The federal government is setting up an independent Crown corporation to manage future employment insurance surpluses— while paying itself a dividend of up to $50 billion.

Finance Minister Jim Flaherty announced in Tuesday’s budget the creation in 2009 of the Canada Employment Insurance Financing Board, a Crown corporation with the job of ensuring EI premiums are dedicated exclusively to providing benefits to the unemployed.

The independent EI Financing Board will be responsible for implementing a new EI premium rate-setting mechanism and maintaining a cash reserve of $2 billion, Flaherty told the House of Commons.

This means EI premiums will no longer be held in Ottawa’s giant consolidated revenue account. “With this reform, Canadian workers and communities can be confident that EI will be managed on a truly break-even basis,” Flaherty said in his speech.

Accumulated surpluses of funds ear-marked for EI benefits, without corresponding adjustments in premiums, have been a political sore point for more than a decade, particularly with employers who want lower payroll taxes. The federal Auditor General is also on record as saying that the EI money should be segregated into a separate account.
With the 2008-09 budget, the government is doing that.

The accumulated surplus is expected to be as high as $50 billion at the end of the fiscal year ending March 31. But most of the $50 billion that has been accumulating isn’t going anywhere, federal officials say. This is because there has never been a dedicated EI account.

“That’s another fight,” says Garth Whyte, senior vice president of the Canadian Federation of Independent Business, referring to the $50-billion surplus.

Whyte says creation of the Crown corporation is an important step toward ensuring EI premiums go to what they were intended from now on.

The federal treasury will provide the EI Financing Board’s $2 billion cash reserve, providing a financial base. Premiums accumulating beyond the $2-billion mark will be used to lower premiums.

Basically, that will mean the premium rate will come down about 10¢ per $100 in earnings for every future surplus of $1 billion, The current EI premium rate is $1.73 per $100 earnings for workers and 1.4 times that for employers.