The federal government was within its right to spend employment insurance funds on related social programs, but broke the law for three years when it turned the premiums workers pay into an unlawful payroll tax, the Supreme Court of Canada ruled on Thursday.

In 2002, 2003 and 2005, the court said the federal cabinet directly set EI premium rates without proper authorization from Parliament.

The Canadian Institute of Actuaries welcomed the court’s decision regarding EI financing.

“Now that those legal issues have been resolved, Canada’s actuaries believe more than ever that a more flexible financing mechanism is essential for the Employment Insurance program. By more flexible, we mean a system under which EI premiums will not need to be raised at the worst possible moment, for example, during a time of an economic downturn, but could be raised in times of improved economic circumstances,” said Michael Hale, the president of the institute.

After reviewing the EI Chief Actuary’s report, the institute said it agrees with the government’s decision to keep EI premiums unchanged for 2009.

At the same time, in the midst of a recession, the institute believes that the federal government should improve the rules adopted in its 2008 federal budget, by establishing a system such that EI premium rates will not have to be increased to deal with rising unemployment costs.

The system that was adopted in the 2008 budget will not provide any cover for higher unemployment benefits, because it is a fully pay-as-you-go system, the institute says. Instead, the institute has proposed the establishment of a contingency reserve of $10 to $15 billion for the purpose of stabilizing premiums for employers and employees, even in a long and deep recession.

IE