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Results: 16 - 30 of 380
Yves Giroux
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Yves Giroux
2021-04-27 17:19
Yes, I have heard that very often, that it's not a concern to be had about the increasing level of debt because the current debt servicing costs are very low, which is true. However, that's taking the point of view that because the cost to service that debt is low now, the debt that will have to be supported by the government over the next decades does not matter as much as it used to, which is taking the point of view, I assume, that interest rates will never rise.
We have done calculations and what we call “sensitivity analysis” and the cost of a 100 basis points shock to interest rates—so a one percentage point increase in interest rates—has an impact in the first year on public debt charges of increasing them by $4.5 billion. That rises as the debt needs to be refinanced. By year five, the additional debt servicing cost amounts to $12.8 billion per year. That's when interest rates rise by one percentage point.
View Tamara Jansen Profile
CPC (BC)
Okay. The Department of Finance's own numbers say we could be back within spitting distance of more historical deficit numbers as early as the next fiscal year with no austerity measures necessary.
What risk does Canada face with taking on this enormous debt, considering the fact that interest rates are on the move and all signs point to rising inflation?
Yves Giroux
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Yves Giroux
2021-04-27 17:50
What the government and the Department of Finance published in the budget is a worst-case scenario. What I would have liked to have seen in the budget was a status quo scenario—that is, what the fiscal track would look like, the budget or the debt would look like, without the budget interventions or the budget investments.
To respond directly to your question, the risks of higher deficits and higher debt with interest rates rising, especially if there were to be new permanent spending in future budgets or in future government decisions, is that the debt-to-GDP ratio, rather than stabilize or even decline a bit, could start to rise. Then it would become a bit more.... Every time you have a debt-to-deficit ratio that is increasing, the longer you wait to stabilize it, the more difficult it is to course-correct. That is the risk.
View Ted Falk Profile
CPC (MB)
View Ted Falk Profile
2021-04-27 18:01
Thank you, Mr. Chairman.
Thank you to Mr. Giroux and your associates there.
We've seen significant increases in the cost of everything this last year. Food has gone up, and real estate has gone up 20% to 100% depending on what area of the country you live in. Crude oil has seen a 300% increase this year. Wood products like OSB have seen a 500% increase.
We know that we're right around the corner from seeing significant inflation and, with that, there are going to be higher interest rates. How rate sensitive—and you partially addressed it with the $17-billion answer—is our federal debt?
Yves Giroux
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Yves Giroux
2021-04-27 18:01
That's a very good question, and that's a question that gets asked of me and my colleagues quite regularly. We have determined that one point of percentage is 100 basis points. If, for example, an interest rate goes from 1% to 2%, we call that a 100-basis-point increase.
With public debt charges following such a shock of one percentage point, federal debt charges go up by $4.5 billion in the first year, and they rise to $12.8 billion additional by year five if that one-time shock is sustained throughout the period. As the government refinances itself, it's financing costs go up by $12.8 billion by year five for a one-time shock of one percentage point.
View Ted Falk Profile
CPC (MB)
View Ted Falk Profile
2021-04-27 18:02
Is all of our federal debt rate sensitive? Is it all in a term and only sensitive to renewal dates, or is it also in a variable market-sensitive plan?
Yves Giroux
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Yves Giroux
2021-04-27 18:02
I think they're specific debt instruments that have a floating rate, but I'm not aware that there are such instruments. There are real return bonds, but they tend to form a very small portion of the overall market debt.
Market debt is sensitive to interest rates as it gets renewed, but with treasury bonds that are 30 days, 90 days and 180 days, plus bonds that have one, two, five and 30 years, there's an ongoing turnover or churn of market debt. The moment interest rates rise, there is debt that needs to be refinanced.
View Ted Falk Profile
CPC (MB)
View Ted Falk Profile
2021-04-27 18:03
The Liberal government—and you stated this in your presentation—has a fiscal anchor, and that fiscal anchor is reducing federal debt. To me that's not a fiscal anchor; it's a wish list. They haven't attached any hard stops to that. They haven't said that a 51.2% debt-to-GDP is a hard stop and they will not exceed that. They've used it as a goal there. I would liken it more to the guardrail terminology that they've been using.
The debt-to-GDP is only one of the markers. In all my years as a banker and as a businessman, if I fixated on only one ratio, I wouldn't do a service to the application or to the business. There are multiple ratios that you have to look at, and I think the government needs to establish a variety of anchors.
Are there other anchors that you as the PBO consider should be looked at and considered by this government?
Yves Giroux
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Yves Giroux
2021-04-27 18:04
That's a very good question.
Because there's only one taxpayer that supports all levels of government debt, I think it would be useful for parliamentarians and Canadians to look at government debt as an integrated debt. There's the federal debt that we focus on today, and that's normal—we're federal parliamentarians or servants to parliamentarians—but there's also provincial debt. I think it would be advisable for the government and governments in this country to look at the overall government debt burden, because provincial debt is also of concern, especially in several jurisdictions that are on a path to an ever-increasing debt-to-GDP ratio.
