Proceedings of the Standing Senate Committee on
Issue 19 - Evidence - Meeting of December 7, 2009
OTTAWA, Monday, December 7, 2009
The Standing Senate Committee on National Finance, met this day at 1:04 p.m. 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.
The Chair: I call this meeting of the Standing Senate Committee on National Finance to order. I thank all honourable senators and staff for being here and helping us on yet another one of these bills we have been told the government is anxious to have before we adjourn for our usual Christmas/New Year break.
On December 2, the committee was authorized to undertake a pre-study of Bill C-56, which means, in effect, that we have an opportunity to study the bill before it is received from the House of Commons. I point out to honourable senators there is always a possibility of a bill being amended in the House of Commons and that we are reviewing a bill which could subsequently be amended. Of course, we would have to focus on that at a later stage.
This bill is currently at third reading in the other place.
This afternoon we will be hearing from government officials who will help us better understand the provisions of the legislation. I also understand a general briefing session was held earlier today — some honourable senators may have had an opportunity to attend — all with a view to trying to understand the policy and how the policy will be implemented through this particular piece of legislation.
From the Department of Human Resources and Skills Development Canada, we welcome back Mr. Frank Vermaeten, the Senior Assistant Deputy Minister, Skills and Employment Branch.
He is accompanied by his colleague Louis Beauséjour, Director General, Employment Insurance Policy, Skills and Employment Branch, Human Resources and Skills Development Canada. Welcome, Mr. Beauséjour.
Finally, we are joined by Mr. Philip Clarke, Director General of Benefits Processing at Service Canada.
That sounds like quite a team and quite a bit of expertise. Gentlemen, we welcome you. Do each of you wish to make a few introductory remarks? If so, who will begin?
Frank Vermaeten, Senior Assistant Deputy Minister, Skills and Employment Branch, Human Resources and Skills Development Canada: I will begin.
On November 3, the Government of Canada tabled legislation to make employment insurance special benefits available on a voluntary basis to the self-employed. Those special benefits are: maternal, parental/adoption, sickness, and compassionate care benefits.
I would like to take a few minutes today to provide some context on who the self-employed are and information on the contents of Bill C-56. I would also attempt to go beyond the material that has been provided publicly in order to give you some additional insight into the design of the program.
Let me begin with a brief description of who the self-employed are.
The government believes that the self-employed play a key role in Canada's economic success; not only because of their significant numbers in the workforce, that is, about 2.6 million Canadians in 2008, making up about 15 per cent of the Canadian workforce, but also because of the ideas, innovation and jobs they generate. It is the government's strong belief that the self-employed will play a vital role in our continued productivity and in our economic recovery.
Senators, I am sure you are aware that, in Canada, the self-employed are a very diverse group in terms of who they are, what they do and how much they earn; so I will not trot out a whole range of statistics.
The one statistic I do want to put into record, however, is the gender makeup of the self-employed because I do know this issue is of significant interest to many of you. The majority of the self-employed are male, approximately 65 per cent in 2008. That said, self-employed women are an increasingly important driver of innovation and job creation in the country, and about one third of these women are of childbearing age.
Self-employed workers generally have little or no income protection for life- transition events, such as the birth of a child, adoption, illness and care of a gravely ill family member. Survey results indicate that the self-employed have a long- standing interest in acquiring assistance to deal with a number of different types of life-transition events. Specifically, the publicly available 2009 EI Tracking Survey found that the self-employed have significant interest in receiving sickness (86 per cent), compassionate care (84 per cent), parental (65 per cent) and maternity (62 per cent of women) benefits.
Bill C-56 attempts to address this issue by making available on a voluntary basis income protection for these events. In designing the system to provide these benefits, the overarching principle the government adopted was to mirror, to the greatest extent possible, the self-employed system already in place for its employees. This principle inspired the name of Bill C-56, Fairness for the Self-Employed.
This means that the self-employed would have access to the same number of weeks of EI special benefits as employees with insurable hours of employment: maternity benefits to a maximum of 15 weeks for the physical recuperation of the birth mother; parental benefits to a maximum of 35 weeks benefits for taking care of newly-born or adopted children; sickness benefits to a maximum of 15 weeks; and compassionate care benefits to a maximum of 6 weeks.
Most other parameters also mirror the current system. The income replacement rate would also be the same. It is 55 per cent for the insured earnings of up to the maximum insurable earnings, set at $43,200 in 2010. Other program parameters, such as the two-week waiting period and the treatment of earnings while on claim, would be the same.
Self-employed Canadians who opt into the program would pay the same EI premium rate as salaried employees. This makes the new benefits affordable in comparison to what the private sector would charge for the same kind of protection. They would not be required to pay the employer portion of premiums in recognition of the fact that they would not have access to regular EI benefits.
For 2010, the EI premium rate for the self-employed would be $1.73 per $100 of insurable earnings. This is the same as for employees. In Quebec, the EI premium rate would be $1.36 per $100 of insurable earnings, the same rate that employees in Quebec pay. This reduced rate in Quebec reflects the fact that maternity and parental benefits are already provided to the self-employed through the Québec Parental Insurance Plan, QPIP, on a mandatory basis.
Self-employed residents of Quebec will continue to receive maternity and parental benefits through QPIP as provided by the Government of Quebec. In addition, they will now be able to take advantage of the sickness and compassionate care benefits offered by the Government of Canada through the EI program.
As indicated, while the overarching principle is to mirror the current system of special benefits currently available to employees, some aspects and program parameters have been adjusted to reflect the unique circumstances of self- employment. Most important, participation for the self-employed would be voluntary. This reflects that self-employed are a very diverse group and that not all will want to take advantage of this new system by any means. They will have to make their own decision.
Having said that, although self-employed may choose to opt into the program, once they have made a claim, they must continue to make contributions on self-employed income for the rest of their working lives. This requirement to pay premiums for as long as they have self-employed earnings is similar to the existing EI program where participation is mandatory. The government's view is that without such a condition, the program would be financially irresponsible.
The program for the self-employed also differs from the system for employees in terms of how the eligibility threshold is calculated. The self-employed do not report hours of work and there is no way of verifying the number of hours worked, so the eligibility threshold for this measure will be based on earnings and not hours. Specifically, a self- employed person will have to have earned at least $6,000 in the previous calendar year to qualify for benefits, which is comparable to meeting the 600-hour threshold for an employee earning $10 an hour. This amount will be indexed beginning in 2012.
Another important difference is that the annual contributions and income upon which benefits are set are based on prior year's income, and the self-employed would have to contribute to EI for at least a year before they could claim benefits. While, generally, the waiting period will be one year before claims can be made, during the first year of the measure, there will be a transitional period during which anyone opting into the measure on or before April 1, 2010 would be able to apply for benefits by January 1, 2011. Effectively, this shortens the opting-in period and gives individuals the time to familiarize themselves with this new measure.
Instead of deducting at source, premiums would be assessed and collected through the tax system by the Canada Revenue Agency, much like self-employed installments for the Canada Pension Plan. For 2010, premiums would be paid by the self-employed when they file their 2010 tax return in the spring of 2011.
Now that I have provided you with a description of the program, I would like to finish by covering two additional areas discussed during the study of Bill C-56 by the House of Commons Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities, HUMA. First, what are HRSDC's projections for how many people will sign up and the associated financial implications? Second, is the premium rate fair? We have provided the material to you handed out at HUMA. I hope you will find this useful.
First, our best estimate regarding the projections is that between 300,000 to 500,000 self-employed Canadians are expected to apply for this coverage over the next three to four years. This estimate can be divided into two components — those who sign up with the primary motivation to be able to receive maternity and parental benefits and those who are more interested in sickness and compassionate care benefits.
