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View Wayne Easter Profile
Lib. (PE)
I call the meeting to order.
Welcome to meeting number 32 of the House of Commons Standing Committee on Finance. Pursuant to the committee's motion adopted on Friday, February 5, 2021, the committee is meeting to study all aspects of COVID-19 spending and programs.
Today's meeting is taking place in a hybrid format, pursuant to the House order of January 25, and therefore members are attending in person in the room and remotely using the Zoom application. Proceedings will be made available via the House of Commons website.
Just so that witnesses are aware—members certainly are already aware—the webcast will always show the person speaking rather than the entirety of the committee.
I would remind folks to try to keep their mike off when they're not speaking.
Witnesses, if you want to add a comment to somebody's question, even if it's directed elsewhere, just raise your hand and I'll try to catch you. If I miss you, you'll have to put your mike on and yell.
With that, we do have a couple of orders of business. I'll split them and do one with this panel and one with the other before we go to witnesses.
The order of business that we must deal with is the budget for the Bill C-14 hearings we already completed. The request for the project budget, just to name it, is Bill C-14, an act to implement certain provisions of the economic statement tabled in Parliament on November 30, 2020 and other measures, and the amount requested is $5,025.
Does somebody want to move that motion?
View Wayne Easter Profile
Lib. (PE)
We will call the meeting to order.
Welcome to meeting 29 of the Standing Committee on Finance.
Pursuant to the order of reference of March 8, 2021, the committee is meeting to start the clause-by-clause study of Bill C-14, an act to implement certain provisions of the economic statement tabled in Parliament on November 30, 2020 and other measures.
Today's meeting is taking place in hybrid format, pursuant to the House order of January 25, 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. The webcast covers only the person who is speaking, rather than the committee as a whole.
With that, I first of all want to thank all the witnesses for coming to assist us in the clause-by-clause study.
We have witnesses here from the Department of Employment and Social Development, from the Department of Finance, from the Department of Health and from the Department of Western Economic Diversification.
With that, we will go to the clause-by-clause study of Bill C-14. Members, if you have any questions on any of these clauses as we're going through them, please raise them, and the appropriate witness from the various departments will answer.
(Clauses 2 to 5 inclusive agreed to on division)
(On clause 6)
The Chair: There's an amendment by the NDP. It's NDP-1, on clause 6.
Go ahead, Peter. You will want to move that.
View Peter Julian Profile
NDP (BC)
Thank you very much, Mr. Chair.
Yes, I move the amendment.
Members of the committee will recall that back on November 24, the House of Commons voted unanimously to call on the government to extend the moratorium on paying student loans. We currently have a moratorium on interest, but not on the actual payment of student loans.
This amendment, with NDP-2 and NDP-3, would amend the legislation so that the loan repayment moratorium is extended. This is what the House called for—all of us did—on November 24.
We know that students are going through a profound financial crisis in terms of continuing to try to maintain their studies, but also that trying to get work to pay for those studies is often difficult. The supports are not in place. That's why, on November 24, all members of the House of Commons voted to extend this moratorium.
It's the missing aspect of Bill C-14. It's something that simply needs to be corrected, I believe. When you look at the House motion and when you look at the situation students are finding themselves in, this is simply a way of correcting that oversight. The interest payment moratorium, of course, is welcome, but when students are having to pay back their loans at a time of great financial crisis in the midst of a pandemic, with the third wave coming, it makes sense for us to improve this legislation, so that's what I'm proposing.
View Wayne Easter Profile
Lib. (PE)
Peter, I expect you're expecting this, but I will have to rule the amendment inadmissible because it requires a royal recommendation. I'll explain why.
Part 2 of Bill C-14 seeks to amend the Canada Student Loans Act to temporarily suspend interest and interest payments with respect to guaranteed student loans during the period that begins on April 1, 2021, and ends on March 31, 2022. The amendment attempts to suspend interest and interest payments by a borrower for an indeterminate period of time that begins on April 1, 2021. Therefore, expending the time, the government would assume the payment of interest to the lender, which would result in increasing payments from the consolidated revenue fund.
House of Commons Procedure and Practice, third edition, states on page 772:
Since an amendment may not infringe upon the financial initiative of the Crown, it is inadmissible if it imposes a charge on the public treasury, or if it extends the objects or purposes or relaxes the conditions and qualifications specified in the royal recommendation.
In my opinion, the amendment as proposed requires a royal recommendation, since it imposes a new charge on the treasury. Therefore, I rule the amendment inadmissible.
View Peter Julian Profile
NDP (BC)
Thank you, Mr. Chair. You're absolutely right to say I did expect that, and I'll be challenging your ruling.
I would suggest that it's up to the committee, and opposition members may choose to override the ruling of the chair.
On that basis, I would suggest that the House of Commons motion that was adopted by all members on November 24 provided very clear guidelines as to where the government's legislation should have gone, so this oversight needs to be corrected. The government withholding a royal recommendation is a matter of political choice, and the government can choose to provide a royal recommendation if this committee overrides the chair's decision and includes that as part of the amended legislation that's brought forward to the House of Commons.
Because we're in a minority Parliament, members have the sovereign right to override a chair's decision. I think there is a solid basis on which to do that, given that we have had a House of Commons motion that was adopted by all members of Parliament, and this legislation, of course, should be amended so it reflects the clear will of members of the House of Commons from all parties on November 24.
I will challenge the chair on that basis.
View Wayne Easter Profile
Lib. (PE)
All right.
Mr. Clerk, on the challenge to the chair's ruling, could you call the vote?
(Ruling of the chair sustained: yeas 9; nays 2)
(Clause 6 agreed to on division)
(On clause 7)
View Wayne Easter Profile
Lib. (PE)
On clause 7, Peter, you have an amendment there as well. It's NDP-2. Do you want to move it?
View Peter Julian Profile
NDP (BC)
Thank you very much, Mr. Chair.
I have gotten a clear view of the committee's will, so I will add to my initial comments. For clause 6, amendments were to the Canada Student Loans Act. This is regarding amendments to the Canada Student Financial Assistance Act.
I would implore committee members to override the chair's ruling on royal recommendation and also vote in favour of this amendment, since students are now being forced to pay for student loans because the government has ignored the all-party resolution that was adopted unanimously on November 24.
Let's look at this picture. Students who are crippled by debt are trying to pay back their loans at the same time as they're often struggling to get their families through the pandemic and put food on the table. This is something that simply doesn't mesh, I think, with the fairness and equity we want to see in this country. That's why I'm proposing this amendment to the Canada Student Financial Assistance Act, to put in place that moratorium through the pandemic so that students are not paying back a government loan when they should be putting food on the table.
View Wayne Easter Profile
Lib. (PE)
Thank you, Peter.
My ruling, as you would suspect, is the same as on NDP-1. I'll not go through the long explanation, other than to say that this amendment basically seeks to achieve the same goal as NDP-1, but in this case for the Canada Student Financial Assistance Act. It has the same issue concerning the requirement for a royal recommendation, because it would mean spending more money. Therefore, I rule the amendment inadmissible.
View Peter Julian Profile
NDP (BC)
Thank you, Mr. Chair.
By the same measure, I will challenge your ruling. The House of Commons has clearly stated, where Liberals and Conservatives were a part of that motion being adopted unanimously, that students should not be forced to pay back their student loan in the midst of a pandemic, so I challenge your ruling with all the great respect I have for you as chair.
View Wayne Easter Profile
Lib. (PE)
That is entirely your right.
We will go to the clerk for a vote on the chair's ruling.
(Ruling of the chair sustained: yeas 9; nays 2)
(Clause 7 agreed to on division)
(On clause 8)
View Peter Julian Profile
NDP (BC)
Thanks very much, Mr. Chair.
This would amend the Apprentice Loans Act so that there is a loan repayment moratorium.
Mr. Chair, you'll recall that at the beginning of this pandemic, the government, with all-party support, put in place a moratorium on student debt payments. That moratorium ended, and now students are struggling and people in apprenticeship training programs are struggling to pay for their student loans at the same time as they're trying to put food on the table and keep a roof over their heads. There is a profound indication of unfairness to that.
In light of the November 24 motion adopted unanimously, which included apprenticeship loans, I would move this amendment, which would ensure that there's a moratorium for all those in apprenticeship programs across the country on having to repay their student loans during this pandemic.
View Wayne Easter Profile
Lib. (PE)
Thank you, Mr. Julian. I will have to rule the same as I ruled on the previous NDP-1 and NDP-2. I know this relates to the Apprentice Loans Act, but it is the same issue concerning a requirement for a royal recommendation that can come only from the government or the ministry. Therefore, I rule the amendment inadmissible as well.
View Peter Julian Profile
NDP (BC)
With respect, Mr. Chair, I will challenge that ruling. We need apprenticeship training. We need the apprenticeship programs across the country to continue. It's very difficult when people are trying to pay back their loans at the same time as they are trying to get through their programs and trying to put food on the table. Again, this is very much in opposition to what was adopted by all-party agreement on November 24, calling on the government to extend the moratorium on student loan payments.
