Looking at my first paycheque of the year, I feel the sting of Canada Pension Plan (CPP) and Employment Insurance (EI) deductions starting again. I don’t really mind contributing to my future income in the form of CPP, but calling EI “insurance” always irked me because I thought my income level made it nearly impossible for me to ever collect.
There are clawback provisions for any EI benefits you receive over and above paying normal income taxes on the benefits. I had assumed that if my year’s pay was too much above $60,000, any EI benefits would be clawed back anyway.
It turns out that there is an exemption for anyone who hasn’t collected any EI benefits in the preceding 10 taxation years. So, while I don’t expect to be involuntarily unemployed, in principle I could collect EI benefits for a while and not have them entirely taxed back. This could only happen once every 11 years, but at least this insurance has modest value to me. So, instead of viewing EI deductions entirely as a tax, I now see them as mostly tax and a little bit of insurance.
Don’t get the wrong idea about my view of EI. I don’t mind paying into a fund that helps people who lose their jobs. And I think it makes sense to claw back benefits from high-income earners. I just question whether we should call it insurance or just another tax. At least the first year you collect EI you aren’t subject to clawback.