For the first group, we have a good handle on how many will apply by looking at the QPIP experience. It is adjusted upward to reflect the number of self-employed outside of Quebec and adjusted downward to reflect that this is a voluntary program. We expect a high claim rate and that the provision of maternity and parental benefits will be the most costly component of special benefits for the self-employed.
For the second group, those primarily interested in sickness and compassionate care benefits, it is more speculative because these benefits are currently not available on a voluntary basis. The number of people who sign up could be significantly more or less. That said, the number joining should not have a significant net financial impact on the EI account as the benefits paid to a typical self-employed individual should be the same as the premiums collected.
Based on our projections of the number of self-employed opting in and the claim rate, we expect the system to be largely self-financing. However, the exact impact will take a number of years to determine as the system matures. Our best estimates are that it could require an EI premium rate increase for all contributors outside Quebec by about one cent.
The reason Quebec premium payers would not be subject to the potential one cent general increase is that, as I indicated earlier, the premiums collected from those opting in primarily for sickness and compassionate care should closely match expenditures for sickness and compassionate care. Any shortfall in the EI account would come from the provision of maternity and parental benefits and to the extent that a rate increase is required — the one cent I mentioned — it would come from premium payers outside Quebec.
Second, is the premium rate — $1.36 per $100 of insurable earnings in Quebec — appropriate given that the province already provides maternity and parental benefits? This was discussed extensively at HUMA.
Our opinion is that the proposed rate policy is absolutely appropriate. The reasoning for the chosen premium rates for Quebec and the rest of Canada is based on well-founded and important principles, administrative simplicity and fairness to both the self-employed and premium payers writ large.
We would be pleased to elaborate on this over the next two hours, but in short, our projections show that the typical self-employed individual in Quebec will receive benefits roughly equivalent to what the individual pays in premiums. This is the essence of fair insurance. Moreover, it is a lower rate than what is generally available in the private sector and other insurance schemes. The Government of Canada is making this new measure available to self-employed on a voluntary basis.
Honourable senators, I hope you have found my remarks useful and you have a better understanding of Bill C-56, Fairness for the Self-Employed. I am sure you have questions. My colleagues and I would be happy to answer them.
The Chair: Before I go to my list of questioners, I want to point out that the bill to achieve this is 56 pages long and has 37 or more clauses. The issue seems to be straightforward. Is it so complicated that it requires this complex legislation to bring it into force?
Mr. Vermaeten: The heart of this is relatively straightforward. A large part of the bill is replicating what is currently in the existing bill for employees. To a large degree, it mirrors that with a few new sections. What is actually new is smaller than the 56 pages in the bill.
The Chair: I also note that the coming into force of clause 37 (1) occurs on the later of the day on which the act receives Royal Assent and January 1, 2010. Is that correct?
Mr. Vermaeten: Yes. Let me explain in terms of what I indicated. People will be signing up for this and there is a one-year waiting period before they can receive the benefit. We are expecting that while this comes into force January 1, people will start signing up toward the end of January 31, which is our "go-to-live" date, when people will be able to register. Then there is a one-year waiting period before they can collect benefits.
This year, because it is a new program and it will take a while for people to familiarize themselves with it, they will have until March 31 to sign up and still be eligible for benefits starting January 1, 2011.
The Chair: March 31 is when they file their income tax. If they are opting for the program, would they pay the amount in their income tax in 2010 for those few months?
Mr. Vermaeten: Not quite. To opt in, they register with Service Canada. Though they will pay the premiums ultimately to CRA through their tax returns, the actual registration is done with Service Canada.
The Chair: To be clear, they must register before they pay into Revenue Canada. Assuming this comes into force January 1, they can register any time between January 1, 2010, and March 31, 2010 with Service Canada. Then in their income tax return that they file in April, if they register and opt into the program, they would include a payment, is that correct?
Mr. Vermaeten: Not quite. My apologies if I did not explain it properly. Registration starts January 31, 2010. People will be registering on an ongoing basis. Initially, we expect there will be a bubble of people who want to register immediately. We will give them until March 31 to register and be eligible for benefits starting January 1, 2011.
If they register after — and they will, on an ongoing basis as this is a permanent feature of the program; in June, for example — they will have to wait one year before they become eligible for benefits. If they register the following June, again, it will be one year after that before they become eligible for benefits.
We need to distinguish the registration or opting into the program from the payment of premiums. Payment of premiums will not happen until tax time for the 2010 year, which is typically April to June of 2011. We need to distinguish between the registration and when they go through the process of paying their taxes. They will be paying their taxes in the spring of 2011 for the premiums they owe for the 2010 year.
The Chair: So it is in arrears?
Mr. Vermaeten: It is not due until then. In future years, once they have registered and made their first payment at tax time, their quarterly installments will be adjusted, just like for CPP, where they will get their quarterly bill and make their payments as they go along through the course of the year. Then there will be a reconciliation at tax time.
The Chair: Just to clarify: If the bill has been passed and a self-employed person opts for the program between the end of January and the end of March so they are covered for 2010, they can make their first claim January 1, 2011. When do they make their first premium payment?
Mr. Vermaeten: The will not hand over a cheque until spring 2011. Though they incur the liability and owe the money to CRA, they do not pay until later in the year.
The Chair: I now call on the opposition critic, Senator Callbeck.
Senator Callbeck: I have several questions. If, in January 2012, the program is operating and you opt in as a self- employed person and then on July 1 you close your business, do you still have to pay the premiums for the entire year? There are six months there. Will you be able to get the benefits from July to December even though you are no longer self-employed but are paying the premiums?
Mr. Vermaeten: I know you asked this question of us previously. We have since discussed this with our CRA and Service Canada colleagues on exactly what the rules are.
The answer is that in a situation where someone halfway through the year or at some point ends their business, they are still liable for the premiums for the full year. As a general rule, we are covering loss of income for the full year. In the case of maternity/parental, after July 1 if the business is closed, they will still be able to receive their benefits.
In the case of sickness, they will not be able to receive the benefits because they are essentially otherwise not available for work. That same rule is used under the current system, whereby you have to be available for work to get sickness benefits.
Senator Callbeck: If you close your business July 1, you are paying the premiums until December, but you will not be able to get sickness or compassionate care benefits. Is that what I am hearing?
Louis Beauséjour, Director General, Employment Insurance Policy, Skills and Employment Branch, Human Resources and Skills Development Canada: You would be able to collect compassionate care, but not sickness.
Senator Callbeck: Not sickness, but you can get the other three benefits.
Mr. Beauséjour: Yes, because sickness, in the act right now, is the only special benefit where you have to be available for work to get the benefit. When we introduced the self-employed measure, we wanted to mimic what was already existing for the employees.
Senator Callbeck: That clears that up.
If you have your own business and you are paying into this fund, and then you close your business and go to work with someone else on July 1, you will pay the employment premiums. Therefore, for six months, you will be paying two premiums; you will still have to pay the premium for the self-employed, because that has to go until the end of the year, plus you have taken a job on July 1, so you will have to pay the employment premium there. Am I correct in that?
Mr. Vermaeten: I think generally, yes. You will be paying both premiums; but in total, you will only pay up to the maximum insurable earnings. In a large number of cases, you will, on a net basis, be paying one premium rate and it is on the $42,300 maximum.
Senator Callbeck: You wrote a letter, and I think the information is in one of the documents that you presented here this afternoon although I have not had time to look at it. It was written to Mr. Dean Allison, the chair of the standing committee in the other place.
