We shall call the meeting to order.
Pursuant to Standing Order 108(2), we'll start our study of the pre-budget consultations for 2020.
We have a number of witnesses here from the Department of Finance Canada who will have a presentation in a moment.
First, I want to thank all of the parties for getting their witness lists in on time under a very tight schedule. The clerk tells me that one of the difficulties is that pretty nearly all the witnesses have accepted in response to the initial calls, which surprises me, given the tight time frame. That's a good thing.
I just want to remind people of the other things that we agreed to the other day on the schedule, if people want to make note of these dates while the witnesses are going through some of these areas. On February 18, there is a 6 p.m. deadline for the submission of recommendations to the committee clerk. On February 19 at 3 p.m., we hope that we'll be able to distribute all of the recommendations by all parties to all committee members. We'll meet on February 20 from 11 until 2 and from 3:30 until 6:30 as a committee to discuss the report and the recommendations because—and we talked about it the other day—we have to give the Library of Parliament time to get its work done so that we'll be able to table the report in the House. There will be meetings, as necessary, during the week of February 24 to finalize the report.
Are there any questions on that?
Seeing none, we will turn to the witnesses from the Department of Finance. We have Mr. Leswick, assistant deputy minister, economic and fiscal policy branch; Mr. Marsland, senior assistant deputy minister, tax policy branch; and Ms. Dancey, associate assistant deputy minister, economic development and corporate finance branch.
I'm not sure who is leading off.
Are you, Nicholas?
I'll just make a few short opening remarks.
Good afternoon, Mr. Chair, and honourable members of the committee.
Well, you've introduced me, Nick Leswick, the assistant deputy minister of the economic and fiscal policy branch, with overall responsibility within the department for economic and fiscal forecasting and the production of the federal budget.
Andrew Marsland is our assistant deputy minister of tax policy. Evelyn Dancey is our associate ADM of the economic development and corporate finance branch.
I have other officials from the Department of Finance behind me who can assist us in providing responses to your questions.
I will speak briefly about the preparations currently under way at the department for budget 2020. Every year, the Department of Finance organizes its own pre-budget consultations in addition to the consultations that you, the committee members, are hosting.
Through town halls, focus groups and online surveys, and by receiving emails and regular mail, the consultations allow the Government of Canada to hear directly from Canadians on what measures could be included in the upcoming budget.
This year's pre-budget consultations are focused on the themes from the Speech from the Throne, themes that we know are important to Canadians and that the government has stated as its clear priorities: strengthening the middle class, protecting our environment, keeping Canadians safe and healthy, and reconciliation with indigenous peoples.
These pre-budget consultations were launched on January 13. The objective was clear: inviting Canadians and experts to share their ideas and help build the upcoming budget.
As you may know, and , as well as Parliamentary Secretary Fraser, who is at this committee, have held town halls and round tables across the country to date.
Also, 15,000 Canadians have responded so far to online surveys on our website, and responses come in every day.
The consultations are ongoing; therefore, there is still time for Canadians to share their ideas and their priorities with the government, whether that is online or at events across the country. The government wants to hear from as many Canadians as possible.
With that, Mr. Chair, we will be happy to answer any questions the members of the committee may have as they pursue the various themes under this year's pre-budget consultations.
Yes, I'd be happy to give you a general narrative on the economy.
More broadly speaking, I think, starting with the global economic perspective, 2019 was a bit of a rough year. It was the slowest growth clip in the global economy in the last 10 years, since the end of the great financial crisis, and it was coming off some highs in 2017 and 2018. There was a deceleration in the global economy. Some of that was just cyclical. There was a lot of stimulus in the global economy in 2017 and 2018 from things that we know, like the Trump tax cuts and a lot of monetary easing that took place over that time. That faded, so 2019 was a slowing year. Obviously, some of that weakness spilled over into the Canadian economy. Growth in Canada for 2019 is expected to come in at probably just below 2%. Compared with 2017 and 2018, there was a deceleration in growth.
That said, employment held up quite tremendously. Job creation in 2019 was very strong, averaging in and around 40,000 jobs per month. Wage growth did pick up to north of 3%, which was a good and encouraging sign. The composition of job growth was pretty good: it was concentrated in the private sector and pretty broadly based across various sectors.
That said, looking forward into 2019 and more specifically into the fourth quarter of 2019, for which we expect results at the end of February, there was some choppiness at the end of 2019. I think some of that weakness will probably spill over into 2020. Again, some of it was cyclical—things like CN Rail strikes, GM strikes and some intermittent shutdowns along the energy production cycle. Overall, the labour market is pretty strong, with low levels of unemployment and, as I said, wage growth picking up, and that's encouraging.
Looking forward to 2020, I think that growth in and around Canada's potential, which is dictated by productivity and labour supply, will probably be in and around that 2% mark, which is kind of the consensus view among most economists around the country.
Obviously, some risks include things like what we are experiencing now: the coronavirus and the containment of that shock and how it's expected to spill over into the global economy and into Canada. Geopolitical risks seem to be fading a bit. We're very encouraged, obviously, with the signing of the most recent trade deal between the U.S. and China and the dissipating effects from the uncertainty surrounding Brexit and some of the EU uncertainties.
Overall, I think it's steady as she goes, and we'll see how it plays out over the next couple of months.
I appreciate your answering these questions. I want to come back to TMX, and not just because taxpayers are currently subsidizing it. After interest charges, as we're all well aware, it's losing about $150 million a year. There's some real concern about putting more and more money into this.
I appreciated the comments around the EDC Canada Account. Just going on the disclosure form on the EDC website, they say that the Canada Account is for projects where “the risks are assumed by the Federal government”. We are talking about taxpayers' money here. Looking through the Canada Account, on the EDC website they do have a disclosure of 30 projects. It's about $7.5 billion this century. If we look at the size and scope of the cost overruns for Trans Mountain, most construction estimates vary now between $15 billion and $17 billion, much higher than the initial cost of about $7.5 billion. That eclipses in scope all of the Canada Account expenditures this century. That would be twice as much.
