However, with respect to maternity and parental benefits, this is simply an advance. It is not an insurance scheme of any sort. Everyone who joins the system either gets money or withdraws from it eventually. It has nothing to do with insurance.
Senator Mitchell: I am interested in that point. It seems to me that it will become self-selecting. If it is not mandatory, why would you pay into it unless you thought you would be having children? Of course, that is not a perfect science; you can certainly exclude yourself in many different ways.
Then, on the idea that you would actually pay it back, what if you decide never to go back into the paid workforce? You might not pay it back.
That raises the issue that if it is to be self-financing, it will become prohibitively expensive, I believe. That leads me to the next point, that it would be to the advantage of your membership to not be in a separate fund. That is probably why it has been put into a pool, because it is to everyone else's disadvantage; everyone else will subsidize that.
It will never work, it seems to me, if it is not mandatory — and I do not know how it could be mandatory — and if it is in a separate fund. My concern with that is this is a great program for women. Women are often disadvantaged in the workforce. They are particularly successful in their small businesses, but there is this impediment and disadvantage for them.
I think your approach would create impediments that would make it impossible to work. Somehow you have to look beyond that.
Ms. Charron: One of the things we heard about quite a bit from self-employed individuals when it came to maternity and parental benefits is that, although the idea is nice, a lot of self-employed individuals cannot take full advantage of that particular measure simply because they will lose their business. That is something that has come up a lot. We think the access to sickness benefits could potentially be the most attractive for our members, also looking at the demographics.
With respect to self-financing, we have a clear mandate from our membership. That is a guiding principle and we will be sticking to it.
Senator Mitchell: No matter what?
Ms. Charron: No matter what.
Senator Mitchell: That is good. I appreciate that.
The Chair: They are looking after their membership.
Mr. Bédard: The employment insurance program is a pooled fund. We do not have bits and parts of it. We do not have a self-financing pool for self-employed fishermen. We do not have a pool for the construction industry or for seasonal workers. We do not have lower rates for people in very stable employment.
If we start creating separate pools for this and that, where are we going with this sort of system? It is a social insurance scheme.
Senator Mitchell: If it is to be self-funded, why could not the Canadian Federation of Independent Business do it itself? That is what it will be if it is not to ever have a deficit; it is purely self-insurance, so set it up yourself. There is no reason for government to do it.
Ms. Charron: Another key principle we are attaching to the idea that it be self-financed is that it be reviewed regularly. If it goes into deficit, we are okay with the fact that it will have to be financed, even if it is with respect to rate increases. People will have the ability still to choose whether or not to go into it.
Senator Mitchell: Once you have had a child and taken your benefits and you go back, can you choose to opt out?
Ms. Charron: No. Once you have claimed, I believe you cannot opt out. You have to pay for it.
Senator Mitchell: You have to pay for it for the rest of your business days, unless you choose not to work or you put the business in your partner's name or your spouse's name or something.
Ms. Charron: We believe our members want the choice to decide whether or not to participate.
Mr. Bédard: That obligation to pay for life applies to someone who receives one week of sickness benefits, which is abusive in my point of view.
The Chair: Mr. Bédard made that point earlier, that once you are in on the benefits side, you are in on the premiums side from then on.
Flowing from Senator Mitchell's point, could either of you talk about the accounting principle of adverse selection? If it is a voluntary program and the price goes up too much, fewer people will opt in and that makes the price even higher if you want to get into self-sufficiency and self-sustaining. Fewer people will opt in and pretty soon the program falls apart.
Mr. Bédard: You get an inflationary spiral at some point. Who knows when and where it will happen, but if you insist on self-financing, at some point you will have to raise premiums because more people will join.
Senator Mitchell: Then, as you raise premiums, more people drop out.
Mr. Bédard: That is right. Then you are left with the bad risks and the high costs. At some point it breaks down.
The Chair: Ms. Charron, it seems that your insistence upon voluntary self-sufficiency may lead to that. Can you comment on that?
Ms. Charron: I do not have an actuarial background. I would have to do more research. As of now, I cannot expand. We have been given the principles of how this program will work. We believe there are details to come out. We will obviously wait for them and look into them as we get more information. As of the moment, I cannot comment.
The Chair: As lawmakers we are always nervous when there are more details to come out. "Just pass this and trust us" causes us great angst.
Senator Di Nino: Senator Mitchell did a very good job of dealing with the point I wanted to raise on the separate and self-financing aspects. I give him that compliment because it truly would be a very difficult program to administer, as was said. Under certain circumstances it would become so expensive it would be useless. If someone wants something self-financing and totally separate, he or she can go to an insurance company, and they do not have to deal with the government. That is probably the reason why the government opted for inclusion in the total package, which is probably a lot easier for all involved.
Ms. Charron, how many members are in CFIB?
Ms. Charron: We have 105,000 members.
Senator Di Nino: Are they from across the country?
Ms. Charron: Yes. We represent every sector of the economy in every province, including the territories.
Senator Di Nino: Does Quebec have a fair representation?
Ms. Charron: We have 24,000 members in Quebec.
