We will call the meeting to order.
Welcome to the first panel of meeting number 38 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference from the House, we are meeting on the government’s response to the COVID-19 pandemic.
Today’s meeting is taking place by video conference, and the proceedings will be made available via the House of Commons website.
With that, I would like to welcome all our witnesses. We have with us a number of bank economists and others today. We really appreciate your appearance. We have had some interesting discussions over the last five or six weeks on the COVID-19 pandemic and the challenges that are ahead.
I would ask people to keep their remarks to about five minutes, if they could. It will allow more time for questions.
We will start with Scotiabank and Jean-François Perrault, chief economist.
Mr. Perrault, the floor is yours. Welcome.
Thanks very much for organizing this and giving us a chance to speak.
I suspect you're going to hear a lot of overlap between what I say and the others, so I'll try to keep it brief in the hope that I won't steal too many people's thunder.
As I think you all know, we are dealing with an economic contraction of historic proportions. There is no other way to characterize it. COVID is leading to essentially as close as we're ever going to get in economic terms to a sudden stop in economic activity. The government—you guys—has basically switched the off-switch on a range of sectors and that obviously comes at a significant economic cost.
The good thing is that, despite the very significant contraction that we're seeing, the containment efforts—the harm that's been caused—seem to have been working in the sense that the virus is beginning to be under control. We've flattened the curve. That is allowing provinces, and it's allowing other countries as well, to start reopening their economies.
As we think about the year, for instance, it's very important to think about it in two halves: the first part of the year as a tremendously damaging economic scenario, and the second part of the year, obviously, as a very significant rebound as we reopen. We're seeing evidence that the reopening is coming with very significant rates of acceleration in certain sectors. We're seeing that in auto sales. We're seeing that in the housing market. In the U.S., we're seeing that in the retail sales activity reports, which came out. We've seen that in the labour market.
These are all indications that the economy is on the path to normalizing as we reopen, but it shouldn't be read or interpreted as the economy going back to where it was. The reality is that when you go from very, very low rates of economic activity to something that's a little bit higher, you're going to get a very strong growth rate, but it still means you're very far away from where you were.
As we think about it, for instance, in our forecast, we have a pretty significant decline in growth this year, about minus 7%. We think it's going to take about a couple of years to go back to where we were at the end of 2019. The depth of the hole that we are currently in takes a long time to unwind, even with very strong growth rates. That's under the assumption that the virus remains under control, there is no second wave, there is no reactivation, there are no further shutdowns and there is no additional shock that hits us. This is, in a sense, the best-case scenario.
One can debate how quickly we rebound—and others have different views on that—but that's generally how we see things.
It's important to keep that in mind because there is a very significant distinction between growth rates and levels, and in this context, that really matters. If you go back to a normal recession, a normal historical economic shock where you'd lose 2% or 3% of economic activity, those used to be big, big shocks. Now we're talking about a scenario where you lose 7% or 8% and it takes you a long time. This time next year you're still down 2% or 3% relative to where you used to be, so it's just this tremendously powerful economic drag.
Of course there has been a tremendous number of policy responses on the federal side and the provincial side. Generally I think they've been managed reasonably well. It was clearly an environment where nobody was going to let perfection be the enemy of the good, and I congratulate governments for doing that. Of course, things could have been done better, but you know that after the fact to some extent.
The result is a very significant increase in deficits—an unbelievable increase in deficits—which we think is largely warranted and we're not particularly worried about because we're starting from a reasonably good fiscal perspective.
That doesn't mean to say it is going to remain the case. If the virus comes back in the fall and we have to throw some more money at it, then at some point you start to really worry about the fiscal dynamics, but at present I think the starting point was good, we acted in roughly the right dimension and we're on a track for sustained recovery if the virus remains reasonably well contained.
Thank you, Mr. Chairman, and thank you, members of the committee, for this opportunity to meet with you this afternoon.
None of us has any experience in dealing with a medical emergency that has become an economic crisis, and none of us knows how long this will last, or how the endgame will play out. I think we all agree that this is a dilemma like no other, freighted with profound uncertainty.
Economic theory and econometric modelling do not provide a specific road map. Unlike previous postwar recessions, today's is not an endogenous shock triggered by huge imbalances.
To be sure, medical considerations should outweigh economic ones. The job of policy-makers is to mitigate the financial burdens caused by doing the right things on the medical side, which I applaud the authorities for doing.
How do we navigate the coming months? In my opinion, this is a question to be answered first by the medical experts. To assess the next steps from an economic policy perspective, the government needs to explain its view on the likelihood of a vaccine and antivirals over a six-month, one-year and three-year time frame.
A sober assessment of the outlook for Canadian growth suggests that while the second quarter might be the bottom of the cycle, the economy will only crawl back to full employment. Those hardest hit will be those who can least afford unemployment, exacerbating already unequal income distribution. Small businesses, which account for more than 40% of the private sector jobs, are by now hard hit and in many cases might have already received a death blow. Undeniably, some of these lost jobs are gone for good.
The hope is that the waves of stimulus doled out by the government and the Bank of Canada will eventually bolster the economy and spark a revival in hiring. The risk, though, is that the pandemic is inflicting a reallocation shock, in which some firms and even entire sectors suffer lasting damage. Lost jobs in these sectors don't come back and unemployment remains elevated. Traditional fiscal stimulus and traditional monetary policy do not address this kind of shock.
An estimated 30%, in my view, of the jobs lost from February to May could be the result of this permanent reallocation shock. The labour market will initially recovery swiftly, as we saw in the May data, but then level off with still too many people unemployed.
Workers in the hospitality industry, accommodation and food, are among the most at risk alongside inessential retail, leisure, travel and education. Most of these people, or many, cannot work from home.
In many cases, the pandemic has increased the challenge of bricks and mortar companies facing off against e-commerce platforms, such as Amazon, accelerating a pre-crisis trend in which Canadian companies have woefully underperformed.
The unique shock of the virus means that governments may need to do more to support businesses and protect workers than they would in a typical recession. This puts the government under pressure to craft policies that help viable cash-strapped firms to survive, and displaced workers to navigate to different jobs, but which, ideally, do not prop up companies that are no longer sustainable.
We have already seen evidence which shows that high COVID unemployment benefits can encourage layoffs, discourage work and delay productive reallocation. We need to know the proportion of Canada's job losses that come from lockdown and weak demand. Those will diminish quickly in response to stimulus and reopening. The part generated by high unemployment benefits encouraging workers to stay home requires a gradual reduction in income support. The most intractable group of unemployed suffers the permanent fallout from the reallocation shock. For them, the government should provide the training that gets workers ready for the next phase of the technology revolution.
The pandemic has accelerated structural shifts that will remain. The efficient response to these shifts requires, among other things, widespread enhanced broadband and computer access for all households—and that's children and adults—reduced government land use restrictions and occupational licensing restraints, and the removal of regulatory barriers to business formation and interprovincial trade restrictions.
These fault lines were there before the virus, but they are now exposed and need a new social contract between government and its citizens.
Good afternoon. Thank you for inviting me to appear before you today.
It's clear that the COVID-19 pandemic is having dramatic human consequences around the world and is posing many major challenges for our society. We have already raised some of them. It's a health crisis, first and foremost, but the economic consequences are as dramatic. That's what I'm going to focus on today in order to give you some perspective.
To begin with, I'd like to remind honourable members that Desjardins is the largest co-operative financial group in Canada and that it offers a comprehensive approach to its seven million members and clients, including over 360,000 businesses. Desjardins's strengths in responding to the challenges of the crisis revolve around a democratic proximity governance aligned with the interests of individuals and business people. This allows us to maintain close relationships with our members and clients, especially in Quebec and Ontario, the regions most affected by COVID-19.
A good part of my job at Desjardins involves making economic and financial forecasts. I won't hide the fact that it's particularly difficult at this time, when we're going through a crisis for which it's very difficult to find a historical precedent. It's sometimes compared to the Spanish flu, but it's not a perfect comparison, and that took place about 100 years ago, which is quite a long time ago.
What we're experiencing now is more like a recession in war times or during a natural disaster than a classic recession. Prior to COVID-19, the economic outlook was quite favourable and there was no sign of an impending recession in North America. The unemployment rate in Quebec had even reached an all-time low of 4.5% in February. Two months later, it had jumped to 17%. That's unimaginable in normal times, and it's an all-time high.
From a purely statistical point of view, the magnitude of the current crisis exceeds anything that has been experienced since at least the depression of the 1930s. Between February and April, more than three million jobs were lost across the country and the real GDP declined by more than 17%. The magnitude of these declines is about three times larger than the very serious recession of the early 1980s, which lasted six quarters.
In our opinion, and this is an important message, we must still be very careful when comparing the current crisis to usual recessions, since it is completely different. It's an external shock that doesn't reflect existing financial imbalances or economic problems.
For the time being, the drop in activity and in the number of workers can be explained mainly through the containment measures put in place to stop the spread of COVID-19. We can speak of a desired pause in the economy, which is very different from an uncontrolled meltdown like the one experienced in the United States in 2008, for example. Moreover, this economic pause is accompanied by unprecedented support from the governments to limit the financial consequences for households and businesses. Financial institutions have also contributed by providing important relief measures to ensure that the pause in the economy does not result in a rise in bankruptcies. At the moment, there are none.
At Desjardins, we're proud to have been one of the first institutions to implement these relief measures for our members and clients, and we're determined to maintain our support to help them get through the crisis. To date, we've received close to 950,000 requests for our relief measures, which is huge.
Through the various measures offered, the dramatic fall in activity and employment is not, for the time being, accompanied by a general increase in financial distress. In fact, both in the United States and Canada, household incomes are increasing and savings are rising dramatically. It's very different.
