We will call the meeting to order.
Welcome to meeting number 37 of the House of Commons Standing Committee on Finance. Pursuant to Standing Order 108(2) the committee is meeting to study the report of the Bank of Canada on monetary policy and the economic and fiscal outlook.
Today's meeting is taking place in a hybrid format, pursuant to the House order of January 25, 2021. Therefore, members are attending in person in the room and remotely using the Zoom application. The proceedings will be made available via the House of Commons website, and as most everyone knows now, the website will show the person speaking rather than the entirety of the committee.
Based on the experience in the House, it's just as well not to take a screenshot of the proceedings.
With that, we will welcome our first guest, and before I get to the Governor of the Bank of Canada, I will give you a heads-up on the question list. In the first six-minute round, the first one up will be Mr. Poilievre, followed by a split between Julie Dzerowicz and Annie Koutrakis.
Turning then to the Governor of the Bank of Canada, Mr. Macklem, welcome.
You've been here before. It's a pleasure to see you again.
The floor is yours.
Thank you, Chair. I hope you can hear me well.
Good afternoon to you and to all the committee members. I am very pleased to be back with you to discuss our monetary policy report, our economic outlook and the actions we're taking to support the recovery.
If I had to sum up the message for you in three words, these would be progress, time and commitment.
First, the economy is making good progress. Canadian households and businesses have shown impressive resilience to the pandemic. The economy is doing better than we expected. And with more and more Canadians getting vaccinated, we anticipate better times ahead. Reflecting these developments, last week, we revised up our outlook for the Canadian economy.
But second, a complete recovery will still take some time. The third wave of the virus is a new setback. It is straining health care systems in many regions and again hitting sectors where physical distancing is difficult. Important parts of the economy remain very weak, and too many Canadians are still unemployed.
Third, the bank remains steadfast in our commitment to support Canadian households and businesses through the full length of the recovery. For working Canadians, a complete recovery means a healthy job market with good opportunities, and that includes low-wage workers, women and young people who have been hit hardest by this pandemic.
A complete recovery means that companies have confidence that the pandemic is over and are investing to seize new opportunities. For households and businesses, a complete recovery means that they can count on inflation being sustainably at our 2% target.
Let me expand on these themes. At the time of our last MPR in January, Canada was facing a second wave of the pandemic, and we expected the economy to contract modestly in the first quarter of 2021. As it turns out, it now looks like the economy grew strongly in the first quarter. This is partly because the global economy is stronger, particularly in the U.S., but the most important factor is the resilience and adaptability of Canadian households and businesses. They have found new ways to shop, serve customers and work remotely.
As a result, lockdowns through the second wave had much less economic impact than they did through the first wave, and as restrictions were eased, the economy bounced back with substantial job gains in February and March.
Housing construction and resales have been particularly strong, rising to historic highs. This is being driven by a desire for more living space, low mortgage rates and limited supply, but we are seeing signs of extrapolative expectations in some housing markets, and there are risks that some households may overstretch financially. We'll continue to watch this closely.
With vaccination progressing, we are expecting strong consumption-led growth in the second half of this year. Fiscal stimulus from the federal and provincial governments will also make an important contribution to growth. Strong foreign demand and higher commodity prices are expected to drive a solid rebound in exports and business investment, leading to a more broad-based recovery. We now project that the economy will grow by around 6.5% this year, about 3.75% in 2022 and 3.25% in 2023.
With this improved outlook, we're hopeful that there will be less labour market scarring and less lost capacity than earlier feared, and we have revised upward our estimate of the economy’s potential output. But I want to emphasize that considerable uncertainty surrounds our estimate of potential. As the recovery continues, we will be paying attention to a broad spectrum of indicators of slack, including a range of labour market indicators.
Last week, we saw that inflation rose slightly above our 2% target in March. This increase was expected. Indeed, over the next couple of months, we anticipate inflation will rise further to around the top of our 1% to 3% inflation-control target range. This largely reflects base-year effects combined with the recent rise in gasoline prices.
Governing council is looking through these temporary increases in inflation because we expect the ongoing excess supply in the economy to pull inflation back down. Inflation should return to 2% on a sustained basis as slack is absorbed in the second half of 2022.
