Appendix II - Provincial Plans and Provincial Benefits

A. Provincial Plan (PP)

Subsection 69(2) of the Act provides that the Commission can make regulations to provide a system for reducing the employer and employee premiums when the payment of any allowances, money or other benefits because of illness, injury, quarantine, pregnancy, child care or compassionate care under a provincial law to insured persons would have the effect of reducing or eliminating the special benefits payable to those insured persons.

A Provincial Plan (PP) is a plan, established under a provincial law, that provides for the payment of provincial benefits (PB) and in respect of which an agreement has been entered into between the Government of Canada and the province to establish a system for reducing employer and employee premiums where the payment of those benefits would have the effect of reducing or eliminating benefits payable under section 22 or 23 of the Act.

On March 1^st 2005, an agreement was reached between the Government of Canada and the Government of Quebec which included a financial mechanism whereby the Government of Canada reduces Employment Insurance premiums of workers and employers in the province so that the Government of Quebec can collect premiums for its own program. The premium reduction reflects the cost reductions to the EI Account realized as a result of Quebec's program, including benefits that are no longer paid under EI and administrative savings.

B. Breakdown of Insurable Earnings

As mentioned in section 6 of Appendix I, in order to determine the EI break-even rate for provinces where there is no PP and the EI premium rate for provinces where there is a PP, it is necessary to determine the amount of insurable earnings (IE) that corresponds to the provinces where there is a PP and provinces where there is no PP. These IE must be determined on the basis of the province of residence since eligibility for a PP is based on residency.

The data used in order to allocate IE on a residency basis has two components.

The first component is the IE by province of work as per the T4 supplementary report which is obtained from the PAYDAC (Payroll Deduction System) file produced by the Canada Revenue Agency. The following table illustrates the data:

The second component is the EI premiums by province of residence extracted from tax returns (T1s) of the Canada Revenue Agency. Since insurable earnings are not part of the available data that can be collected from tax returns (T1s), it is necessary to divide the premium revenues by the EI contribution rate for that year to obtain the amount of insurable earnings. The resulting IE corresponds to the distribution according to the province of residence (T1).

For further information about the EI Employee Premiums Based on Residency (thousands). (RTF Format)

We have observed a strong correlation, on a residency basis (T1), between the historical proportions of IE for provinces without a PP to the total IE for Canada, and the following variables:

1. the unemployment rate;
   
   
2. labour income growth rate;
   
   
3. insured population;
   
   
4. the proportion of IE for provinces without a PP to the total IE for Canada, according to the T4s;
   
   
5. the maximum insurable earnings; and
   
   
6. the average weekly earnings.
   
   

   As much as 71.4% of the total variance of the proportion of insurable earnings for provinces without a PP to total insurable earnings for Canada, on a residency basis (T1), can be explained by the above six variables.

   This strong correlation, along with the labour market assumptions provided by the Minister of Finance, allows us to use a multiple linear regression to project the proportions of insurable earnings on a residency basis (T1). The following table shows the results :

   Insurable Earnings

   Insurable Earnings	2007	2008	2009
   Provinces with No PP	$326,317 M	$341,511 M	$352,401 M
   Provinces with  a PP	$105,808 M	$110,784 M	$113,963 M
   Total	$432,125 M	$452,295 M	$466,364 M

   C. Variable Administrative Costs (VAC)

   In accordance with the EI regulations on PP, and as mentioned in Appendix I, in order to compute the EIpremium rate for the types of EI benefits insured by a PP, it is necessary to take into account the VAC for those types of benefits.

   The VAC is the amount of direct operating costs incurred to provide Provincial Benefits covered by a PP (maternity, parental and adoption benefits).

   The responsibility of determining the VAC each year lies with Employment Insurance Services, Business Analysis and Information Management, General Operations and Processing, Processing and Operations, Service Canada.

   The VAC are estimated at $14.248 million in 2009. This value is used for determining the EI premium rate reduction for Provincial Benefits and is consistent with the Canada-Quebec Agreement on the Quebec Parental Insurance Plan.

   D. Results

   The premium rate reduction for provinces with a Provincial Plan is obtained by dividing the expected costs of EI maternity, parental and adoption (MPA) benefits, including VAC, with the amount of insurable earnings (IE) that corresponds to the provinces without a PP. The recent increase in MPA benefits has raised the premium rate reduction to 0.35% in 2009, which when combined with the EI break-even premium rate of 1.38% gives 1.73% for provinces without a PP.

   To obtain the total amount of premium reduction granted to a PP for 2009, we must multiply the premium reduction rate of 0.35% by the EI total insurable earnings for provinces with a PP, i.e. $113,963 million, and multiply the result by 2.4 (employee and employer share). It is important to remember that since 2006 Quebec has been the only province that provides a PP. The value of the reduction is indicated in the following table:

   EI premium reduction granted for a PP (Quebec)

   EI premium reduction granted for a PP (Quebec)	2007	2008	2009
   Rate (as a % of insurable earnings for provinces with a PP)	0.34%	0.34%	0.35%
   Absolute value	$863 M	$904 M	$957 M

   ---

   ³ 2006 is the last available complete year.

   ⁴ 2.25% from Jan. 1 to June 30 and 2.80% from July 1 to Dec.31.

   ⁵ 2006 is the last available complete year.

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