The essential support of central banks in the current crisis must also be acknowledged. By mid-March, the situation was threatening to turn into a cash crisis and a financial crisis. The Federal Reserve and the Bank of Canada, however, acted to ensure the proper functioning of financial markets by injecting massive amounts of cash and even buying riskier assets directly. Today, financial markets are functioning well and cash is abundant. This allows financial institutions to continue to play their role, in particular by providing affordable credit to households and businesses.
In my opinion, it's far too early to say that we are experiencing the worst economic crisis in recent decades and that a depression is inevitable. The drop in GDP around the world will be dramatic this year because of the months of pause we've experienced, but if we manage to reopen over the next few months, the consequences for households and businesses could be quite limited. I'm not saying there won't be any, though.
Our forecast is for a strong rebound in activity over the next few months, but the effects on some sectors will last longer. We expect it will take until 2022 before real GDP returns to pre-crisis levels. That's still a long time. In the short term, a decline in unemployment rates is almost certain if reopening continues. We are already seeing it in Quebec, where the unemployment rate fell in May.
In fact, the question is whether Canada's unemployment rate will return to 10%, 8% or 6% in a few months. Then, we'll have to watch the trend of the economy. I think this will depend on the evolution of the pandemic, the distancing measures and the rebound in household and business confidence.
I don't think our outlook is materially different from the one we heard right off the top from my friend J.P. at Scotiabank.
In fact, I'm often told that there's a lot of uncertainty out there, but this is one of the times in my career when I would say there is less uncertainty out there than I've seen in my career. That's because—unless you're very picky about the exact numbers—we know what the economy is roughly going to look like over the next year.
We're starting from a position now that is best described as horrible. We've seen a decline in GDP leading up to April, and you really have to go back to the Great Depression to see something similar. I like to say that I'm getting sick of living in this sort of environment; I think we all want to live in what I call “precedented times” again, but we're not there, and we have a long way to go.
The reason I say that it's fairly certain the way the outlook is going to look is that, if we run it out over the next year, and barring a record-breaking vaccine and its deployment among billions of people, we know that, at least over the next year, there are segments of the economy that health restrictions, which are going to remain in place, are going to keep essentially shut down.
The people who used to work at night clubs, wedding halls, private convention centres and so on will simply be shut out of this economic recovery, and then there are other sectors tied to international tourism and even restaurants that are going to have to open at less than full capacity. We can pretty much predict with confidence that these sectors will not be back where they were at the start.
If we add up the share of GDP that is in those industries or the share of employment that's in those industries, you're looking at a pretty substantial gap to where full employment is even a year out, and that's even assuming that we take every step along the way with exactly the right timing in terms of managing to avoid a big second outbreak that causes us to have to do a hasty retreat.
When we define it in terms of unemployment rates, for example, if everything goes well, we might be sitting with an 8.5% unemployment rate a year from now, but remember, full employment is more like 5.5%, and 8.5% is about where we were in the last recession. We're going to recover from depression-level activity to recession-level activity. It's not particularly good.
Beyond next year, it's going take some time for the economy to recover, even if a vaccine is in place at the end of 2021, so we're looking at an extended period with very little uncertainty that the economy is not going to be good, and that spells out what kind of policy environment I think we're in, so let me turn to what I think the role of government is.
I think the initial role of government was exactly what Parliament, in its wisdom, decided to do, which was to band together and make sure that we protected the most vulnerable people right away, try to prevent a wave of defaults and bankruptcies among Canadian businesses that would then disappear and not be able to restart when good times return and also, of course, to protect households and enable them to put food on the table, pay their rent and so on. That was the immediate crisis, and Parliament worked at record speed to get that done, in many cases faster than the U.S. managed to accomplish the same task, so I give some kudos to the government and the civil servants, in particular, who worked hard to get these programs out the door.
When we look ahead, the number one priority for government is on the health side. It's making sure that, in fact, sound decisions are made about what to open, what to reopen and how to do so safely, because we know that the worst possible outcome is a second wave, as we've seen with some prior pandemics, that can't be snuffed out quickly and leads us to have to go back to where we were in April. That's why I think governments have to look at things like making masks mandatory indoors, listening very carefully to what the health authorities are recommending and doing the right thing.
There is no trade-off, and I want to emphasize this, between the economy and health. If we think that, by letting businesses open that are marginally safe, we're doing them a favour, we're not, because, if the virus comes back and people get sick, not only will we take a big step backward on the economy—and I do fear this in some U.S. states more than in Canada—but we'll also tarnish household confidence. If we look at countries like China that are a few months ahead of Canada in getting the virus down to low levels, they have not seen a full recovery in consumer spending, because people have remained cautious and afraid.
We have to make sure that people have an assurance that governments and businesses are taking all the right steps, and in some cases, businesses need the guiding hand of government to guide them to that. That's the single most important criterion for policy.
The second obligation is to really make sure that we don't pull the rug out from under the economy while it's still very weak. We recently had the decision to extend the CERB program for another couple of months. There's also been an extension of the wage subsidy program. As much as some people don't like the idea of big deficits, they're really not that costly when you're borrowing at 0.5% rate of interest. A $300-billion deficit costs the government an extra $1.5 billion in interest payments. It's not really a huge share of government revenue down the road. It's a necessity to make sure that the fiscal stimulus stays in place while we're still wrestling with double-digit unemployment rates in the economy. The last thing we need is a collapse of the household sector and the business sector so it can't reopen when the time is right.
If I think about how these various policies have to shift over time. though, we do need,as we get more jobs coming back, to look at building in some nuances in some of these programs to make sure we're not providing disincentives for people to work where there are jobs available. It's important to distinguish that. For example, in the EI program, we have different weeks of eligibility depending on your region and what the background level of unemployment is. Those are steps designed in that program to ensure we don't create inappropriate disincentives. That wasn't important when these policies were first announced because we had millions of people losing their jobs—there were no jobs available—but it will become more important over the next year or so as the economy opens up.
When I think of the work that's been done to let businesses tide themselves through this period of almost hibernation for the economy, many of these programs have worked quite well. I think there's still some work to do, though, in taking a look at small businesses within cities, particularly the retail sector, and so on. We don't want to end up with our main streets across Canada, for example, with just a forest of vacant outlets a year from now. We need some of these businesses to hang in there. I think we have to look at making sure we've benchmarked the support correctly across that sector so that they can hang in there through this period. We won't save them all, but we don't want to have our cities look like downtown Detroit. We want them to look like downtown Vancouver and Toronto did before this started, or Montreal for that matter. I think that's very important.
I think municipal governments are going to be very constrained. They, unlike provinces and the federal government, can't just simply run a deficit. They have to balance the books to some extent. They have reserve funds they can draw on, but they've lost a lot of revenue. A lot of that came from land transfer taxes. Subway fares in some of the major cities, and so on, all dried up. I think making sure the municipal sector doesn't have to start a major fiscal restraint program while the recession conditions are still in place is another thing that the government has to look at.
Overall, I would say the outlook that's been presented to you today by the various economists is a realistic one. We're probably through the worst, but saying the best is yet to come and the spectacular growth rates we're likely to see off these very low levels of activity shouldn't deter you from the focus on the fact that even if we make tremendous progress, we may still have an 8.5% unemployment rate a year from now. GDP will be well below where it would have been had we grown at 1.5% or 2% a year. The job of government to fill in the cracks, keep the economy in a state where it can reawaken when the time comes, is still very much with you. I'm encouraged by what I've seen so far. The government's willing to work across party lines to get things done and hopefully we continue to see that.
I'll be happy to take your questions.
Thank you, Chairman Easter.
First of all, I would like to take a moment before making my comments to express some gratitude that I think a lot of Canadians share.
My friend and mentor, and a former colleague of many of you, a gentleman by the name of the Honourable Ed Holder, once told me there is no higher calling than commitment to public service. Quite frankly, our political class has been put through a fair bit over the last few months, and I would like to thank everyone for their service.
I have spent 30 years, as of today actually, in the financial services business, starting in insurance, then banking, then moving to the vice-presidency of an investment dealership and ending up as director of a Canadian mutual fund company. So I've had a somewhat diverse experience around the financial services sector. In my semi-retirement, I've also had the unique opportunity of sitting on boards of not only a couple of Canadian companies but also a couple of U.S. companies. I'd certainly welcome questions at the end of the presentations on the difference in the experience as a director between Canada and the U.S., and some of the different programs they've implemented.
Hopefully our nation is embarking on the recovery phase of the crisis. I believe it is critical to take a look at two really important historical cornerstones of our economy. The first is obviously our strong, stable, globally recognized banking system. The second is the entrepreneurial community that has been a part of Canada's history from our establishment.
Canada is recognized for both of these things, but, quite honestly, although we're recognized for both, I'm not sure these things always move well in parallel. In the best of times, commercial credit can be difficult for small and medium-sized entities, and these are certainly not the best of times. So as I said, these two realities—that success we have with entrepreneurship and business development and the success of our banking sector—are, in fairness, not always closely related.
Canadian banks, as I said, are recognized globally for their strength and sound banking practices. Much of the western world in the 2008-09 credit crisis had disasters on their hands, and between some very strong leadership at the federal government level and some strong leadership at the banking level, we were able to navigate that crisis better than just about any other nation in the western world. That said, there were still some bumps and bruises.
Right now, Canadian banks are faced with an unbelievable combination. Coming out of that credit crisis, we've had a lengthy period of real estate appreciation, and tagging along with that has been a massive expansion of consumer debt; and now we're looking at a total decimation of the commercial real estate sector, massive job losses and the potential of a mortgage cliff a few months out that will certainly impact the banking sector.
Coming out of this I certainly don't believe our strong banking system is going to be able to extend credit or more generosity to small business. I believe that's a real challenge, and our banks are going to have to do everything in their power to ensure their balance sheets are strong and their income statements are not impacted too dramatically by near-zero interest rates, which I think are with us for a long time to come.
