Commentary

Owners foot more than their share of the EI bill By Garth Whyte
December 03, 2007

Few Canadians like to think about the tax chunk that comes off their paycheque regularly. But most probably don't mind paying a bit into the federal employment insurance program. Like any kind of insurance, it's nice to know that it's there.

What many people likely don't know is how outdated the EI program has become -- and what it's costing taxpayers, consumers and businesses. At the Canadian Federation of Independent Business (CFIB), many of the 105,000 members have told us they are dissatisfied with the current EI system. In the past four weeks, more than 3,000 have responded to our campaign calling for changes to EI.

This is because employers pay 1.4 times what employees pay, or 60% of EI premiums. For owners of small and medium-sized businesses who must react nimbly to many competitive challenges, this is a significant cost.

In a recent CFIB survey that asked our members about taxation issues, nearly 63% said payroll taxes, such as EI, had the most adverse effect on the growth of their business. To make matters worse, the program's surplus continues to balloon, and is expected to reach $54-billion this year, despite changes made by the government to prevent this from happening. Not to mention that actual assistance to the unemployed makes up only half of all EI spending; The other half is spent on benefits such as maternity, parental, sickness and compassionate care leave. A large chunk also goes directly into the government's general revenues -- a fact few taxpayers are likely aware of.

The current EI system is also woefully inadequate when it comes to meeting today's labour market needs. More than half our members tell us that they already face labour shortages, and more than two-thirds says this situation will get worse. Yet, almost one-quarter of CFIB members say they have had difficulty hiring because many prospective employees would rather stay on EI benefits. It's no wonder members are unhappy with an EI system that is more a tax on employment than it is an insurance premium. That must change if Canada's small business community, which employs about 1.25 million Canadians and accounts for about $75-billion in economic output, is to remain strong.

The system should move toward either a 50-50 split on premiums, or return to a 40-40-20 split, where government would contribute 20% to help pay for non-core programs provided through EI. As well, employers should be reimbursed for EI over-contributions, just as employees are reimbursed. To address the shortage of labour, the government could introduce an EI credit to help pay training costs for small businesses that hire under-qualified people. In its recent economic statement, the federal government reduced EI premiums for employees by 7¢ per $100 of insurable earnings, and by 10¢ for employers. CFIB would like to have seen a reduction of 15¢, or 21¢ for employers, which is the maximum the rate is allowed to change in one year. Overall, the rate-setting process and management of the EI account need to be reviewed before 2009 to stop further surpluses, and ineffective EI programs should be ended.

Taxpayers are paying too much into a program that no longer serves its intended purpose. Consumers ultimately are bearing the cost of the EI system buried in the price of goods and services. And businesses saddled with the high cost of EI say it is affecting their ability to compete and grow. The government can do little to chart the course of our currency. But it can fix a 40-year-old EI program that is failing to meet the needs of both employers and employees.

- Garth Whyte is the executive vice-president of the Canadian Federation of Independent Business, which represents the interests of small and mid-sized business and lobbies on behalf of its 105,000 members at the federal, provincial and municipal levels.

This article was published in the Financial Post, Monday, December 03, 2007.