View Wayne Easter Profile
Lib. (PE)
Thank you, Peter.
(Ruling of the chair sustained: yeas 9; nays 2)
(Clauses 8 to 14 inclusive agreed to on division)
(On clause 15)
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-03-23 16:20
I do. Thank you, Mr. Chair.
I would like to read it into the record. I move that Bill C-14, in clause 15, be amended by replacing line 6 on page 8 with the following:
must not at any time exceed $1,611,000,000,000:
I don't believe that requires a royal recommendation. Do you want me to make a few comments about that now, or do you want to rule?
View Wayne Easter Profile
Lib. (PE)
It's allowable, because it's talking about reducing money.
Mr. Fast, the floor is yours. Make your arguments.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-03-23 16:21
Thanks, Chair.
Let me be very clear. We support the programs and the benefits that Bill C-14 is delivering for Canadians—let there be no doubt about that—yet I remind members that there are still millions of Canadians who have been left behind, including those in the most heavily impacted industries, like tourism, hospitality, airlines and charities, and a host of small and medium-sized industries that were promised targeted, sector-specific support but haven't received it.
Bill C-14, while helpful, does not in any way address these thousands of SMEs that have fallen through the cracks and either have closed up shop or are struggling to survive, so obviously we encourage the government to provide this support.
The one element of Bill C-14 that we cannot support is the government's attempt to increase our country's debt ceiling by the massive, unprecedented and unwarranted amount of $663 billion. This amount goes far beyond the government's current borrowing needs. Indeed, the government has already built in an undefined contingency fund of $87 billion, and then, on top of that, they've set aside another undefined $100 billion of stimulus funding.
When asked what this money might be spent on, the finance minister really refused to say. On top of that, the government has added another $220 billion, without saying what this money might be used for. When asked about this, the minister effectively said we should not worry, that we should trust them, and that there's no reason to believe they'd actually use that borrowing authority.
View Peter Fragiskatos Profile
Lib. (ON)
Mr. Fast is recalling a conversation that happened a few weeks ago at committee between himself and Minister Freeland, but I don't remember the conversation going that way, and since he's reading it into the record, the record won't be accurate. That's my concern.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-03-23 16:23
I'll go back.
When asked about the $220 billion, on top of all that, in terms of unallocated spending, the minister effectively said, don't worry, trust them, and there's no reason to believe they would actually use that borrowing authority. Now that's pretty rich, since this government blew through $200 billion and through the current debt ceiling in less than three years.
Therefore, Mr. Chair, the government's request for an increase to its debt ceiling to $1.83 trillion is excessive. Accordingly, our amendment does the reasonable thing and reduces the debt ceiling request by $220 billion to $1.61 trillion. This still leaves the government with a contingency of $87 billion and a $100-billion stimulus fund, which as yet remains undefined, and incorporates the exempted borrowing that was exercised during the pandemic, so I encourage all of my colleagues here at committee to do the reasonable thing and support this amendment.
View Wayne Easter Profile
Lib. (PE)
Thank you.
The floor is open for discussion. I remind folks again that there are officials here from four departments. I guess it would be the Department of Finance on this one. If you have any questions for them, we have ample time to put questions and take answers.
I have Mr. Julian first.
Mr. Julian.
View Peter Julian Profile
NDP (BC)
Thank you, Mr. Chair.
I'm intrigued by this amendment and will be listening very carefully to the discussion through the course of the committee. My concern all along, Mr. Chair, as you well know, has been that there's been no provision for the revenue side when we're talking about expanding the debt ceiling.
We have not put in place any wealth taxes, unlike other countries that have done so. Also, no efforts have been made to stop the hemorrhaging of money going offshore. The Parliamentary Budget Officer has evaluated that at over $25 billion every year, which means that over the last decade a quarter of a trillion dollars has gone to overseas tax havens.
We are not putting in place any measures of the sort that we had in the Second World War on the revenue side. For example, we had an excess profits tax. It was 75% of excess profits through the Second World War. At the end of the war effort, it was at 100%. There were measures taken in our past that actually balanced out revenues and expenditures, even in a situation like the war effort, where very clearly increased expenditures were called for.
I decry the government's lack of effort to take on the revenue side of the equation so that the debt ceiling does not have to be raised. We've seen Canada's billionaires increase their wealth during this pandemic by over $60 billion. That didn't happen in the Second World War. Measures were taken to avoid that kind of intense profiteering.
We have whole sectors, like the web giants, that don't pay any tax at all. As well, we have not seen the kind of action that needs to be taken to tackle overseas tax havens and to put in place a wealth tax that would actually help make sure that resources are available for Canadians through this pandemic and in the rebuilding that must surely follow.
I'm intrigued by the amendment and I look forward to the debate, but I think that is a major weakness in the fall economic statement and a weakness, of course, in Bill C-14. Ultimately it would be a colossal failure in the budget that we're finally going to see now, after two years, on April 19.
If the government says billionaires can have a free ride, that banks, with profits of over $40 billion, don't have to pay their fair share of taxes, and that web giant companies that have profits in the billions of dollars don't have to pay anything at all, there's something fundamentally wrong with that fiscal picture. We have also seen the use of COVID funding by many companies—profitable corporations—for dividends, executive bonuses and stock buybacks.
That's why I'm intrigued by Mr. Fast's motion. Mr. Fast and I don't agree on many things, but I'm intrigued by his amendment and will be listening very carefully to the debate.
View Wayne Easter Profile
Lib. (PE)
Thank you.
Before I go to Ms. Dzerowicz, who is on next, I know that the officials are here, and at committee several times now there has been a lot of discussion around the borrowing cap and whether it is right to borrow up to that cap. Is it equivalent to spending at that level?
I would ask somebody from the Department of Finance or the officials if they could come in to explain in layman's terms what the borrowing cap is. Regardless of whether it's $1.8 trillion or $1.6 trillion, what does it really mean as compared to spending?
Nicolas Moreau
View Nicolas Moreau Profile
Nicolas Moreau
2021-03-23 16:29
Chair, I can take this question.
We have explained in the past basically where this number is coming from. It's the sum of the expected financial requirements for the next three years, as presented in the fall economic statement of 2020. To this, we add the overall level of stock that already exists and the money that has been used so far to help fight against the COVID-19 crisis.
When you look at the limit that we're proposing, it's different from providing.... It's a borrowing limit. It's different from approving the spending. By that, I mean that granting borrowing authorities is one thing, and spending is something else, because it needs to go through appropriation bills. It needs to go through different processes in order to be approved. For example, the next budget will propose spending—a new program. This will need to be voted on.
Putting in place a new limit does not per se—does not at all, in fact—provide authorization to spend that money. It's just a limit on the capacity of the government to borrow money from the market.
View Julie Dzerowicz Profile
Lib. (ON)
Thank you so much, Mr. Chair.
I want to thank Mr. Fast for his thoughtful explanation of what his worry is around this section. I'm just going to expand a bit more on what Mr. Moreau was just talking about, for those who might be watching or would be interested in knowing.
If they go to the fall economic statement and go to page 141, they are able to see exactly how we end up with—I had to practise this earlier today—the figure of $1.831 trillion. It's exactly what Mr. Moreau was alluding to. It's the current borrowing cap, with the emergency spending, some adjustments around Canada mortgage bonds, and then what is expected to be borrowing until 2023-24.
I think it's laid out very well. I appreciate Mr. Moreau very well articulating that there is a complete difference between a borrowing cap and spending.
I will have a question for officials in a second, but I want to make one more point, which is for Mr. Julian, who was talking about how the government hasn't presented the revenue side yet. That is indeed not included in Bill C-14, but the good news today is that our Deputy Prime Minister and Minister of Finance has announced that we will be presenting our budget on Monday, April 19, and I think we'll be hearing quite a bit on that date about the revenue side, in addition to the overall budget and what our game plan is moving forward.
As for my question, I'm hoping that maybe one of our officials can make this crystal clear. I believe it was our Parliamentary Budget Officer who said this. Can you please confirm that should this $1.831 trillion borrowing authority pass, Parliament still needs to approve government expenditures under this borrowing authority? If someone could just make that crystal clear, I'd be very grateful.
Thank you.
Nicolas Moreau
View Nicolas Moreau Profile
Nicolas Moreau
2021-03-23 16:33
Thank you, Mr. Chair.
Yes. As I said before, any new spending will need to be approved by Parliament. Like I said, this is a borrowing limit. It's only in order to provide for the government to borrow that money in the market.
The reason we're doing this is that in 2017 the government put in place the Borrowing Authority Act in order to increase transparency on government borrowing. By setting a limit, the government is coming in front of Parliament at least every three years in order to make sure it has been transparent and has presented exactly what the government market debt will be. That's the capacity to borrow, basically, in the market.
