March 16, 2004

Two weeks ago, Ottawa announced it would appeal a Quebec court decision that ruled it was unconstitutional to fund social programs, such as maternity and parental leave, from the federal Employment Insurance surplus. Alberta should intervene in this appeal to the Supreme Court of Canada. The case provides an opportunity to demonstrate how the fiscal and political imbalance between Ottawa and Alberta can be remedied, just by upholding the Constitution.

The timing is fortuitous, coming just as the Committee on Strengthening Alberta's Role in Confederation, chaired by Edmonton-Rutherford MLA Ian McClelland, wrapped up its 12-city tour of the province. Taking its cue from the now-famous Alberta Agenda letter to Premier Ralph Klein, penned by six Calgary academics shortly after the 2000 general election, the McClelland committee is considering new ideas about pensions, policing, health care and Senate reform. As it is described on the Government of Alberta website, "This (committee) is not about Alberta stepping back from the table, but is about Alberta taking a leadership role."

The Quebec EI case advances this Alberta Agenda, by challenging the constitutional impropriety that has resulted in the gradual accumulation by the federal government of powers to tax and spend in areas of provincial jurisdiction. Although the constitution gives Ottawa the power to tax, provinces are afforded exclusive jurisdiction to make laws concerning property and civil rights and other matters of local concern, including health, education and welfare. Accordingly, Prime Minister Mackenzie King was forced to curry the support of the provinces and get a constitutional amendment before establishing a national Unemployment Insurance program in 1940.

Even then, the program's mandate was limited to providing temporary insurance for unexpected, economic-related unemployment -- not unemployment precipitated by other social circumstance or personal choice, such as pregnancy, child-rearing or family care.

This is a far cry from what EI has become. Over the past 60 years, its insurance-based elements have been weakened while its regional and redistributive elements have grown. Today, "special" or non-insurance benefits, such as maternity, adoption and parental leave, and fishers and work-sharing benefits, make up nearly a quarter of all benefits.

This new social spending has diverted public criticism about problems with the EI system, and undermined political will to pursue reform. As the auditor general has noted, EI is "one of the government's largest and most visible programs." Just as the Quebec sponsorship deals were supposed to increase the profile of the federal government in that province, EI special benefits are supposed to perpetuate Ottawa's political influence (and relevance) in the rest of Canada, whatever its economic consequences.

Just like the sponsorship scandal, however, problems in the management of the EI program have also caught the attention of Canada's auditor general. According to the Employment Insurance Act, the program is supposed to be managed on a break-even basis. When the auditor general first raised concerns back in 1999 however, the EI program's cumulative account surplus had reached $21 billion. By the time Sheila Fraser penned her most recent report in November 2003, this surplus had ballooned to $44 billion -- three times more than the reserve amount recommended by Canada's chief actuary.

Of course, this surplus exists on paper only -- in Fraser's words, it is "notional." In reality, the excess revenue collected from Canadians through EI premiums ends up flowing into general revenues and as such, has been a key factor in helping the Liberal government balance the books over the past decade.

No wonder the federal government is to appeal the Quebec Court of Appeal decision. EI reform would not only limit its ability to enforce Ottawa's social policy priorities, it would also eat into their bottom line. To put it another way, rather than an insurance system, EI has become a redistributive program in which the federal government levies insurance premiums as a tax to pay for new social spending in areas of provincial jurisdiction. This mission-creep is unconstitutional and should be stopped.

A judicial challenge of the federal EI regime is not without its dangers. While the unanimous nature of the Quebec Court of Appeal decision would appear to put the odds of a Supreme Court victory on the provinces, the courts have used previous cases challenging the constitutionality of the UI/EI program to expand, rather than limit the scope of the federal scheme. Alberta should follow Quebec's lead and stand up to federal mission-creep into areas of provincial jurisdiction.

While Ottawa is unlikely to give up its EI cash cow without a fight, the constitution is on the side of the provinces that would challenge the misappropriation of insurance premiums. Not only will this reinforce provincial prerogatives to establish their own maternity benefits and family leave programs to match local needs and priorities -- Quebec's proposed program would actually be more generous than Ottawa's -- it will finally force reform of the broken EI system.

This provincial leadership will not only strengthen Alberta's role in Confederation, but Confederation as a whole.

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Sylvia LeRoy is a policy analyst with the Calgary office of the Fraser Institute, an independent, public policy research organization. She can be reached by email sylvial@fraserinstitute.ca.