Taking into account the improved economic outlook and the considerable slack that remains, the governing council judged last week that the economy still needs extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. As I just mentioned, based on our latest projection this is expected to happen sometime in the second half of 2022, although this timing is unusually uncertain, given the difficulties in assessing the economy’s supply capacity.
Our forward guidance on the policy rate continues to be reinforced and supplemented by the bank’s quantitative easing or QE program. Effective this week, we adjusted our weekly purchases of Government of Canada bonds to a target of $3 billion, down from the previous minimum of $4 billion. This adjustment reflects the progress we've already seen towards economic recovery.
Before I turn to your questions, let me say a few words about our QE program and its impact on our balance sheet, as I know this is a topic of interest to many committee members.
Around this time last year the bank launched a number of extraordinary programs—11 in all—to help restore functioning in financial markets and keep credit flowing. These programs worked, and with markets now functioning well we have wound down or announced the termination of all but one of our extraordinary programs. The one remaining is our QE program. It is still providing needed monetary stimulus by lowering borrowing costs for households and businesses across the yield curve.
With the other programs winding down and QE continuing, the size and composition of our balance sheet has shifted in the past several months. The size of our balance sheet peaked back in February at about $575 billion. It has since decreased to about $475 billion. This decline reflects the maturing of some of the shorter-term assets and the termination of most of our extraordinary programs.
We continue to buy Government of Canada bonds to provide stimulus in pursuit of our inflation objective. The bank currently holds about $354 billion of Government of Canada bonds, comprising more than 70% of the assets on our balance sheet. This is up from 55% last January.
I’ve provided you with a chart that shows the evolution of our balance sheet and a table that provides more detail on the maturity composition of our holdings. As you can see from the table, the Bank of Canada currently owns just over 40% of the outstanding stock of Government of Canada bonds.
Across the maturity spectrum of nominal bonds, our ownership ranges from 48% of five-year bonds to 36% of 10-year bonds. We routinely make available high demand bonds through our securities lending program, and this helps promote the smooth functioning of Canada’s government bond market.
I’ve given you a lot of numbers. The message I want to leave with you is that our purchases have provided a lot of stimulus to the economy. With the progress toward economic recovery that we've already seen, we have adjusted the amount of incremental stimulus we are adding each week with our purchases. Looking ahead, further adjustments to the pace of net purchases will be guided by our ongoing assessment of the strength and durability of the recovery.
If the recovery evolves in line with or more strongly than our latest projection, the economy won’t need as much QE stimulus over time. Further adjustments to our QE program will be gradual, and we will be deliberate in our assessment of incoming data and our communication of our analysis.
We remain committed to providing the appropriate degree of monetary stimulus to support the economy and achieve our inflation objective.
With that, Mr. Chair, let me stop and address the committee's questions.
On an annual basis, the government will borrow a net $154 billion, and you will provide a net $156 billion, so there is an extra $2 billion. Keep the change, Mr. Government. That has to be a coincidence, but you're saying no, the purpose of this was the inflation target.
Three of your four measures of inflation are now above the target, which would presumably mean you would pull back. Even The Financial Post said, “Central banks and government out of touch with Main Street when it comes to rising cost of living”.
Canada's food price report shows that food costs increased almost 3% last year, with an expected increase of almost 7% in meat, almost 6% in bakery and almost 7% in vegetables, not to mention housing prices are up more than one-third in just over a year.
I think we have enough inflation, Mr. Governor. Why do you keep printing money?
Mr. Governor, I have no doubt that unemployment is high. The job market is terrible, but inflation is high too.
You admitted today, for the first time, that you're going to bump up on 3% inflation. That is something you told us, and your predecessor told us, was not possible, when you first testified about this quantitative easing program only a year ago.
The people you claim to be helping, low-wage workers, women and young people, are the victims of inflation. You have admitted at this committee that the poor, the young and the dispossessed are disproportionately harmed by inflation, because they deal more in cash and because they don't own assets that inflate.
Why are you, once again, pumping billions of dollars into the system to inflate the things that the rich own, but that the poor have to buy, thus widening the gap between rich and poor?
Look, the biggest risk is clearly the evolution of the pandemic itself. This third wave is straining our health care systems. It is requiring new public health measures and new containment measures. Unfortunately, that's putting some of the same people who have been hardest hit by this pandemic out of work again or delaying their return to work.