View Peter Fragiskatos Profile
Lib. (ON)
Thank you, Chair, and thank you, colleagues.
I would just say that we ought to think back to the testimony that was given by the Parliamentary Budget Officer last week. The question was put to him about the debt-to-GDP ratio, and he said it was in and around the range of 50% now, which admittedly is high. Certainly in relative terms, it exceeds in significant ways what we saw prior to the pandemic. However, it's a pandemic, and that necessitated emergency programs, which were bound to drive up the overall debt.
We have a debt-to-GDP ratio that still, compared to other G7 countries, is quite healthy and quite strong. Compare, for example, Canada's debt-to-GDP ratio to those of the U.K., Germany and the United States. All those countries, whose economies are considered by the vast majority of economists to be very strong still, have debt-to-GDP ratios that far exceed what exists in Canada at the present time.
The other point I would make to ease the concern of Conservative colleagues is that we've been here before. In the early 2000s, Mr. Chair, as you know, the debt-to-GDP ratio was at about the same level it is now, give or take a bit, and we were still able to see robust economic growth well into the 2000s. Of course, things turned in 2008, but that's a different story.
I think these points need to be put onto the table to reflect what actually exists and to provide context. Officials have already spoken to the distinction—the very important one—between borrowing authority and spending authority, Mr. Chair, so for that reason, I won't be supporting the amendment.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
I first want to say how much I appreciate the contribution, hard work and suggestions that the Conservative committee members have put forward. Since the election, their ideas have gone a long way towards making measures better.
I agree with the points raised by the honourable NDP member Peter Julian. We have to tackle the revenue side of the equation, because giving way to the immoral use of tax havens is not cutting it. As far as this amendment is concerned, however, I do think it's important to remember what André Giroux, the Parliamentary Budget Officer, told us, as Mr. Fragiskatos mentioned. Mr. Giroux said that, with respect to Bill C-14, increasing the borrowing limit is not synonymous with introducing new spending measures.
Every expenditure has to be approved. Parliament overseas spending through supply votes, not the debt ceiling.
Keep in mind that playing with the borrowing limit is the tactic Republicans use in the U.S. to trigger crisis after crisis. When the government reaches the limit, it can't write any more cheques: public servants stop being paid, pension and employment insurance benefits stop going out, and government service providers shut down.
That is an irresponsible approach, and for that reason, I will be voting against the amendment, especially since a vote for the amendment is akin to a non-confidence vote—and all the consequences that go along with it.
View Peter Julian Profile
NDP (BC)
Thank you, Mr. Chair.
I have a question for our witnesses. Do they have comparative figures for borrowing authorities—and I understand that the systems are different in different countries—as compared to the size of the economy in other major industrialized countries?
Nicolas Moreau
View Nicolas Moreau Profile
Nicolas Moreau
2021-03-23 16:39
As you've said, there's no comparable measure that exists elsewhere in the world. The closest that exists is in the United States. They have a debt ceiling. It's different from a limit, because in our case, if we were to reach the limit, we would still be able to reissue the debt that's already in circulation and also [Technical difficulty—Editor] the debt limit that exists in Canada compared to the ceiling in the U.S.
Of course, the ceiling in the U.S. is much higher, because they have a much higher debt-to-GDP ratio and a higher debt in circulation. I think the U.S. is close to twofold what we have in terms of debt as a share of GDP when we compare Canada to the U.S. The closest one will be the U.S., but in terms of the level, it will be much higher in the U.S. because they have a higher debt level right now.
View Peter Julian Profile
NDP (BC)
Thank you, Mr. Chair.
I listened closely to what Mr. Ste-Marie, Mr. Fast and the government members had to say. After listening to the comments on all sides, I will be voting against the amendment.
View Tamara Jansen Profile
CPC (BC)
The numbers are massive, so massive that Ms. Dzerowicz has to actually practise how to say the number, which is quite shocking and should be shocking for Canadians.
Mr. Moreau, I thought maybe you might be able to help me better understand this. Are we asking for this enormous increase in credit limit because we have already spent it, or are we increasing our credit limit so dramatically although we absolutely have no need of it? Is it one or the other?
Nicolas Moreau
View Nicolas Moreau Profile
Nicolas Moreau
2021-03-23 16:41
Thank you, Mr. Chair.
Basically, as you know, we already have a limit in place of $1.168 trillion. We have not reached that limit yet, but in terms of spending that already occurred, we need to look at the stock of debt, and we need to add to this what we've done under the extraordinary borrowing authority. That included $286 billion of spending that was put in place. We produced a report in October 2020 concerning that spending. When we add that to the current limit, yes, we're already above, but as you know, this is something we want to change, and that's in Bill C-14. We want to add the extraordinary borrowing authority to the overall limit.
Therefore, the answer is no. When you look at what we're requesting, we're looking at the expected spending for the next three years—not spending but financial requirements, as presented in the fall economic statement. To this, we're adding prudence by a factor of 5%. This is what we are asking for, and this is why the level is $1.831 trillion.
View Tamara Jansen Profile
CPC (BC)
Okay. If I can, I'll just make sure I totally understand this. You're saying we need this entire amount because we have already spent it and we plan to spend it over the next three years. We need the entire amount.
Nicolas Moreau
View Nicolas Moreau Profile
Nicolas Moreau
2021-03-23 16:43
Just to be clear, this amount includes a stock that already exists in the market, as well as expected financial requirements for the next three years.
View Tamara Jansen Profile
CPC (BC)
When you say “expected financial requirements for the next three years”, is that information we're going to be receiving on April 19, in the budget?
Nicolas Moreau
View Nicolas Moreau Profile
Nicolas Moreau
2021-03-23 16:43
The expectations are based on the forecast that was produced in the fall economic statement, and this is money that has not been spent yet. Basically, those are monies that are expected to be spent in the future.
View Tamara Jansen Profile
CPC (BC)
I apologize. You have mentioned that none of it can be spent without permission first, but we're making sure it's there because we know we're going to spend it anyway. Is that a correct way of explaining it?
Nicolas Moreau
View Nicolas Moreau Profile
Nicolas Moreau
2021-03-23 16:44
We're asking for the authority to borrow and to be able to increase the debt in the future. It's important that we have that clear territory to move forward in order to be able to put together a debt program moving ahead. We need to inform the market. We need to have the capacity to increase our debt in the future. That money will still need to be approved through the budget and through the other mechanisms that we talked about before. As we know, it's mostly through appropriation acts that the money will be approved.
View Wayne Easter Profile
Lib. (PE)
Just so we're clear, and I guess to go back to Mr. Ste-Marie's point, any spending would have to be approved by a vote in Parliament. That's correct, right?
Okay, Tamara. Go ahead.
View Tamara Jansen Profile
CPC (BC)
We're asking for money that we know is planned to be spent over the next three years. We have no permission yet to spend that money, but we're going to make sure that the money is in place anyway. Is that correct?
Nicolas Moreau
View Nicolas Moreau Profile
Nicolas Moreau
2021-03-23 16:45
What we want to make sure is that we will have the authority to borrow that money if the decision is taken to spend that money.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-03-23 16:45
Mr. Chair, my colleague, Ms. Jansen, has put her finger on the real problem here.
First you table a budget, and then you ask for the borrowing authorities that match what your budget calls for. I've met with numerous economists since I was appointed critic, and I can tell you that they all agree that it is much more preferable to table a budget first, then match your borrowing authority to that budget. That's a big problem here.
Also—and this is my final point—respectfully, to Mr. Fragiskatos's point, this is not about debt-to-GDP ratio, because we know the finance minister has not done what her mandate letter instructs her to do, which is to implement a fiscal anchor. I know economists are all calling for there to be a fiscal anchor. They might not agree on exactly what that anchor should be, but it is absolutely critical for the minister to have some guidance, some rules, by which her spending is governed.
Here we have a minister coming forward and asking for the authority to borrow money when we don't know what her plan is. That budget should have been delivered before this debt ceiling increase was requested. That's my big problem, which is why we have the amendment on the table. I believe it's the reasonable way of approaching it.
View Wayne Easter Profile
Lib. (PE)
Thank you.
I don't believe there was a question there. We are straying somewhat from the amendment, but I think that's fine. These issues need to be discussed.
Mr. Kelly.
View Pat Kelly Profile
CPC (AB)
Thanks. I'll be very specific to the debate that is taking place on the amendment.
I wanted to comment on the issue that Gabriel Ste-Marie raised, because it was also raised in an earlier panel by other witnesses, and I think by committee members on the government side. It is this false comparison to anything that has happened over the years and the long history in the United States of brinkmanship over funding the government. One of the beauties and one of the real strengths of the Westminster system is that this type of government shutdown because of gridlock among legislators just doesn't happen. The minute a government cannot get authority to fund its expenses, that is dealt with through an immediate election. That's a loss of confidence in the government, and it would be referred immediately to an election.
