:
I call this meeting to order.
This is meeting number two of the Standing Committee on Finance.
Colleagues, we have a busy day today; we have a three-hour meeting. In the first hour we are dealing with three motions. In the second hour we have the Governor of the Bank of Canada for his report on his monetary policy update. In the third hour we have the new Parliamentary Budget Officer with respect to the economic and fiscal outlook, and this is his first appearance before the finance committee.
I would call on you so that we can try to finish these three motions within the first hour. That would be very helpful. You'll see before you that debate is resuming on a motion of Mr. Andrew Saxton.
Colleagues, you should have three motions in front of you: a motion by Ms. Nash, one by Mr. Rankin, and one by Mr. Saxton. Does everyone have these three motions? I'm going to suggest that we start with the Nash motion, then move to the Rankin motion, and then resume debate on the Saxton motion.
I will go to Ms. Nash to introduce her motion and I will give her the floor.
I'll just read my motion.
That the Standing Committee on Finance a) undertake a study of youth employment across Canada, including: i) the factors contributing to a high rate of youth unemployment, ii) the economic impact of youth un- and underemployment, iii) the benefits and costs of paid and unpaid internships, and iv) options to provide greater labour protections to interns; b) that the Committee make recommendations to the Government of Canada to improve youth employment outcomes in Canada; and c) that the Committee report its findings to the House of Commons.
Mr. Chair, we've been very concerned, and we have expressed concern in the House on several occasions about the level of youth unemployment and concern that we're wasting the talents and abilities of young people who aren't getting a full toehold into the Canadian economy. Frankly, it is a challenge to our overall economy that this is an underutilized group in our society, and that will have economic fallout for years to come, as studies have indicated. We think it's important for this committee to take a look at what's happening with youth employment across the country.
Of late, there has been great concern about the issue of unpaid internships and how young people, in order to get a toehold in the workforce, are in fact accepting unpaid work for which they normally ought to be reimbursed, as other workers are. We think it's worth studying in detail because this is a pressing issue in our economy and our society today.
I want to thank my colleague, Peggy Nash, for bringing this forward to committee.
The government agrees that this is a very important issue, and one that's worth studying. Therefore, we would agree to study it.
We have a proposed amendment to Ms. Nash's motion that I'd like to circulate to committee members. But in essence, we agree with the study of youth employment. I'd just like to read my proposed amendment to Ms. Nash's motion, and that is:
That the Standing Committee on Finance: (a) undertake a study of youth employment across Canada; (b) that the Committee make recommendations to the Government of Canada to improve youth employment outcomes in Canada; and (c) that the Committee report its findings to the House of Commons.
I'll now distribute this in writing in both official languages through the clerk, Mr. Chair.
What the amendment essentially does is to take away words following “including”, so it takes away some specificity from the study. My sense is that there is always youth unemployment, but I think for the House of Commons, for Parliament, to be relevant, it should be discussing the current situation. The current situation is that since the great recession of 2008, employment has recovered for certain segments of the population but it hasn't recovered for youth. I believe that's why the motion from Ms. Nash refers to the high rate of youth unemployment. It's high relative to the fact that other age groups have not suffered to the same degree, age groups whose employment has rebounded from the great recession.
The second thing that I think is a bit more specific and important to address is the economic impact. Canada, like many other countries over the next 10 years or 20 years, will be having to deal with some very significant demographic changes. For that reason it is very important to recognize that youth unemployment and underemployment have particularly important economic impacts at this time in the history of the country. I think it's important to recognize this by including case ii) in the motion, and I think that is why Ms. Nash included it in the motion. Similarly for case iii) and case iv)—these are subjects that have been brought to the attention of Parliament in the last year or two. It is very timely, so including them in a motion will reassure young Canadians that their representatives in Ottawa, the ones who are paid for by their parents' taxes, are actually addressing the immediate concerns that they are seeing in their everyday lives.
This is why I believe, Mr. Chair, that eliminating these particular cases and leaving behind a rather vanilla motion is not a service to the young people of Canada.
:
Thank you very much, Mr. Chair.
I will be very succinct this morning. You have the motion in front of you. It is as follows:
That the Committee invite the Minister of National Revenue, and the appropriate officials, to appear before the Committee before Friday, December 6th, 2013, to discuss allegations of corruption at the Canada Revenue Agency (CRA) offices in Montreal, which appear to require immediate attention and serious action, and that the Minister be given up to ten (10) minutes for her opening statement; and that the meeting be televised.