That being said, I think it's important that the committee and the Government of Canada take a look at how it might intervene in the economy, recognizing that, as I believe, it will be very difficult to do that through traditional banking models, with our having essentially half a dozen big, dominant banks in Canada. It's perhaps more difficult in Canada to reach the small businesses than in some other countries where other western nations have more developed alternative finance businesses.
Our tight number of banks and our small collection of large banks does present one challenge that has emerged over the last number of years and was exacerbated in the last credit crisis 20 to 30 years ago when an awful lot of investment products were for entrepreneurs who lacked access to traditional bank lending.
They could go to the capital markets and borrow money either through the IPOs of small businesses, high-yield debt, or go to leasing companies, and there was asset-backed commercial paper. There were a lot of different alternatives for financing, and a lot of these have disappeared. This is not a point of blame; it's just a reality.
In the capital markets world, the syndication desks that look after the issuance of new products for investment clients have essentially contracted as the banks have gobbled up probably 90% of the wealth management assets in Canada, and relatively few, shall we say, innovative or financing products are making it out to retail investors.
There are a lot of good reasons for this. They certainly present higher risk, and there's a desire to protect investors from scams and inappropriate vehicles, from things that don't suit their comfort level with risk. Some of the products, we discovered, really weren't as safe as they appeared to be going into the credit crisis in 2008.
There are valid reasons that these sources of funding may have dried up, but as we enter the recovery phase, it's important to talk about how we can reach out to our capital markets businesses and find alternative solutions that don't put pressure on, for example, the banks to reach out and step outside of their traditional lending mandates that they do very well, but allow our small businesses to access more secure sources of factoring, trade credit, and leasing.
All of these sources ultimately trickle back up to the banks or to bank alternatives, like insurance companies, and in many cases, those sources are just not going to be available with the pressure that's being put on our major financial institutions. The government does have an opportunity to work, whether it's with moral suasion, or with policy, and particularly, with direct support to programs, with innovative entrepreneurs who have capital markets experience, but that may not be a part of the traditional bank model that can come forward with lending and financing solutions.
I've spearheaded a group that has put forward a proposal that has made it to several members of the committee. It's based, essentially, on the principle of the victory bond back in the Second World War. I've read a couple of the commentaries of different economists on this call who have pointed out that we're going through an economic crisis that really hasn't had a precedent since World War II. It's good to look back at what worked through history.
On that note, I certainly would welcome any comments or questions that people have on what I see with regard to the junior capital markets and the opportunities there to work in conjunction with the banks, in conjunction with their syndication departments, and in conjunction with the federal government to make sure that trade credit and financing factoring are available to the small and medium enterprises that are going to be so critical in ensuring that we aren't at 8% or 10% unemployment two or three years from now.
Thanks so much for that, Mr. Chair, and thanks so much to the committee for their invitation to speak today.
First of all, I would like to congratulate the federal government on its reaction to this crisis, and in particular on the creation of the emergency benefit. It was certainly a highlight of government action in this pandemic, as I've remarked before this committee before.
While the two-month extension to the CERB is welcome, I would encourage the government to start planning now towards a new modern EI system, with a transition strategy to that end. Some of the features of a new EI system should be borrowed from the success of CERB, including its speed, a minimum payment of, say, $500 a week, and, in particular, better coverage for gig and self-employed workers.
However, I would like to focus my comments today on the government's interventions into the financial sector, on which programs have been taken up and which ones haven't, and on how we could improve those interventions.
I think it's worth taking stock of the approximately $750 billion promised in support for the financial sector. By my count, $679 billion of this amount has been deployed. The reduction in the banks' domestic stability buffer has provided them with an additional $300 billion if they choose to use it. The Bank of Canada was initially scheduled to spend $300 billion, although its balance sheet has now expanded to $373 billion, as of last Wednesday. Almost half of that expansion is due to the increase in its repurchase agreements.
On the other hand, the mortgage purchase program through CMHC has managed to buy almost no mortgages, spending only $6 billion of its $150 billion budget, with the last two purchases buying essentially nothing and the next one scheduled for June 22, next week.
In particular, lowering the domestic stability buffer from 2.25% to 1% of risk-weighted assets would free up as much as $300 billion in assets for other purchases for financial actors. OSFI would prefer if those purposes were to provide further loans to businesses or households; however, this assumes that banks can find households or businesses that are both creditworthy and willing to take on another $300 billion in debt in the middle of the worst labour market since 1936.
That $300 billion could be used for other purposes much less desirable than lending. As within any large corporation, money is fungible, and its purposes can change. For instance, it could be used to pay out shareholders or executives, or it could be used to cover loan losses. Thankfully, OSFI has explicitly barred banks from continuing with any existing share buyback programs; however, dividend payments and executive bonuses can be maintained but not increased. In the first quarter of 2020, the banks paid out $5 billion in dividends, and they are on track to pay out $22 billion to shareholders over the course of 2020. In other words, 7% of the gain from the change in the stability buffer could still be paid out to shareholders despite OSFI rules as they stand today.
While senior financial executives will not be able to increase their total pay above what they stood at in previous years, given ever-increasing executive pay in Canada, this is hardly a stringent restriction. In 2018, the top executives at Canadian banks raked in $173 million in bonuses alone, across 31 people. If this is the pay bar that they have to fit under given extraordinary government supports for the sector, it likely won't cause them any difficulty. I would recommend that this committee examine international approaches like those in the EU or the UK that suspended bank dividends and executive bonuses for the period of extraordinary government supports.
A Bank of Canada study released earlier this month found that the deferral of mortgage payments is an important way to keep Canadians who have temporarily lost work in their homes and to reduce the likelihood of a downward spiral of net worth through a rushed home sale. With 14% of all mortgages now in a deferral position, this has been a lifeline to the 4.8 million Canadians who have lost their jobs or the majority of their hours since February.
OSFI's allowing the banks not to have to increase their capital requirements due to non-performing loans makes this crisis of mortgage repayments much cheaper for the banks if they engage in a deferral process. With between 12% to 18% mortgages presently in deferral, depending on the bank, increased capital requirements would have otherwise led to material impacts on the banks' bottom lines.
I'd encourage the committee to request the banks to not charge interest and other penalties over the deferral period of mortgages, but not only on mortgages—also on higher interest products like credit cards and lines of credit. Given the slow recovery so far, I would recommend that the committee also consider extending the loan deferral period from September until the end of 2020. Furthermore, many Canadians simply won't get their jobs back, even by the end of the year, and many will conclude that it isn't financially viable to stay in their present homes. The mortgage cost would just be too high, given job losses.
Mortgages, particularly fixed-rates ones, carry substantial penalties for early repayment. The committee should consider reducing or eliminating these pre-payment penalties, allowing Canadians to more easily sell houses they can no longer afford and get into new houses they can afford without paying extraordinary penalties in the process.
Thank you, and I look forward to your questions.
Thank you. All's well that ends well.
Good afternoon, Mr. Chair and committee members. Thank you for the invitation and the opportunity to speak with you today.
I'll keep my remarks relatively brief because I largely agree with those who spoke on the economic outlook earlier.
Canada has just experienced the deepest and sharpest economic downturn in the post-war era. However, it also now looks to have been the shortest recession ever, as there are plenty of signs that activity, jobs and spending began to recover in May alongside the initial stages of the reopening in many parts of the country and throughout the rest of the world.
While some of the latest economic indicators are no doubt encouraging, there is also little doubt that we're climbing out of a deep valley. Preliminary evidence from Statistics Canada, as earlier mentioned, suggests that the economy fell by 17% in March and April alone, and that may well be revised even higher to a deeper decline. Again, to put that in context, the previous largest decline was in the early-1980s recession when OPEC fell by just a little bit more than 5% over one and a half years.
As economies reopen, we think that a large share of this drop can be reversed relatively quickly. However, it's also apparent that, in the absence of an effective vaccine, certain sectors will remain heavily constrained for an extended period of time, likely constraining the overall economy. Crucially, most of these sectors that will remain constrained do tend to have above-average employment levels. If anything, the employment effect of the constrained sectors will be even more than what the overall GDP numbers suggest.
Even though we currently project this rebound and activity next year after, we believe, a similar decline this year, that would still leave the economy 3% to 4% below where it normally would have been by the end of next year, and the unemployment rate is likely to be two to three percentage points higher than the pre-crisis levels, even by the end of 2021.
Moreover, the economy does face an important challenge: transitioning from the initial reopening phase to the recovery phase. Even as the need for the most extreme policy measures fades, the economy will require, as mentioned earlier, support for a longer period of time. Policy will need to strike the appropriate balance between supporting incomes and not discouraging work incentives.
While we recognize that it is still a highly uncertain environment, the upcoming fiscal snapshot is welcome, as it will help to give us all a firm foundation for future decisions.
Looking further out over the medium term, we are relatively upbeat on the prospects for the recovery. Individuals and businesses are incredibly resourceful, as we have seen in recent months, and they can learn to deal with challenging circumstances. We don't think that we should discount the ability of the economy to recover.
With that, I'll turn it back to you, Mr. Chair. Thank you.
First of all, getting back to the level of GDP doesn't get you back to the same unemployment rate, because population grows. You actually have to be well above the previous level of GDP. We're going to be in this soup for a while.
I think the premise of your question is absolutely right. Government programs are going to have to play a role in protecting against insolvencies. Yes, I'm a banker, but I actually care about people going bust, because they also have our credit cards, not just mortgages that are insured. Also, as a Canadian, I want to see our economy get through this slumber period, and that means partly ensuring that households have some spending power when this is all done.
I think the right approach is certainly to look at all the various things that we're now doing for businesses and for households. We're going to manage them down, to some extent, as unemployment falls. The cost of these programs will come down. As job opportunities open up, we're going to have to provide appropriate incentives.