In terms of process, we finally get an updated construction cost. That means, say, $17 billion. It appears that cabinet has the ability, unless I'm wrong, to make that call and approve, through the Canada Account, risks assumed by the federal government of that $17 billion. Then, of course, we have the risk that the updated construction cost allows every single shipper, as economist Robyn Allan has pointed out, to pull out of the deal. It seems to be a bit of a house of cards.
I guess I'm wondering, first off, if our reading is correct that cabinet basically can make that decision even though it dwarfs all of the other expenditures around the Canada Account, at least this century. Is it entirely up to cabinet? What is the system of checks and balances around that? This is particularly in light of the impact on shippers' contracts and the fact that we could well end up with massive costs, with shippers pulling out for a variety of reasons, including the fact that they can legally do so once that updated construction cost is published.
Thank you, Mr. Chair and members of the committee.
Thank you for hosting me here today. I represent the Canadian Association of Petroleum Producers, which represents the upstream oil and gas industry in Canada.
A strong oil and gas sector can help government achieve its priorities of growing the middle class, reducing our carbon footprint and expanding our collective prosperity. Canada ranks at the top of major oil-producing countries in terms of control of corruption, rule of law, government effectiveness, environmental protection and social progress. With global energy demand expected to increase, along with an increased focus on GHG emissions reduction, Canada is uniquely positioned as the global hydrocarbon supplier of choice. Through our technology investments, oil sands emissions intensity has decreased by 20% and is now on par with the global average crude blend. On the conventional side, we are committed to reducing methane emissions by 45%. Our regulations are more stringent than those of most other jurisdictions, including in the U.S.
Continued technology investments have the potential to achieve substantial additional reductions. However, in order to achieve this vision, government and industry need to work collaboratively. Despite a positive uptick in investment for 2020 for our industry, we continue to struggle to attract capital. Total equity raised in 2018 was about $650 million, down 94% over the past five years, which was the lowest level on record in 27 years. This has led to lower investment and fewer jobs. In fact, Alberta has 50,000 fewer jobs than it should have, had job creation kept pace with demographics, since the recession. Our total capital investment is about a third of what it was in 2014. Conversely, U.S. oil producers raised $19.4 billion from debt and equity markets in 2018. This severe reduction in our access to capital comes as the industry continues to be a leader in cost reduction and ESG performance.
We see an opportunity for the government to work collaboratively with the oil and gas sector and position Canada to be the global barrel of choice. This concept was echoed by the federal expert panel on sustainable finance, who recognized, and I quote:
Canada's oil and...gas companies are competing against major sovereign producers...that face little pressure for transparency or risk of divestment.... Divestment from these public companies essentially transfers market share from the minority producers most obliged to act responsibly and transparently, to monopoly producers without similar obligations.
The panel further indicated that “[a]chieving Canada's sustainable growth potential will require a sea change in the interaction between innovation, policy and regulation...and investment patterns.”
However, in order to achieve this vision, we need the right fiscal and innovation framework driven by close collaboration between the federal government and industry. Therefore, CAPP recommends that the federal government launch an innovation and industrial strategy table involving industry and the ministries of finance, NRCan, ECCC and innovation and economic development. The table would develop the strategy and coordinate investment in technology that would help achieve substantial emissions reductions and investment growth in our sector.
From a fiscal perspective, we recommend that the Department of Finance affirm that existing oil and gas tax measures are not subsidies, as stated by the Department of Finance in the 2017 Auditor General's report.
Finally, there are several fiscal measures that the government can implement that will increase our competitiveness, including reforms to large corporation tax administration, interest expense deductibility, and access to capital for small and medium enterprises. I would be happy to discuss these further during the Q and A session.
In closing, CAPP believes that Canada's oil and natural gas sector presents a significant opportunity for inclusive growth that provides broad benefits to all.
Thank you for this opportunity to present to you today. I look forward to your questions.
Thank you, Mr. Chair. Yes, it feels a little different, I must admit, to be on this side of the table. It's the first time, and hopefully not the last. I'd like to thank you and members of the Standing Committee on Finance for the opportunity to appear before you today. As you've indicated, I'm joined by Adam Thompson, manager of government and external relations with the City of London.
As the largest urban centre in southwestern Ontario, London provides economic and social opportunities for all 2.5 million residents of our region. We embrace our role by providing the infrastructure, jobs and amenities that people rely on each day. We recognize that we rely on our region's success, much as our region relies on our success.
In advance of the development of budget 2020, I'd like to focus today on the theme of connection. As a mid-sized city, London connects services to people, people to their community, and the community to the world. I'd like to touch on each connection point individually as all parties weigh in on priorities for the year ahead.
First, on connecting services to people, London continues to grapple with a people crisis. Providing safe, affordable housing for our residents remains a systemic challenge. With average rental market vacancy rates in London at 2.1%, and below-market rental units closer to 0%, we continue to struggle to meet the needs of not just Londoners but residents across the region.
At the same time, growing challenges persist in the area of mental health and addictions. In response, the City of London has moved forward with our core area action plan, which outlines nearly 50 initiatives to respond directly to homelessness, health issues, safety and security in our downtown and create a positive environment through attracting people to the core.
Connection forms the heart of our plan. The plan includes the development of 40 resting spaces where individuals can come off the street, shower and have a warm meal; 20 stabilization spaces where individuals can find medical attention and support while in crisis; and 10 supportive housing spaces. We are actively working with the Province of Ontario to secure the necessary investments into medical personnel to provide primary staffing for these spaces.
In addition to providing the direct supports people need, this program will free up essential capacity in our hospitals, providing an estimated $7.5 million per year in emergency room occupancy savings.
We've all seen the long lineups of ambulances and emergency vehicles at our hospitals, which are required to wait with people experiencing crises until a hand-off to medical staff can occur. By providing an alternative, we aim to free up approximately 5,700 hours of police time and 9,200 hours of EMS time per year, time that could be reinvested into serving our community.
The Government of Canada can help the City of London advance this work immediately. With nearly 30% of our homeless population self-identifying as indigenous, we know there is a desperate need for community-based, culturally appropriate resources. Under the reaching home strategy, targeted funding under the indigenous stream is available to support municipalities and local indigenous service providers. While we do not receive funding out of this sub-stream today, future access would support immediate initiatives to open resting spaces, stabilization spaces and supportive housing spaces in a matter of mere months. We have a plan for a pilot program before the Government of Canada, and I'm hopeful that we can move ahead with this immediately.