This isn't about brinkmanship over the ceiling. This is about setting an appropriate ceiling. If one is to suggest that now is the time to set a ceiling that is at least $220 billion higher—at least—than the broadest worst-case scenario, the highest estimate of any possible borrowing figure, and if we were to accept the argument that we ought now to set it at $1.883 trillion, then one would really say, why not $2 trillion? Why not $5 trillion? Why even have a ceiling, if the ceiling is going to far exceed any notion of spending that has yet been presented to Parliament?
For the reasons my other colleagues have mentioned, I'm going to support the amendment, but I wanted to be clear about that. There's no equivalent or comparison to be made over the long history of gridlocked government spending that has resulted in shutdowns in the United States. That's not a feature of the parliamentary system and the system we have in Canada.
View Peter Fragiskatos Profile
Lib. (ON)
I won't belabour the point, Mr. Chair. It's an important debate. There's no question about it. The reason I focus on debt to GDP here is that, as we all know, it's a key economic measure. In the view of most economists, it is the key measure when we're looking at debt issues. That's why I raise it.
There's also the view of the International Monetary Fund, which I know my friends in the Conservative Party will be very fond of. They reviewed Canada's spending throughout COVID-19 and found the following. Let me put it on the record again to ease the concerns of Conservative colleagues, whom I care very much for. They said the following: Canada's response during the pandemic “provided crucial support to the economy and the functioning of financial markets, and helped protect lives and livelihoods.” The report also remarked on the importance of avoiding premature withdrawal of policy support, and it welcomed Canada's adoption of fiscal guardrails.
On the whole, the IMF is very comfortable with where Canada is in economic terms. Again, this is not The Socialist International. This is the IMF. If the IMF is good with it, then I'm pretty comfortable, Mr. Chair.
View Tamara Jansen Profile
CPC (BC)
I'm just very concerned about the way this is being done. We have no budget, and we are being asked to approve a credit limit that is massively increased, without knowing really where it's going. We've been told that we're going to be “reimagining” the economy, and I assume that's why we're asking for so much money. It is a pretty serious thing to ask us to say yes to this kind of borrowing when in actual fact we have no idea what the plan is.
We have to be ensuring that Canadians and parliamentarians have the opportunity to actually debate things, rather than saying, “Okay, approve it now, and don't worry, you'll get another chance later to rubber-stamp it.” That's what I feel like this is going to do. It's just going to rubber-stamp whatever is in the budget that we're going to finally see on the 19th.
View Ted Falk Profile
CPC (MB)
View Ted Falk Profile
2021-03-23 16:52
Thank you, Mr. Chair.
I just want to reiterate some of the things my colleagues have been saying. It seems to me that this amendment would do what the government is asking to do to meet its obligations for the commitments it's already made. What it wouldn't do is create that $300-billion cushion that the government is looking for, and it seems to me that would be like putting the cart before the horse. We were told earlier today by the Deputy Prime Minister that we can expect the budget on April 19. Once that budget is presented, if there needs to be an increase in borrowing authority at that time, it would make a lot more sense to me that the request come through the budget process and be coupled with the budget as presented on April 19.
This amendment would also actually support the concerns of both the Bloc and the NDP that the revenue aspect in our finances has not been addressed at all. If we wait until April 19, we may realize that the increase that is being asked for in this current bill is not warranted and that what we're presenting as an amendment is probably just fine and might even be excessive once the government, as Ms. Dzerowicz says, addresses the revenue side.
View Wayne Easter Profile
Lib. (PE)
I believe we're ready to go to the vote. I expect you want a recorded vote on this, Mr. Fast?
View Wayne Easter Profile
Lib. (PE)
On amendment CPC-1, Mr. Clerk, could we have a recorded vote?
(Amendment negatived: nays 7; yeas 4)
The Chair: The amendment is negatived.
Shall clause 15 carry on division?
View Wayne Easter Profile
Lib. (PE)
Mr. Clerk, could we have a recorded vote on clause 15?
(Clause 15 agreed to: yeas 7; nays 4)
(Clauses 16 to 19 inclusive agreed to on division)
View Wayne Easter Profile
Lib. (PE)
Shall the schedule carry?
Some hon. members: Agreed.
An hon. member: On division.
The Chair: Shall the short title carry?
Some hon. members: Agreed.
Some hon. members: On division.
The Chair: Shall the title carry?
Some hon. members: Agreed.
Some hon. members: On division.
The Chair: Shall the bill carry?
View Wayne Easter Profile
Lib. (PE)
Mr. Clerk, we'll have a recorded vote on the bill.
(Bill C-14 agreed to: yeas 7; nays 4)
The Chair: Shall the chair report the bill to the House?
Some hon. members: Agreed.
An hon. member: On division.
The Chair: That concludes Bill C-14.
Mr. Clerk, without amendments I think we should be in a position to table that in the House tomorrow, if people can get that prepared overnight.
Okay. We will table that tomorrow in the House.
I want to thank the officials for coming before the committee, as they have done many times. I thank the officials from all the departments who appeared today.
Mr. Moreau, thank you for answering most of the questions. You did the heavy lifting today.
With that, the meeting is adjourned. Thank you, all.
View Wayne Easter Profile
Lib. (PE)
We'll call the meeting to order.
Welcome to meeting number 28 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of March 8, 2021, the committee is meeting to study Bill C-14, an act to implement certain provisions of the economic statement tabled in Parliament on November 30, 2020, and other measures.
Today's meeting is taking place in the 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. Just so you're aware, the webcast will always show the person speaking rather than the entirety of the committee.
Welcome to our witnesses under this new format. We have three witnesses in the first hour-long panel, and we'll start with Mr. Macdonald with the Canadian Centre for Policy Alternatives.
Mr. Macdonald, could you hold your remarks pretty close to five minutes? We're tight on time.
Go ahead. The floor is yours.
David Macdonald
View David Macdonald Profile
David Macdonald
2021-03-18 10:03
Excellent. Thank you, Mr. Easter.
I hope everyone can hear me.
Thanks so much to the committee for the invitation today.
Certainly, the economic response to COVID-19 from the government has been unprecedented in Canadian history. We'd need to look back at the World Wars to see government expenditures on this scale, although we'd also have to look back to the 1930s, almost a century ago, to see unemployment at this scale, particularly in the early months.
My recent report, “Picking up the tab”, was a comprehensive dataset of all 850 direct federal and provincial COVID-19 measures through the end of December 2020, including the fall fiscal update. The overall conclusion of this compilation is that, when it comes to measures to combat COVID-19, this has been almost entirely paid for by the federal government, with 92% of every dollar spent on measures to combat the coronavirus—everything from the purchase of PPE, to business and individual supports—having come from the federal government. Even in areas of provincial jurisdiction, like health care, 88% of the cost was borne by the federal government.
The largest expenditure, including both federal and provincial programs, has been in support of businesses, amounting to $4,100 a person. Supporting individuals comes in a close second at $3,900 per capita, and health care support is a distant third at $1,200 a person.
In each of the categories examined, except one, federal support was larger than provincial support. The one area where the provinces are spending more is on physical infrastructure to stimulate growth. This is being driven particularly by the western provinces. The federal government's major infrastructure program at this point is the resilience stream of the Canada infrastructure program, although this only reallocates existing funds and doesn't spend new funds.
It's worth pointing out that as the federal government embarks on new rounds of upcoming spending in the spring budget, in the last round of spending many of the provinces didn't properly match federal spending in support of municipal deficits, and many provinces didn't fully access the federal money available to them. In the next phase of the recovery, the federal government should keep a close eye on matching dollars and fund utilization to ensure the maximum impact for its expenditures.
This brings me to the next stage of federal COVID-19 spending, which has been promised at $70 billion to $100 billion in the upcoming spring budget. As I mentioned, infrastructure spending is already budgeted in several western provincial budgets. This is certainly an area where the federal government can back provincial efforts, like it did in the safe restart agreement. New infrastructure spending that reduces the country's carbon footprint can be an important opportunity to build back better, and further encourage central and Atlantic provinces to devote more of their COVID-19 dollars to infrastructure.
I'd also like to take a moment to call members' attention to our annual child care fee survey, published just this morning. It provides a detailed look at child care fees and COVID-19 impact in 37 Canadian cities. This year's survey shows a very concerning decline in enrolment in child care due to COVID-19, at the same time as fees remain high across many cities in the country. The decline in enrolment is worse in cities with high fees, and worse in cities with high unemployment. Without immediate consideration, site closure and/or the loss of staff may make a rapid recovery in the summer and fall impossible as parents can't find spaces for their kids as they hopefully go back to work.
One of the other ongoing lessons of the child care fee survey, which may be instructive for future federal efforts, is that the lowest child care fees are always found in cities where providers receive provincial operational grants, and then charge a low set fee. Just last year, Newfoundland became the fourth province to join Quebec, Manitoba and Prince Edward Island in this approach, and it looks like the Yukon will soon follow suit.