The good news is that vaccines are rolling out. I got my vaccination a couple of weeks ago. Roughly about 30% of Canadians now have a first shot, but we've seen that this virus is very unpredictable. There are new variants out there. That is certainly the biggest risk to the projection.
When you look at our projection, there are some upside risks as well as some downside risks. Canadians have accumulated a substantial amount of excess savings through this pandemic, which I can go into detail on. We're assuming, based on what Canadians have told us, by and large, that.... We expect Canadians to reduce their savings rate to where it was pre-pandemic, again, in consumption, in consuming again at the same sort of rate that they did before, but we are assuming that the extra accumulated savings that they've built up will be used to pay down debt, invest or buy houses.
They could end up dipping into more of those savings, and consumption could be even stronger than our forecast, so there are upside risks and there are downside risks.
There are really two questions there.
On the first one, I don't see it as my role to opine on fiscal policy.
I will say in terms of the budget that it lays out a track for spending. Underlying the budget is a forecast that is an average of private sector forecasts. That forecast is not that different from the forecast that we published last week. We are actually a little bit stronger. Our forecast is a bit stronger this year, which I think largely reflects the fact that the data coming out in the last month or so has been fairly positive, but for next year or the year after, the forecasts are fairly similar. These are forecasts. As I just highlighted, there are risks around them, but it's a reasonable planning basis.
In terms of your own assessment as parliamentarians of the fiscal track—and I know you're speaking with the Parliamentary Budget Officer—I think you want to look at international comparisons. We were fortunate in Canada to go into this crisis with the lowest net debt-to-GDP ratio, and we will still be retaining that position. The other thing you can do is look at credit rating agencies. Yesterday, S and P reaffirmed Canada's AAA rating. Different agencies have different assessments. Those are I think all good resources at your disposal.
With respect to the Bank of Canada, which is really what I want to talk about, what can we do to assure Canadians that we will control inflation? We have a very clear mandate. We have a strong record now of 30 years of inflation targeting, and we have consistently realized that objective. I can tell you that as governor I am committed to getting the economy back to its potential output, with inflation sustainably at 2%. As I said, we still have some way to go, but we're closer than we were the last time I was in front of this committee.
Thanks very much, Mr. Chair.
Thank you, Governor Macklem, for being here today. Your availability over the course of this pandemic has been very important, and we thank you for that.
I have a couple of questions around both the Bank of Canada's mandate and the implications on monetary policy of fiscal policy, which you mentioned earlier. We know that it really is a tale of two countries. During this pandemic we have seen Canada's billionaires increase their wealth by $78 billion so far. We've seen massive profiteering in certain sectors and we have seen some Canadians, wealthier Canadians, being able to put away savings as you mentioned.
Canada continues to have the worst level of family debt in the G7 and the lowest saving rate in the G7. At the same time, over 50% of Canadians struggle to put food on the table. According to the most recent figures, as you know, half of Canadians are within $200 of insolvency on any given month. That has been exacerbated by this pandemic.
What we see is a growing chasm between a smaller number of Canadians who are increasingly wealthy and a large mass of Canadians who are absolutely struggling to make ends meet, yet we have a government that has practised failed fiscal policy, hasn't put in place a wealth tax like other countries and hasn't put in place a pandemic profit tax, even though during the Second World War we had that in place and it allowed us to fight Nazism and fascism and, after the war, put in place all of the infrastructure contributing to health, education, transport and housing that allowed us to build a prosperous economy.
My question is twofold. First is on the implications on monetary policy of what is a failed fiscal policy where the wealthiest citizens are simply not paying anywhere remotely like their fair share of taxes. Then secondly, in terms of the consultations that the Bank of Canada has done, increasingly people have been raising in the course of those consultations the impacts of targeting full employment at the same time as there is inflation targeted. In other words, having a dual mandate for the Bank of Canada on monetary policy.
I recognize that monetary policy can't solve all of the problems of failed fiscal policy, but increasingly, as you note, with half a million people who haven't been able to return to their jobs and knowing from the past that it takes up to 10 years for the economy to recover for lower-income people, as we saw during the Spanish flu pandemic, what do you think the implications are for having a mandate that actually takes into consideration full employment?
Peter, let me answer that in two parts.