As London continues to focus efforts on connecting critical services to people, we are also undertaking bold action to connect people to their community. At my recent state of the city speech, I spoke about our vision of becoming the first major city in Canada to have a zero-emission public transit fleet of buses. We will do this by moving away from diesel to a fully electrified fleet.
In April 2019, London City Council declared a climate emergency. We are taking that pledge seriously, not only by our words but by our deeds. Public transit emissions represent as much as 40% of total emissions where London has direct or indirect influence. Even after electricity costs are factored in, our estimates show that a move towards electrification would represent substantial operational savings each year. These savings will only increase as the cost of fuel rises.
Transforming our public transit system would generate significant savings and provide millions of additional dollars each year, money that could be used to invest further in programs to tackle the needs of our most vulnerable residents. The London Transit Commission will be moving forward with a significant study to explore net-zero public transit options over the coming months.
While this work progresses, we are looking for additional details from the Government of Canada as to how the federal government plans to partner with cities and communities. Budget 2020 provides an excellent opportunity.
Finally, we are focusing on a greater connection of London to domestic and international markets. Within the strategic plan, our vision as a council emphasizes London as a leader in commerce, culture and innovation, our region’s connection to the world. I recently met with the leadership of Via Rail, alongside the new president of Western University, Alan Shepard, to explore expanding rail connections across the province and, ultimately, the country.
London operates the fourth-busiest Via Rail station in Canada. Our station operates within Canada’s busiest economic corridor, with nearly $23 billion moving between southwest Ontario and the greater Toronto area each year.
Our residents and businesses, and the economic potential they represent, continue to be held back by a lack of options to move between London and Toronto, as well as London and Windsor/Detroit. Private vehicle and freight traffic on Highway 401 is expected to double over the next decade, heightening safety concerns along this high-frequency corridor. Additionally, increased congestion will continue to cost our economy and impede economic growth if we do not urgently invest in alternative means to move around the entire rail corridor from Windsor to Quebec City.
Our conversation with Via Rail will remain a priority in the coming year. Connecting mid-size communities like London will require federal investments into Via Rail to expand the fleet and the service offerings for our people and our businesses. I look forward to a meaningful discussion with the Government of Canada in the coming months.
I would like to thank you for the invitation to present today. I would like to acknowledge that we have two of the four great members of Parliament from London at the table today. I must say, London has fully embraced our place as a regional hub for southwest Ontario. I look forward to further exploring our focus on connection and providing answers to questions from members of the committee.
Thank you, Mr. Chair.
Thank you, Mr. Chair, for the invitation and the opportunity to speak to the standing committee today.
I'm Craig Stewart, vice-president of federal affairs, and I'm joined by Nadja Dreff, our chief economist at Insurance Bureau of Canada or IBC. We are the national trade association representing Canada's private home, car and business insurers.
I'm going to speak to three topics today. The first is protecting Canadians from escalating climate risk, particularly flooding. Second is protecting Canadians from a severe earthquake. Third is the importance of transitioning Canada to a low-carbon, resilient and competitive economy by 2050.
First is climate risk. Flooding is the single greatest climate threat facing Canadians today. Last January, on behalf of the National Advisory Council on Flood Risk, I presented financial options for addressing flood risk to federal, provincial and territorial ministers responsible for emergency management. The national advisory council had been appointed by then minister of public safety Ralph Goodale, after the 2017 floods across eastern Canada. After 18 months of consultations, we delivered a report that detailed a comprehensive solution that would ensure that every Canadian would be financially protected from flooding, irrespective of the risk they face.
In part because of that work, six different cabinet ministers have flooding as part of their mandate letters. Together, they are to deliver a coordinated action plan on flooding. However, for that to happen, some foundational work must be supported through the federal budget.
We can separate Canadian properties into three groupings. Properties in group one are at the highest risk and will flood predictably every 10 to 20 years. Group two, still at high risk, will flood predictably at least once every 100 years. Group three represents everybody else. Flooding for these properties is an unpredictable accident, if you will. This group, which represents about 90% of Canadian properties, can be insured by regular overland flood insurance. However, other solutions are needed for the remaining 10%, those in groups one and two.
Those in group one, which will flood predictably every 10 to 20 years, can be addressed either through home relocation programs, called strategic retreat, or through significant home retrofits that elevate their homes, or possibly through investments in flood defence infrastructure.
Those in group two, those within a 100-year flood interval, should be insured through a public-private partnership, a specialized high-risk insurance pool, which is what happens in many countries, such as the U.S. and the United Kingdom. If these homes are also de-risked through home retrofits or investment in flood defence infrastructure, they could join group three and be eligible for the regular insurance market. Our goal is to reduce the number of Canadians in groups one and two over time.
To meet mandated ministerial commitments, three items should be included within the budget 2020 fiscal framework.
First is dedicated funding to design and cost a high-risk insurance pool and an associated program of strategic retreat. This process should be consultative and include consideration of indigenous and other vulnerable populations. As part of this, funding is needed to align public and private flood risk models. If insurers, banks, realtors and governments do not have a common, reliable and accurate flood map, Canadian consumers will not be well served.
Second, funding is needed for a home retrofits program that addresses flood resilience as well as energy efficiency.
Third, funding is needed for targeted flood defence infrastructure through an expanded disaster mitigation and adaptation fund. Infrastructure Canada must have the internal capacity to deliver such funding and should be supporting capacity in smaller communities that lack the expertise to apply for it.
The second topic I will address is Canada's financial resilience to an earthquake. Every developed country at high risk of earthquake has a public-private partnership in place designed to ensure financial stability and protect consumers in the case of a significant event—every country, that is, except two: Italy and Canada.
Canada has two high-risk populated regions: southwestern British Columbia and the Quebec City-Montreal corridor. Finance Canada is currently researching solutions as part of the financial sector framework review, and we are in full support of this work.
Budgetary language reflecting a commitment to finding a solution within a specific period of time would be welcome. Furthermore, IBC recommends that the federal government foster the appropriate financial regulatory environment that allows insurers and re-insurers to be part of the climate and earthquake risk solution. This means ensuring that OSFI regulations do not unduly impose insurance capacity constraints, which could negatively impact insurance affordability for Canadians.