More broadly, I am encouraged that the federal government is committed to rebuilding the economy, rather than being overly preoccupied by federal deficits. Large federal deficits were necessary to avoid much worse deficits in other sectors. Had the federal government not covered expenses, as it had, those deficits would have occurred elsewhere in the economy, particularly in the provinces, as they covered health care costs; for individuals, as they lost jobs and weren't covered by EI; or for businesses, as public health measures wiped out incomes while expenses remained.
A deficit is neither good nor bad on its own. It is merely one side of an accounting relationship, with an equally sized surplus created in another sector. Every dollar comes from somewhere and goes to somewhere. To evaluate the utility of a deficit in a particular sector—say, the federal government sector—we have to track where the surplus was created, the other side of that accounting relationship.
For the past four quarters, the federal deficit of $220 billion has created a surplus of an equal amount, three-quarters of which has ended up in the household sector and one-quarter of which has ended up in the business sector. Thankfully little of the surplus has escaped Canada in the form of financial flows to non-residents.
The federal government isn’t constrained by deficits or debt-to-GDP ratios. It is constrained by the country’s productive capacity. As long as we have people who can’t find jobs, as well as empty stores and restaurants, we aren’t at our productive capacity.
Inflation is the constraint the federal government faces. We have to remember that going into this crisis we managed historically low unemployment and rock-bottom interest rates, and we still weren’t seeing sustained inflation. When we have 800,000 low-wage workers still out of a job compared with the numbers in February last year, we are nowhere near full capacity and inflation will remain subdued for a long time to come.
Thank you. I look forward to your questions.
Susie Grynol
View Susie Grynol Profile
Susie Grynol
2021-03-18 10:08
Thank you very much.
Thank you for inviting me to join you today.
As I sat down to prepare my remarks, I was struck by the unique challenge that faces the hotel sector, and indeed this committee and the federal government. We face a balancing act. On the positive side, we have hope and a potential recovery on the horizon with vaccinations under way, which could lead to a possible domestic tourism recovery for some segments, such as resorts, this summer.
On the negative, and frankly, more realistic side, if we don't get all Canadians vaccinated by summer and we have a third wave of the virus, if people are encouraged to stay home, domestic and international borders stay closed and mass-gathering bans remain in place, we could enter COVID year two having lost the most important season for our industry once again.
Let me first address the positive summer scenario and what government action would be required. If we get most Canadians vaccinated by June, the government must pivot quickly—all levels of government—to allow for a safe reopening and invest in stimulating our recovery to maximize the summer tourism season.
This should include implementing best practices from other countries that have successfully reopened before us, breaking down provincial barriers to travel, stimulating domestic demand and confidence by providing tax incentives or rebates to people to spend their dollars in Canada, investing in domestic marketing campaigns and aligning with the U.S. Biden administration on an expedited Canada-U.S. border reopening.
In the second scenario, the worst case, in which restrictions are still necessary and remain in place for the summer, the government will need to provide financial support for the tourism and hospitality sectors until the recovery is possible.
I, unfortunately, believe that the worst case is the likely case. While most other sectors bounce back the day after lockdowns are lifted, we do not. Nobody books a trip the next day. Travel takes lead time. Event planning takes lead time, and those events are what drive the movement of people and the core of our business—festivals, fairs, concerts, theatre shows, weddings, major sporting events and conventions. None of these are planned for this summer or fall and are probably not likely until the spring.
We are asking for what Mark Carney called for in his new book: “Support for companies should be targeted at regenerating the most affected industries, rather than provided as expensive blanket support for all”. It is time for the government to tailor CEWS and CERS towards those who need them most.
In this worst-case scenario, we are looking for two things in the federal budget: big subsidy extension until the end of 2021 for the hardest-hit sectors, and an extension and expansion of the CERS program to help cover fixed costs until the end of 2021 while we are not in a position to make revenue.
Today this program is woefully inadequate. It cuts out the M from SMEs with the monthly cap. It does not cover enough eligible expenses, and it fails to account for the rising business costs like insurance, which has skyrocketed in our sector since COVID.
Our members' survey from March showed that 70% of Canadian hotels will go out of business without an extension of CERS and CEWS to the end of the year. This is a massive-scale loss and it is upon us. Simply put, if the government doesn't extend these programs past June and tailor them to the sectors that need them most, we will lose the majority of the hotel industry.
The government deserves credit for rolling out these programs quickly and for providing tailored debt solutions to the hardest hit. These programs are the reason we still have an industry standing today, but now is not the time to pull away from the sectors that will lag behind through no fault of their own.
The anchor businesses in the travel industry, including hotels, need to be preserved. Hotels support essential travel. They are the cornerstone of tourism regions. They allow Canada to compete for global events. They host our country's hockey tournaments and weddings, but they will not be there if the government does not plan adequately for both scenarios.
We need a clear signal in the budget that the government acknowledges our unique challenges and will stand behind us until recovery is possible.
Thank you.
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:14
Thank you, and thanks for having me back.
Because I've addressed this committee before, I'm going to follow up on previous discussions I've had with you. I'm going to focus pretty much exclusively on inflation and interest rates. As Mr. Macdonald said, it's low inflation and low interest rates that make all of this work, so it's worth understanding that a little better.
Now I'll turn to my prepared statement for the translators.
Rising commodity prices early in 2021 are fuelling speculation that inflationary pressures could surface faster than central banks anticipate. Central banks took extreme measures to bolster the economy after the pandemic began, lowering interest rates to historic lows and expanding their balance sheets substantially. This led some to accuse central banks of “printing money”, which risks rekindling inflation.
The money supply has long been at the centre of macroeconomics. This reflects a centuries-long reliance on the quantity theory of money to guide the economy. The quantity theory is based on the identity that the money supply and its velocity determine GDP. Assuming velocity is stable over time and output grows steadily, changes in the money supply would be reflected in prices. Milton Friedman’s famous statement that “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output” summarizes what many believe is the origin of inflation.
Applying quantity theory is not simple or straightforward. There is no universal definition of money. Velocity is the the rate at which money is spent, reflecting the number of times money is turned over while making the transactions that generate nominal GDP. A key tenet of the quantity theory is that velocity is stable, or at least predictable.
However, with interest rates approaching zero in both 2009 and 2020, central banks resorted to quantitative easing to boost the economy. QE involves central banks buying bonds, mortgages and other assets to inject money into the financial system. By adopting QE, once again central banks have become “quantity theorists”.
Canada had a brief experiment with QE in 2008-09; however, the money supply and private sector credit did not accelerate. Even the Fed’s greater use of QE did not spark faster money supply growth. We can say that in 2008-09 these experiments with QE did not disprove the quantity theory of money because the broad money supply did not expand rapidly.
QE failed to deliver its promise to boost output and raise inflation after the financial crisis partly because it could not control whether banks increased lending or whether money was spent on GDP and not on existing assets like housing and the stock market. Since QE did not trigger faster GDP growth, neither did it fuel inflation. A regional Fed president bemoaned in 2012 that “the historical relationships between the amount of reserves, the money supply, and the economy are unlikely to hold in the future”. I'm going to return to that quote in a minute.
In 2020, central banks rapidly resorted to even more QE, in Canada’s case mostly by buying federal debt to keep interest rates low while governments provided emergency pandemic relief. Unlike in 2008, however, the broad money supply soared from a 7% to a 30% growth. However, private sector credit demand has not accelerated.
Both prices and inflationary expectations are rising early in 2021, with the latter rising to 2.2% in the U.S. Economists have warned that the U.S. risks overheating because the Biden’s administration’s $1.9-trillion stimulus is arriving just as the economy reopens with the rapid distribution of their vaccines. Fed chair Jerome Powell cites a “flat Phillips curve” as one reason inflation will not take off. The Phillips curve is the trade-off between inflation and capacity utilization, and a flat one shows resource utilization does not affect inflation.
I'm going to skip a paragraph here.
Easy monetary policy was adopted to directly stimulate the economy and facilitate government borrowing needed to help people during the pandemic. Monetary policy is a tool to stabilize the economy in the short term and control inflation, not to bail out governments from the long-term consequences of their fiscal choices.
If the economy recovers better than expected and inflationary pressures or expectations begin to rise—and nobody knows how pent-up demand will respond to the reopening after an unprecedented pandemic—then central banks will have to choose whether to continue to keep interest rates low to enable ongoing fiscal stimulus or start to tighten. In such a circumstance, I have no doubt that they will focus on inflation. In that case, governments that are slow to withdraw fiscal stimulus will face an unwillingness from central banks to continue to make borrowing easy and cheap.
Central banks will not abandon decades of building confidence in their inflation targets. It would take years and probably decades to restore that confidence. The risk of higher interest rates is much greater than that of inflation. The cost of higher interest rates will quickly be felt by governments with large debt loads.
For example, in Canada the PBO estimates that a 1% rise in interest rates would increase federal costs by $4.5 billion in the first year and $12.8 billion by the fifth year.
