Gordon Campbell On Welfare Insurance

The new working group on welfare reform to be headed by former Commerce Commission head Paula Rebstock will be looking at schemes of unemployment insurance that exist elsewhere in the world, and Canada is widely regarded as a leading source of policy initiatives in this field. Understandably, the focus of the initial media coverage has been on the compulsory contribution made by workers – in Canada, workers reportedly pay premiums of $1.73 for every $100 of insurable wages in return for benefits if they lose their jobs. The maximum insurable annual wage under this formula – which is based on movements in average wage rates – has been set at $43,200 for 2010.

Reportedly, the amount that a person then receives, and how long they can stay on EI varies with their previous salary, how long they were working, and the unemployment rate in their area.

The EI scheme was set up in Canada in 1971, but by 1990, the federal government had stopped making any contributions to it. That bailout was made possible because the scheme also relies for funding on compulsory contribution made by employers – who in Canada, must pay in 1.4 times the contribution made by workers. Has the penny dropped with New Zealand business that its old friend Paula Rebstock is about to consider imposing a compulsory levy on employers to help pay for welfare ? Surprise surprise – since central government washed its hands of funding the EI scheme, the premiums have stayed the same, but access to the scheme and the generosity of the payments have gradually been tightened and reduced. In addition, the costs of parental leave, maternity leave and compassionate leave (ie for care for a sick relative etc) and some aspects of labour retraining are also paid out of the EI scheme.

Interestingly, Employment Insurance (EI) in Canada is delivered by Service Canada, an agency set up in 2005 to provide a single point of access – shades of Whanau Ora ? – to a wide range of government services and benefits. The EI scheme has also been a boon to the finances of central government. If such a scheme is adopted in New Zealand, the pool generated by this fund could well be counted by Finance Minister Bill English as part of the government’s surplus. Who would have thought that unloading the cost of welfare onto workers and employers could not only slash the cost of the state’s outgoings – but also create a new and massive positive input into government finances? Reportedly

The generosity of the Canadian UI program was progressively reduced after the adoption of the 1971 UI Act. At the same time, the federal government gradually reduced its financial contribution, eliminating it entirely by 1990 … Many unemployed persons are not covered for benefits (e.g. the self-employed), others may have exhausted their benefits or did not work long enough to qualify. However, it is noted that 80 percent of insured job-losers do initially receive EI benefits in Canada. The length of time one could take EI has also been cut repeatedly...

A significant part of the federal fiscal surplus of the Jean Chretien and Paul Martin [governments'] years came from the EI system. Premiums were reduced much less than falling expenditures - producing, from 1994 onwards, EI surpluses of several billion dollars per year, which were added to general government revenue … This drew criticism from Opposition parties and from business and labour groups, and has remained a recurring issue of the public debate … On December 11, 2008, the Supreme Court of Canada rejected a court challenge launched against the federal government by two Quebec unions, who argued that EI funds had been misappropriated by the government.

So, from the point of view of a centre right government, what’s not to like about this welfare reform bizzo? A vastly reduced responsibility for paying for welfare, and within a short period of time, a major fund that can be used to make the government’s books look far better than they really are, and with little or no effort on the part of government. Welfare privatization = all gain, no pain. Oh, if you were a northern European social democracy you might use the likes of an EI fund for socially useful purposes – but here, it seems far more likely to be used for creative book-keeping purposes, to justify a few further rounds of tax cuts.

POSTSCRIPT: I should have included in the above column that the EI scheme in Canada has not totally replaced the benefit system. The two systems exist in parallel. Though the ratio of beneficiaries to EI recipients has formerly been lower, by the end of 2009 - and perhaps due to the impact of the global recession - the ratio of those on EI to those on benefits was reportedly about 50/50.

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