Finally, we wish to wholeheartedly endorse the recommendations of the expert panel on sustainable finance. Ms. Zvan, as a member of that expert panel, is better positioned to speak to these. However, we would like to underline that the fourth recommendation—for a Canadian centre for climate information and analytics—is foundational, in our view, for promoting resilience.
Referring back to flooding, any investments in flood mapping should be linked to the creation of this centre. The private sector will help to pay for this data; governments do not have to complete flood mapping all on their own.
Thank you again, Chair, for the opportunity to present to you today. I'll close by saying that, as climate change could be considered a central theme for the upcoming federal budget, Canada's P and C insurers have a clear message. If adapting to flood is not an explicit part of a climate plan, that plan is not relevant in terms of the single greatest climate threat facing Canadians and their pocketbooks today.
Thanks for having me back.
I'm the former chief economic analyst at Statistics Canada, so the perspective I bring is one of macroeconomics, the broad trends. I believe there have been two dominant trends in Canada's economy over the past decade, neither of which is discussed enough, if at all. We are stuck in a period of persistent slow growth, while at the same time Canada has seen its debt levels soar. The combination of these two makes Canada vulnerable to a downturn in the turbulent global economy.
Chronic slow growth can be demonstrated in a number of ways. The per capita growth of real GDP, or incomes, over the 2010s was 1%, the lowest since the 1930s. Decadal growth does not lie about the long-term trend of growth. It cannot be dismissed as a misfortune from transitory events. Even more remarkably, slow growth in the 2010s was not dampened by even one recession. Instead, it reflects subpar income gains persisting year after year.
Another thing to highlight with regard to how weak growth has been is this: After the economy peaked in 2008, growth over the next 11 years was no better than in the 1930s after its peak in 1929. Rather than the boom-and-bust cycle of the 1930s, we have had persistently slow growth since the 2009 recession, leaving cumulative GDP growth exactly the same as in the decade after 1929. Slow growth is not as spectacular as the 1930s depression, but its long-term effects are just as insidious and corrosive. This is particularly true of the misguided focus on income distribution. The income of average Canadians has stagnated because of slow overall growth, not because the fruits of that growth are growing disproportionately to those of upper income.
Even as income growth has slowed to a crawl, Canada has racked up one of the world's largest debt burdens. According to the Bank for International Settlements, Canada's debt-to-GDP ratio stood at 306 in 2019, up one third from 2008. This compares with an average increase of 13.8% in advanced market economies.
The BIS alone among international organizations warned of the perils of excessive debt growth and trade imbalances leading up to the great financial crisis. Since then, the BIS has repeatedly warned about the negative consequences for long-term growth from relying on monetary and fiscal demand stimulus while ignoring structural reforms that enhance productivity.
Most recently, the BIS has explicitly warned about Canada's debt, stating that when it comes to “aggregate credit...vulnerabilities...Canada, China and Hong Kong SAR stand out, with both the credit-to-GDP gap and the [debt service ratio] flashing red.” In assessing credit conditions, it found Canada at risk for all four categories. No other country was found at risk for all four indicators.
Canada's high level of borrowing reflects how all sectors have gorged themselves on debt since interest rates were cut to historically low levels during and after the 2008-09 recession. Each of the three sectors of domestic demand—that is, households, corporations and governments—has raised its debt load to about 100% of GDP. Canadian households led the borrowing binge with household debt rising to 100% of Canada's GDP. This is the highest of any nation outside of Denmark, and nearly twice the G20 average of 60%.
Non-financial corporations in Canada have borrowed the equivalent of 119% of GDP, more than any other major industrial nation. Borrowing by Canada's government stood at 85% of GDP, not far behind the 98% in the European area and 99% in the United States, both of which had to spend liberally to bail out their banks during the great financial crisis. Government borrowing in Canada is more skewed to the provinces, because our federation is the most decentralized and because provinces are especially vulnerable to slumps in key export markets and are unwilling to adjust their spending accordingly.
The combination of weak income growth and high debt levels leaves Canada in a very precarious position if either interest rates rise or global growth slows significantly. The lesson that we should have learned from the 2008 financial crisis in the U.S.—2010 in the EU—is that debt very quickly can become unbearable when the economy slumps. Downturns usually necessitate extensive government intervention, at which point a seemingly benign government fiscal position suddenly becomes acute.
How did Canada's economy become so vulnerable, and why is there so little discussion of the risk of slow income growth and high debt? Much of the problem is that orthodox economic thinking has a stranglehold on macroeconomic policy-making and research in most nations, including Canada. Every temporary slowdown elicits calls for more monetary and fiscal stimulus to demand, with no recognition of the price they exact from potential growth over the long term.
Worse, the guardians of economic orthodoxy apparently resist self-examination or external criticism, even from leading economists such as Larry Summers, William White and the BIS.
While most economists are reluctant to acknowledge a threat from excessive reliance on short-term demand, stimulus and high debt levels, many ordinary people sense the precariousness of the current state of the economy. This is why so many Canadians feel anxious about the state of the middle class and their own finances. While the unemployment rate is low, as older members of the labour force retire, Canadians experience daily the difficulty of servicing their debts, generating higher incomes, and the struggles of their children entering the labour market. It is time to reject the continuation of policies that have obviously failed to generate growth over the long term, and instead prioritize the creation of income over its distribution.
Thank you. I look forward to your questions.
We are here today on behalf of the Producteurs de lait du Québec, but the issues we'll be discussing affect all of the country's dairy farmers.
Although dairy producers make up a small part of the population, their contribution to Canada's economy is substantial. They operate more than 10,300 small businesses across the country, and dairy production is often one of the main sectors driving regional economies. Those 10,300 businesses account for nearly $20 billion of gross domestic product, not to mention $3.8 billion in tax revenue for cities, provinces and the federal government. What's more, our businesses generate 220,000 direct, indirect and induced jobs. All that to say, our sector makes a tremendous contribution to Canada's economy.