Both the Fed and the Bank of Canada will tolerate whatever inflation occurs in 2021 as both transitory and salutary. Inflation will accelerate to at least 3% and probably more because of base period effects. Gasoline prices were unusually low last spring, so automatically that's going to raise inflation this year. As well, firms need to rebuild profit margins and balance sheets, especially in industries such as restaurants, travel, recreation and personal services, as Susie mentioned.
Customers are flush with government transfers and are therefore able to afford higher prices, but if inflation becomes embedded into behaviour and especially expectations in 2022 and 2023, central banks will then take decisive action.
Thank you.
View Pat Kelly Profile
CPC (AB)
Thank you.
I'll keep Mr. Cross going and ask him a question.
Given your testimony just now, what do you make of Bill C-14's unprecedented expansion and raising of Canada's debt ceiling? There's no budget, so we don't know why the debt ceiling would need to be raised. The debt ceiling is part of a second act, and we don't even know why it would necessarily be connected to this bill, which implements the fall economic statement.
Mr. Cross, what do you make of adding hundreds of billions of dollars to Canada's debt ceiling?
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:21
As mentioned, a lot depends on the course of inflation and especially interest rates. At near-zero interest rates, almost any amount of debt is affordable and sustainable. The minute interest rates start rising very quickly, this country could find itself in a difficult position.
This was exactly the conundrum the economy faced in the 1994-95 debt crisis. At that point, interest payments especially became unsustainable. The Bank of Canada made it clear that it was not going to bail out the federal government. As the federal government made difficult fiscal choices, the Bank of Canada then maintained lower interest rates to ease that path to restore fiscal equilibrium. A lot depends on the course of interest rates, and a lot of people seem to be counting on interest rates staying low.
A lot of what I said today was based on Chairman Powell's comments for the Federal Reserve board yesterday. He clearly indicated that the central banks will put up with almost any amount of inflation this year. However, going forward, once people start to expect inflation, all bets are off and interest rates could rise quite quickly.
We've already seen interest rates rise this year. The 10-year bond rate in the U.S. has jumped up from less than 1% at the start of the year to 1.7% already. I sit here and watch every day and there's an increase of almost 0.1% a day. This is the story in financial markets these days: How long and how sustainable will the upward movement in interest rates be? That's going to determine everything.
View Pat Kelly Profile
CPC (AB)
Yes.
The whole sustainability of this plan is predicated on near-zero interest rates forever, it would seem. That's concerning, especially given your testimony.
You also mentioned in your testimony the extent to which quantitative easing contributes to GDP growth as opposed to just inflating the value of assets. At this time, during the worst economic crisis in almost a century, we have seen record real estate market activity and new price hikes in Canada's main real estate markets. We have also seen the stock market perform extremely well—albeit after a huge correction in the spring—with this incredible resurgence and recovery.
To what do you attribute the asset price inflation we've seen and the disconnect between that and GDP activity?
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:24
That's been a feature of the economy since 2008. We've seen this huge quantitative easing. This huge stimulus in monetary policy seems to have disproportionately gone into financial assets—the bond market, the stock market. Now we're seeing, in the commodity market, that commodity prices are blowing through the roof. Even oil is up substantially. Crazy stuff like cryptocurrencies such as bitcoin are up, so there seems to be a lot of gambling going on in asset markets.
We're not seeing a lot of this, but a little more than in 2008-09 we're seeing this spillover into areas like retail sales. However, mostly it's gone into financial markets. That's created....
I should mention too that, much more so in Canada than the U.S., it's gone into our housing market. Exactly why I don't know. Obviously our housing market has been more.... The housing market in the U.S. had a tremendous crash in 2008. That's made people nervous down there. A lot of people think we have the conditions for a bubble here. Why exactly that money goes into housing, I don't know.
View Pat Kelly Profile
CPC (AB)
This though has a direct impact on the least wealthy and most vulnerable Canadians. When we talk about inflation, economists don't like to include and will typically exclude things they consider too volatile to measure in inflation, things like food, energy and the cost of housing. If you want to subtract the three things that people need to survive, I don't doubt it might be easy to convince people there's no inflation.
What would you say to especially lower-income Canadians who are feeling the pinch of all the things they need to survive, month to month, rising in price?
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:26
That's been one of the features of this recession: the widening of inequality. What's happening in asset markets.... We saw the inequality widen in the labour market because lower-wage workers were obviously the most affected, but what we're seeing in asset prices only reinforces and widens this inequality.
View Julie Dzerowicz Profile
Lib. (ON)
Thank you so much, Mr. Chair.
I want to thank all the presenters for their very thoughtful presentations.
Mr. Macdonald, I'm going to start with you. I love it when people start off with numbers. It's always helpful to have the latest, so thank you for that. You are a true economist.
You mentioned 92% of every dollar to combat COVID-19 comes from the federal government. We have heard quite a bit of commentary from some of our opposition colleagues that we spent too much money on our emergency programs and that the supports we have implemented have caused us to go into massive debt.
We all know we have very few options to actually fund these types of programs, so we're going to have to increase our debt, raise taxes or cut crucial programs. In your opinion, how should the federal government have financed this emergency and extra spending?
David Macdonald
View David Macdonald Profile
David Macdonald
2021-03-18 10:27
Thanks so much for the question.
Certainly, when it comes to debt and deficits, the federal government does not exist alone. It exists within the Canadian economy, across from other large sectors in the economy, and deficits and debt are fungible. In essence, they can move between sectors. In this case, the federal government took on a massive deficit in this year and what that did was create smaller deficits and in fact some surpluses in other sectors of the economy. For every deficit there's a surplus of equal value in another sector of the economy.
The federal government could have decided to spend none of this money. It could have decided to have no CERB, no support for business, no support for provinces and no support for health care and individuals. What would have occurred in that case is that those deficits would not have occurred on the federal books. They would have occurred on provincial government books as they covered health care costs. They would have occurred on household books that incurred deficits because they lost work but still had expenses, or on business books.
Despite the federal and provincial governments' efforts, we've nonetheless seen increases not only in federal debt but also in household and corporate debt at the same time. In fact, the household and corporate sectors are far more leveraged than the federal government is. If we were to see interest rate increases, they would certainly hit the federal government, but they'd hit the household and business sectors much harder. Not only do they pay higher interest rates, but they have a lot more debt.
I think it's worth understanding the federal government and its deficits not on their own, but by how it and those deficits relate to other sectors in the economy.
View Julie Dzerowicz Profile
Lib. (ON)
The other thing you're alluding to and you're reminding me about also, Mr. Macdonald, is the fact that if the federal government didn't take on the debt, we have heard from others that there would be worse repercussions for the economy and, as you just mentioned, there would be far higher debt levels whether on corporations or on the provinces.
We have often heard our Minister of Finance say that the government is taking on the debt so that Canadians don't need to. Do you think that's a fair statement?
David Macdonald
View David Macdonald Profile
David Macdonald
2021-03-18 10:29
I think it is a fair statement. The debt could have occurred someplace else. Certainly even in the corporate sector, despite the businesses being the primary beneficiaries of the federal government's COVID-19 efforts, the debt-to-GDP ratio for the corporate sector has risen 15 percentage points in two quarters. It's going to be very difficult for the corporate sector, which already had very high debt, to dig itself out of this, and it would have been much worse had they not received things like the wage subsidy or support for rent.
Despite the help for households, household debt has continued to go up, and despite help for the provinces, provincial debt has gone up over the last three quarters.
Debt has to be understood across the entire economy. It should be looked at not in isolation, at only the federal level or the household level, but also with regard to how it moves and can move between sectors.
View Julie Dzerowicz Profile
Lib. (ON)
Maybe the other question...and I didn't mean to ask this, but I think it was just a comment Mr. Cross made at the end of one of his answers. I think there was a real attempt on the part of our government to make sure that our emergency programs really supported right across the income spectrum. I know a recent Stats Canada report indicated that households in the lowest income quintile increased their share of disposable income from 6.1% in the first quarter to as high as 7.2% in the second quarter of 2020, while those in the highest income quintile decreased their share of disposable income from 40.1% to 37.7% over the same period of time.
Would that give an indication that our emergency programs have been helpful and have worked particularly for those on the lower end of the income scale?
David Macdonald
View David Macdonald Profile
David Macdonald
2021-03-18 10:31
I think some of the programs could have been better targeted. We think of top-ups to old age security, for instance, which goes across a large spectrum of seniors. It might have been better to devote that money purely to the guaranteed income supplement. There were broad top-ups across the entirety of people receiving the Canada child benefit, which goes quite a ways up into the income spectrum. Those might have been better targeted particularly to the lower-income recipients of the CCB.
Certainly if we look at some of the big programs to support individuals, like the CERB and its knock-on benefit, the CRB, as well as improvements to EI, the floor for what one can receive in benefits, at $500 a week, would have been a substantial benefit, particularly for lower-income households, which not only benefit from improvements in access in most cases but wouldn't even have gotten into the EI system period. Now even when they get in, they're sustained at a much higher level.