For example, the CERB program has one not-so-great feature, which is that if I earn $1,000, I get a $2,000 cheque, but if I earn $1,001, I get nothing. Someone who is earning a $1,000 a month has no incentive to look for a job that's going to pay him another $500. Similarly, the program that was designed for the wage subsidy had a particular cut-off.
We're going to need to re-examine these. Fortunately, we now have some time to do that and to design the programs in a way that provides some incentives.
Nevertheless, the support programs—in some form—have to stay in place, because otherwise we do get a wave of bankruptcies. We're going to see some of that anyway. We can't rescue all businesses. I think Sherry suggested that, and she's right. There are going to be things that unfortunately go under and households that are going to struggle. Banks have taken some pretty big hits in their recent quarterly earnings to provide for the losses associated with that. I think government still has to play a big role here; it's a long wait for the economy to be as good again.
The transition period is certainly going to be crucial, and it will be equally important to define the transition measures. The example was given of the Canada emergency response benefit, which is not adjusted for income. If you earn $1,001, you lose everything. It makes no sense. In the first few weeks, the government said it was unable to make these changes, and we understood that, but it has been more than three months now. We have to encourage people to go back to work.
Before I ask questions about what happens next, I would like to go back to one part of your presentation. You said that, because of the pandemic, the economy was voluntarily put on hold, but that we will be able to get it back on track and that it could go well. However, I am concerned that certain sectors of the economy will not be able to regain the same level of activity. Habits will have changed. The post-crisis period will not be the same as the pre-crisis period. Your colleagues mentioned that.
What will we do about struggling sectors? Take, for example, local businesses, assuming that people stay in the habit of making more online purchases. These are important jobs, businesses and services.
What do you think the government could do to support people in sectors that will not regain the level of activity they had before the pandemic?
That is a good question. It will depend on how the pandemic plays out and how the lockdown is lifted. In the beginning, there was no question of choosing between the economy and health. We all agree on that.
In Quebec, we experienced an almost absolute lockdown. We saw that it had alleviated the situation, but that it was not a miracle solution. Over the next few months, there may be other cases. So we will certainly have to keep good health measures in place. We may even have to keep only the best measures. Masks may be a better solution than keeping two metres apart. If we continue to maintain the distancing measure, movie theatres and restaurants may reopen, but they will hardly be profitable.
We need to find the best way to achieve good health outcomes, while at the same time sending messages to affected areas so that they know what to expect. Now they are reopening, but they are doing it in total uncertainty. It will be very difficult. They must continue to have good financial conditions.
We should also remember that there was a labour shortage in Quebec and throughout North America. Certainly, people will lose their jobs, but we may have the opportunity to redirect them to other sectors or to other companies that are performing better in their sector. Some adaptation is certainly possible.
In Quebec, for example, many businesses were limiting expansion because they lacked labour. In many cases, they did not need a highly skilled workforce either. These businesses could perhaps take over the sectors that will reopen more gradually, more slowly and less completely.
We might be surprised too. For example, since the retail stores have reopened, there are a lot of people. Some things are going to change. I think telework is here to stay, but we might be surprised to see people starting to travel again sooner than we thought.
There were few conditions, as there are this time around, in terms of accessing some of those supports.
The programs were actually, in some ways, quite similar: the Bank of Canada, particularly, engaging in large-scale repo operations with the banks; CMHC itself engaging in mortgage buybacks; and many of the Canadian banks accessing American facilities, as well, through the Federal Reserve.
During that last period, we had supports. I think maximum supports topped out in the $130-billion range. I haven't really done the full numbers here, but I'm sure that we're in excess of that this time around, although what the banks are using is very different. This time around, the Bank of Canada's repo operations have been much more substantial, and there's been almost no take-up of CMHC's mortgage buyback program. This is in stark contrast to what happened in 2008, when it was the complete reverse and there was much more interaction with the mortgage buyback program.
Now that program continues, and there may well be some.... The deferral of 14% of all mortgages in a deferral situation is extraordinary. That will presumably go down to some degree between now and September, but it may well be that, if deferrals continue, the banks may be inclined to send more of their mortgages to CMHC if they start to go bust.
In that regard, I think it is positive that OSFI has rules this time around in terms of limiting share buybacks from the big banks. That has been a positive change. I don't think the capping of dividends and executive pay really does much, in the sense that three of the five banks already had increases in place. In many cases, dividends will have increased in any event.
I'll leave it there.
The deferral program itself is premised on OSFI's exemption of banks in terms of increased....
What would have otherwise happened is that these loans would have been considered non-performing. The moment they become non-performing, all of a sudden the banks need to put up more, in terms of capital, to back them. It's not to say that those people are bankrupt; it's just that the banks need to put up more money to back them. As a result, those are tangible increased costs for the banks, particularly when in some cases 18% of all mortgages are in a deferral position. This change to the OSFI rule that provides material benefit to the banks allows for this deferral program.
I would certainly argue that this benefit that OSFI has provided to the banks could be used, or committees like this one could request that the banks, in trade for this rule change, defer penalties as well as interest charges over the period of the deferral. This would be much more important for credit cards and lines of credit; it could be useful for mortgages, as well.
I think that we haven't really encountered this yet because the deferral program is in place, so anyone who has difficulty paying a mortgage would go into the deferral program. It's really when the deferral program starts to wind down that we'll see this start to play a much bigger role, the penalties for prepayments of mortgages. This is particularly true for fixed-rate mortgages. It exists for variable-rate mortgages, but they're lower, generally.
I think that, in preparation for that, this committee could discuss this with banks and encourage them to waive most or all of the penalties of prepayments of mortgages as Canadians attempt to downsize. If job losses that people thought were temporary become permanent or if the deferral period is over and they still don't have a job and they need to downsize, I think we need to make it as easy as possible for people to do that without undue penalties that would have to be paid to break mortgages.
Thank you, Peter, and thank you for inviting me today.
The nuance is probably important to understand because it has continued through the conversation and the questions. I believe the private sector is going to be an incredibly important part of the recovery, and there are a lot of investors.
In my world I talk to investors all the time, and a lot of investors are looking for the opportunity to actively participate in the recovery, whether it's from a mercenary standpoint, looking at where they might invest and buy things at an inexpensive price, but there's also an altruistic side to it; the private sector wants to help and pull together and support this.
There are massive regional disparities. I've put forward the idea of ensuring the private sector has a voice, particularly non-bank investment funds and organizations that might be trying to raise money for leasing or factoring or trade credit and so on to have the opportunity to....
Rather than simply asking for tax revenues to be put into industries, perhaps government could guarantee programs or fund a purchase whereby money is put into pools, and government supervision is done by private investors, private members of Canadian society, and worked into public-private partnerships to invest in areas such as small and medium-sized companies that are being so substantially damaged by the crisis.
No problem. I think they're two pretty closely interrelated things.
Peter, a simple example would be a manufacturing company. Their clientele is not 1,000 buyers but five, six or seven buyers. A customer whom they've dealt with for years may have always paid on time, or on 30-day or 40-day terms, and may all of a sudden have a substantial crisis on their hands that trickles down from another customer that makes them unable to pay an account receivable. A company that may be profitable and making sales and have a good work force and be strategically critical to a region that's been impacted may, all of a sudden, end up facing insolvency simply because a customer is unable to pay.
Therefore, one of the core elements of what I put forward was the idea of setting up a factoring program. I specifically suggested using our 263 community futures officers around the country who are closely connected to the economic development areas and specifically know who the key operators are in their own markets, and working with them, having a pool of funds that's available for private investors to put forward to help with factoring.
Similarly, an awful lot of our professionals, like dentists for example, are dramatically affected by the crisis because a key part of their business is the dental hygiene area. If you really look at the details of what's being done to dental practices and what they have to spend to set up to handle the aerosols that come from spraying water in peoples' mouths, dental practices, I think, are going to be one of the areas that are worst hit because the costs are enormous, but people aren't really talking about them.
It's nice to see everyone this afternoon.
This pandemic we're in, and the recession that's followed, is obviously quite extraordinary and unique. I look here in my own riding of Vaughan—Woodbridge, where we have certain sectors, and representatives from certain sectors, doing quite well. The retailers, specialty stores, the CP intermodal facility, and a bunch of logistical operators are doing very well and have not been impacted as others have. Unfortunately we have had some bricks-and-mortar retail stores that have been impacted.
I received a call from a young woman yesterday. She's going to be losing her job. The store she works at—I don't want to name the entity— is closing down across Canada, and she's going to be looking for work. With that, she's probably going to be looking to upgrade her skills. In one of the budgets in a prior session, we brought in the Canada training benefit, which was put forward to allow Canadians to upgrade their skills when they have transition.
I think Ms. Cooper mentioned this, and I think another economist mentioned this as well. Looking forward, how important is it for our government to ensure Canadians have access to training to upgrade their skills, especially in those sectors where they're going to be late to come on and have been impacted severely?
I'll throw this out to Mr. Porter first, and then to Ms. Cooper.
The banks aren't making so much money this year, number one. Banks might like to tell you how well they did, excluding those provisions for potential future loan losses, but those provisions actually count against earnings. First of all, then, this is by no means a banner year for banks.
Someone talked about senior bank executive compensation. I'd like to be one of those senior executives. But all of us are at least compensated, in no small measure, in bank shares, which are down substantially this year. Compensation levels will not be as rosy as the numbers you looked at for last year; I can almost bet that.
Finally, it's not like taxpayer money has been poured into Canadian banks. Canadian banks have not come running to government for taxpayers' money. Obviously, the Bank of Canada has lowered interest rates, and OSFI has helpfully changed capital requirements a bit or loosened up some things, but that's creating lending room that the economy needed. These are measures designed to actually help our clients, which we're certainly happy about, because we want those clients to prosper.