We are here today mainly to make you aware of the issues and impacts related to the trade agreements signed by Canada in recent years. There are two parts to my presentation. First, I'll touch on the agreements and their major impacts. Then, I'll summarize our top requests.
Two agreements came into force in recent months. To begin with, the Canada–European Union Comprehensive Economic and Trade Agreement, known as CETA, was signed in 2013 and came into force in 2017. Under the agreement, access to 1.4% of Canada's market was conceded. That's the first chunk of the market that was conceded in an effort to conclude an agreement. The second agreement I want to mention is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, known as the CPTPP. Under that agreement, an additional 3.1% of Canada's market was conceded.
We recognize that trade agreements play an important role in the country's economic prosperity, so we are not calling into question the fact that Canada has signed such agreements. However, as all the analysts have pointed out, in order for Canada to sign those deals, the dairy sector had to pay a heavy price. We were used as a bargaining chip so the country could benefit from the deals.
Thankfully, in the last few months of 2019, the federal government announced a $2-billion compensation program for concessions in the two agreements. Although that may seem like a lot, it represents only a portion of the financial losses producers will suffer permanently for the concessions made. Keep in mind that, under Canada's dairy policy, farmers committed to producing the quantity of dairy products needed to meet the population's needs, and to do that, they made an investment, a long-term investment. Clearly, then, the concessions are having repercussions on them.
I'd like to highlight some key elements in one last agreement, the Canada–United States–Mexico Agreement, known as CUSMA. In fact, legislation to implement the agreement was recently introduced in the House of Commons. With this agreement comes an additional 3.9% in market access that was conceded. That’s on top of market concessions under the other two agreements. I can speak to the various facets at greater length when we get into questions, but this agreement has something the other two don't. In addition to granting the signatories market access, Canada agreed to impose a cap on skim milk powder exports by Canadian companies. The cap will have financial implications that weren't factored into the estimated losses related to the tariff concessions. The measure, which requires Canada to pay a surcharge when skim milk powder exports exceed 35,000 tonnes in the second year, will result in losses of $15 million to $20 million in the first year, and those numbers will continue to rise.
To conclude, I’ll turn to our demands. Our first demand concerns the first two agreements. In relation to CETA and the CPTPP, we are asking the federal government to clearly set out, in its next budget, the terms and conditions for payments of the remainder of the $2-billion compensation package it pledged to deliver. An initial amount of $345 million was paid out this fiscal year, and I must say it went quite smoothly. When that happens, it’s worth mentioning. We feel it’s important to do that. It’s a good thing. However, we are calling on the government to make clear in the next budget the terms and conditions under which it will follow through on its commitment as regards the remaining $1.4 billion.
Our next demand relates to CUSMA. We are asking that the next budget take into account the impact of the tariff concessions by setting out a mechanism to deal with the precedent-setting losses resulting from the export cap. To that end, the government should act to limit the negative financial impacts by concluding an administrative agreement with its American and Mexican counterparts to ensure the measure applies only to the signatories—in other words, the U.S. and Mexico—not the global marketplace, as CUSMA stipulates. In our view, the measure has the effect of reducing trade, which runs counter to World Trade Organization agreements.
I’ll leave it there for now. Thank you.
Good evening, everybody, and thank you for having me here.
I am actually representing the expert panel on sustainable finance this evening versus my organization.
I am here to speak about the recommendations in our report called “Mobilizing Finance For Sustainable Growth”.
We were a four-member panel, and maybe I'll just start with how we think about sustainable finance. We think about it in terms of channelling the financial sector expertise, its ingenuity, and its influence toward challenges and opportunities posed by climate change, so think of Craig's comments around floods.
It includes revisiting all aspects of finance. Think capital flows—where they need to go, how we invest. Think risk management, with the approach to which we get insurance; or my day job, risk assessment; or how we think about financial processes around what we disclose, how we value assets, and what oversight is included.
The report is really a package of 15 practical, concrete recommendations spanning the essential market activities, behaviours, and structures to make sustainable finance mainstream.
What will success look like? It is when climate-conscious investment and risk management become business as usual. It needs to become embedded in everyday financial decisions, products, and services. It is when we stop referring to “sustainable finance” because it has become synonymous with simply finance—and let's understand that today, it is not.
For clarity, finance is not going to solve climate change, but the things that are—innovation, clean electricity, energy-saving buildings and climate-resilient infrastructure—all require a lot of investment. That's where finance is critical; what gets financed gets done.
The world isn't standing still. The U.K., the EU, China and many other regions across the world have appreciated the importance of laying a strong framework for sustainable finance in their countries.
Canada can be a global leader. Canada has a world-leading financial system with a well-earned reputation for sound governance, risk management, and regulations. Our considerable strength in conventional finance will play a critical role in delivering the financial ingenuity and capital flows required to execute Canada's transition and resilient objectives.
The panel's recommendations are organized in three pillars. It's about 50 pages, so I won't go through a lot of detail, but it is classified into three buckets that I will hit briefly.
First, it is about moving the conversation from burden to opportunity, building a strong foundation and then accelerating the growth in much-needed financial markets and products.
Let's start with pillar one, which addresses the need to shift Canada's climate change conversation from burden to opportunity. What does that look like?
Recommendation one is about laying out the vision, so Canada will say that we need the pan-Canadian framework. We have a net zero, but what does that mean in terms of the investments we have? How can we take those statements and say, “Here are the things we need to do, and here are the investments for the private sector to start looking at?” How can we articulate to them where the dollars are needed, and what is the return on risk characteristics that can be found?
Recommendation two is around using tax to incentivize RRSPs into sustainable finance. This is less about the dollars that it will create, and more about the change it would create in the financial sector, where financial advisers will have to answer to clients with regard to where the products are to help solve climate change. This will reverberate into those organizations and cause the sector to start training, educating, and creating products that are useful to solve climate change.
Recommendation three is about creating a sustainable finance action council. You see this in many of the other countries that made a commitment, bringing leaders together from both government and the private sector to talk about what to prioritize, how to action and how to keep the private sector engaged in the conversation as the government works through changes with the private industry.
Those are the key things that would really create a strong signal and motivate the financial sector to start going.