I would like to ask you about the figures therein. In your presentation today, you said:
That said, the number joining should not have a significant net financial impact on the EI account as the benefits paid to a typical self-employed individual should be the same as the premiums collected.
In other words, it will be cost neutral between the benefits and the expenditures. According to your letter, 2014 shows that it will not be neutral, that there will be a $78 million shortfall. Is that right?
Mr. Vermaeten: I would be pleased to explain that. You are referring to the part about the projections on the number of people who would opt in for sickness and compassionate care. We said that the revenues from those opting in primarily for the purpose of sickness and compassionate care would be about the same as the benefits we expect to pay out, and it is based on our claim rate. Our projections show that it is basically fair insurance. It would break even.
The maternity and parental side of the program is the most expensive part. In that case, we do not think that the premiums for those interested primarily in those benefits would cover fully the costs. If our mid-point projections are correct, there would be a $78 million shortfall in premiums collected.
We have a very good handle on how many people will join the program to receive maternity and parental benefits. It is a costly measure and will be a drain on the system because the total in premiums collected will not equal the total benefit paid out.
On sickness and compassionate care benefits, we do not know how many people will sign up. It is voluntary so people will have to assess their own situations to determine whether they will opt in. We might have a significantly lower take-up rate than the 400,000 we have as our mid-point, or we might have significantly higher take-up for the sickness and compassionate care benefits. It should not impact the EI account very much because those premiums and benefits should offset each other.
Senator Callbeck: The overall benefits proposed in the bill estimate that it will affect the EI account by $78 million. Why did the government not consider a higher premium so that $78 million would not have to come out of the EI fund.
Mr. Vermaeten: We are trying to design a system that provides important benefits to the self-employed, that is affordable for the individual and that balances the needs of the overall ratepayers. If we had chosen a higher rate, for example 5 per cent rather than 1.73 per cent, it is likely that not as many people would sign on to the program, which would mean lower premiums collected. It is not clear to us whether the account would then be in balance. Our projections show that the rate that we have chosen balances the needs of the self-employed and the overall ratepayer. A higher rate would not be affordable for the self-employed, fewer people would sign up and you would still have a deficit in the account in that respect.
Senator Callbeck: According to your figures, a one cent increase on the EI account would create $110 million.
Mr. Vermaeten: That is correct.
Senator Callbeck: If the EI account were a stand-alone fund, what would a one-cent increase mean?
Mr. Vermaeten: I am not sure I understand the question.
Senator Callbeck: Let us say that the legislation we are talking about today included a stand-alone fund rather than the EI fund, how much extra revenue would a one-cent increase in the premiums mean? You said that if it were stand-alone, we would be $78 million in the hole in 2014. How much would you have to add to the premium to make the figures balance and avoid that shortfall?
Mr. Vermaeten: Is that the premiums for the self-employed?
Senator Callbeck: Yes.
Mr. Vermaeten: Our estimates show that you cannot make it 100 per cent break even in all situations because if you increase the rate, fewer people will sign up for the program. There is an optimal rate because it is much like the Laffer curve in that if taxes are increased too much, revenues realized will begin to decrease at some point. If the premiums are increased too much, the revenues derived will begin to decrease. It is not an exact science, and we have estimated figures, which are subject to some error. Essentially, we want a revenue-maximizing rate. If the rate is too high, fewer people will sign on to the program, thereby reducing premium amounts collected and if the rate is too low, the deficit will increase because a lesser amount will be collected in premiums.
Senator Callbeck: Do you have an estimate of the figure if there were a one-cent increase in the premiums? You said that on the EI account it would produce $110 million. If this were a stand-alone bill, do you have an idea of how much a one-cent premium increase would bring in?
Mr. Vermaeten: It would be a fairly small amount, I suspect. Perhaps it would be about $1 million, but that does not take into account any behavioral response. We could increase rates until we had enough to cover $78 million. Let us say that I am correct in saying that a one-cent increase would raise $1 million, then if it is raised 78 cents, we should have $78 million. That would work if there were no behavioral response, but it is likely that we would find fewer people had signed on to the program.
Senator Callbeck: I agree with you.
Senator Lang: I thank the witnesses for their clear and concise description of what the legislation is intended to do. Some cases are "overdone," so it is nice to see the government is prepared to take the time and effort to help small business owners to obtain benefits, in particular maternity leave and parental benefits. The statistics provided to the committee indicate that more and more women are going into business for themselves and, to date, have not had maternity and parental benefits. Certainly, it will help many people in the near future.
A concern of mine is that once the bill is enacted, it will be very important to inform those who would take advantage of the program so that they are able to determine whether to opt in. Perhaps one of the witnesses could give the committee a brief outline of what is expected once Bill C-56 is passed in terms of informing the general public and those who would be eligible.
Philip Clarke, Director General, Benefits Processing, Service Canada: We are working on a comprehensive communications campaign to ensure that all possible beneficiaries of this program will be aware and fully informed of their rights and obligations. We will do targeted outreach through private public sector partners, such as the Canadian Payroll Association, and make extensive use of the Service Canada website to ensure that people understand the program fully. We will use our other government department partnerships, such as the Canada Revenue Agency, to get the message out to specific segments of the population. Those are three strategies that we will put in place to ensure that the entire population is fully aware of the program.
Senator Lang: Has any thought been given to the idea of corresponding directly with those small businesses to let them know that this is happening?
Mr. Clarke: I do not know whether we have an arrangement with the CRA to use their mailing lists. I am not sure whether our MOU would allow a cross-promoted program based on their record of who declares self-employed earnings. We will work with the CRA to fine-tune a list of people to whom we could send an information insert. You asked for a specific letter. I do not know that we could do that.
Senator Lang: An insert?
Mr. Clarke: Yes. That is a fairly straightforward method that we use on a regular basis to communicate with this particular population around changes like ROE Web, et cetera.
Senator Lang: To clarify for the record, everyone who would be eligible will get an insert one way or another through the mail?
Mr. Clarke: One way or another, yes, we will reach the targeted audience.
Senator Ringuette: You have identified the amount of shortfall. What is the total identified revenue?
Mr. Vermaeten: The revenue base will increase over time as more individuals sign up. In the information provided, we included a flow of how many people will sign up. By year four, I think we have around 400,000 people will sign up.
The revenue base will grow, and we will be collecting approximately $200 million of revenue by the time we hit year four.
Senator Ringuette: Is the $78 million shortfall that you have identified in year four related to the $200 million in revenues, or is the shortfall in year one?
Mr. Vermaeten: In the information we have provided, you will see that there is a flow. In the first year, we are collecting more revenues than we are paying out in benefits, because no benefits will be paid in year one. There is an annual surplus or contribution.
I want to emphasize that this is a mid-point projection. Much will depend on exactly how many people sign up, their income profile, et cetera.
Senator Ringuette: What are your benefit projections for year four?
Mr. Vermaeten: Our benefit projections for 2014 are a little under $300 million with revenues of a little more than $200 million. Therefore, we have a shortfall of $78 million, if our mid-point projections are correct.
Senator Ringuette: I believe that you are all intelligent people. I know that you did a comparison of what the income and the benefits would be if this were a mandatory program versus a voluntary program. A portion of this measure is already in place as a mandatory program in Quebec. What would the number be if this program were mandatory?
Mr. Vermaeten: I do not have the numbers off the top of my head. I do not think we explicitly looked at that. It is fairly clear that if it were a mandatory program, there would be a lower rate, but the lower rate would be paid by a broader range of self-employed people.
Senator Ringuette: Self-employed people do not know if they will be sick one day, and they do not know if they will have to care for a family member. That is an unknown factor.