I think the premise of the question is that there's been some magic gift. You need only go back to the recession of 2008 to see that the main program the government did was a program to purchase mortgages off the banks. It let the banks in effect raise money more cheaply than they could have in the market at the time, because the market was very concerned that banks [Technical difficulty—Editor] going under.
If you actually roll ahead and ask how the government did on those mortgage purchases, you see they did just fine. They made money. They contributed, actually, to the government. Not everything is a handout.
Thank you very much, Mr. Chair.
I'm glad folks are proud of the banking system, but when we have a society where almost half the families are $200 from insolvency and families are in record levels of critical family debt, there's obviously a problem. I think the emphasis should be less on making sure we have a great banking system, a gold-plated banking system, and a lot more on actually helping the people who are struggling to get through this pandemic.
My question for you, Mr. Macdonald, is about coming through the pandemic and coming out of the pandemic. One of the big problems is the fact that we have mass abuse of overseas tax havens. I questioned CRA on Tuesday, and they admitted that they don't even have the tools to prosecute companies that are openly engaging in tax evasion through the use of tax havens. The Parliamentary Budget Officer, as you know, evaluates that we lose $25 billion a year, which could go into education, health care, affordable housing and all those things that make a society great.
You framed the issue of either cutting services or having a taxation system that actually responds to the needs of Canadians. How important is it to actually get a grip on these overseas tax havens? How important is it to do things like the wealth tax and make sure that we have a fair tax system in this country so that we're not getting to the point of cutting services but rather enhancing them, not only for a better quality of life but also because it makes smart economic sense?
I'm glad I was preceded by Mr. Julian. I will ask about the flip side of that question.
As we go through the pandemic, we've had a very difficult time. I would beg to differ a little bit on the importance of the debt. When we look at unfunded responsibilities, the debt is close to or even more than $3 trillion at 166%.
Regardless, we have high unemployment and we have low economic growth. I think one of the keys to this, and you can agree or disagree, is productivity and that, of course, of the private sector.
In order to get us out of this situation, both to pay off the debt and to get ourselves back to a higher level of employment and a higher level of growth, we need to enhance productivity. One of the drivers that government can use is to reduce taxes, not increase taxes, to allow Canadians to keep more of the money that they work so hard for, to allow job creators to create jobs and allow business owners to be successful.
Am I incorrect in that?
Maybe Mr. Shenfeld can answer.
No doubt, capital spending is important. It's a determinant of long-term productivity. We have to have a competitive environment. I think that we've seen some of the challenges from jurisdictions like the U.S. that lowered corporate taxes. Canada is reasonably competitive in that regard; we're not that badly off there.
I think your fundamental question is right. Ultimately the standard of living of a country is the pie that we divide up. I'm fully sympathetic with the idea that, as we divide up that economic pie, we have to pay attention to how well the people at the bottom of the scale are doing. It's a very important feature. In fact, I think Canadians all agree on that.
Nevertheless, the size of the pie matters, too, and productivity is the key. We have a given population. Productivity is basically just the measure of how much we produce per hour or per person. That's the ultimate source of wealth in any country, so government programs and decisions that impinge on productivity are key.
I would broaden your question. It's not just about taxes. It's not that the lowest tax rate necessarily wins the day, because governments also provide infrastructure. They provide training. These are things that take tax money. It's a balancing act. The government has to have the right highways and roads to move our goods, for example. The governments have to have a good education system. They raise taxes to do that.
It is a balancing act. The full panoply of government decisions that affect output per person is really key to wealth when we think about the medium term.
As I think I said in my opening remarks, the single most important thing is actually health policy, because what we're really trying to do here in terms of accelerating the recovery is to get both businesses and households comfortable with the idea that economic activity can resume without everyone getting sick.
It's about things like whether we have the right mask policy in place, for example. A major employer who we just had on one of our conference calls, a major real estate employer, had a policy that people using their bathrooms in their office towers had to have a mask. They were told by that province that masks weren't mandatory and that they basically couldn't impose them.
I think we need to have national policies designed to put us on a common footing. That's the most important thing.
One other thing that I don't read a lot about in Canada is that there is an international race not only to develop a vaccine but to get your hands on it first. I think one of the most important things we're going to do, again in the health area, is to make sure that.... It's going to be every country for themselves here, and that's not just a Donald Trump phrase. We're going to have to make sure that Canada is not waiting for the other billions of people around the world to be vaccinated while we're at the back of the line. That has nothing to do with banking, but in fact this recession has nothing to do with banking either and has everything to do with health policy.
I would add one other point. We've talked a lot about extending credit, but actually, a lot of small businesses don't want to borrow. They're in debt already. They don't want to put any more money on the debt side. If we have a hole in our financial system, I would say that it's more on the equity side. I think we need to come up with innovative ways for small and medium-sized businesses to actually have better access to pooled equity funds, because that's what they really need. They need more equity and less debt.
I would even go so far as to say that we also need to think about when they exit that and try to go public. Our public equity markets have really shrunk in terms of new issuance. We've seen that almost disappear. In the heydays of the income trusts—and I know that was a bad word in Ottawa—we had a lot of companies using that vehicle to go public, and that was a way for the owner to cash in. It may have been a flawed way in part and need rethinking, but I do think we have to think more broadly about not just big companies but smaller companies and getting more equity to them.
We will reconvene the meeting of the finance committee.
Welcome, witnesses, to meeting number 38, the second panel for today, of the House of Commons Standing Committee on Finance. We are operating under an order of reference from the House of Commons on the government's response to the COVID-19 pandemic.
Just to re-emphasize what the clerk and the folks in the interpretation booth said earlier, one difficulty with these kinds of meetings is that everything has to be translated. When the interpreters are hearing and then speaking over the top of what you're saying, the language has to come in very clearly to them, or it's really hard on the head, to put it honestly. If people could speak fairly slowly and clearly and into their mikes, that would be helpful.
We have eight witnesses on this panel, which is more than usual. I'd ask people, if they could, to keep their remarks to five minutes, or as close to it as they can, so that we have time for questions.
We'll start with the Canadian Steel Producers Association's Catherine Cobden, president.
Go ahead, Catherine. The floor is yours.
Thank you, Mr. Chair and members of the committee.
My name is Catherine Cobden. I'm the president of the Canadian Steel Producers Association.
I want to thank you very much for the opportunity to share the perspective of the domestic steel industry on the impacts of COVID and our recovery priorities.
Our member companies produce approximately 15 million tonnes of products annually, and we support 123,000 jobs in five provinces, from Saskatchewan to Quebec. Our industry is an important backbone of our national economy.
Furthermore, Canada's steel sector plays a strategically important role in the overall North American economy. We are advanced manufacturers of a 100% recyclable product and a critical supplier to many other key North American sectors.
Today, our industry, like so many others across the country, is facing unprecedented challenges as a result of this pandemic. We truly appreciate the priority that all parliamentarians have given to tackling the pandemic, and we are very grateful for many of the economic measures that the federal government has introduced in support of Canadian businesses and our employees. Some of these have been absolutely invaluable to our members.
As an essential industry, we continued to operate throughout the pandemic to supply our much-needed products to many critical applications. We are certainly proud of our small but important contribution in supplying steel for medical equipment and hospital-grade applications. However, the last few months have been exceedingly difficult for our members. We have seen a dramatic drop in demand from our primary markets, such as automotive, energy, construction and many others, and our members have only been able to operate at about 60% or less of their existing capacity.
On the job front, unfortunately 10% of our workforce has been affected by layoffs, but this is actually a good news story as these layoffs would have been far worse were it not for the Canada emergency wage subsidy program. Our members thank the government and all of you for working together to see this program delivered quickly and, frankly, for the decision to extend the program until the end of August. Our industry views it as a critical lifeline during this unprecedented time.
Moving forward, the steel industry faces a very difficult road to recovery. We are not expecting an immediate return of our business. It's not a “V”. We expect the next couple of quarters, frankly, to be a significant challenge. In that regard, we are urgently sharing with you ideas on how to recover the economy in a way that will support the steel sector's full participation in that recovery.
A top priority for us is to protect our domestic market from unfairly traded imports, either from dumping practices, massive importations or other practices that harm our sector. The world has been stockpiling steel throughout this pandemic, and we remain deeply concerned about the “wall of steel” that is already beginning to surge into our market. It's causing injury to Canadian steel producers and will cause more.
In addition, maintaining market access to the U.S. is crucial for Canada's steel sector. The swift implementation of the new CUSMA, including the automotive rules of origin, is a tremendous opportunity for North American steel and our collective recovery. The North American automotive sector is a valued customer of ours, representing about 25% to 30% of all Canadian steel production. As the auto sector returns to operation, we remain ready and able to support that sector in meeting all the “rules of origin” obligations.
COVID-19 has also taught us the value of a strong Canadian manufacturing base, along with the need for strong North American supply chains. We must carry this lesson forward as we emerge from the pandemic to ensure that manufacturing and these supply chains stay strong and resilient. For the steel industry, this includes considering how things like domestic procurement and infrastructure spending priorities could recognize the social, economic and environmental benefits of using North American steel.
Finally, another important aspect of our recovery is enabling investment that improves competitiveness and productivity, and supports environmental objectives. In today's context, Canada's steel industry is facing challenging conditions to attract investment. The strategic innovation fund has been a valuable tool for our sector in incenting investment. In our case, we saw $250 million of SIF funding leveraged to over $1 billion of project funding in the past. Given this demonstrated importance, we call for SIF's recapitalization as part of the government's COVID recovery response.
Thank you again, Mr. Chair and committee members, for the opportunity to be with you today. I'm happy to answer any questions.
Good afternoon. Thank you, Mr. Chair.
I'm the senior vice-president of the Canadian Federation of Independent Grocers. I would like to thank the committee for the invitation to participate in your hearings this afternoon.