In terms of pillar two, it is classified as the foundational element. Think of Craig's comment on data and the flood plan. The data and creating a data analytics hub can be something that can be done collaboratively with both government and private industry to help ease the burden. It is an effort that's required to do climate analysis and to change it into business analytics.
The next area would be things like disclosure. What should companies disclose? Are we committed to the task force on climate-related financial disclosures framework? It shows a big commitment to disclose. To be honest, investors fill in the gap when there's nothing to disclose, and they don't fill the gap on a positive side.
The third would be around a clear statement that is consistent with fiduciary duty, so, for example, we who manage money for others have to act in the best interests of others. The climate change consideration is consistent with fiduciary duty, and there are many ways to lay that foundation.
Looking to provide what we would call support for the ecosystem, a lot of financial professionals will go to their associations, which are not-for-profits, to develop it themselves, and to create training material on climate is hard.
Last, supporting the efforts that are already under way at OSFI and the Bank of Canada in terms of bringing into the regulatory framework would be a very key pillar of the foundational element.
These would be just a few examples of how you create the foundation to take sustainable finance to the mainstream.
In pillar three, it's really about developing and scaling market structures and financial products that could offer transformative economic benefit for Canada in building a low-emission climate-smart future. There are seven main recommendations and a lot of sub-recommendations. However, they all align closely with the themes of the pan-Canadian framework and focus on the financing needs of the critical sectors of the economy: clean technology, oil and gas, infrastructure, buildings, electricity generation and transmission, to name a few.
Just give you a couple of examples in this sector, one would be around the effort today to engage the fixed-income market—by far the largest market. In Europe, you would have seen the effort around building a green taxonomy. This is really shorthand for what qualifies for a green investment, so investors can bridge the gap between climate knowledge, science and investment. For Canada, it would eliminate most of our key sectors. There's a recommendation for the panel to actually focus on Canada becoming a leader in developing a transition taxonomy. How can we help our sectors like oil and gas transition and make it easy for investors to understand what qualifies? It makes the return on effort easier, making liquidity better. This is work that's already started in the private sector today.
Leveraging the Canadian Infrastructure Bank would be another key area. It's a strong establishment in terms of the idea, but, when we look at it, it could really help with bringing people together around being proactive, and looking at how you bring the private sector with a pipeline of opportunities. So that's a tweak in terms of its mandate.
I'll end perhaps where the report begins.
Canada has a strong, diversified and resource-rich economy; a world-leading financial sector; and excellent capacity for innovation. By harnessing these advantages, Canada can be among the leaders in the global transition to a low-emissions future, as a trusted source of climate-smart solutions, expertise and investment. Realizing this ambition will require a committed alliance between business, government and civil society; and determined investment.
We would support a budgetary commitment to help lay this foundation in 2020-21, through working groups and efforts around all the recommendations in the panel's report.
Thank you for having me here tonight.
Thank you, Mr. Chair, and thank you to the witnesses for appearing today.
It's no surprise that my questions will be directed largely to Mr. Holder.
The perspective of mid-sized cities matters a great deal. I certainly recognize that Toronto, Montreal, Vancouver and a number of other large cities in this country are economic drivers, but so are medium-sized cities, so thank you very much, Mayor, for offering that perspective today.
I want to ask at the outset about electrification. The transit fleet proposal that you've put forward in your state of the city address captured a lot of attention. I think in large part it's fair to say that the attention has been positive. There's a lot of interest in this issue in this city. Perhaps it could serve as a model if we can do the whole fleet for the entire country. Certainly, we are serious about climate change. We are serious about working with municipalities to advance that agenda. I think this is an important piece of the puzzle on getting there.
I noted that in your presentation you talked about the environmental benefits, which would be obvious. The amount of greenhouse gases that we could prevent from going into the atmosphere is substantial, no doubt, but you also talked about financial savings. Do you have a dollar figure on a yearly basis, Mayor, on the financial savings that we could see by transitioning from diesel to electric?
Through you, Chair, to Mr. Fragiskatos's question, I appreciate that. Let me say at the outset that we received a fair amount of feedback from medium-sized and large communities right across this country in terms of our goal to be the first major city in Canada to have a fully electrified bus fleet. As we did so, we talked about two particular areas.
One is greenhouse gas emissions. If you can imagine, in terms of city-operated vehicles of all sorts, that we would reduce greenhouse gas emissions by 40%, and that ultimately all of our electric bus travel, when fully implemented, would represent a 40% reduction in greenhouse gas emissions, that's huge. It's also huge because in London it was important when, as a council this term, we declared a climate crisis, so everything we do is through the lens of this climate crisis. I think that's partly why the e-bus announcement that I declared in terms of our goal—my goal—was so well received and, interestingly, by the business community as well as the community at large.
One of the things they looked at was savings. There are a couple of things we know. For example, we realize that the initial cost of an electric bus has a higher price tag than a standard diesel bus, but in the longer term we save from the standpoint of going electric versus the diesel fuel, and then the rising cost of diesel fuel. We spend some $7.5 million per year in London, Ontario, and we're a community of just over 400,000 people.
As I used to say and I like to say, we are the 10th largest city in Canada. We don't hear that as often anymore, but I say it as often as I can, only to make the point that we're not the largest, but we are a serious-sized community. We know that over the course of this, millions of dollars will be saved. As the price of fuel increases, that goes right to the bottom line. We're pretty excited about that prospect.
I attach a great deal of importance to it. I think we're at a level of debt to GDP now of over 300%. It's definitely a level at which debt crises tend to occur. We've seen repeatedly within the last decade in the western world that countries with very high levels of debt almost inevitably at some point will have trouble servicing that debt and have problems in their financial sector and so on and so forth.
It's hard though. You can't just point a finger at one sector. As I mentioned, all sectors in our economy have gorged on debt: household, corporations, government. You can't pick out one and say it's their fault. It seems to be a response that all Canadians have done this because, first of all, the Bank of Canada cut interest rates to historically low levels. The bank has issued some warnings about household debt. It's very interesting. They have next to nothing to say about corporate debt, which is the highest in the western world. They have next to nothing to say about government debt.
At the same time the federal government did run up big deficits during 2008-2009. I think it's inevitable that when you are in a severe downturn, you're going to run deficits. You simply cannot cut spending enough. When you're in a downturn there are going to be deficits, but you want to get out of those as quickly as possible.