First of all, I want to assure you that employment is an important element of our framework. You can't keep inflation sustainably at 2% if you have a large number of unemployed people, because the economy is missing income and that means there will be downward pressure on inflation.
At the same time, having inflation well anchored at 2%, the lesson from history is that it reduces these inflationary boom-bust cycles that we had, particularly in the 1970s, in which you get big buildups in inflation and then you have to have a big recession that puts a lot of people out of work.
It's these two things. Stable inflation stabilizes the labour market and you get less cyclical unemployment, and at the same time, full employment, a complete recovery, is critical to keeping inflation sustainably at 2%.
The labour market is an integral part, as you've no doubt seen, particularly given, as you highlighted, the very unequal impacts this pandemic is having on the labour market. We've been talking a lot about the labour market. We've been looking at a broad range of labour market indicators. Because there are some big divides, we are looking at labour markets at a more granular level.
You referenced what we heard from Canadians. It was very interesting what we heard with respect to our inflation target regime. Overall, our flexible inflation targeting regime was the preferred alternative of Canadians, but as you suggested, many Canadians did highlight that they want to make sure that employment and jobs are a central part of our framework.
Some Canadians suggested that a dual mandate might be a way to do that. I will say, though, there was quite a bit of diversity around that view. Some Canadians thought a dual mandate would be a good idea. Others were concerned that, unlike inflation, the Bank of Canada ultimately can control inflation but we don't have as direct control of labour markets, so it might not be a good idea to have a dual target.
The main message from Canadians was that this should be an important part of the considerations, and I think we all found that feedback very interesting.
Let me say a word about our forward guidance that we've put out, and how it works.
Let's just remember where we were a year ago. A year ago, the economy was basically going over a cliff. Inflation was extremely low; it was actually negative. Our biggest fear was deflation, which would have been very damaging. Against that background we used a number of extraordinary tools. One of them is exceptional forward guidance.
We've indicated that we will hold the policy rate at a quarter of a per cent until slack is absorbed. We take that commitment seriously, and it was done very deliberately to prevent a much worse crisis. As I said, we still have some way to go, but it is working.
What that means going forward is that, given that we're going to hold it at the effective lower bound until slack is absorbed, we probably will get some excess demand, because as we move from excess supply, we'll probably get a little excess demand. You can that in the forecast we've put out. With that you'll probably get inflation going a little over the 2% target.
We have a control band of 1% to 3% and we're prepared to use it. That's part of a flexible, inflation-targeting regime. As we get there it will be very important to assess pressures in labour markets and pressures on physical capacity of companies, and it will be very important to look at the information in inflation itself. If it's coming in above what we think it should be, that's an indication that maybe things are tighter than we thought.
On the other hand, if it's coming in a little less than we thought it would be, that's a suggestion that maybe there's a bit more room for the economy to grow without inflationary pressures, and those are the kinds of assessments we'll be making. I look forward to that day when we get to do those assessments, but that is still some ways off. We have to get there first.
As you implied, monetary policy is a macroeconomic tool, and it should be managed in a way so as to support the economy as a whole. The demand is now very strong in the real estate market. For the most part, we are all working from home. Our children are studying at home. Our leisure activities are taking place at home.
Canadians want more space because they are home all the time. In addition, they no longer need to go to work. Many of them are thinking that, in the future, even after the pandemic, working conditions will be more flexible. They are prepared to move further away from downtown, to the suburbs of major cities. So we are seeing a surge in demand, and the supply is slow to catch up, so home prices are rising.
We predict that the supply will meet the demand and that the market will become more balanced, but it will take time. There are risks involved, especially if home owners think that the price increases we have been seeing will continue. They risk taking on mortgages that are too high for their means.
However, measures have been taken. For example, the Office of the Superintendent of Financial Institutions, or OSFI, recently announced changes to its 2020 guide, and that's a good idea. It creates some dynamism. There is talk of a minimum mortgage rate. However, when interest rates are very low, as they are now, the likelihood of them increasing in the future is higher. Canadians should be protected against that risk.
The federal budget also contains a few initiatives that can increase the housing inventory, and that will also be useful.
First of all, I want to thank you for highlighting that there is uncertainty around these forecasts. They are forecasts. We do our analysis and we're transparent with Canadians, but there are risks on both sides of these.