Senator Di Nino: The statistics that you gave us were not broken down by regions. Were they generally supportive across the country?
Ms. Charron: With respect to this measure?
Senator Di Nino: Yes.
Ms. Charron: I do not remember them off the top of my head. We could probably get them to you, if you like. I think it was quite representative across the country. Perhaps in Quebec — and I am just going off the top of my head because I do not remember the actual numbers — they were slightly more supportive.
Senator Di Nino: There was no difference in support, and if anything Quebec may have been a little higher than the rest of the country?
Ms. Charron: That is my sense. I would have to look it up. I would gladly get you those results if you would like them.
Senator Di Nino: No, I just wanted to ensure we were not looking for major differences across the country. That makes my point.
Mr. Bédard, you have been before of our committee more than once. You are always very informative.
The so-called EI surplus that, over the years, many have commented on, including the comment to the effect that past governments have used the surplus to pay down the deficit when they said there were no additional taxes, et cetera. That is yesterday.
I agree with Senator Carstairs that it is very difficult to look at this fund now and say there is a pool of money somewhere that amounts to a surplus. These funds have been used for the benefit of Canadians over the years. I think we must assume that that pool of funds is not there.
Would you not agree with me that the Government of Canada guarantees, in effect, that if there is a shortfall in the EI account they will pick it up? Is that not correct?
Mr. Bédard: Of course, yes.
Senator Di Nino: Regardless of whether it is $2 billion or $150 billion at any particular time, even though this account, surplus or deficit, may not exist, there is still a guarantee from the Government of Canada that the needs of the people under the EI program will always be met regardless of what those numbers are.
Mr. Bédard: There is a guarantee currently that the government will increase the premiums as well.
Senator Di Nino: That is done, if I understand correctly, by moving it away from purely government run to a semi- independent or independent board that would deal on behalf of Canadians and make it — to the degree it is appropriate — self-financing, if you wish. Is that correct?
Mr. Bédard: That board is indeed a very sound idea. The only thing is that they have not been given the leeway that would really allow them to establish stable premium rates. It would seem that this could be done by providing them with some reserve fund in the order of $15 billion. Given that EI contributors have already over contributed by $57 billion, wiping the slate clean would seem to at least require some accommodation or giving that board additional funds.
Senator Di Nino: I do not particularly agree with that. It is an option, but whether it is $15 billion, $100 billion or $2 billion, at some point in time we could go through another very difficult period where the amount is not sufficient. Is it not better to say. "We will always have the money to pay for the needs of Canadians, and on an ongoing basis — depending on the ability of Canadians to pay and the economic conditions of the day in the country — we may have to raise the premiums, freeze the premiums, and hopefully someday even reduce the premiums because of a surplus?"
Mr. Bédard: It certainly is part of the government's responsibility to guarantee the payment of EI benefits. That has been the case since 1940. Of course that must stand.
The Chair: I would like, on behalf of the Standing Senate Committee on National Finance, to thank Ms. Charron and Mr. Dawkins for being here on behalf of the Canadian Federation of Independent Business.
[Translation]
Mr. Bédard, I want to thank you once again for appearing before our committee. Your testimony is extremely important to us and is helping us a great deal.
[English]
Honourable senators, before I adjourn this meeting, we had this one issue of the benefits for compassionate care that we have not explored. I am wondering if there are any other issues on this particular matter.
Also, Senator Di Nino, are you aware of when we might receive this bill. We must have clause-by-clause consideration but we cannot do that until we have the bill.
Senator Di Nino: I understand it will likely be on Thursday, but I will confirm that and let you know to the degree that I can.
The Chair: If you could.
Senator Di Nino: The house also has its own peculiarities, but we look forward to receiving it on Thursday, generally speaking.
The Chair: For planning purposes between now and Thursday, we could find a time for a session — maybe twelve until one tomorrow — to deal with this one outstanding issue, unless honourable senators have other witnesses they wish to hear on the bill. Then we will be done and be ready for clause-by-clause consideration when it comes.
Senator Di Nino: I think that will be fine.
The Chair: Twelve to one tomorrow? We get out of caucus at 12, so perhaps 12:15 to 1:15?
Senator Di Nino: We could even ask permission to sit while the Senate is sitting.
The Chair: We have permission to do that if we need to.
Senator Di Nino: That may be a better solution; to sit at three o'clock tomorrow for an hour.
The Chair: We can sit at any time.
Senator Di Nino: Caucus sometimes goes a little longer than scheduled. We all have a commitment to be in the Senate from 1:30 on tomorrow, so we could inform the house that our committee will meet while the Senate is sitting tomorrow.
The Chair: I expect Senator Gerstein and I will be required to speak on two matters tomorrow, one being the report on Bill C-51, and the other on this report for the Main Estimates. We will have to be in the chamber.
Senator Gerstein: Perhaps earlier might be better.
The Chair: Leave that with me. We will try to see if we can get a witness or two on that one issue. If there are any others in the meantime, please let us know. Otherwise, we will await, with eager anticipation, the arrival of Bill C-56 from the House of Commons.
(The committee adjourned.)