I am certain that you have made the calculation if this were a mandatory program under which all self-employed would contribute and benefit.
What are the numbers?
Mr. Vermaeten: I do not think we actually did that. We were given a mandate by the government to design a voluntary system. It was an important principle for the government not to force self-employed to sign up if they did not want to, so we did not do a lot of work on that possibility. There is no doubt that it would be significantly lower, that it would require payments by a much broader number of self-employed.
Senator Ringuette: I come back to my question. I want a yes or no answer. Have you done the financial analysis if this were a mandatory program?
Mr. Vermaeten: To the best of my knowledge, no.
Senator Ringuette: You are the people responsible for the program, so "to the best of your knowledge" must be erased. It is either yes or no. Either you have done it or not.
Mr. Vermaeten: To the best of my knowledge, no.
Senator Ringuette: Okay.
With regard to the $78-million shortfall, I recognize that maternity and parental leave will comprise most of the requests under the program. What is the comparable percentage between sickness and parental leave?
Mr. Vermaeten: Two thirds of the cost would probably be maternity/parental and one third sickness and compassionate care.
Senator Ringuette: Two thirds of the cost, so that is 73 cents per hundred?
Mr. Vermaeten: A dollar seventy-three.
Mr. Beauséjour, could you please refresh my memory? Under the regular Employment Insurance program, what are the parameters for receiving benefits for sickness, maternity, and so on? What are the criteria in the regular program?
Mr. Beauséjour: The eligibility criteria require people to have worked 600 hours in a qualification period made up of the previous 52 weeks.
Senator Ringuette: No matter the region?
Mr. Beauséjour: It is 600 hours, no matter the region.
Senator Ringuette: So this has really the same prerequisites?
Mr. Beauséjour: Exactly. It reflects the fact that the qualification criterion is based on earnings not hours.
Senator Ringuette: Right.
Senator Gerstein: I want to clarify some assumptions. Does a low-earning individual who is not required to pay tax have to file an income tax return? If that is so, is the incentive to qualify for the GST rebate the filing of an income tax return?
Mr. Vermaeten: You would have to ask CRA that.
Senator Gerstein: Okay.
This is a voluntary program for which one can apply. Did I correctly understand you to say that once in and making a claim, you have to stay in?
Mr. Vermaeten: That is correct.
Senator Gerstein: The key is making a claim. You could get in and get out if you had not made a claim?
Mr. Vermaeten: Yes. Would you like me to explain that?
Senator Gerstein: Yes, I am looking at process.
Mr. Vermaeten: We have designed the policy to recognize that the self-employed will find themselves in a variety of situations. The idea behind signing in, and making a claim and continuing to pay benefits on your self-employment income, if you earned self-employment income, is simply that you could not run a very financially responsible insurance system otherwise. If someone were able to opt in, let us say have a child, make a claim for $20,000 of benefits one year, have a second child, receive another $20,000 of benefits and then opt out and no longer pay premiums, that would not be financially responsible and the potential shortfall in the account would increase significantly.
I do not know if Canadians would think that is fair, that someone could come along, get the benefits and not pay. However, we have tried to design it in the same way as for employees in that once they opt in and make a claim they have to make ongoing contributions.
We do allow individuals to opt out if they have not made a claim. You can imagine someone who might sign up with the primary motivation being maternity and parental. They are thinking of starting a family. They sign up and two years down the road decide this will not work for them for whatever reason. We would allow them to opt out. It may be for sickness. They decide to opt in and then decide they cannot afford to pay this, or whatever the reason; they can opt out as long as they have not made a claim. Once they have made a claim, for basic fairness and financial soundness of the program, we require them to make ongoing contributions.
The Chair: Let us make it clear on the record. You cannot opt in for sickness and not opt in for maternity benefits. When you are in, you are in; and when you are out, you are out; and all the benefits are included?
Mr. Vermaeten: Correct, all the special benefits when speaking about outside of Quebec. We have no way of knowing what the motivation is for someone to join. Are they signing up for this or that benefit? What is the primary motivation? I would argue that in some cases some people may not know themselves. They may think they are initially signing up due to the worry of income protection through maternity and parental benefits. A year or two down the road, their needs could change and they are making a claim for another purpose.
The Chair: I have another point of clarification. You talked about the cost of this program. You anticipate two thirds maternity/parental, and the sickness and compassionate side is likely to be one third. The reasons for opting in on the program seems to be reversed compared to the figures you gave here. The self-employed have a significant interest in receiving sickness and compassionate benefits, up in the 85 per cent range, whereas parental and maternity is down in the 60 per cent range. In other words, the interest for getting in is reversed from the costs of running the program. Is that correct?
Mr. Vermaeten: I think so. Perhaps the way to describe it is the intensity of desire to get in would probably be strongest for those interested in maternity and parental benefits. Someone who may be fairly confident that they will have children, fairly confident that they fall into the income range where they would receive benefits and fairly confident that they will take time off would have a strong motivation for signing up. Therefore, a strong, intense desire to sign up versus someone with sickness and compassionate care where there may be more uncertainty. They may be feeling healthy now but want protection and it seems financially like a fairly good deal so they would sign in. There are different levels of desire, I would argue.
The Chair: Your maternity benefits under the existing program — and this will be continued assuming this legislation gets passed — for those self-employed who opt in are a maximum of 15 weeks for the birth mother, and then there are parental benefits of 35 weeks for the new child. Do I add those two together or are they concurrent? Is it 50 weeks or is it 35 maximum?
Mr. Vermaeten: It is 50 weeks, the same under the current system.
The Chair: Fifty weeks for parental and maternity whereas sickness is 15 weeks and compassionate care is 6 weeks.
Mr. Vermaeten: That is correct.
The Chair: The cost to the program will be more because maternity and parental is for a longer period of time.
Mr. Vermaeten: Definitely.
The Chair: Am I reading it correctly?
Mr. Vermaeten: Absolutely correct.
Senator Finley: I have a few short questions. First, this system will be collected through the tax system. Are there clauses or protections in the event of default on taxes? Is there a penalty system, a collection system?
Mr. Beauséjour: The same provisions that apply for default for other EI premium collections and other income tax measures would be built in.
Senator Finley: Usually if you are doing it through EI, as part of your employment it is collected by the employer. This will go through the tax system post-event, in effect. It is possible a few years into it, I would imagine, that someone could have claimed benefits but then default on taxes or default on these particular payments. Is there is a collection provision to take care of that?
Mr. Beauséjour: Yes, CRA will ensure that the premiums are collected.
Senator Finley: With whatever penalties.
Mr. Beauséjour: Yes.
Senator Finley: Second, in clause 16 or 17, mention is made of the fact that there could be some kind of stand-alone regulatory body for those people involved in fishing. I wonder if you could tell me why that is. Is there anywhere else in the proposed act where exceptions are made for any other form of employment or employment group?
Mr. Beauséjour: I am not sure I understood your question.
Senator Finley: I have notes from the Library of Parliament. I read them a while ago so I could be wrong. Do you have this brief?
Mr. Beauséjour: No, I do not.
The Chair: Probably not.
Senator Finley: It says that new section 153.2 provides that the commission may also make regulations for the creation of a regulatory scheme governing self-employed persons engaged in fishing.
You may want to take note of the question and answer later. First, why is that for fishing alone? Second, are there any other provisions contained within the proposed act that single out particular areas of the self-employed?
Mr. Beauséjour: We will have to check to determine why, when they introduced the benefit for fishermen, they decided to do it through a scheme rather than doing it in the act. I cannot answer. We will have to check, but that would be the only group of self-employed who are singled out like that in the legislation.