View Sean Fraser Profile
Lib. (NS)
View Sean Fraser Profile
2021-04-27 18:09
I'll make it quick, then.
One piece of testimony you gave today, Monsieur Giroux, was about Canada's deficit or debt position in comparison with that of its international counterparts. It struck me that we may be a little better than middle of the pack right now.
Is that a fair assessment, insofar as it impacts our overall debt and our debt-to-GDP ratio?
Yves Giroux
View Yves Giroux Profile
Yves Giroux
2021-04-27 18:10
Yes, I would say that 11 out of 29 is slightly better than middle of the pack. That's a fair assessment.
View Sean Fraser Profile
Lib. (NS)
Yves Giroux
View Yves Giroux Profile
Yves Giroux
2021-04-27 18:10
Yes, it's overall net debt, but the IMF also includes assets of public pension plans such as CPP and QPP. These offset some of the other levels of debt. Most other countries don't have assets to pay for future benefits. In that sense, Canada is in a privileged position.
Philip Hemmings
View Philip Hemmings Profile
Philip Hemmings
2021-04-15 17:22
Good afternoon. Thank you for this opportunity to appear before the Standing Committee on Finance.
This presentation draws largely on the OECD economic survey of Canada that was published on March 11. Our report is generally positive about the suite of economic policy measures that was introduced in 2020 and the subsequent evolution of those measures. The initial policy response was viewed as being appropriately rapid. The steps taken were also seen as having performed a reasonably good job in ensuring income support to those households and businesses most severely affected.
Canada was ranked as having one of the largest packages of fiscal support in an international comparison the OECD made in autumn of last year. Canada's package at that time, when we added it up, was worth around 13 percentage points of GDP. Other countries with large fiscal packages in this comparison were Italy, Germany, Australia and Japan. We'd also underscore that prudent fiscal policy in Canada over past years has helped provide scope for this sizable fiscal support.
Canada's menu of support has become more targeted, which is welcome. Notably, there has been the transition from the Canada emergency response benefit to the more focused benefits, including the Canada recovery benefit, the CRB. To be sure, there will be scope for technical improvements to some of these schemes that are still operating. For instance, our report flags that the 50% clawback rate of the CRB could perhaps be dissuasive to individuals in returning to employment.
Our report emphasizes that for the time being, a focus on keeping these supplementary channels of support open is appropriate to help economic recovery. Financial assistance for households should ensure gaps and support are covered. For businesses, continued focus is needed on nurturing their recovery.
It is worth emphasizing, I think, that, even with the retention of supplementary support, the very large deficit generated in 2020 will partially unwind. The shift back from blanket support suggests smaller outlays. Also the recovery process itself, unless reversed by another shock, will bring deficit reduction through revenue increases and diminished spending demands.
The crisis has raised a question as to whether the safety net provisions available in normal times are adequate. The recent commitment to introduce automatic tax filing for simple returns, partly so that more low-income households receive the tax credits as well, is welcome. In addition, permanent change to income support may be required to make social safety nets more reliable, timely and effective. This is challenging to implement. Our report suggests that one route would be for provinces and territories to upgrade their safety net welfare provisions, possibly with financial assistance from the federal government.
In principle, a guaranteed income scheme offers another solution; however, our report concludes that such a scheme is likely to be overly expensive and may reduce incentives to work. While support programs should remain on offer while the economy is fragile, a clear and transparent road map for preventing a spiralling public debt burden is needed. Canada's past record in federal deficit and debt suggests that, to date, broadly defined fiscal rules have worked adequately; however, a more precise rule may provide a useful anchor for reining in the debt burden. Our survey and previous ones have specifically suggested the introduction of a numerical debt-to-GDP target.
Finally, I think it's worth underscoring—and this is something emphasized in our report—that a successful post-COVID economy also requires structural reforms that do not necessarily involve direct fiscal costs. To help the business sector, our report urges faster progress in particular on the removal of non-tariff barriers between provinces. It also supports continued attention to the competitiveness and quality of telecommunication services. In addition, it identifies scope for improving business insolvency processes. For households, the report advocates the creation of more affordable housing through measures that encourage the building of more homes, for instance, through lighter planning regulation.
This brings my introductory comments to an end.
Thank you.
View Tamara Jansen Profile
CPC (BC)
Thank you.
Mr. Hemmings, in the OECD report you underscore the need for a transparent plan to ensure that the debt burden does not spiral out of control. Currently, Canada has one of the largest debt burdens among the developed nations, according to an article in Bloomberg. As a matter of fact, we would be top of the heap if not for Japan.
Would you agree, then, that fiscal anchors should be a keystone principle for stabilizing our debt, going forward?
Results: 16 - 30 of 380 | Page: 2 of 26

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