What I think has encouraged people to go into debt since 2015 is the fact that the Bank of Canada lowered interest rates, the government said they were going to run deficits and it sounded like it was a good thing. There was nobody saying, “Oh, there are risks to this strategy”. Instead people just said, “Well, interest rates are low, so, great, let's run up some debts”. Here we are today where if interest rates ever did turn up or if our incomes ever did start falling, we would be in a considerable amount of trouble.
I want to thank everyone for their excellent presentations.
I'm going to try to be ambitious and get to three people, so please keep your responses short.
I'm going to start off with some of Mr. Stewart's comments.
I want to say thanks so much for mentioning that the Honourable Ralph Goodale had been working on a flooding plan. I think it's remarkable how few Canadians actually know about it. It's so important that we started that and that we started focusing on it.
I want to quickly go through your recommendations because I think they're important. I'm hoping you can say yes or no or maybe add a couple of comments if I've forgotten. Then I'm hoping to get to Ms. Zvan, and then if I'm lucky I'd love to get to Mr. Brunnen.
You had started talking about a recommendation for dedicated funding to designed flood mapping; I think we started that. I think we've actually put it all in our platform; that is, the flood mapping, the insurance program for high risk investment pool that you were talking about, and then coming up with some sort of a plan for the small percentage that needs to relocate.
That's basically what your three recommendations are, yes?
Thank you to the members of the Standing Committee on Finance for the invitation to speak today. I'm here not only as an executive board member of Canadian Doctors for Medicare, but also as a pediatrician currently training to be a pediatric emergency specialist at the Children's Hospital of Eastern Ontario here in Ottawa.
Founded in 2006, Canadian Doctors for Medicare provides a voice for doctors from coast to coast to coast, advocating for evidence-based, values-driven reforms to our public health care system.
At present, Canada is the only developed nation with universal health care and no corresponding coverage of prescription drugs. Medications administered in hospital are covered, yet once patients are discharged to home, they must deal with a patchwork of systems to obtain their necessary medications. These inefficiencies have contributed to higher drug costs. Canada currently spends $1,012 per capita on prescription medications, the third-highest in the world only after the United States and Switzerland, and well above the OECD average of $709.
In Canada, 36% of drug costs are funded through private insurance plans, 36% through provincial drug plans, and 22% through patients' out-of-pocket funds. This means that many Canadians face financial barriers when trying to access the medications needed to keep them healthy.
Studies have shown that one in 10 Canadians are unable to afford their medications as prescribed. In 2016, about one million Canadians reported cutting back on essentials like food and heating in order to afford their medications. When Canadians cannot afford their medicine, their health suffers. In addition to the very real personal consequences of poor health, cost-related non-adherence can also create wider social and economic burdens. When people cannot take the medicine needed to keep them well, health problems can worsen to the point where more serious and expensive acute care is required.
As a pediatric emergency doctor, I have seen children coming into our department because their parents could not afford their asthma inhalers. Studies have shown that for every 1% increase in the proportion of income spent on asthma medications, children are 14% more likely to present with asthma attacks requiring care in urgent care clinics and emergency departments. This should not be happening in Canada, and we can do better.
This is why Canadian Doctors for Medicare advocates for universal, single-payer public pharmacare to improve access to necessary medications for all Canadians. The June 2019 Hoskins report, “A Prescription for Canada: Achieving Pharmacare for All”, provides a detailed roadmap for how to achieve this vision. The first steps include creating a national, evidence-based formulary of medications that are clinically effective and cost-effective. Provinces and territories could then opt into pharmacare by agreeing to national standards and funding parameters. Hoskins recommended copayments of $2 to $5 per medication, with no household paying more than $100 per year.
Studies have demonstrated that universal public drug coverage in Canada could reduce total spending on prescription drugs by $7.3 billion. Bulk purchasing and thoughtful, evidence-based drug selection would help to reduce costs. Pharmacare could save the private sector an estimated $8.2 billion. Employers and unions that sponsor increasingly expensive and unsustainable private drug coverage plans could benefit and enjoy significant savings for their businesses.
Anticipated costs to government could increase by about $1 billion, with a best-case scenario of actually saving our government $2.9 billion. These estimates do not include other potentially significant cost savings, such as decreased tax subsidies for employers to sponsor private plans, reduced administrative costs and the very promising benefits of a healthier population.
Too often, we need to choose between what is right and what is financially feasible. Pharmacare offers a rare opportunity to do both. We can have a tremendously positive impact on the health and lives of Canadians with the potential for great economic benefit. This is the unfinished business of medicare. It is a rare opportunity to build upon our Canadian legacy.
Thank you very much for your time and consideration. I would love to hear any questions or discussion.
Thank you very much, Mr. Chair and members of the committee, for having me.
My name is Catherine Cobden, and as mentioned, I am the president of the Canadian Steel Producers Association. We thank you very much for the opportunity to provide input to you in terms of your pre-budget deliberations.
I'm here today representing our member companies, who are the producers of steel. They produce approximately 15 million tonnes of steel products, and they support approximately 123,000 direct and indirect jobs.
Canada's steel sector plays a strategically important role in the North American economy. We are advanced manufacturers of a 100% recyclable product, and we are also a critical supplier to other key Canadian sectors, such as the automotive sector, the energy sector, the construction sector and many other general manufacturing operations. Given the important role we play, it is imperative that we maintain a steel sector that is strong, competitive and addressing its climate emissions. Our input into your budget deliberations today will focus on three strategic goals: driving investments to create the low-carbon economy, leveraging climate policy to Canada's competitive advantage, and addressing ongoing global trade risk and uncertainty.
The Canadian steel industry has reduced greenhouse gas emissions by approximately 31% since 1990. This is a track record that we are immensely proud of as a very large emitter. To go further, however, in our reductions, we'll require breakthrough technologies and solutions that, unfortunately, simply do not exist today. The scale and investment that will need to be dedicated to our transformation require partnership with our government and others, and together we can get it done. The steel sector is prepared to find solutions, and we do have ongoing collaborations. We are looking at working with our suppliers, our customers and the clean-tech industry to find these solutions, but frankly, we have an urgent need to accelerate this development and to do more to support our decarbonization efforts.