Senator Finley: I wonder if you could let us have that answer and confirm that no other groups are involved. I ask the question primarily because presumably one wants to make these acts uniformly accessible to everyone. I want to make sure there are no other groups.
Mr. Vermaeten, you made mention of the phrase "fair insurance." Could you describe for me what you mean by "fair insurance?"
Mr. Vermaeten: In the economics textbooks fair insurance is considered insurance where the expected benefits are equal to the premium rates. I mention the fair insurance in terms of how we designed the premium rate. We tried to make sure that the premium rate is as fair as possible. We consider the premium rate being charged for Quebec, which should be the same as employees pay in Quebec, so $1.36 in 2010, to be fair insurance. It was in that context that I raised that term, because we have a certain expected claim rate for people who sign up. Based on our assessment of self- employed, we think one in ten will make a claim.
Based on that projection, if you take the $1.36, the typical person should receive in benefits roughly what they pay in premiums. That will not happen for each individual, but for the typical, average person, it would.
The one-in-ten formula means that either in a typical year one in ten will make a claim or, over the course of a career, every ten years that individual will make a claim. If that individual makes a typical claim every ten years, that person will receive in benefits what they have paid in premiums, approximately, and that would be considered fair insurance.
Senator Finley: Money in equals money out. It is not a savings scheme.
Mr. Vermaeten: Correct.
Senator Finley: It is pure insurance, in its rawest form.
Mr. Vermaeten: Correct.
Senator Finley: In designing the bill one would assume that you must have met with or taken input from a variety of groups of self-employed people, whether it is the Canadian Payroll Association or perhaps agricultural associations and other groups, actors' associations, for example.
Have you had any input from any of these groups? What has been the reaction since the content of the bill was released and discussed in Parliament? Have there been any comments from these groups?
Mr. Vermaeten: If I were a politician, I would have the names of all the individual groups that have endorsed this proposal, but I am not so I do not have the list handy with me. I can tell you there was quite a number of witnesses who came forward and organizations such as the Canadian Federation of Independent Business, the Canadian Real Estate Association and the Grain Growers Association. A whole list of them endorsed the legislation and thought it was a good policy, providing much needed benefits.
There is a long history, prior to the tabling of this legislation, of these groups making representations to not just this government but the previous government on the kind of plan they were looking for. Certainly there is that body of knowledge in terms of what people had indicated. The primary parameter, that it would be on a voluntary basis, was certainly taken into account in designing this legislation.
The Chair: This committee reviews legislation with respect to expenditures of government. I recall the Canada Employment Insurance Financing Board being created and then mandated to treat this as an insurance program; in other words, bring in enough revenue to cover the costs of operating the board and providing the benefit. There are a number of us who were quite concerned when the stimulus package came along and gave extra benefits, including five weeks extra across the board and a number of other benefits that would be paid for out of the Employment Insurance Fund.
We felt at the time that there was not enough being injected into this fund for the board to handle this break-even mandate. Then, with these additional responsibilities, there was some money in one of the bills, maybe Bill C-10, Budget Implementation Bill No. 1, that was to be transferred into the fund at the end of the year to help with these additional programs.
I see this legislation as another program, and I understand that there is a possible shortfall of $78 million. Is there anything in this bill that says that the government will transfer to the Employment Insurance Fund $78 million to make up for this projected shortfall?
Mr. Vermaeten: No, there is not. The program was designed to be an integral part of the Employment Insurance Program. The premiums collected from the self-employed may or may not cover the actual costs. Our projections midpoint are $78 million. In fact, revenues may be stronger than we think and benefits may be less than our base case. They may also be reversed.
The government decided early on that this would be an ongoing program. This is not a one-year or two-year stimulus. This is a permanent addition. It would need to be self-financing in the long run. The way to guarantee that is to integrate it into the employment insurance account and let the CEIFB, when they set their rates, take this into account on an ongoing basis.
The Chair: You suggested a one-cent increase in revenue. We perhaps should have an explanation of that one-cent increase, because there seems to be a bit of a misunderstanding with respect to that.
Mr. Vermaeten: I would be pleased to do that.
I cannot emphasize enough how this is our midpoint projection, and the one cent could turn out to be zero cents or, at the upper boundary, turn out to be as high as two cents. We have said, based on our midpoint projections, the revenues would not quite cover the costs. Why is that? That is primarily because of the maternity and parental benefits that are paid, which are for a longer period. That means de facto, or in essence, by providing maternity and parental insurance outside of Quebec, since Quebec already has it, there would effectively be a shortfall outside of Quebec. Therefore, in order to cover that shortfall it would require a general premium increase outside of Quebec of about one cent.
Because in Quebec they already have a maternity and parental scheme that one cent increase — if our midpoint projections are correct — they would not be subject to that one cent increase.
If we look at today's rates, the $1.73 would go to $1.74, while in Quebec the $1.36 rate would remain at $1.36.
The Chair: Is the $1.73 for employees currently?
Mr. Vermaeten: It would be for everyone.
The Chair: Everyone who pays in, so would it be the employer, the employee and the self-employed?
Mr. Vermaeten: Yes, because the idea is to have a uniform premium rate.
The Chair: That one cent is not in the legislation, it is just a prediction by you; is that correct? Is the one cent in the legislation?
Mr. Vermaeten: The legislation is designed such that any surplus or shortfall generated from the Part VII activities would be taken into account in rate setting. The exact amount of that will be ongoing and up to the CEIFB to determine. Nowhere does it say specifically rates shall increase one cent, because indeed they may not increase by one cent; they may increase by less than that.
The Chair: Assuming that the Employment Insurance Financing Board decides that there should be a one cent increase, as you have just described, will that cover the $78-million shortfall?
Mr. Vermaeten: Yes. If our numbers are exactly right, which they will not be as it is a projection, the rule of thumb is that one cent raises $110 million of revenue when applied across Canada. However, in this case, because we are applying it to every province but Quebec, it works out to close to $78 million.
The Chair: That is where the $78-million shortfall will come from, one cent?
Mr. Vermaeten: Yes.
The Chair: There is another point I want to get clarification on. The self-employed would receive all of the benefits that the employed receive under the program, including the treatment of earnings while on claim. In other words, you can start to make a certain amount of money while on Employment Insurance from other activities before your EI will be cut back.
Mr. Vermaeten: It is parental benefits where the working on claim provisions apply?
Mr. Beauséjour: When you are claiming parental benefit or compassionate care, you can work. Right now the legislation allows up to 25 per cent of your weekly benefit as income. Any income over the 25 per cent of your weekly benefit is deducted dollar for dollar.
The Chair: I understand we will increase, perhaps under Bill C-51, the amount of money that one can make while claiming parental benefits. That is, when you draw the Employment Insurance regular benefit, you have the ability to do other activity up to a certain amount. Will the claimant who is self-employed have those benefits as well?
Mr. Beauséjour: Do you mean the working while on claim provision?
The Chair: Yes.
Mr. Beauséjour: In the act, people who are receiving parental benefit, or regular benefit, can work while on claim and can earn up to 25 per cent of their weekly benefit, and that same provision is now in the self-employed part of the act. It will be the same.
The Chair: I want to understand that there will not be different benefits, that the self-employed will be entitled to the same benefits as the existing employee who becomes unemployed.
Mr. Beauséjour: Yes. He will have access to the same provision. People who are self-employed will have access to the special benefits, and working while on claim will be the same; it will mirror what the act now has. Individuals will be allowed to earn a certain amount before having their benefits reduced.