I'll remind you that our band is 1% to 3%. We actually had inflation that was well below the band. At this time last year it was negative, actually, for a few months. It has been around the lower end of the band for quite a few months—around 1%. We do think it will go up temporarily, as I indicated, to 3%, due to a number of technical factors, before coming back down.
One of the reasons we put out a forecast and we are so transparent is so that the market and Canadians can see if things are evolving the way we think they're going to evolve. If inflation starts to go higher than we thought, and particularly if that turns out not to be temporary and it turns out to be more durable, it would suggest that the economy is tighter than we thought and that there is not as much excess capacity. We would start to reassess our evaluations.
You can't just look, though, at what inflation is doing. You have to see why it is doing that. When there are temporary technical factors, as your expert witness suggested, we will look through those. Monetary policy takes time to work. It doesn't make sense to overreact to temporary factors that are going to work their way out.
If we saw that inflation was sustainably higher than our forecast and sustainably higher than our target, yes, we would react. We have the tools and we know how to control inflation.
I couldn't agree more, and as I said previously, there is a lot of uncertainty.
As I highlighted in a previous answer, the biggest uncertainty is the course of the pandemic itself. We're assuming this is a very nasty third wave. We are not through it yet. In our base-case projection, we have restrictions being lifted toward the end of May through June. If that gets extended, if there are new variants, if there are problems with vaccines, those will all have consequences for our economic outlook.
Beyond the pandemic itself, there are a number of uncertainties. I highlighted, in a previous answer, that the U.S. economy is doing well. We expect we will get some positive spillover effects from that. That will boost our exports, but there are risks to our exports. To be frank, we've been disappointed in the past.
Certainly, if the Canadian dollar were to be materially stronger, that could undermine the competitiveness of our exports and create a new headwind for our exports. There are also some risks with respect to protectionism. The U.S. has a buy America program. Hopefully, Canada and the U.S. can sit down and work this out, so that we can have an integrated North American market, but if there were new protectionist measures that limited our access to the U.S. market, for example, that would also dampen our exports.
To date, corporate bankruptcies have actually been quite low. That has a lot to do with the various supports that have been provided, but there's no question that there are many companies just hanging on. It gets back a bit to my earlier risk with respect to the pandemic. The sooner we can get through this and we can gradually reopen the economy in a safe way, those businesses can restart, but if that gets delayed, there are risks that bankruptcies could increase.
There are a number of upsides, as I mentioned. There are a lot of accumulated savings. That creates some upside risks. The U.S. economy is strong, but there are downside risks, and we're certainly weighing both of those. We will be assessing how those evolve going forward. I look forward to coming back to the committee and updating you.
We will reconvene the meeting, and call the meeting to order.
On this panel, we are looking at the economic and fiscal outlook.
From the Office of the Parliamentary Budget Officer, we have the Parliamentary Budget Officer, Yves Giroux; director of fiscal analysis, Trevor Shaw; and senior director, economic and fiscal analysis, Chris Matier.
Welcome, Mr. Giroux, I assume you have a few opening comments. I read them earlier, in fact.
The first one up on the question round will be Mr. Fast, followed by Mr. Fragiskatos, shared with Mr. McLeod.
Mr. Giroux, the floor is yours.
Good afternoon, Mr. Chair and members of the committee.
Thank you for the invitation to appear before you today to discuss Canada's economic and fiscal outlook. I am also pleased to highlight some key issues arising from budget 2021, tabled on April 19.
I am joined today by Chris Matier and Trevor Shaw, who will help respond to your questions.
We released our pre-budget outlook on March 31. Our outlook showed a significant improvement in the economy owing to the earlier-than-expected arrival and administration of effective vaccines, higher commodity prices and a stronger U.S. recovery.
While the more recent surge in new COVID-19 infections presents a near-term risk, the resilience and adaptability that the Canadian economy exhibited during the second wave—combined with increased vaccination—should limit the economic impact of the third wave. Nevertheless, we will continue to closely monitor developments.
Our outlook, of course, did not include the new measures that were announced in last week's budget. Nor did it include the up to $100 billion in stimulus spending earmarked in the government's fall economic statement.
