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Results: 61 - 75 of 459
Susie Grynol
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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?
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