As a very first step, we urge the government to ensure that the revenue generated by the federal pricing system is recycled back to large emitters like ourselves and that existing programming is deepened with funding directed specifically to the decarbonization of key sectors. This should be done immediately to help spur the development of the necessary breakthroughs for dramatic emissions improvements in the longer term.
We also recognize that Canada's climate leadership offers both an immediate opportunity, as well as some risk, for our sector. We know that our greenhouse gas emissions profile is significantly less than that of foreign steel being imported from places such as China and other faraway jurisdictions. This is a very important opportunity to ensure that the inherent values and benefits of carbon, of Canadian steel in Canadian projects, are recognized through the domestic procurement efforts right across the country. We also know that more renewable or non-emitting energy sources will play an important role in Canada's steel sector.
On the other hand, we stand at a disadvantage compared to other steel-producing nations that do not face carbon costs. This is the dilemma. While we want and commit to doing our part, we urge the government to investigate whether there are interim means to levelling the playing field to support our sector while we actively seek solutions to this pressing problem as others lag.
Now the North American steel market faces a relentless flow of unfairly traded steel imports due to a global overcapacity of steel to the tune of 440 million extra tonnes of steel. This is a significant amount. We continue to face challenging market conditions, as well, throughout North America. This reality creates a very difficult footing for our sector to advance our climate objectives, but advance them we must.
Canada has more work to do, however, to modernize our trade remedy system. For example, we call for improvements and increased resources for Canada's import permit system. This is necessary to increase the frequency and accuracy of import monitoring. Ideally, in our view, this would include the reinstatement of import permits for all shipments into Canada. It's a tall order, but it's required.
We are grateful for the Canada-U.S. understanding—and for the team Canada approach it took to make it happen—that was really established between the governments of Canada and the U.S. in May 2019. We're also excited about and supportive of the recently signed CUSMA.
We urge the government to continue to explore opportunities to work with the U.S. and Mexico on a North American perimeter to trade—that's what we're about—to strengthen the competitiveness of our North American region and to address global steel overcapacity that affects the entire North American region and to deal with unfairly traded steel imports that affect the North American region.
These collective efforts will strongly support the steel sector's ability to be competitive and to position us for the future of advancing our climate objectives.
Thank you, Mr. Chair, for the time.
You're welcome, and thank you very much for inviting us, Chair and members of the committee.
Congratulations to all members on your election or re-election and your appointment to the finance committee.
I'd also like to commend all of you and the staff of the finance committee for holding these consultations on such short notice. I'm always impressed with how efficiently and graciously you work under tight timelines.
For this year's pre-budget consultations, the committee asked interested groups and individuals, in particular, to provide advice on the theme of climate emergency, the required transition to a low-carbon economy. Finance minister seems to have already taken your advice, as he said that the environment would be a major focus of this budget, and our supporters also identified addressing climate change as a top-five priority. So I'm going to start with this issue.
We agree that this budget must be a climate action budget with substantial federal investments to make the transition to a low-carbon economy. The Green Economy Network has done some research into this area. It called for an additional $81 billion in investments over the next five years. That works out to about $16 billion per year in building retrofits, renewable energy and energy efficiencies in different industries, public transit and high-speed rail. It estimates that this could reduce our greenhouse gas emissions by up to 35%, which would meet our targets for 2030, and these investments could also create an estimated one million person years of employment. It would be good for the environment and the economy.
How could this be paid for? First of all, the federal government should finally eliminate subsidies to the fossil fuel industry, as these work contrary to our climate goals. The parliamentary budget office estimates that the federal government could recover over $2.5 billion annually by eliminating a few tax subsidies for oil, gas and mining corporations.
Second, the federal government should strengthen its carbon tax framework by limiting the preferences for large emitters. It should convert the cap and trade program to a transparent carbon tax but with border carbon taxes and rebates, as the EU is planning to do, so you have border tariffs on the imports and then rebates for exporters. This would maintain the competitiveness of Canadian industries, such as the steel industry, and provide an incentive for other countries to also take action.
The federal government could also generate many billions more by closing regressive and ineffective tax loopholes, as we've argued for a number of years.
We're glad to see the government planning another review of tax expenditures and that this one is going to be public, but it could achieve far more than the $1.5 billion that was projected in the fall economic statement. This review could be truly public and involve broad public consultations and input, and perhaps the finance committee could play a role in this as well.
One of the most regressive tax loopholes is, of course, the stock option deduction. I was glad to see the government take some steps on this, but we feel that it should be completely eliminated instead of the complicated and somewhat unfair proposal that was included in the 2019 budget.
We're also glad all parties agree that large foreign e-commerce companies should be required to pay tax on the business and revenue they generate from Canadians and that this is included in the platform and the plans for the government.
Applying the GST and sales taxes to imports of all digital services, including advertising, is essential to level the digital playing field and to making Canadian producers competitive.
Applying a digital sales tax to the revenue of large foreign e-commerce corporations is also an important step on the route to real international corporate tax reform, which is now under discussion at the OECD.
Together with this, Canada should certainly put limits on the interest payments that corporations can deduct from their profits, particularly to offshore subsidies. We're glad that the government is planning this, but the cap should be reduced to 20% or lower. The OECD recommended 10% to 30%.
The federal government could also end the ability of corporations to shift profits to offshore affiliates, by requiring corporations to demonstrate that these affiliates carry out actual economic activity. There was a recent report by the IMF that calculated that approximately 40% of the foreign direct investment overseas is actually in shell corporations. It's not for any actual economic purpose.
Ultimately, we should shift to an international corporate tax system with unitary taxation of corporations and apportionment of their profits according to a formula that reflects real economic activity just as we allocate corporate profit for tax purposes between provinces in Canada. The U.S. does the same thing as well.
We also need increased investments in the Canada Revenue Agency. Funding for the CRA only just recovered last year to what it was 10 years ago in real dollar terms. We were glad to see the Conservatives also pledge for increased investment in tax compliance and enforcement, as this would pay back many times in increased revenues to reduce the large tax gap.
I welcome any further questions and discussions. Thank you very much.