The Harper government claims to be balancing its books without tax increases. It is something that Conservatives are quite proud of. However, a recent Mowat Centre article argues that one-fifth of the federal government’s deficit elimination efforts come from its three increases of Employment Insurance (EI) premiums since 2010. According to Mowat, those premium increases have been higher than necessary, which has strengthened the government’s general fiscal position.
The Mowat Centre writes:
"While the current federal government’s policies have mostly been consistent with the view that lower taxes—especially payroll taxes—are important for economic growth and job creation, using higher EI premiums to raise revenue beyond the needs of the program is a significant and problematic exception."
According to the Mowat Centre, this is problematic because:
- EI premiums have negative effects on employment rates, especially for low-income workers (after all, employers pay EI premiums at 1.4 times the rate of their employees).
- EI premiums are regressive, because people only pay premiums on the first $47,600 of their income. This means high-earners spend a lower percentage of their income on EI premiums than more modest earners.
- It isn’t transparent, since EI premiums go into general revenues.
- Between 2000 and 2010, Ontarians paid $20 billion more into EI than they received in benefits, because of how the system is structured. Mowat writes that Ontarians are underrepresented among EI beneficiaries, even though 42 per cent of Canada’s unemployed live in the province.
Mowat recommends that the federal government turns EI into a stand-alone payroll fund, similar to the Canadian Pension Plan. That way EI would operate transparently, on a break-even basis.
What do you think? Has the Harper government introduced a backdoor tax increase by raising EI premiums? Does the EI system need reform?
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