I certainly think that those changes in the CERB, EI and the CRB have been some of the more important ones in supporting low-income households, particularly those attached to the labour force. I certainly hope that going forward those are the types of changes that will be made permanent in upcoming EI reforms, when the CRB program is wound down this summer.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you, Mr. Chair.
First of all, I would like to welcome our guests, including our colleague Geoff Regan, who is joining us today.
My questions go to Ms. Grynol.
Ms. Grynol, thank you for your testimony; it was quite alarming.
As I understand it, if the measures are not extended, 70% of your members are at risk of bankruptcy. Is that correct?
Susie Grynol
View Susie Grynol Profile
Susie Grynol
2021-03-18 10:33
Yes, that was from a survey that came out of the field just three weeks ago.
View Gabriel Ste-Marie Profile
BQ (QC)
That is a very troubling statistic.
You suggested some solutions, such as extending the programs for your sector, at least until the end of 2021.
You gave us one optimistic scenario and another more negative one. Given those scenarios, do you think that your members will see a return to normal in 2022, or will they have to wait even longer?
Susie Grynol
View Susie Grynol Profile
Susie Grynol
2021-03-18 10:34
I think the best shot at recovery for our sector is next summer, but all of the projected data on that recovery suggests that a true recovery to 2019 levels is not forecast for several years to follow. By next summer, if we have restrictions lifted and people can move around and we are able to generate enough revenue to pay the bills, we are not going to need more government support at that time.
What we're asking today is for the government to acknowledge the fact that we are still being asked to effectively close down. We can't operate in these circumstances, and we're one of the only sectors that has been asked to do this from the beginning to the end of the pandemic. There's just not enough money to pay the bills.
We can't have an entire sector go under—at least, I certainly don't believe that makes any sense—so we are asking the government to acknowledge the reality that there are going to be some sectors that fall behind, and we are certainly in that category.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you.
Your sector and your members play an essential role in the economy.
What case can you make to the government to remind them of the important role that your members play in the economy?
Susie Grynol
View Susie Grynol Profile
Susie Grynol
2021-03-18 10:35
There are critical infrastructures that support the travel economy. Hotels are one of them. Airlines are one of them. When we get back to a post-COVID universe, in order to have a functional society we are going to need this infrastructure in place.
With the numbers we're talking about, this kind of loss with 70% of the industry going down, what this means is that when we have.... There are only two or three hotels in some of our northern and remote regions. How do you get essential services up there to provide to those Canadians? How do our tourism regions survive? The first thing you do when you plan a trip is look to see if there's a hotel available. There are not that many hotels in P.E.I., as an example. If we start to see the crumbling of the infrastructure and flights reduced so that people can't move around, and if when they get there there's nowhere for them to stay, it will significantly affect the rebound of the overall economy.
It's not just about Canadians booking their next holiday. It's about people moving around this country and having the infrastructure there to support them. It's about the rebound of business travel. It's about our downtown cores. What attracts people to downtown cores are the events: the conventions, the festivals, all of those things. Our cores are hollowed out right now. Our hotels have been sitting empty for 12 months. We can't even bid on those international events if we don't have an accommodation sector to support them.
My plea to this committee and to anyone who is listening today is that we cannot let the critical infrastructure that supports this industry crumble. The cost on the other side would be even greater to the government, on the backs of Canadians, and to the functioning of our society.
View Gabriel Ste-Marie Profile
BQ (QC)
Thank you. That is very clear and very heartfelt. I hope your members will manage to get through the crisis, that the government will manage to properly target the support measures, and that it will extend them.
That said, I am very concerned about the hotels in large cities. A good part of their revenue comes from international conventions. I'm particularly thinking about those in Montreal and Toronto.
Can you talk to us about the importance of those international conventions?
Do you believe that, after the pandemic, we will be able to get those events going again?
Susie Grynol
View Susie Grynol Profile
Susie Grynol
2021-03-18 10:38
Well, we certainly won't be able to play host to them if we don't have accommodation. That's the first thing you do when you bid on any of these international events. You need to have enough places for people to stay, so first of all we need to preserve the infrastructure. I do believe that Canada has the capacity to build back if we get the kind of tailored support that we are looking for.
I would echo your comments that our downtown cores have been devastated. In terms of the loss in the cores, even today we're sitting at between an 80% and 90% RevPAR loss, which is revenue per available room, the metric that we use to measure in the hotel industry. Nobody is moving around. These events are not taking place. They are going to be critical if we are to see a rebound of our urban cores.
View Peter Julian Profile
NDP (BC)
Thanks to all our witnesses for being here today. We certainly hope that you and your families continue to stay safe and healthy during this pandemic. We appreciate your coming forward today to talk about Bill C-14, but also the fall economic statement.
My first question will be for you, Mr. Macdonald. The fall economic statement, when you look at the summary statement, foresees as of the next fiscal year starting April 1—starting in two weeks—a dramatic reduction and cuts in program expenses. At the same time, we've had many witnesses talking about the importance of continuing supports, particularly in light of the third wave, and in fact expanding some of the supports to sectors that have suffered the most during this pandemic, yet in the fall economic statement there was really no effective initiative around revenue.
I'm particularly addressing the issue of the wealth tax. The CCPA did a study a couple of weeks ago, which showed that the wealth tax would be bringing in substantially more revenues than originally foreseen. When we're looking at a scenario where Canada's billionaires have added over $60 billion to their wealth through this pandemic, do you not believe that the idea of tackling that massive inequality that we're seeing, through such provisions as wealth taxes, is a good way for the government to respond to the crisis?
David Macdonald
View David Macdonald Profile
David Macdonald
2021-03-18 10:41
I certainly think that there will be a time to come in the next couple of years to start to examine new revenue measures. Broadly, when we start to look at new revenue measures, I think one of the things to understand is that this pandemic has not been bad for everyone.
Financially, there are certain firms in certain sectors that just happened to be on the right side of the pandemic and have made record profits as a result. As a result of firms making record profits, CEOs attached to those firms will make record profits. Even CEOs working for companies that did not make record profits will still likely see massive bonuses at the end of the year as the rules are changed, such that if the economy does really well, CEOs get massive bonuses, and if the economy does badly, they change the rules so that CEOs get massive bonuses in any event.
Then we come to the issue of wealth taxation. Again, for the highest decile of Canadians, this recession was over in July. Jobs had completely recovered for people in the top quarter of earnings. Also, for the top 1%, asset values had increased, based on stock market valuations as well as real estate valuations. This has not been bad for everyone.
I think that as a general principle we should certainly be considering things like a wealth tax, and Canada is the only country in the G7 that doesn't have an inheritance tax. Every other major country does have an inheritance tax. A wealth tax would have to be built on lessons learned through inheritance taxes elsewhere. It's easy to make wealth taxes that are terrible in terms of their implementation, but that isn't to say that we shouldn't try to learn from lessons from other countries to build more effective wealth taxes.
I think other things that we might want to start considering are things like a surplus profits tax, again, for the corporate sector or sections of the corporate sector that have done very well from the pandemic, as well as, potentially, new top marginal tax rates for individuals, again for people like CEOs who will see record bonuses out of this.
I think it is worth questioning who should, in part, contribute to the pandemic. The people who've done the best, at the very high end of the income spectrum, I think should be asked to contribute some of what they've gained, so that other people, particularly low-income Canadians, are more likely to get support and more likely to get a job.
View Peter Julian Profile
NDP (BC)
Thank you for that.
When you appeared before this committee on June 18, you said something very prescient. You said that the protected nature of the Canadian banking sector has led to extraordinary profits to its shareholders and tremendous bonuses being paid to its executives. However, in a time of great need for many Canadians, it is time for more to be asked of this sector—not only for the good of Canadians but also the good of our economy.
Now, one of the most striking aspects of the government response on the pandemic was the $750 billion—three-quarters of a trillion dollars—in liquidity supports given within days of the pandemic hitting. It appears that nothing was really asked of the banking sector in return, so we've seen banking profits of over $40 billion so far during the pandemic. This is through this government's policies.
Do you feel that enough has been asked of the banking sector in light of the unprecedented levels of liquidity supports given to it?
David Macdonald
View David Macdonald Profile
David Macdonald
2021-03-18 10:44
There was a Financial Post story looking at CEO bonuses at the big banks despite the fact that revenues were off from last year, although they were still making profits. Despite the fact that revenues were down in the banking sector, CEOs' benefits and their bonuses seem almost entirely unaffected. CEOs will continue receiving the same massive bonuses that they received in previous years, despite the actual performance of the company. The situation is that if times are really good, CEOs get big bonuses. If times are bad, you change the rules, and CEOs get big bonuses, and I think we'll see exactly the same thing this year, as we've already seen most of the proxy circulars come out for the big banks.