Independent grocers across Canada serve a myriad of communities in this country, particularly rural, remote and indigenous communities in which we are the only source of food for people in those areas. As such, independent grocers are a critical linchpin in ensuring food security for much of the country. Independents account for about $18 billion in sales and there are approximately 6,900 independent grocery stores across Canada.
We compete on a landscape that is overly consolidated at the retail, wholesale and supplier levels in a number of categories. At the same time, our members operate on overall margins of an average 1.5%, and that is much lower than other retail sectors. To stay on that uneven playing field, independents must differentiate themselves, and they do so by buy buying local, hiring local, supporting local initiatives and living in the communities they serve.
There is no playbook or manual that exists that could have helped guide the industry through this crisis. In the context of panic buying, labour shortages, the closing of most of the food service business, plus the increases in costs through the entire supply chain, this industry, for the most part, has responded very well by supplying groceries and supplies to Canadians.
That being said, there have been issues around the issue of supply that our members have encountered over the last few months that need to be addressed within industry and government. Independent grocers and independent wholesalers have encountered problems getting access to some products.
We understand that for some products there has been a huge spike in demand, particularly when customers want to buy enough toilet paper to last them for the next two years. However, when our members cannot access poultry, flour, eggs or other essential products, including fair access to PPE, such as hand sanitizers and face masks, then that not only impacts the ability of that independent grocer to continue to stay in business but the ability of those people, especially in more rural and remote communities, to access those essential products. The situation we've experienced has put that at risk and that is unacceptable to us. We hope it would be unacceptable to this committee as well.
Too often, over the past few months, we've had conversations with associations representing supply-managed sectors or companies in the consumer packaged goods areas, and with governments, that were taken aback when we would explain that what they were saying, in terms of supply, was not what our members were seeing. There were two different realities.
There are issues around distribution that need to be addressed and fixed. While panic buying has subsided, we could see a second wave, or at some point, some other pandemic or crisis could again arise. This means we all need to ask what we can learn from the past few months.
This industry, producers, processors and retailers, all responded with dedication and an exemplary commitment to ensuring Canadians had food and essential products. However, there is learning and things we can all do better in the event of another crisis. That includes consumers refraining from panic buying, but it also means wholesalers and suppliers have to ensure there is fair access to products for all retailers.
It also means governments have to ensure there are going to be mechanisms in place that allow our independents to access PPE supplies, both for the protection of their customers and employees. As well, all agriculture and food ministries, federal and provincial, must end their entrenched and systemic preoccupation with on-farm to the exclusion of off-farm. They are fond of slogans such as “gate to plate” or “farm to fork”, but the reality is, and it doesn't matter what party is in power, scant attention is paid to this end of the supply chain.
I would like to conclude by pointing out how the reality for all small and medium-sized businesses has changed and will change as a result of COVID-19. We know this because our members have been open as an essential service. We know what lies ahead for everybody, because we're on that road right now.
Increased costs to enhance consumer and team member safety through rigorous and stringent in-store cleaning, enhanced safety protocols, additional supplies of PPE, including installation of plexiglass barriers, are just some of our new realities. For independent grocers, because we're not part of the on-farm sector, we have received no government financial support unlike other parts of the supply chain.
As well, this committee in particular should be cognizant of the significant migration away from cash on the part of consumers to credit and contactless payments. This has meant, and will mean, a correspondingly significant erosion of the bottom line of most businesses because of the increased percentage they must now pay in interchange fees. Since large chains pay much less in interchange fees as a percentage than small and medium-sized businesses do, this erosion has a disproportionately deeper impact on those without the leverage of a Walmart to negotiate more favourable rates.
It is naive to believe that these billions of dollars siphoned out of the pockets of those SMEs do not have a huge impact on what Canadians pay for goods and services. Of course they do, but with the percentage of credit transactions now so much higher, this will make it a much more difficult journey for many businesses on their road to recovery in the next couple of years.
In the context of COVID-19, we would urge this committee to recommend that the government revisit the current agreement with the credit card companies, yet to go into effect, to reduce fees to an overall average of 1.4%. The payment landscape is much different now. All of us need to work together to put this country back on its feet, and credit card companies need to be part of that solution.
Thank you again, Mr. Chair and members of the committee, for the opportunity to speak with you today. We very much appreciate it.
Good afternoon, Mr. Chair and members of the committee.
Thank you for providing us this opportunity to appear before you and for the important work your committee is undertaking. It's much appreciated.
We're here today to provide you with a picture of how devastating COVID-19 has been for businesses located within Canada's mountain national parks. We also have several recommendations to propose to the committee that would provide immediate relief to our businesses, as tourism and revenues plummet.
My name is Yannis Karlos. I'm the co-founder of Banff Hospitality Collective. We own and operate 11 restaurants in Banff. Joining me is Stuart Back, vice-president of operations for Pursuit's Banff Jasper collection. Together we co-chair the Association for Mountain Parks Protection and Enjoyment.
AMPPE is a member-based organization that represents over 1,000 businesses operating throughout Canada's seven mountain national parks. Collectively, we employ tens of thousands of Canadians. AMPPE advocates for accessibility and positive visitor experiences in these parks. We believe in healthy parks. Conservation is fostered when visitors experience nature in a deep and meaningful way.
As recently as last year, our region welcomed over five million people and contributed $3 billion per year to Alberta's economy. Visitors to Banff alone generate about $250 million in provincial tax and $470 million in federal tax revenues annually.
As economic diversification has become a priority in Alberta, tourism's contributions will only increase in stature. As a result, we are seeking to work with governments to do everything possible to support our industry as we navigate this difficult period.
The formerly busy streets of mountain parks towns are nearly deserted. In mid-March, over half of Banff's residents, or an estimated 5,000 people, lost their jobs, and there has been a limited recovery since. On the Victoria Day weekend, typically one of the busiest of the year, we saw an unheard of 92% drop in visitors. The local economies of Banff and Lake Louise are almost entirely reliant on tourism, with that of Jasper close behind. Nearby towns such as Canmore, Hinton, Pincher Creek, Invermere, Revelstoke and Golden also rely heavily on the mountain parks and tourism for their economic well-being.
Sadly, there's limited short-term relief in sight for our towns. A recent study by the Vanier Institute found that 72% of Canadian families are unlikely to travel in the next year. Borders remain closed. Interprovincial travel is being actively discouraged, and flight capacities are a fraction of what they once were. Sixty per cent of visitors to Banff National Park originate from outside of our regional market. Businesses in mountain parks remain squeezed between federal and provincial guidelines, and perhaps most important our business viability is built on summer visitation carrying us through the slower winter season. This was true even before the COVID-19 crisis. I heard someone say recently that losing the summer will be akin to having three winters in a row. The simple fact is that we will need sustained support to survive.
We remain solution-oriented and are deeply committed to our businesses in the mountain parks region. Our recommendations will provide immediate relief to the tourism-reliant communities where we operate.
First, we ask that Parks Canada waive entrance fees to the national parks. This was done in 2017 for Canada 150 and resulted in an increase in visitation.
Second, we recommend Parks Canada extend lease and licence renewals and overholding terms. Local businesses are scrambling to reinvent themselves as guidelines, regulations and visitor circumstances change daily. Extending lease renewals and simplifying terms will enable all parties to focus on recovery efforts.
Third, we recommend that government reinvest in guest experience and infrastructure to support communities within the parks and the welcoming back of visitors. Visitors coming to the mountain parks are seeking a connection with nature through a variety of experiences. Investing in infrastructure and addressing deferred maintenance, as well as our quantified infrastructure deficit, will give Canadians a platform to strengthen their connection to the parks while also providing important stimulus for our local economies.
Fourth, we recommend making our parks global leaders in green and low-carbon visitation by progressing plans for expanded mass transit and passenger rail connections. These projects will help reduce key congestion, lower emissions and protect the environment, while creating jobs and economic opportunity.
Finally, we ask that CEWS, CECRA and the Parks Canada rent relief program be extended for tourism and hospitality-dependent businesses as long as travel restrictions and social distancing requirements are in place. Doing this will create longer-term stability and certainty for our communities and facilitate keeping our people employed.
We would like to thank you once again for your time and attention to the very urgent issues facing our part of the country and our members. AMPPE values this opportunity not only to help you understand the devastating and long-term impacts the COVID-19 crisis is having but also to propose to you some immediate solutions that we very much hope the Government of Canada will seriously consider and act upon.
Thank you. We welcome any questions you may have.
Thank you very much for the invitation to appear. It really is an honour to be here today before the House of Commons Standing Committee on Finance.
While everyone's economies are in uncharted waters across Canada, after a five-year downturn, Alberta has been hit extra hard by the COVID-19 crash in energy demand dovetailing with a price war between Russia and OPEC. It seems to most Albertans that if it were central or eastern Canada where a critical economic sector or even a prominent company was temporarily blown into the ditch by international storms, the federal government would be right there with financial and other support.
Thus far, all we've heard coming to Alberta is about $1 billion for reclaiming orphaned wells, as well as some nationwide loan supports that are hard for our energy companies to access. For perspective on that $1 billion, Albertans paid more into the $9-billion auto sector bailout in 2009. What we've seen thus far feels a little more like a nudge into retirement than any kind of stimulus.
As our group Fairness Alberta has shown, Albertans have contributed so much to the rest of Canada, federal revenues in particular, that we believe it's both fair and also in the interest of the federal government and the national economy to give more consideration to the particular issues in our province as we struggle through the worst of this extended downturn. To raise awareness across Canada, we have a billboard right now in Ottawa, on St. Laurent Boulevard, noting that Albertans have made a net contribution of $324 billion since the year 2000.
Every time the government repeats the fact that Canada is in a fiscal position to weather this storm, I think of that $324-billion cushion provided by Albertans. This amount works out to about a $320,000 net contribution per family of four over 20 years. It's really a staggering number. For the members of Parliament who are not from Alberta, that's meant about an average $42,000 benefit to the families in your ridings.
