Advice For Ontario: Play hardball

Equalization, Frontier Centre, Role of Government, Uncategorized, Welfare, Worth A Look

The move would be provocative. It would be parochial. It could spark a serious federal-provincial clash.

But maybe Premier Dalton McGuinty needs to cause a little trouble in Ottawa, says economist Hugh Mackenzie. Asking for a fair deal for Ontario hasn’t done much good.

So here is Mackenzie’s idea: McGuinty should serve notice to the Prime Minister that Ontario intends to opt out of the Employment Insurance system and set up its own program.

That would get Stephen Harper’s attention. Ontarians pay 38 per cent of the premiums in the $17-billion-a-year EI fund. They get 29 per cent of the benefits.

Without Ontario’s large and unbalanced contribution, the federal government would have difficulty maintaining the program.

What’s more, its departure might prompt other provinces, such as Alberta, which pays 11 per cent of the freight and gets 7 per cent back in benefits, to withdraw.

On the positive side, Ontario would be able to provide its workers with much better coverage than Ottawa is doing.

Under the federal system, only 37 per cent of unemployed Ontarians (22 per cent of out-of-work Torontonians) are eligible for EI benefits. Casual and self-employed workers are excluded. The long-term unemployed are excluded. Most part-time workers are excluded.

Using the $6.6 billion it now pays into the federal fund, Ontario could insure a much larger portion of its workforce.

Under Ottawa’s rules, workers who do qualify for EI in Ontario get considerably less in federal support – $4,630 a year less per capita by McGuinty’s calculations – than the national average.
That is because Ontario is not considered a high-unemployment region (despite the fact that its 6.4 unemployment rate is higher than the national rate of 6.1 per cent.)

McGuinty could establish a benefit structure suited to a province whose manufacturing and forestry sectors are shedding hundreds of thousands of jobs.

The EI fund has become a cash cow for the federal government. Every year Ottawa collects more in premiums than it distributes in benefits. It uses the surplus to balance its budget. Despite repeated promises to run the program on a revenue-neutral basis – the latest from Finance Minister Jim Flaherty in 2007 – the government always ends up with excess funds.

Ontario could put in place a break-even system, returning everything workers put into the pot – minus administration costs – to the unemployed.

Appealing as the scheme looks, it has a couple of major drawbacks.

First, Ontario would be pulling out of the county’s oldest national social program. For 68 years, Employment Insurance (or Unemployment Insurance, as it was known until 1996) has been the cornerstone of Canada’s income security system. It has survived war, recession, federal-provincial squabbles and numerous ham-handed reforms.

Many Ontarians would be reluctant to see their government take the lead in dismantling a foundational piece of the nation’s social infrastructure.

Second, setting up a provincial EI system would be a formidable undertaking. A model would have to be developed and tested, bureaucrats hired, computers programmed and a hand-off negotiated with Ottawa.

To complicate matters, the province would be drafting its blueprint at a time of slumping growth, rising unemployment and global economic turmoil. This would make it difficult to estimate the number of claimants and risky to set premium levels.

Mackenzie is well aware of the hazards of going it alone. In truth, he hopes it will never come to that. What he really wants is a comprehensive, equitable Canadian Employment Insurance system.

So do many others. Social agencies have asked. Unions have asked. Municipalities have asked. McGuinty has asked countless times, most recently during this fall’s election campaign.

“For years, Ontario’s workers have seen their premiums used to support unemployed workers in other regions and sectors,” he said. “Today it is Ontario’s workers who need support.”

There was no response – not even an acknowledgment – from Prime Minister Stephen Harper.

That was when Mackenzie decided a manufactured-in-Ontario crisis might be in order.