BOB HOWSE

DON'T LOOK BACK could be the motto of Paul Martin's government.

It's a constant theme as the Martinites distance themselves from the Chretien years, the sponsorship scandal and the spectacle of faulty (and often Fawlty) memory playing at the public accounts committee.

But there's a bigger financial albatross than the $100-million sponsorship boondoggle that Martin would like to put behind him. A little corner of Finance Minister Ralph Goodales's budget papers made this clear last week.

I'm talking about the $44-billion surplus created in the Employment Insurance account since 1996.

This has to be a milking record for cash cows. It's also a disgraceful misuse of a social program that was designed to merely break even.

The gouging of Canadians by the EI surplus makes the sponsorship misspending look like a petty-cash break-in.

And while the EI grab wasn't criminal, and arguably wasn't illegal, it was wrong and sneaky.

Just as the intent of the sponsorship program was not to pay ad firms to do nothing, the intent of EI was not to generate $3 billion a year in spare cash to enable Paul Martin to balance the budget.

Auditor General Sheila Fraser says $3 billion is what EI contributed to the federal budget surplus last year.

You'd never guess that from Goodale's budget speech, or from budgets delivered by John Manley or Martin himself over the last decade.

Amid all the Ottawa flapdoodle about transparency and culture change, the EI story stands out as a monument to continued obfuscation and political opportunism.

And it's not as if the whistle hasn't been blown breathless.

Fraser has hammered the EI surplus for the past five years.

Her latest critique, in her November report to Parliament, pulls no punches.

She says "the government did not observe the intent of the Employment Insurance Act" in accumulating "a surplus beyond what could reasonably be spent for Employment Insurance."

Parliament, she said, clearly intended EI to run on a break-even basis, with only enough surplus to stabilize premiums in a downturn. The government's chief actuary has repeatedly found that a $15-billion surplus is plenty to buffer the rates against recession.

The government's response in November was, predictably, to say its actions were "consistent with the applicable legislation." It also noted mournfully there has been "considerable confusion" about the rate-setting process.

Well, yes, but EI confusion has been government policy.

For the past two years, cabinet has had the power to set EI premiums at whatever level it could get away with.

It did this legally by getting Parliament to rubber-stamp a bill suspending the old rate-setting process while a new one was considered. The deadline for these new rules keeps getting put off.

The old process - under which the EI Commission set rates on the advice of the chief actuary - was obviously canned because it was becoming a political embarrassment that the supposedly independent commission was repeatedly ignoring the actuary's advice to curb the EI surplus.

For some reason, the commission kept rates at levels that balanced Martin's budgets.

This surely did offend the EI Act. The Chretien government's solution was to suspend the law, not the behaviour.

Those were the bad old days. How have things changed since the Martin Enlightenment?

Well, Goodale's budget plan says the government is hoping to have new EI rate rules ready for next year. But in case it can't, cabinet will continue to set them. Now, however, cabinet will apply shiny new principles of transparency, expert advice, rate stability and matching program costs.

What it won't do, however, is give Canadians credit for the $44 billion in overbilling.

The budget plan speaks approvingly of eliminating the "look-back" provision in setting EI rates. The look-back is Finance-speak for the EI surplus.

Let's be clear what the EI surplus is: It is an accounting surplus - a simple statement of the fact that $44 billion more was collected in premiums than was spent on benefits over the last eight years.

It is not an asset account. It is not cash; it is not investments. The money is gone.

EI premiums go into general revenue; benefits are paid from general revenue; what's left is used for other spending.

So, why keep track of the surplus? The idea was to protect taxpayers from gouging.

If we paid higher premiums than necessary to fund benefits, we should expect these past overpayments to be taken into account when new rates are set each year.

Ottawa shouldn't pretend EI is starting over every year, with rates based only on an uncertain future. The surplus is only a "notional" account, as Fraser describes it, but it means something. We pretend we have it because it tells us what rates should be in future if the feds want to be fair to the people paying the premiums.

The budget plan is not keen to look back on EI's overbilling. It would prefer to lobotomize the public in respect to the EI surplus.

As the plan states, keeping the look-back provision "would cause serious disruptions to the overall management of the government's budget."

In other words, the Liberals might have to fess up that they used EI to balance the books, that the money is gone, and is not there to buffer future premiums.

Does this budget herald the age of transparent government? I can think of 44 billion reasons to be skeptical.

Bob Howse is editor-in-chief of The Chronicle Herald.

E-mail: ReduceYourTaxes@barkermoney.com