Just for clarity, these aren't just boom-time dollars. In 2017, when we were well into this economic downturn and provincial revenues had just dropped 20%, Canada still got a net benefit of $15.2 billion from Albertans, or $15,000 per family of four.
Now, I do want to be clear. Albertans are proud and grateful for their ability to contribute to the country, just as any province would be, but I believe there are two things that have stoked discontent in Alberta that you should recognize as you consider strategies to pull Canada's economy out of this COVID-induced lethargy. The first is the many ways that federal programs, spending on goods and services, and provincial transfers all unfairly direct spending to other provinces. The second is the target that seems to be on our backs despite these contributions.
Regarding the first point, the annual $15 billion to $27 billion net contribution from Alberta has many elements that we at Fairness Alberta are diving into. Consider provincial transfers: The size of the health and social transfers mean that Albertans are contributing another $3 billion more than we get back for services that are constitutionally provincial. We just wonder if that's fair, given the equalization program adds another $20 billion on top of that, or as the Library of Parliament document that I sent you earlier today shows, the federal government spends far less on goods and services in Alberta than in any other province. We fund about $11 billion of the total, but even with two large military bases and so many indigenous communities, only $5 billion gets spent back into Alberta. Is that $6-billion difference fair?
The second point that fuels anger and discord is of course the target placed on the diverse, integrated, world-leading energy industry that has driven our large fiscal contribution. While competitors internationally innovate and drive, even amidst lower prices, our industry has faced fights over pipelines, tanker bans and GHG-related policies that create large, competitive disadvantages.
The result has been investment in jobs sent to regimes with far worse environmental or labour standards. Russia recently announced a $155-billion new oil and gas megaproject. That's almost exactly the amount that Alberta has had cancelled or postponed in the last decade. This is not progress.
To conclude, it's critical that you think long and hard about the economic impacts of the policies being considered, particularly things like the new clean fuel standards that might cripple the natural gas sector, as well as any stimulus funds and how they are directed.
I'd also ask you to use the lens of whether this is fair to Albertans. Is this unnecessarily undermining their children's chance at future prosperity when over the last two decades we've used so much of their prosperity to strengthen Canada?
We need every province operating at maximum capacity if Canada is going to recover from this COVID crisis. Please remember what Albertans operating at a high capacity has meant to this country in the past, because with your co-operation, we can help make Canada stronger than ever.
Thank you very much for your time. I look forward to your questions.
Good afternoon, my name is Sophie Prégent and I am president of the Union des artistes.
The Union des artistes represents 8,500 active members. They are performers, singers, actors, hosts and dancers. I will not hide from you that the pandemic we are currently experiencing has had an impact on 100% of our members.
All performers have been affected. Some have managed to get through a little better, but very few. That is why the Canada emergency response benefit has been an extremely quick and effective remedy for the performers' realities. Thank you for that. The CERB has been extended, and it is a very good thing for our sector. However, this only brings to light the precarious situation of performers in our Canadian society, because, every time the CERB is extended, artists tell themselves that they can breathe easy for another eight weeks. One day, we really should think about looking into a more effective and lasting way to help all the artists and self-employed workers who are living in extremely precarious situations.
I sometimes hear on the radio that, in some sectors, the CERB can lead to awkward situations and have a negative effect on our society, since some workers prefer to continue to receive the good old Canada emergency response benefit rather than to return to work. I can assure you that, in the arts sector, we have no one like that. The reason is quite simple: the longer you are in lockdown the longer you are not seen, and the longer you do not work the more it works against you. When you work, you are seen, and to be seen, you have to work. There is no downside to the CERB in our profession, and people would be willing to go to work for less money than it provides.
Thank you very much for introducing the CERB. It meets a need, but one day, we will have to agree to face the facts and find a lasting solution for our artists, since that is what it is really about.
We might consider an income that could complement rather than work against the CERB. If people have some income, we could make it possible for them to have some more and still add the Canada emergency response benefit, a bit like communicating vessels. We believe that would be one viable and desirable solution.
With that, I give the floor to Ms. St-Onge, who can complete my remarks.
Thank you, Ms. Prégent.
I am president of the Fédération nationale des communications et de la culture. We represent over 6,000 people working in the media, arts, culture and event planning sector, including theatre designers and festivals.
These individuals have been hit hard by the crisis, including independent journalists, for whom the current crisis comes on top of the crisis in the media. Most media organizations have had to lay off many people, as has been the case in many other sectors. Almost all independent journalists have lost their contracts. That is why the CERB was and still is so important to them. COVID-19 comes on top of a major crisis across the entire media sector, but also the cultural sector, due to competition from the digital giants.
Here are some key facts about the self-employed. In April, 50.2% of self-employed workers experienced a decrease in hours worked, and in May, it was 42.9%. It is even worse in the cultural sector, and it is not going away anytime soon.
Our message today is first and foremost to thank the government for the speed with which it provided assistance to those we represent. We also thank them for extending that support for eight weeks.
We should start thinking now about what will happen after August 31, because in my sector the recovery will not happen right away and it will take a long time. We do not know if the audience will be there. Economic recessions are terrible for media advertising revenue.
I will stop here. Ms. Prégent and I will be happy to answer any questions you may have.
Thank you, Mr. Chairman.
My name is Luc Perreault. I'm the strategic adviser for Stingray, a Montreal-based company that owns and operates a portfolio of broadcasting and music-based services, including Stingray Music, available on cable and satellite and through various applications. We also own and operate over 100 radio stations across Canada. We're a global company active in 103 countries, with over 1,200 employees worldwide.
I have to switch languages now, so this requires a little bit of gymnastics.
I appear before you on behalf of the Independent Broadcast Group. With me is Joel Fortune, our association's legal counsel.
Our association represents 10 independent Canadian broadcasters operating in the television, radio and digital media sectors. We serve diverse and varied communities in all regions of Canada.
COVID has hit industries that depend on advertising very hard. We estimate that the broadcast advertising market has shrunk by 50% or more since January.
Before COVID-19, the Canadian ad market was already challenged by the growing dominance of large non-Canadian digital platforms, such as Google and Facebook, which are cutting into the broadcast ad market, much like what has happened in the newspaper industry. COVID-19 has made the situation much worse.
You also need to consider the high levels of concentration of ownership and vertical integration in our domestic market. A small number of the same companies control a large portion of broadcast revenues in all business lines via their multi-platform assets.
For example, in 2018, Canada's four largest media network companies—Bell, Rogers, Shaw and Quebecor—accounted for 73.4% of the $86.2 billion generated by media economic activity.
In the cable sector, the five largest broadcast distribution companies accounted for 88% of the sector's revenue. The same companies accounted for 91% of private Canadian conventional television revenue and 83% of total discretionary service revenue.
While independent broadcasters such as Stingray represent a smaller segment of the business overall, we're still fundamentally very important. Independent broadcasters represent fully 40% of direct employment in the Canadian broadcasting sector. We represent 69% of jobs in commercial radio, 39% in discretionary television and 14% of jobs in conventional television.
There's a multiplier effect as well. In a recent study, it was estimated that the independent sector accounts for more than 28,000 full-time positions annually in Canada through our direct operations and through our production and international distribution activities.
This is why we strongly support the extension of the Canada emergency wage subsidy. The CEWS has been critical for many independent broadcasters to maintain employment levels, especially for businesses exposed to the drop in advertising revenue.
We have also proposed additional measures also targeted to our industry.
First, we propose an enhancement of the existing tax deduction for advertising on independent Canadian broadcasters. The deduction would be increased to 130%. This would help level the playing field in an environment that heavily favours Canada's largest broadcasting groups.
Second, we support the extension of the news content tax credit developed for the print industry to the news programming produced by independent broadcasters.
Third, we support the reimbursement of the 600 MHz transition costs for independent broadcasters. These costs are being incurred to free up spectrum for other uses, including mobile use. All of Canada's largest media conglomerates also operate mobile phone businesses, so they will benefit from this transition. Independent broadcasters bear the same costs, but will not see the benefit, and they should be compensated.
We know that other initiatives have been put forward to support our industry, such as removing tax deductions for advertising purchased on foreign digital platforms such as Google and Facebook. We believe they make sense and are worthy of your consideration.
Thank you for hearing us today. We are ready to answer your questions.
I'm speaking on behalf of the IATSE, which is the largest union in the entertainment industry, representing over 150,000 technicians across North America, including 26,000 in Canada. Our members work in both the film and television and live performance sectors. We are the cinematographers, set dressers, scenic artists, carpenters, stagehands, hairstylists, costume designers and just about every other behind-the-scenes position you can name.
As you've heard, our industry was the first to go down, and it will be the last to come back, particularly in the live performance sector. IATSE members in Canada are experiencing wage losses in the range of $120 million every month. Due to the freelance nature of our work, fewer than 2% of our members are receiving support through the Canada emergency wage subsidy. Many are contract workers and are not eligible for employment insurance, so the only support available to a large portion of entertainment workers has been the CERB.
I want to express my sincere thanks to the Government of Canada for the creation of this benefit. It has truly been a lifesaver. I was relieved to hear this week's announcement that the CERB would be extended for eight more weeks, but I need to make clear that the industry is a long way off from being ready to reopen. Most theatres will not be reopening until the spring of 2021. Live performances cannot restart until government okays large crowds.
Workers will need the CERB extended until the industry is allowed to reopen to full audiences. Alternatively, the implementation of a universal basic income would also address support as well as retention, particularly in retraining workers who are just starting out in our industry and whose employment is typically more sporadic.
The majority of IATSE locals belong to CEIRP, the Canadian Entertainment Industry Retirement Plan, which is a group RRSP plan with $700 million in assets. We have requested that the Department of Finance and the Canada Revenue Agency create a limited window of emergency relief by allowing repayable RRSP withdrawals like what presently exists under the home buyers' plan and the lifelong education plan.