The Chair: Mr. Vermaeten, you discussed the sickness and compassionate care benefits. You said that the increase caused by the self-employed would not have a significant net financial impact on the EI account — that is what I am always looking for, this EI account — as the benefit paid to a typical self-employed individual would be the same as the premium collected.
With respect to compassionate and sickness benefits, you anticipate a break-even situation no matter how many join?
Mr. Vermaeten: Exactly. That is our estimate.
The Chair: How did you come up with that? How do you determine that kind of precision?
Mr. Vermaeten: It is an estimate. We could be off, depending on the claim rate. I should add that the legislation contains a provision that the program be reviewed in five years so that parameters can be adjusted to the extent that our estimates are a little up or a little down.
We looked at the claim rate under the current mandatory system for employees. The claim rate, more or less, is around 1 in 50 for employees. There are two big differences in terms of the self-employed voluntary system versus the existing system. One is that employees now go to their employer when they get sick, and that is the first insurer. When I am sick for a longer period of time, I will not go to EI. The first thing I will do is go to my employer and see what sickness benefits I have. In many cases, the individual will make a claim under the company's insurance plan and therefore not make an EI claim.
The other difference is that because it is a voluntary system, the kind of people who will opt in will tend to be the ones who are in higher-risk groups. It is only logical that an individual will, for maternity and parental, for example, want to opt in because they think they will have kids. For sickness, it is because they think they are in a slightly higher risk group and it is a good financial deal. For example, they are older or work outdoors and deal with a lot of physical stress or whatever, or they have a pre-existing condition.
Those two factors are major drivers that will increase the claim rate. We have looked at some data. Our best estimate is that it will be about 1 in 10.
The Chair: If this is such a desirable program, what has been the resistance to bringing this program in by governments in the past? This is not just an economic stimulus program; this will last hereafter for a considerable period of time.
Has there been a resistance from the employer sector, because they will obviously be subsidizing the self-employed. Just the self-employed's contribution is coming in, whereas with the employee-employer two contributions are coming in? The self-employed person pays only the employee equivalent.
In effect, if it is to balance money in with money out, the employer contribution will subsidize the self-employed. Has that been the point of resistance?
Mr. Vermaeten: I am not in a position to speculate why previous governments have not brought in this feature. I can make some comments.
First, when you look at the business community overall, there has certainly been, and probably continues to be, some resistance to providing the whole suite of EI benefits. Many people are uncomfortable with the idea that you would provide the regular benefits when someone loses their employment. The equivalent in the self-employed world might be that someone lays himself or herself off. Providing benefits in those situations technically is considered to be a big challenge. How do you determine when self-employed people actually lose their jobs and in what circumstances do they bring those situations on themselves, where they decide simply not to work?
There has been a lot of resistance in providing those regular benefits, and that is one of the reasons the government chose to focus on special benefits, which, from a technical perspective, are considered to be somewhat easier to provide and to administer. For example, individuals have to prove that they have had kids or that they have adopted, or they have to prove that they actually are sick with a doctor's note. There is that whole resistance to providing regular benefits, and a lot more comfort at providing the special benefits.
The other thing in terms of resistance has been on significant EI rate increases. You are absolutely right that some employers are reluctant to have just a general significant rate increase to provide special benefits for all self-employed. That is what led the government to introduce the measure on a voluntary basis. The extent of the impact is really quite small when talking about a cent or possibly less than a cent rate increase.
That is as far as I would want to speculate on the motivations behind other governments.
Senator Callbeck: I want to be clear about opting in and opting out. If someone is self-employed and they make a claim, then they are in for the rest of their business life. What about the person who opts in, is self-employed for five years, goes to work for someone else for a couple of years, decides that is not for him and goes back to being self- employed? When does he opt in and opt out?
Mr. Vermaeten: The general principle is that once you have opted in, you stay in until you decide to opt out. Again, you can only opt out if you have not made a claim yet.
That individual would opt in, pay their premiums for five years, then switch to the employment side and afterwards become self-employed again.. That person, in the seventh or eighth year, collecting self-employed income, would continue to be in and be eligible for benefits.
Senator Callbeck: When that person goes to work with someone else, could they opt out?
Mr. Vermaeten: They have an opportunity to opt out as long as they have not made any claims.
Senator Callbeck: I am talking about a situation where a person has made a claim.
Mr. Vermaeten: Then they cannot opt out.
Senator Callbeck: When they leave that business and go work for someone else for a two-year period, do they notify anyone that they are opting out? What is the procedure?
Mr. Vermaeten: There is no mechanism for opting out.
Senator Callbeck: They will not be paying for those two years?
Mr. Vermaeten: No. They only pay on their self-employment income.
Senator Callbeck: There is no opting out. When they come back to working for themselves again, they are automatically in the program.
Mr. Vermaeten: Yes.
Mr. Beauséjour: I just want to clarify. It is an individual who registered in the program. Each individual is covered by the program. Even if you close your business and open another business, you will still be covered, because the coverage arrangement is for the individual and we follow the individual.
Senator Callbeck: Mr. Clarke, Senator Lang has already referred to the communications plan. You said that you are working on it. I have concerns about how self-employed people will learn about this program. You said that everyone will get an insert. With the Canada Pension Plan, we now still have approximately 23,000 people who are getting old age pension, so we know where they live, and they are eligible for the Canada Pension Plan but do not know they are eligible. We have not been able to get to that group of people, and that is why I express concerns about this communication plan. The Quebec Pension Plan does not have that problem. They obviously have a much better method of communicating with their people and the federal government.
With the Canada Pension Plan we have people, many of whom are women, who worked when they were younger, paid into the CPP, left to raise a family and never went back. They have forgotten that they paid into the CPP. They do not know they are eligible to apply.
The federal government has the addresses of about 23,000 people who are getting old age pension but still not getting the CPP. Do you think that one insert will be sufficient? I certainly cannot see it.
Mr. Clarke: In response to Senator Lang's question, I indicated that we would be doing an insert to all self- employed. That would be the initial announcement of the launch of the new program following Royal Assent. As Mr. Vermaeten indicated, this is becoming part of our new core employment insurance business. It will form a basis for our ongoing communications around employment insurance. I would suggest that it will become part of our ongoing communication strategies with the self-employed community as well. It will not just be a one-time, reach-out initiative. Of course, new people are deciding to become self-employed at all times, and we will want to notify them of the opportunity to participate or continue to participate in this program. I cannot give you any specific tactics right now about how we will reach out to the different areas of that sector.
Senator Callbeck: If this legislation passes, the program will come into effect pretty soon. When do you anticipate initiating that campaign or knowing the details of what you will do?
Mr. Clarke: What we will be able to do in terms of communication this year is dependent on the timing of Royal Assent. If we can line up with the CRA issuance of T-4 information, we will do that, but it is dependent on the timing of Royal Assent. We will take advantage of whatever vehicles for communicating to this group exist.
Senator Ringuette: They are self-employed. These people do not get T-4 slips.
Mr. Clarke: We will use whatever vehicles are available to us through CRA at that time. CRA does mail-outs to people who are paying installments on their self-employed income. We will take advantage of all vehicles we have at our disposal to reach out to this group.
Senator Callbeck: I would hope so, because certainly our record on the CPP is not very good when you compare it with the province of Quebec.
Mr. Vermaeten: Certainly the Government of Canada will conduct a strong outreach program. On top of that, the business community itself is also very active, and they have indicated to us that they will be doing a lot to reach out to their members. The CFIB will be doing their bit to promote this, or the Canadian Real Estate Association. All these groups that represent a sector of the self-employed will be reaching out.
Will you reach everyone? Probably not. Will you reach the large majority of people? I think you will.