As I think most Canadians will now know, the suspicions of corruption at the CRA offices in Montreal date back to 2005. In 2008 the RCMP undertook an investigation at the Montreal office. This criminal investigation was expanded in 2011 to include all CRA operations in the province of Quebec in 2011. As a consequence of this investigation, nine employees thus far have been dismissed, six of whom have been charged with such crimes as tax fraud, breach of trust, and extortion.
The newest revelation, that a CRA cheque for nearly $400,000 was delivered to a notorious Mafia leader, Mr. Nicolo Rizzuto, who at the time owed $1.5 million to the CRA, obviously gives rise to very serious concerns of ongoing mismanagement and possible corruption at the CRA.
It seems to me beyond doubt that if the allegations are proven, the integrity of our tax system is threatened, and many Canadians will have their confidence in our tax system shaken as a consequence.
Thus, Mr. Chair, it seems a very logical step to simply invite the minister to come to this committee and explain what's going on from her perspective. We would welcome a motion passed to that effect.
:
Thank you, Mr. Chairman.
Mr. Chairman, while I have some sympathy with Mr. Rankin's motion, there are a number of reasons, some of which he mentioned himself, why the committee shouldn't look at this motion at this time.
Certainly and I think of primary importance is the fact that these allegations result from an ongoing police investigation. This investigation started several years ago and is ongoing.
Mr. Rankin is absolutely correct: nine employees have already been fired in this matter. Six of those employees have been formally charged up to this point. CRA obviously has worked with the RCMP since day one of this investigation, and will continue to do so.
The fact that this is an ongoing investigation would make it entirely inappropriate to request information that could interfere with any ongoing police investigation.
:
I won't belabour it. I will say three things in response to my friends who have spoken.
First, this police investigation could take years. We have no way of knowing how long it will take. I think that if years go by, the erosion of the trust Canadians have in their tax system could be a serious consequence.
Second, Mr. Keddy asserts that the CRA has done a good job. I have no way of evaluating that, and this committee is looking precisely for that, and to deal with the cultural issues that have been spoken of.
And third, I accept what Mr. Jean is saying from a criminal lawyer's perspective. However, I would have to say that even if matters were held in camera and treated with the respect and confidentiality they require, we could reassure Canadians, if we are satisfied that the work is done well, that the CRA has done a good job. We could give them that confidence that I think is desperately needed at a time when these allegations are swirling around. For that reason alone, I think it's important that we proceed.
Just to remind all of us, the motion we are dealing with would have the effect of denying the right of or the opportunity for independent members of the House of Commons—that is, members whose parties have fewer than a dozen seats in the House—to introduce amendments at the report stage of a bill and thus give all members of Parliament the opportunity to speak to, debate, and vote on those amendments, all with the goal of improving our legislative process.
I want to repeat again that we strongly oppose this motion. We believe that the Conservatives are taking a democratic shortcut here that is not necessary and impacts on the rights of members who are elected to this House. It would mean a significant change in the way the House operates, a change in a process that has been a long-standing one, and it would have definite impacts on the rights of members of Parliament.
I want to cite O'Brien and Bosc, which makes it clear that. “It is the House, and the House alone, that appoints the members and associate members of its committees, as well as the Members who will represent it on joint committees. The Speaker has ruled that this is a fundamental right of the House. The committees themselves have no powers at all in this regard.” That's on page 1,019.
Furthermore, in another passage, it is stated, “The Standing Orders specifically exclude a non-member from voting, moving motions or being counted for purposes of a quorum.” That's on page 1,018. In other words, the committee has no powers to make this sort of procedural change on its own. These powers lie within the House and its Speaker.
The Conservatives claim there would be no infringement on the rights of independent members, but these members would be required to submit motions and then would be excluded from voting on these motions.
In addition, during last spring's committee study of Bill , committee members were given a choice in regard to including independent members. Independent members were prohibited from participating in the debate and study on the content of the bill unless an opposition member was willing to give them their seat on the committee. This scenario was bound to infringe on some members' rights, for it can surely be argued that independent members cannot be required to submit amendments to the committee when they are not permitted to participate in the committee study, while requiring opposition committee members to give up their seats and participation in order to accommodate independents certainly tramples on their rights as committee members.
When it came to moving motions, independents were allowed to move their motions for amendment and speak very briefly to them, but were excluded from voting on them. In the normal course of the committee stage, each party submits motions for amendment and then the parties' representatives on the committee vote on them. The proposed changes certainly put independent members at a democratic disadvantage.
In short, our experience with this process was not positive, and we believe it infringed on members' rights. It's particularly undemocratic that the Conservatives would bring this motion forward in committees, which have no power to make this sort of procedural change and where the very members in question in the motion are excluded both from debate and from voting. I do notice that a letter by three independent members has been circulated to us as members on the committee. It was addressed to the chair of the committee, and it attempts to insert their voice into this process because they have no voice in and no standing on this committee.
