SPECIAL REPORT

BRACING FOR BATTLE OVER El

JOHN GEDDES June 8 1998
SPECIAL REPORT

BRACING FOR BATTLE OVER El

JOHN GEDDES June 8 1998

BRACING FOR BATTLE OVER El

SPECIAL REPORT

JOHN GEDDES

The Employment Insurance fund has been Finance Minister Paul Martin's not-so-secret weapon in the fight against the deficit. But lately, it is being turned against him. Since 1994, when the economy rebounded, El premiums have poured in far faster than benefits have been paid out—netting Martin surpluses of several billion dollars each year to count against his annual fiscal shortfalls. Now, the deficit is gone, but those El windfalls keep rolling in: for the first three months of this year, the program was $2.9 billion in the black. No wonder Martin is coming under increasing pressure to bring revenues into line with benefits by reducing the El payroll deduction.

So far, he is resisting—but Ottawa is bracing for what could be the toughest scrap in the wider battle over which taxes to cut and by how much. The crunch will come next fall, when the government must set the El premium rate for 1999. Working Canadians now pay $2.70 for every $100 of insurable earnings, and Martin’s preference is to hold premiums at that level—every 10-cent cut in the rate costs the government about $700 million. Martin’s strategists are convinced Canadians pay much more attention to the income tax bill they tally up once a year than to El premiums, and that an income tax cut would pay more political dividends.

Fighting that view is a loose, though formidable, coalition of business, opposition politicians, provincial governments and—at least sometimes— unions. Business lobbyists call the El premium a “tax on jobs,” and have been pushing for a premium in the $2.00 to $2.40 range for workers. (Employers pay an El premium set at 1.4 times the workers' rate—currently $3.78 for every $100 in payroll.) But labor’s view is more ambivalent: the Canadian Labour Congress’s priority is to apply the fund’s surplus to more generous El benefits, although the CLC still sees room to cut the premium to about $2.50. The question is whether unions and business can move closer to a common rate demand by next fall. Such an alliance, together with sniping from political opponents, could force Ottawa to give up a big slice of its so-called fiscal dividend to an El premium cut.