Our outlook showed the level of nominal GDP and budgetary revenue returning to their pre-pandemic paths over the medium term. On a status quo basis, we projected the budget deficit to hit 16.5% of GDP, or $363 billion, in 2020-21 and then decline to 0.7% of GDP over the medium term. The federal debt-to-GDP ratio was projected to peak at 49.8% of GDP before gradually declining over the medium term to 45.8% of GDP.
As noted in our report, uncertainty surrounding the outlook remains high. That said, setting aside the government's earmarked stimulus and budget 2021 measures, we judged that risks to our economic and fiscal projections were roughly balanced.
I will now turn to budget 2021.
Key issues in budget 2021, from our perspective, are, first, the fiscal guardrails. In our December report we judged that the $70 billion to $100 billion earmarked in stimulus spending could be miscalibrated if the focus was solely on returning selected labour market indicators to pre-pandemic benchmarks.
Given the improved labour market outlook, our pre-budget report reiterated this assessment. Based on our projection of the guardrail indicators, the government identified in its fall statement, almost all of the ground lost in the labour market due to the pandemic will be made up by the end of 2021-22. To be clear, we're not referring to temporary COVID-19 measures, but rather, as the fall statement indicated, to targeted stimulus to jump-start the economy. Moreover, measurers could be fully justified based on policy objectives other than providing economic stimulus.
In budget 2021 the revision to the private sector economic outlook and fiscal developments provides $109 billion in terms of new fiscal room over six years; that is, before any new measures were introduced, the budget deficit would be over $100 billion lower on a cumulative basis than forecasted in the fall statement.
This new fiscal room is used to finance over three-quarters of the $143 billion in measures detailed in budget 2021. While the budget refers to all these measures as “investments”, $37 billion is tied to COVID-19 spending. Up to $69 billion over the next three fiscal years could be construed as stimulus spending.
Budget 2021 also estimates the economic impact of $126 billion in recovery plan measures over the next three fiscal years. These estimates, however, likely overstate the impact of stimulus spending on the economic outlook presented in budget 2021.
The impact of $25 billion in measures from the fall statement should already be reflected in the March 2021 private sector survey. The recovery plan also includes $32 billion in additional COVID-19 supports, which are not, per se, stimulus measures. Moreover, some of the remaining measures were anticipated by economists and would also be included in their forecasts as the government had clearly signalled its intention to spend $70 billion to $100 billion in the fall statement.
We will be providing our own estimate of the economic impacts of the $69 billion in budget 2021 stimulus spending in a future report.
Finally, concerning the fiscal anchor, budget 2021 sets out a fiscal anchor, which is reducing federal debt as a share of the economy over the medium term and unwinding COVID-19-related deficits.
Over the medium-term horizon, the government projects the federal debt ratio to decline marginally to 49.2% of GDP from a peak of 51.2%, and remain well above its pre-pandemic level of 32.1% of GDP. Long-term projections presented in the budget also show the federal debt ratio remaining above its pre-pandemic level through 2055.
This suggests that the government has decided to effectively stabilize the federal debt ratio at a higher level, potentially exhausting its fiscal room over the medium and long term. This means that any substantial new permanent spending would either lead to an increasing debt-to-GDP ratio, or have to be financed through higher revenues or spending reductions in other areas.
With that, we'll be pleased to respond to your questions.
Thank you for your kind words, Mr. Julian.
The report we released earlier today on corporate profits is designed to estimate how much extra revenue the government could raise if it imposed an additional tax on companies that earned higher profits than would have been expected based on the average of previous years.
Businesses that have revenues of $10 million or more and that have had revenues above that threshold in any of the previous three years are targeted, and their profit margins and the transactions in 2020 are taken into account. Profits in excess of what would normally be expected based on previous years' profits are subject to an additional tax of 15%, and this tax in the 2020 tax year would generate almost $8 billion in revenue.
This is part of a series of other work we've done at the request of various political parties, yours included, Mr. Julian. We've concluded that a tax on the web giants could generate between $2 billion and $3 billion, depending on the parameters. We've also done some work over the years on the tax gap. This concept tries to estimate how much money the government would raise if all the money it is owed were paid to it. We estimate that about $25 billion is lost to the government through a combination of tax evasion, tax avoidance, and loss caused by people who report their income but fail to remit the money they owe the government.