For these reasons we do not believe that this is an appropriate motion for this committee. We think it infringes on members' rights. It's not healthy for our democratic process.
Again, Mr. Chair, we'll be opposing it.
:
Thank you kindly, Mr. Chair.
I'll be fairly brief.
I want to pick up on the circumstances that prompted my colleague Mr. Saxton to put forward this motion. It was done in a hurry, without even enough copies for the entire committee. I would remind you that a total of 12 members have the great privilege of sitting on this standing committee. Along with our responsibilities as members of Parliament come certain rights. In particular, we must be given all the resources necessary to perform our duties. Furthermore, every member must have the ability to contribute to the committee equally. And above all, we must fully represent the interests of our constituents and Canadians, in general.
Luckily, Mr. Chair, you gave us a short break, which gave us time to get our thoughts straight and make up our minds on the motion. It gave us the chance to deal with the matter of the eight missing copies. From the outset, however, this situation was unacceptable and should never again be allowed to happen in committee.
I won't add to the arguments already made by my colleague Ms. Nash, in light of the major, nay fundamental, amendments proposed, amendments that clearly fall outside this committee's jurisdiction. That's the reality.
Nevertheless, I would just like to point out that earlier this year, when we were studying Bill , this past spring, we were similarly asked about including independent members. At that time, independent members were prohibited from participating in the study and discussions on the bill, unless a member of the opposition gave up his or her seat. The approach was truly a disrespectful one and was obviously rejected.
Let me say, Mr. Chair, that it's perfectly acceptable to rethink a committee's format or seat distribution. That's the sort of very healthy debate that could take place elsewhere, in other situations, especially outside the valuable time allocated to our work.
Indeed, we can ask ourselves whether it is inherently necessary or fair to have party representation in committees mirror that of the House of Commons. There are places in the world where the majority party or coalition doesn't necessarily enjoy the same majority in other structures, other parliamentary institutions or other settings in which parliamentarians carry out their work.
But, given the circumstances and the way things have been done, it is, unfortunately, impossible to explore that possibility now. There is absolutely no way we can support this, if only because of the circumstances. What's more, the actual proposal will clearly infringe upon the rights of some members in the House. It's totally unacceptable, because, beyond political affiliation, the 308 members in the House are equal.
That's all, Mr. Chair. Thank you for letting me speak.
Although I don't want to repeat what's already been said, I do want to voice my opposition to the motion. I want to commend the independent members who submitted the letter calling on us to reject the motion. In my view, a lot of effort was put into the letter, which provides a history of the parliamentary procedures and rights of independent members and members of parties not recognized by the House. I won't repeat what the letter says, but I hope it will be published because it provides a good history.
I would like to point out that we first found ourselves in this exact situation when the last budget implementation bill was introduced. That was also the first time we saw the proposal set out in the motion being used. Just this past spring, then. To my knowledge, the question had never been raised prior to the spring.
Up to that point, it was clear that independent members and members of parties not recognized in the House could take part in a committee's proceedings and attend its meetings. It was also clear that the House recognized their fundamental rights when it came to proposing amendments to the budget implementation bill, specifically.
It was clear that this motion, which we voted against but which the committee adopted during its study of the last budget implementation bill, was specifically aimed at forcing independent members to give the committee notice of their amendments or changes without being able to debate them. They can, however, do that in the House. Consequently, they may be prohibited from moving those same amendments later in the House. So, as a result, they have much less power, not just all around, but also specifically, in terms of debating the amendments, because they aren't allowed to engage in meaningful debate on the amendments they wanted to propose. Conversely, they can do so in the House, generally speaking.
In that respect, then, independent members are being denied their rights, a situation we, on this side of the House, consider unacceptable. Once again, this is clearly a government tactic to prevent them from contributing. I find it appalling. I recall that the Speaker of the House of Commons had ruled on a matter of privilege, but I think the issue is serious enough for him to rethink the whole thing or, at the very least, consider the impact it will have on the rights of each and every one of us.
Independent members represent the people in their ridings, regardless of the fact they don't represent a party with enough members to enjoy the resources of the House. The fact remains, they represent constituents, just as those of us who belong to recognized parties do.
From that perspective, the motion will seriously undermine the rights of constituents in those members' ridings. In fact, those Canadians will be under-represented in the House and in committee, as opposed to our constituents and those of the government members.
With that in mind, I urge the government to reconsider the motion. And I hope it will do so in all the other committees, where the motion will be put forward if it hasn't already been. Government strategy, not the initiative of the individual who proposed the motion, clearly underlies this coordinated effort.