One of the arguments I was making in June was around the deferment of mortgages, which came about as a result of federal government regulatory changes. It wasn't at the banks' behest that this happened but rather because the federal government changed the rules. Household debt has risen from about 100% of GDP, where it stood for several years, up now to 110% of GDP, as of the latest data, partly because of those deferments. People took banks up on those deferments and built up a bit of a cash reserve so they were better able to make their mortgage payments. Thankfully we haven't as of yet seen mass defaults as a result of the deferment programs ending.
When it comes to asking more of banks, I think one of the things the federal government could be asking for from banks is a substantial reduction in the cost for homeowners to break particularly fixed-rate mortgages. Those fees can be high. They can be very unpredictable, and given the support that the banking sector receives and that CEOs continue to receive through bonuses, I think it's fair to ask the banking sector to reduce the fees that they're charging people to break mortgages, typically fixed-rate mortgages, in the hopes that if Canadians do continue to see sustained job loss and they can't make their mortgage payments, then at least in a high-cost housing market, they're able to sell their houses and get into something that they can afford.
View Tamara Jansen Profile
CPC (BC)
Thank you.
Mr. Cross, the finance minister has told Canadians ad infinitum that we can easily afford the debt we have because interest rates are so low and are guaranteed to stay low.
Would you say that her confidence is based on fact or fantasy?
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:47
When it comes to interest rates, there are no guarantees. I said I think central banks have made it clear they will not be raising interest rates under any circumstance this year, but as you get into next year and the following year, that's where already we're seeing inflationary expectations and upward pressure on longer-term interest rates building in the U.S. We're going to have to match that; otherwise all the money will just leave this country and go to the U.S.
Counting on interest rates staying lower forever is, I think, already.... That's been the story of financial markets so far this year—that interest rates may rise faster than central banks had thought or promised.
View Tamara Jansen Profile
CPC (BC)
Okay. Thank you.
It breaks my heart that Bill C-14 links the help Canadians need to survive the pandemic with huge increases in borrowing capacity, basically giving the government a blank cheque. Do you think it's responsible for MPs to vote yes on Bill C-14 or do you think we should split the bill so we can vote yes to further support but no to massive increases in spending?
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:48
As an economist and lifelong employee of Statistics Canada, I don't have any idea as to how bills should be presented in Parliament. I'm going to pass on that one, thanks.
View James Cumming Profile
CPC (AB)
Thank you, Chair.
I'll direct my questions predominantly to Mr. Cross.
It's good to see you at committee again, Mr. Cross.
You talked quite a bit about quantitative easing and the Bank of Canada's massive bond buy. Should we be concerned that the majority of Canada's debt is really at a floating rate right now? What's the impact of that? Even if we were to fix it today, would we see an uptick in debt-servicing costs?
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:49
It's not all floating. As I mentioned, the PBO study found that an increase in interest rates in one year would have an impact of $4.5 billion, but over five years, it would be $12.8 billion, and that's because it takes time for that longer-term debt to roll over. It wouldn't be immediate, but even $4.5 billion is significant. Once rates start rising, they're not going to stop at the 1% scenario that was in the PBO's report. Once rates start rising, there's a potential there for them to rise quite significantly.
View James Cumming Profile
CPC (AB)
Prior to COVID, we had pretty anemic growth in Canada. Did you see anything in Bill C-14 or the fall statement that would give you some comfort that there's an actual targeted program on growing our way out of the crisis we're in today?
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:50
No. Everything—and perhaps correctly—in fiscal monetary policy is being aimed at short-term stimulus to the economy. It's understandable. We're still in a major crisis. Until that's resolved, I'm afraid short-term considerations are going to dominate.
However, it is a concern that there's almost no focus on the underlying determinants of long-term growth in this country, in particular investment in innovation. There's virtually no talk about it. All the focus, all the discussion in policy, is on labour, child care and guaranteed annual incomes. Everything is about labour. You don't hear anything about investment. Especially, you don't hear anything about the number one determinant of long-term growth in this country, which is productivity and innovation.
View James Cumming Profile
CPC (AB)
For investment to come back into Canada, because we saw an exodus of investment from Canada, the investors need some kind of certainty. Would you agree that, in this ask of significant dollars from the taxpayers of Canada, there should be at least some indication as to where that money would go to increase productivity and to encourage that kind of investment?
Philip Cross
View Philip Cross Profile
Philip Cross
2021-03-18 10:51
I wrote a paper last summer for the Macdonald-Laurier Institute, which I'm representing today, that talked about innovation. We've had programs to stimulate productivity and innovation in this country for decades. We have government programs all over the place. They just haven't worked. We have to get away from this mentality that if we fiddle with the inputs of innovation, or the presumed inputs of innovation, like research and development and education and so on, that we'll fix innovation. That's not working. We have to get back to how we encourage an entrepreneurial mindset in this country.
We've heard a lot of talk today about how somehow being wealthy is almost a crime in this country. It's something we should penalize. If somebody becomes rich, we immediately should increase taxes on them. Why don't we celebrate these people? Why don't we ask them: What is it that you did right that the rest of us can learn from?
That's much more the mentality you see in the U.S., and guess what. Guess who's the number one most innovative country in the world by far. It's our neighbours to the south, but we denigrate them. I just don't get it.
View Annie Koutrakis Profile
Lib. (QC)
View Annie Koutrakis Profile
2021-03-18 10:53
Thank you, Mr. Chair.
Thank you to all our witnesses for presenting this morning before the committee. It's a great conversation.
Ms. Grynol, I listened to your testimony with great concern, especially the numbers you quoted with regard to hotels and possibly 70% of them going bankrupt unless the federal government extends, specifically, the wage and rent subsidies to the end of the year.
With that in mind, can you share your thoughts on the proposed application of the GST and HST to short-term accommodations through digital platforms such as Airbnb? How do you think this will level the playing field for hotels, which feel they have been disproportionately disadvantaged by these platforms?
Susie Grynol
View Susie Grynol Profile
Susie Grynol
2021-03-18 10:54
We've had an uneven playing field for some time now, at multiple levels of government, frankly. Here you have an industry that's emerged where they're basically selling the same product, but they're just doing it online. Who is competing with us are the operators who are buying up whole buildings and kicking people out of their homes, who are taking long-term housing supply off the market and who are using it to rent on a short-term basis. They can do that right across the street from a hotel, in a condo building where Airbnb owns all the units, or half of them, but they don't have to pay tax, the same health and safety standards don't apply and none of the rules governments have put in place to govern the accommodation space have applied to them up until this point.
We are delighted to see—and we've been working on this issue for a long time now—that effective July 1 there will be a levelling of the playing field for GST and HST application. This means Airbnb and other short-term rental platforms will have to charge and remit GST at the point of purchase. That will help to level the playing field.
I will also say that we are also seeing people booking cottages all over this country through Airbnb right now. You have no idea what their cleaning protocols are. They're not subject to the same standards as hotels are. Hotels, which have been playing by the rules all of this time and which are building hotels and contributing to communities, are sitting empty. I'll just leave that as an open comment.
View Annie Koutrakis Profile
Lib. (QC)
View Annie Koutrakis Profile
2021-03-18 10:55
Thank you.
This next question is for anyone on the panel who wishes to comment.
There's been a lot of commentary from our opposition colleagues that we have spent too much on these programs, and that the supports we have implemented caused us to go into debt. We heard it again today in certain testimonies.
There are few options for financing monumental programs like the ones created to help Canadian weather this pandemic: either increase Canada's annual debt, raise taxes on Canadian families and businesses, or cut funding to crucial programs.
In your opinion, how should the federal government have financed this extra spending during this time?
David Macdonald
View David Macdonald Profile
David Macdonald
2021-03-18 10:56
In the short run those are exactly the three choices that governments face. They can raise taxes, they can cut programs or they can run deficits, or some mix of the three.
The decline in federal government revenues at $60 billion is so substantial that there would really be no way for you to cut government programs to anywhere near balance the budget. To do so would be devastating. You'd have to totally eliminate EI, totally eliminate, say, the Department of National Defence, and totally eliminate the Canada child benefit program. That would have been sufficient to balance the books in 2020.
Clearly, deficit financing is the right decision at this point. The federal government interest rate on 5- to 10-year bonds is at, or near, historic lows. We haven't paid this little in interest rates on bonds going back to the 1950s. Under 2% is extremely low in terms of what we're paying to finance this debt. It's very different, actually, than the situation we faced in the 1990s, when interest rates were much higher.
Certainly there's a risk that interest rates could rise and could increase costs to the federal government, but interest rates don't just affect the federal government. Interest rate rises affect the household and corporate sectors in addition to the provincial sector, all of which pay higher interest rates and all of which are much more highly leveraged.
The federal government is sitting at 50% of GDP right now in terms of mixed debt. The corporate sector is 130% of GDP and the household sector is at 110% of GDP. Those sectors would be hit much harder. We'd be driven rapidly back into a recession if we were to see a big increase in interest rates, before the federal government suffered in any real degree.
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