Editorial: EI premiums not tax revenues

Stephen Harper’s promise to reduce “payroll taxes” by 20 per cent in 2017 seems to indicate he doesn’t know the difference between a tax and a premium paid for a specific purpose, which might explain why his government has been using Employment Insurance premiums as general tax revenues.

In crowing about a $1.9-billion budget surplus, Harper did not mention that EI overpayments contributed almost $3 billion to federal general revenues last year, which takes the shine off his balanced-budget boast. In using the EI surplus for general revenues, the Conservatives, like governments before them, have made a tax out of what is supposed to be a premium.

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Despite what Harper says, EI premiums and Canada Pension Plan contributions are not payroll taxes, but payroll deductions. That is, they’re premiums paid by workers in exchange for a specific benefit, unlike income taxes that, although they do provide benefits, go into general revenue. EI provides a cushion when a job is lost. CPP provides retirement income, and for too many workers, it will be their only pension income.

Harper refers to “dangerous Employment Insurance and CPP tax hikes” promised by both Liberal Leader Justin Trudeau and NDP Leader Thomas Mulcair, but his is the more dangerous approach. These programs should not be trifled with to gain political points.

The Conservatives have known for years that EI premiums have been excessive, bringing in far more than was paid out. But they have been happy to keep the fount of revenue flowing.

They are not the only government, of course, to happily lap up EI surpluses. Liberal governments in the 1990s used EI revenues to balance budgets, something the Tories promised they would change when they came to power.

When Harper became prime minister in 2006, he could have ensured EI was run as a proper insurance fund, overseen by an independent body, as is done with the Canada Pension Plan. But he did nothing, except to set up, and later dismantle, a board that was supposed to set premiums that match the amount paid in with the amount paid out.

And while the government was taking in its billions, eligibility rules changed, requiring employees to work more weeks to qualify for lower benefits.

So much for easing the burden on taxpayers, particularly ones who find themselves without jobs.

CPP contributions, unlike income tax deducted from paycheques, are not swallowed up by the government, but are invested under the watchful (and independent) eye of the CPP Investment Board, which is considered one of the world’s most respected pension-fund managers, according to Alan Freeman, a senior fellow at the University of Ottawa’s Graduate School of Public and International Affairs.

A worker’s CPP contributions — as well as those from his or her employer — remain in the fund, no matter how many times the worker changes employers. It’s a good system and it should be expanded. That would mean raising contributions, but it would not be money wasted — it would mean better retirement income.

Employment insurance is just that — insurance, the spreading of risk among a large pool of people. If payouts are substantially less than what comes in as premiums, consideration should be given to lowering the premiums. But care should be taken to keep a surplus for those troubled times when outgo exceeds income. It would be better if EI were operated under an independent body, as CPP is, out of the reach of opportunistic governments.

CPP and EI premiums are contributions to necessary, beneficial programs. They were created for specific purposes; they should be used only for those purposes.

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