So there is a range of measures that could be taken to reduce this gap. It isn't realistic to eliminate it completely, since there are people who go bankrupt between the time they report their income and the time they should be paying their taxes. So there are some unrecoverable taxes, but it would be possible to reduce the tax gap by $25 billion with some legislation and some tax collection measures, including at the Canada Revenue Agency.
Thank you to the Parliamentary Budget Officer for being with us today.
I want to pick up from where my colleague Ms. Dzerowicz left off with the recent reports of certain credit rating agencies.
We've seen S and P reaffirm the AAA rating roughly about a month ago. DBRS Morningstar made the same decision. You've seen commentary from some of the credit rating agencies about the fundamental underpinnings of the economy being strong, in part due to the substantial and timely release of economic supports for households and businesses at the outset of the pandemic.
If you can follow the bouncing ball with me, the IMF tabled a report—I hope you can stay with these various reports—also a little more than a month ago, indicating that, had those same measures the credit rating agencies spoke of not been advanced, the deficit would have been roughly the same as it is today, as a result of lost economic activity. With businesses shutting down and people not working, it makes sense to me.
I'm curious to know if you would agree with the IMF's conclusion, not only in that the scale of the deficit would have been the same without those measures in place, but also with their supplementary conclusion that the economic scarring that would have fallen upon the Canadian economy would have left us far worse off in terms of our ability to rebound from this pandemic once the economic recession comes to an end.
You slid in a little more than one question there, Mr. Fraser.
We've had many good questions and a lot of good information put out here. Gentlemen, thank you very much for your work. I used to look forward more to your reports when I was in opposition than now on the government side, but I think we all, as MPs, as soon as a report is tabled from the PBO, go to see what it states.
I want to thank not just the three of you, but also your teams for the analysis they do. We appreciate it, and it gives us good information with which to raise further questions. Thank you very much for your presentation. We can release you folks now.
Turning to the committee, we have 10 more minutes. You have the subcommittee report that was sent to you by the clerk. I'll table it now. I won't read it all; I'll just highlight it. It's before you.
The subcommittee met on Monday evening and agreed to invite again, on Tuesday, May 4, Dr. Paul Kershaw from Generation Squeeze, as well as witnesses from CMHC and two additional witnesses, one from the governing party.
I won't read Mr. Julian's motion, but we agreed to basically continue the study on tax evasion and to pull forward the evidence from the previous Parliament on the tax evasion study for the benefit of the committee. We would meet on May 6 on this issue and invite six witnesses for that panel and possibly further panels.
We agreed to call another subcommittee meeting within a couple of weeks.
The subcommittee report goes on:
That if the Budget Implementation Act is presented in the House, the committee commence a pre-study of the said Act on May 11 and 13, 2021 and that the Minister be invited as well as senior officials....
It also says, “That the committee continue its study on the Budget Implementation Act during the week of May 17...with witnesses”. Although it says “from the public” here, it's actually from both the government and the public. If we're not done with the government witnesses, that means that your constituency week has, I'm sorry to say, gone by the wayside.
The report further orders:
That the Analysts work with the Chair and the Clerk to provide the committee with a summary of recommendations in regard to [our] study on COVID-19 Spending, Programs, and Related Monetary Policy for an eventual report to the House.
That's what the subcommittee agreed to.
Could we have somebody move acceptance of that report? Then we'll get into a discussion of it, if necessary.
It is moved by Peter Julian.
Is there any discussion, or are there questions?
I want to thank the subcommittee for putting forward this report. It always takes a lot more time than any of us ever imagined.
I want to put on the record how disappointed I am that, after the OECD, the Canadian Chamber of Commerce, the Council of Chief Executives and even the current leader of the Conservatives, in his leadership platform, put forward that interprovincial trade barriers are an urgent priority for us to deal with, that's not on the agenda.
We spend a lot of time during our meetings, and today was no exception, talking about how we gain more revenues and how we deal with some of the structural deficiencies in our economy. This is absolutely one of the key ways for us to do so, and it wasn't seen as an urgent priority for the group.
I want to express my disappointment. That's not to say that we're not studying important things, but I do want to express my disappointment that we're not moving forward urgently on a matter that needs to be looked at immediately, so we can start putting things into place.
Those were my comments, Mr. Chair.