Senator Callbeck: I am sure business groups will be doing something, but I was concerned about what the government will be doing. I am a bit alarmed that not as much thought has been given to it as I would have anticipated.
Compassionate care is a relatively new addition to EI benefits. Do you have any statistics or indicators as to how well it is working?
Mr. Beauséjour: Initially, when we put forward the program, we were expecting a lot more take-up than what we experienced. I have the numbers somewhere, but I will need some time to find them as I do not know them off the top of my head.
Like I said, a small proportion of individuals take compassionate care.
Senator Callbeck: Would it be possible for you to get those numbers and supply them to the committee? Do you have any idea why the numbers are small?
Mr. Beauséjour: I would guess that people find other arrangements either through their employer or other mechanisms, but I do not have a good explanation.
Senator Callbeck: When a program like this is implemented by the government, how long does it take to determine whether the program is working? The compassionate care came in four or five years ago. This legislation will be reviewed in five years. Is that the average time before the government looks at a new program to analyze whether it is working and how it is working or why it is not working?
Mr. Vermaeten: I do not think we have an average. It all depends on the program type, the complexity, how different it is from previous ones. In this case, five years, to us, seems like a reasonable time frame because it will take a while for this program to reach maturity. There will be an outreach period; you will get a bubble of people who will sign up, but then it will take several years for people to go through, make the decision, see the experience that others have and decide whether they want to join. We think five years is the right amount to give the system some time to mature, to get a good handle in terms of how many people will sign up, what the claim rate is, et cetera.
While there is a review period in five years, it of course does not stop the government of the day from changing EI legislation. They can always do that, this or any other government, if they feel there is a need to change a parameter sooner rather than later.
Senator Callbeck: I would be interested to know, if there has been an assessment done, as to why the uptake on the compassionate leave has not been very good. I know you do not have it now, but could you present it to the committee?
Mr. Beauséjour: Yes.
Senator Ringuette: Mr. Vermaeten, did I hear you say earlier that this program for the self-employed is a pure insurance?
Mr. Vermaeten: The piece of paper that was provided illustrates the sickness and compassionate care side of the equation. We divided the analysis between those signing up primarily for maternity and parental care and those primarily for sickness and compassionate care, although outside of Quebec it is impossible to distinguish the precise motivation.
On the sickness side, we are saying that the revenues and benefits should offset each other, so essentially it could be considered a fair insurance.
Senator Ringuette: However, this program is definitely not a pure insurance program because you already know the default shortfall of $78 million.
Mr. Vermaeten: Our mid-point projection is $78 million. If you look at the package as a whole, and it turns out that the $78 million is correct, then, no, it would not be pure insurance if you combine both the maternity/parental and the sickness and compassionate benefits.
Senator Ringuette: In your presentation and subsequent answers, you indicated that you did quite a lot of research into the Quebec program for maternity and parental leave.
Mr. Vermaeten: Yes.
Senator Ringuette: Is the federal government making any kind of contribution to that program?
Mr. Vermaeten: Not that I am aware of.
Senator Ringuette: So it is administered purely by the Government of Quebec?
Mr. Vermaeten: Yes. We do reduce the rates for Quebec.
Senator Ringuette: What is the reduced rate for Quebec in regard to the maternity and parental leave?
Mr. Vermaeten: The rate for the rest of Canada is $1.73, the rate in Quebec is $1.36, so if I do my math, that is 37 cents.
Senator Ringuette: No, no. I am talking about the maternity and parental leave, not this program.
Mr. Vermaeten: It is a 37-cent reduction.
Senator Ringuette: The Quebec contributors to the regular EI program are paying $1.36.
Mr. Vermaeten: Correct.
Senator Ringuette: Are you collecting $1.73 and returning 37 cents to the Government of Quebec or are you collecting $1.36?
Mr. Beauséjour: We are collecting $1.36.
Senator Ringuette: You are collecting $1.36 from the employee?
Mr. Beauséjour: From the employee.
Senator Ringuette: Times 1.4 for the employer.
Mr. Beauséjour: Yes.
Senator Ringuette: The maternity and parental portions constitute two thirds of the cost of the current program. Therefore you are charging Quebec 79 per cent of the program instead of 67 per cent. There is 20 cents' difference per $100.
Mr. Vermaeten: I think I understand your math.
Senator Ringuette: You said that two thirds of the cost of this program is for parental and maternity leave.
Mr. Vermaeten: Right.
Senator Ringuette: That means 67 per cent of the cost of this program is for those two benefit items. You are charging Canadians $1.73 per $100 to participate in this program but charging Quebec Canadians $1.36.
Mr. Vermaeten: Right.
Senator Ringuette: That is 79 per cent of the cost of the program whereas they should only be paying 67 per cent because that is the only entitlement they get from this program. They are paying 20 cents more than they should.
Mr. Vermaeten: You have to take into account the provision to the effect that, the extent to which the revenues and benefits do not balance would require a general rate reduction, and that general rate reduction will be applied for everyone except those in Quebec.
Think of it this way in terms of building a system —
Senator Ringuette: Mr. Vermaeten, I understand what you are saying. If there is a shortfall it will be paid by the rest of Canada. However, you did not say how much more would be needed from the self-employed contributors to take care of the $78-million shortfall. You have not indicated from the $1.73 per 100, how much more it would require to make up for the shortfall.
Mr. Vermaeten: In fact I did, but I will repeat it. Let me start with your last issue. You asked the question, as did Senator Callbeck, how much revenue would we gain by increasing the premium rate for self-employed by one cent. I indicated that it is approximately $1 million; somewhere around there. Then I said if there were no adjustments in behavioural response, you could presumably increase the rate by 78 cents, thereby eliminating this 78-cent deficit, so the $1.73 would go to roughly $2.50. However, I said that was in the absence of behavioural response.
I indicated that if you increased the premium rate by that amount, you would no longer be providing fair insurance and many people would not sign up, so in fact revenues would go down. It is kind of a self-defeating increase, a bit like going over the Laffer curve. You charge too much, the tax rates go up too much, and the revenues actually go down. If the EI premium rate is too much for self-employed, revenues will actually go down. That is what I said and that is why you would not be able to charge for that shortfall.
Senator Ringuette: Therefore, as our chair has indicated, you are asking all EI contributors, including employees and employers, to cover the additional cost of this tax of $78 million. In order for it to be pure insurance you would have to ask for a contribution of $2.50 per $100 for the self-employed.
Mr. Vermaeten: That is not what I said. I said that if you did a static analysis, simply increased the rate by 78 cents to get your additional money then it would be in balance, and I then said that is not what would happen, that if you increase that rate, you will get a behavioural response and fewer people signing on. You cannot simply increase the premium rate and say that it will be 100 per cent self-financing in all cases.
What we said in terms of a potential rate increase is that, if our mid-point projections show that our numbers are right, there would be a one-cent rate increase outside of Quebec. That is a critical element for understanding the $1.36 rate.
If we build the system up, let us start with providing sickness and compassionate care for Quebec. To determine a rate, we would ask what is the probability of claim. We think the probability of claim is one in ten. If we charge $1.36 we should be pretty close to fair insurance, or self-financing within Quebec, for sickness and compassionate care. Quebec is given a fair treatment. There is no potential for a rate increase.
Then we move outside of Quebec. We charge $1.73 to provide the full suite of special benefits, recognizing that there is a chance, because maternity and parental is so costly, the system will not be completely self-financing. As a matter of fact we are projecting $78 million in costs incurred outside of Quebec and as a result rate payers outside of Quebec would pay that rate increase. That is why the rate being charged to Quebec is a fair rate.
