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Two different groups tasked with building a better EI system

Prime Minister Stephen Harper today named the Conservative representatives to the bipartisan working group on employment insurance reform, established as part of an agreement with Liberal leader Michael Ignatieff.

Diane Finley, the cabinet minister responsible for the program, Pierre Poilievre, the MP who has been the Conservatives' spokesperson on many political hot potatoes, and senior public servant Malcolm Brown will join Liberal MPs Marlene Jennings and Michael Savage and Ignatieff's director of policy, Kevin Chan.

Under the deal worked out by the two party leaders earlier this month, the group will “develop proposals” for a method to allow self-employed workers to opt-in to EI, and to “improve eligibility requirements in order to ensure regional fairness.”

The Liberals have called for a single, national eligibility standard to replace the current system based on local unemployment rates, but that wording could also include the three-standard system (for urban, rural and remote workers) recently endorsed by Western premiers, including B.C.'s Gordon Campbell.

The working group is supposed to issue a report in time for the return of Parliament in September.

A different panel announced on Friday will be looking at the other side of the employment insurance system. Instead of proposing new policies for who should get EI benefits, they will be controlling how much workers and employers pay into the program.

Five accounting and economics professionals were named to the Board of Directors of the Canada Employment Insurance Financing Board, a not-yet-established federal Crown Corporation which will be responsible for setting the rates of EI premiums.

Two additional directors remain to be named. Last June, the House of Commons Human Resources committee recommended that at least two members of the board represent employers and two represent employees, but the government has not shown any intent of following that advice.

The corporation was created by legislation implementing last year's budget, and will oversee a new employment insurance reserve account, investing any EI surpluses to offset future costs instead of including them as government revenues. In the decade after the last major change to the EI system, in 1996, the program accumulated over $57 billion in surplus premiums.

In comparison, the $2.9 billion of seed money for the new fund is small change, something that has riled labour groups.

The other key role of the Canada Employment Insurance Financing Board -- setting EI premiums -- has the potential to rile businesses just when the Canadian economy is due to climb out of the current recession.

Historically, unemployment insurance premiums were set to cover the cost of benefits paid out, leading to an increase in premiums -- and therefore the cost of hiring a new employee -- during times of high unemployment.

When the program got renamed employment insurance, it also got a mandate to avoid premium increases in economic downturns, which led to the “just-in-case” setting of higher than needed premiums, and therefore surpluses in the account.

When the surpluses created a political fallout, the politicians got involved, and premiums were set on an ad-hoc basis for 2001 through 2004 by Cabinet or Parliament, something the Supreme Court has ruled amounted to an illegal tax.

February's budget froze premiums for two years, but starting in 2011, the new Crown Corporation will be required to go back to the balanced-budget model, albeit with restrictions. Rates will only be changed once a year, and the maximum increase or decrease is capped so that surpluses and deficits are still possible.

But the net effect, in the words of a recent C.D. Howe Institute report, is still “pro-cyclical rate decreases during booms and harmful premium increases during downturns.”

The new directors of the Canada Employment Insurance Financing Board won't have the discretion to adopt a longer-term financing strategy, as advocated by the C.D. Howe analysts. And if the politicians on that other panel talk about the problems of an EI system that discourages employment, it will likely be concerns that greater access to benefits will discourage recipients from finding jobs.

Amelia Bellamy-Royds reports for The Tyee.

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