This emergency relief mechanism would have the benefit of making cash available to Canadians in need. Like the home buyers' plan and lifelong education plan, this temporary program would take the form of a repayable loan, and the funds would be made available between now and December 31, 2020, or extended due to the pandemic.
Prior to the pandemic, film and television production levels in Canada were at historic highs, fuelled in large part by the increase of foreign service work and the dramatic increase in industry capacity and infrastructure. The industry has been working collaboratively to ensure that we are ready to return to these levels and even higher when work resumes.
We should not be content with simply returning to those previous levels of production. Now is the time for the federal government to partner with provinces to invest in this industry in order to bolster our capacity. The demand for audiovisual content, particularly on streaming sites, is growing worldwide, and Canada is in a unique position to take advantage of this growth. Our crews and talent are recognized around the globe as being world class. Now is the time to be bold and work with our industry to expand our capacity to create good-paying jobs for the future.
The last point I want to mention is a concern for the industry, particularly the domestic producers. It is the ability to secure insurance in an environment where there's a real risk of a production's being shut down due to COVID. Without adequate insurance, the industry will not be able to reopen. Domestic producers have a proposal before the federal government that, in very broad terms, is asking the federal government to act as an insurance backstop whereby producers could contribute to a pandemic-coverage insurance pool that would total $100 million and be administered by the federal government.
IATSE and other labour groups support this proposal, with two caveats. The first is that workers should be paid out first for any outstanding wages and benefits, and should also receive some form of severance should a production go down. Safety must also be a priority, so the second caveat is that any producer taking advantage of the program must adhere to an industry-negotiated safety protocol that ensures the health and safety of the cast and crew.
Now I'll defer to Arden Ryshpan.
IATSE and the Canadian Actors' Equity Association are in a coalition along with our colleagues at the Associated Designers of Canada and the Canadian Federation of Musicians. We've begun to work on some ideas for some additional short-term supports to our sector, and I'd like to share a couple of them with you now.
They include relaxing restrictions on our arts organization's ability to access funds from its endowment, beyond those currently identified as unmatched funds; temporarily amending the Income Tax Act so that live performance ticket purchases are treated as charitable donations; devising and implementing federal tax credit incentives for live performance organizations, similar to the types of tax incentive policies that exist for film and television production across Canada; additional assistance to help attract live audience attendees by providing theatres with funding equal to 50% of the average on the previous five years' ticket sales, so that they may reduce ticket prices in order to attract audiences; lastly, working with all arts and culture stakeholders to design, implement, and fund a national marketing campaign aimed at encouraging Canadians to return to the various arts and culture venues as patrons and audiences.
In these difficult times, people have turned to what we do for solace and entertainment. They have listened to music. They have watched artists perform online from their homes and stream previously recorded theatrical productions in extraordinary numbers. The importance of arts and culture in the lives of Canadians has never been greater, and neither has the need for support to the artists who are providing that entertainment.
We'd like to say thank you very much for giving us the opportunity to speak to you today on this important matter. John and I, of course, would be happy to answer any questions you may have.
Recently, after the success of the Multipoint Foundation system in northern regions—in Alaska and northern Canada—it was adapted to brownfield and infill projects for low-income housing programs. One that was successfully implemented was on the Lower Mainland of British Columbia in the Vancouver area. We developed, with our modular manufacturing partners, a housing program to fill the need for local housing. Within a matter of months, low-income housing was set up in brownfields in the interior of Vancouver.
We're promoting that idea. That's why we're here to advise the committee that Canadian technology is available to do this effectively. Some of our partners are in Alberta, so we try to help the Alberta economy in that respect. We use Canadian-made steel for our foundations, so we're supporting the Canadian industry. We're supporting the steel manufacturers and also the aluminum industry at the same time.
We have an opportunity to grow even further and to assist the Canadian government in this unfortunate situation with the COVID pandemic. Some of our partners are able to develop rapid response buildings that can be used in multiple venues. They can be used as triage centres. They can be used as housing facilities. They can be used as storage facilities.
We're here to inform the committee that with their assistance and their input, with our partners we can help them to be better prepared in the future and to use these building for other projects. It's very beneficial for all. It will help the Canadian economy because, again, we're using Canadian steel, which is made here. We bring it into Arnprior. We cut it here. We roll it here. We galvanize it here in Canada. Then it goes out.
It's not only in Canada. We're also working with housing projects even in California, so we are able to export our expertise and our technology to other fields. That's basically why we're here to inform you and to advise you that we're ready to work with anybody.
My thanks to my colleague Mr. Ste-Marie and to the witnesses for their expertise.
As the Bloc Québécois critic for arts and culture, I will essentially focus on that sphere of activity.
We applaud the fact that the CERB has been extended. As Ms. Prégent said, and, as all your speakers and representatives have said on many occasions during the consultations, it will clearly not be enough, simply because most of the economic activity for artists and workers in the creative industry takes place during the summer.
It is often during that period that things get really busy, so that you can put a little aside, in a little piggy bank, as they say, in preparation for the quieter periods that sometimes happen in the cultural sector in November or through the winter.
My question is for Ms. Prégent or Ms. St-Onge. In the next sessions of Parliament, we might be able to convince the government to create a special CERB or, even to see the extended CERB like an investment. My introduction will be a long one, but I will listen to you afterwards.
In 2017, we learned that the culture industry was contributing $53 billion to Canada's GDP. This is the Standing Committee on Finance, so it is very helpful to provide such significant numbers. It is a little more than agriculture, so it is quite astounding. It shocked me personally; I was surprised to see it. You could consider that extending the CERB is a way of investing in economic benefits in the future. With no culture, there will be a $53 billion hole in the country's budget for next year.
Ms. St-Onge and Ms. Prégent, what do you think of the possibility of seeing it as an investment?
I will start, if I may.
Of course, that would be helpful for our sector.
I tend to say that we often talk about an anglophone culture and a francophone culture in Canada and in Quebec, but, honestly, culture as such does not exist. What exists are creators of culture. It essentially takes human beings before it can become a national identity.
Sometimes, I get a little annoyed and I say that we have to start stop talking about culture as if it was a jewel in our national crown, our Canada. Culture is by definition intrinsically about the artists and about people. We have to think globally, but, at a certain point, we really have to focus our thinking and ask ourselves who are the people that contribute to our culture. Who are those people?
Too often, we say that we have to improve the socio-economic conditions for the artists, but that is always part of our overall collective thinking. I would like us to take that down to the people with families and with children, those who never manage to earn their living in the sector. At the moment, my impression is that a lot of money is invested in culture, but much less that…
I think it's crucially important.
Many years ago a prominent left-wing politician, Hugh Segal, talked at my university about a universal basic income. I think the time has come to relook at that.
I think it addresses issues for people working in the arts, because there's always this vulnerability, and I think that's what my colleagues from Quebec were just referencing too. It isn't just COVID; there's a constant vulnerability in earnings and how we undervalue and underappreciate people who work in culture and the arts.
If there's a silver lining, maybe this allows us to re-examine the notion of the value of people who work in the arts culture industry. The time is now, when we have great opportunities.
You can see in Burnaby the number of sound stages that are being built. That's not by accident, and what I'm hearing is that we need more. If there is a way that the federal government can partner with the industry to build more, that is what we need.
If there are ways that we can tweak the tax credit to bring even more work.... I think there's a role for provinces and the federal government in terms of this insurance issue, which is crucially important for domestic producers. They need that in order to start back up again. Without it, it's going to be a very precarious restart.
We feel very strongly about it. I don't think there's an issue that's more important for all small and medium-sized businesses in Canada.
I do want to start off by saying that the government has brought about a new agreement, which was to go into place in April and has been delayed. That was definitely an improvement over the agreement that was in place with the previous government, but there's still much more to be done. The gap that exists between what the main street small businesses in this country pay and what a company such as Walmart pays is indefensible. It's inexcusable.
I want to go back to the grocery sector and have members understand the context of this. These independent grocers—I'm going to have to pick my sector, but I know that I'm speaking for all small and medium-sized businesses—are at margins of 1.5%. The new agreement that is supposed to come into effect is to provide an overall rate of 1.5%. That's an overall rate, and that's disingenuous, because the rates for premium cards actually drive that higher.
How do you make money? How does a small and medium-sized business in this country make any money when your margins are so tight? On the interchange fees, if Walmart can get 0.89%, why can't other small and medium-sized businesses in this country get the same? We've never had a clear, concise answer given. It's almost a deafening silence.
The amount of money we're talking about is billions of dollars, and I'm saying to this committee that we need to take another look at this, because in the post-COVID landscape there are going to be a lot of potholes on that road to recovery, and we don't need the credit card companies putting up any more roadblocks. That's what exists now. They have to be part of the solution. If they're not, they're part of the problem.
Actually, we have. It's been happening since this pandemic was announced in March. The paperwork has been in the works. The designs have been in the works. They've just come across our table now in the last week, actually finalized.
We're working with a steel-frame manufacturer in Ottawa to create these quick, deployable rooms, hospitals or buildings that our foundations can go on to. You have a steel structure and a steel foundation that will be able to go basically anywhere in Canada. It will be containerized. Again, it can be used by any provincial government, any ministry, any municipal authority that needs support and help in terms of quarantine.
Say we have the workers coming in to pick our fruits and vegetables. We need to have a secure place for them. That will be available as a facility. If you need to do some triage up north, especially in the Arctic regions, this either can be deployed by a barge or can be sent up in the back of a Hercules airplane because it's all containerized.
We are working very diligently. It's coming to fruition as we speak. I can't say anything else. There are certain legalities that I cannot divulge right now. It's in the works, and we're thankful for the support from the Canadian government in this project.
I think you, as a committee, are aware of what's going to be happening pretty soon.