Senator Ringuette: I do not agree with you because I look at the numbers that you have put to us and they are paying at least 20 cents per $100 more than they should be paying. The rest of Canada will be taxed in the future for these benefits. There is absolutely no way you can call this a pure insurance program because of the shortfall you foresee in the program. This is an additional tax on all Canadians and not all Canadians will benefit from it.
I reiterate that in order to make this a pure insurance program for the self-employed you should be charging $2.50 per $100, which actually would be even less than the current EI for which the employee is paying $1.73 and the employer portion is 1.4 per cent of $1.73. Therefore, every Canadian will be paying taxes for this program.
I honestly think that we should have something to help the self-employed, but I see a discrepancy in that self- employed Quebecers are paying too much for sickness and health care provider benefits. I do not think this program has been well thought out, but we will see. I believe it is up for review before Parliament after five years; is that correct?
The Chair: Yes, they told us a five-year review is built in.
Senator Lang: This has to do with the same issue. There are a couple of points that need to be made and perhaps the witness will expand further. First, to answer Senator Ringuette, it is important to emphasize that this program is voluntary. This is not mandatory.
The other point I make is that the five-year review was mentioned. My question to the witness is: I would assume that once we have had two to three years of experience — because these are all projected costs — and adjustments have to be made the government can make those adjustments. Perhaps the witness could comment on that.
Also, it is important to realize and emphasize that this is not a tax. This is an insurance program that is voluntary.
The Chair: Mr. Vermaeten, would you like to comment on both Senator Lang and Senator Ringuette's points?
Mr. Vermaeten: Yes; thank you. I have just a couple of quick points. Indeed, the government of the day at any time can change the EI program and they can do whatever they would like with the parameters be it on the rates side or the benefits side. If at any point the government feels the balance is not right, they are of course free to change that.
I wanted to comment briefly on Senator Ringuette's comments. In terms of a technical clarification in terms of our position, we want to make it absolutely clear that if you were to charge $2.50 it would not bring the account into balance because, as I indicated, there would be behavioural response and not as many people would sign up. You simply cannot do that. In our assessment, it is a mathematical impossibility.
Senator Ringuette commented that this may require a rate increase that is unfair, that the self-employed should pay their own benefits, and that it should be pure insurance. The government tried hard to balance the needs of the self- employed and the employed in the context of maternity and parental claims.
In the employee context, the system is not balanced perfectly for each individual. The premiums we collect from people who make maternity and parental claims on the employee side are never recaptured. To some degree, there is an element of cross-subsidization in that all ratepayers are supporting individuals in raising families. We never quite collect all those revenues.
There is a fairness aspect to look at this in terms of the self-employed. While it is true that people making maternity and parental claims will be asked to pay the same rate as others — and, the chances are that we probably will not collect in premiums exactly what we pay out in benefits — the benefits for people making these claims to raise families will be higher. Part of this is a fairness bill and it is an attempt to provide support to self-employed. The idea is that a self-employed woman who will be the primary beneficiary of this will get the same support as an employed woman. It is to provide that same support.
Is it pure insurance on the maternity and parental side? Absolutely not. I never said that. However, it is close to pure insurance on the sickness side. That is one kind of balancing done here, namely, to try to provide women — and, to an extent, men who are taking parental leave — and men the same kind of support that employees are provided.
It is important to remember that many people go from one system to another. They become employees and self- employed. There is a constant switch back and forth. To the extent that, in this case, they are paying more as employees to help support maternity and parental benefits, then the self-employed move back here to this system and they are receiving more benefits. Over the course of a lifetime, it will not balance out for each individual, but, on average, it should balance out.
Finally, I think the rate was chosen in a way that balances the needs of self-employed and overall ratepayers. We said that if our projections are correct, it could increase rates by one cent. The government's position is that it is a fairly modest increase for providing these important benefits. There is balance where it is not a giveaway to the self- employed, it is a fair rate. It may not cover all costs, but it is a fair rate. Those needs are balanced with that of employees in general.
Senator Finley: First, could you tell me how much the Quebec government sets aside for QPIP on an annualized basis?
Mr. Vermaeten: I do not know. Do you know?
Mr. Beauséjour: No.
Senator Finley: Could you dig up that information, please, and information on whether or not it is self-sustaining?
This kind of program is like many other kinds of government programs. It might not exactly be money in, money out. We put money into many things that a much lesser proportion of the population support or enjoy, but because it is important, we ensure that other elements of society get government money disproportionate to the level of payment for it, if you like.
That was where I was coming from on the comment about the insurance and pure insurance. It had nothing to do with whether it breaks even or makes a profit. Many insurance companies go into things after looking at them actuarially thinking that they will work out, but they do not quite do so and the company makes adjustments as time goes by. My point was that this is not an investment process where you pay X amount on a monthly or an annual basis, and, if you do not use it, you somehow get it back. My difference in the insurance was that it is a kind of a use it or lose it approach to things. I apologize if we took the conversation away from that.
I have a request of Senator Ringuette. While I am sure Senator Ringuette understands her financial calculations — and, they might very well be right — they confused me. I am just a back-room boy from Scotland. I wonder if Senator Ringuette would do me the favour of putting those calculations on a piece of paper so that I can understand them.
Senator Ringuette: Yes; I will show you.
The Chair: Thank you for asking that it be put on paper so that we will not use another half hour trying to figure this out, because it is difficult to deal in the abstract.
Is the $1.73 per $100, which is the premium to be paid, fixed in this statute? What is in this statute that determines that rate?
Mr. Vermaeten: In the statute, it is the principle that the self-employed will pay the same rate as employees.
The Chair: The employees' rate is $1.73 per $100, for 2010, in another piece of legislation, not in this particular piece of legislation.
Mr. Vermaeten: Correct.
The Chair: That is fixed. We understand that the board will be fixing the rates on a self-sustaining basis in due course — that is part of the legislation — once we get over this difficult economic period.
Employees pay $1.73 per $100. They get the special benefits, the special programs that we have been talking about here, but they also get the possibility of unemployment insurance if they are unemployed. The same amount of $1.73 is paid by the self-employed but all they get is the special benefits; is that correct?
Mr. Vermaeten: Correct.
The Chair: It is not equal for what they are getting. I thought it was important to clarify that for some of the comments that are being made.
Mr. Vermaeten: It is true they do not get the full range of benefits, all special benefits, but they are not paying the employer portion. If you look at the true cost being paid on the employee side, it is $1.73 plus 1.4 times $1.73.
The Chair: That point has been made two or three times.
Senator Lang: The self-employed are not eligible for unemployment insurance.
The Chair: That is the point I was making.
Senator Lang: It is difficult to compare the two.
The Chair: We have been comparing self-employed and employee. They are both paying the same amount, but they get different benefits. That is the point we are making.
Mr. Vermaeten: Yes.
The Chair: At page 45 and following, clause 21, there are consequential amendments to the Bankruptcy and Insolvency Act and the Companies Creditors' Arrangement Act. This goes to Senator Finley's question earlier regarding how the government will collect funds that are owed to it if the person does not pay them or they are not in the income tax return, for whatever reason. I assume that if there is a bankruptcy or a rearrangement, this provision provides priority for the government's claim in that regard. Is that correct? It is difficult to follow these clauses and the wording here.
Mr. Beauséjour: Yes. That is correct.
The Chair: Thank you. Is there anything flowing from that?
I wish to thank our witnesses for helping us through these 60-odd pages of legislation. We understand the principle. We may have some follow-up questions. We have invited an actuary to appear as well as a representative from the Province of Quebec so that we will have a full appreciation of this measure.
(The committee adjourned.)