:
Thank you, Mr. Chairman.
I think what's being overlooked here.... It's almost, Mr. Chairman, the story about the emperor who has no clothes. What happens—and we see it happen all too often—is that independent members of Parliament are allowed to hold up report stage with hundreds, sometimes more, quite frankly frivolous and redundant amendments that would never have a chance of getting passed by any measure through the House, and often don't even get support from the opposition parties themselves.
So let's be clear. This for the first time allows independent members of Parliament to appear at committee to present their motion, to present their amendments, and to present arguments on behalf of those amendments for, as the chair said, up to a minute or two minutes. That is more than fair. I think it corrects an imbalance, and it allows report stage, after the committee has done its work, to proceed in a reasonable fashion.
The other point that needs to be made is that if the opposition members are extremely concerned about making sure that all independent members of Parliament are heard at committee, they have every right to open up one of their seats for any independent member of Parliament to present at committee. It's not up to the government to do that; it's government legislation. It's up to the opposition to do that.
So there are a number of ways to bring this forward.
:
Mr. Keddy just said what had been left unsaid so far, namely, that this is a motion to expedite the process in the House.
[Translation]
The committee's motion should not make it possible to expedite debate. We are here to study motions and amendments thoroughly and to debate bills. That's what we do.
Independent members cannot sit on the committee on a regular basis. In all other discussions, no independent member has the same right to speak that we, as regular members, do.
In that respect, the debate we could have in the House of Commons should focus on the ability of these members, who do not enjoy the same status we do, to assert their right to represent their constituents. That is the crux of the matter, here. For example, Green Party members, independent members and Bloc québécois members do not have the right to sit as regular members of a committee. As per its procedure, the House of Commons entitles them to represent their constituents in the House of Commons when a bill is being study at report stage, as we can here. That gives legitimacy to their right to represent their constituents.
Now, think about the fact that amendments are proposed one at a time. Mr. Van Kesteren can move an amendment, as I can, on behalf of the people of the riding of Rimouski-Neigette—Témiscouata—Les Basques. We can do it now because we are regular committee members. But just think about what it would be like if 50 other members of the Conservative Party and 30 other members of the NDP wanted to propose their amendments themselves? Would we let them sit alongside us, the regular members? We wouldn't. And yet that is what's being asked for independent members. In doing so, we would really establish different procedures for different categories of members, and that's not acceptable in our parliamentary system.
I repeat the fact that this method had never been used until this past spring, when we were studying Bill . Since it had never been used, it can only be regarded—and Mr. Keddy was quite candid—as a strategy by the government to expedite the process in the House of Commons.
I want to follow up on some of the comments made by the members opposite. They're talking about equality and they're talking about an equal voice for members. In fact, this motion would create an equal voice, because independent members would be able to table their amendments here in committee before clause-by-clause. It's a right that we have as representatives of our caucus, and it's a right that they would have as well.
In fact, it would level the playing field. It would give everybody an equal right to bring those amendments forward at this committee during clause-by-clause.
I also want to point out that I'm not telling Mr. Caron or any members of the opposition how to vote on this motion. They will vote the way they want to vote. All I'm saying is that we ought to bring it to a vote. Let's allow a vote so that everybody has an equal opportunity. As the chair just mentioned, we ought to do this before we have to adjourn this meeting in ten minutes.
I have to admit that Mr. Keddy reminded me of two situations in the Standing Committee on International Trade: we were involved in a rather serious clash over certain matters of principle.
One of the government's responsibilities is to run our institutions. I would just like to say that one of the government's basic responsibilities is accountability. You can talk about accountability, but if you don't back it up, you are merely paying lip service to the idea.
We're facing the same problem: it's just lip service. In concrete terms, what we're seeing is a lack of will on the government's part to get on with the work, in fact, to defend the integrity of our institutions.
I won't go any further. I am sure we'll have the opportunity to go head to head over other issues later.
:
Colleagues, I call this meeting back to order and ask you to take your seats. Thank you.
This is a resumption of meeting number two of the Standing Committee on Finance. We are very pleased to have with us here today, pursuant to Standing Order 108(2), for our study on the Bank of Canada Monetary Policy Report, the Governor of the Bank of Canada, Mr. Stephen Poloz.
Welcome back to our committee.
We also welcome the senior deputy governor, a person we've had here many times, Mr. Tiff Macklem.
Welcome to you as well, Mr. Macklem.
We look forward to your opening statement and then we will have questions from members of the committee. Please begin.
I have a very brief opening statement.
[Translation]
Good afternoon, everyone.
[English]
Thank you very much for the opportunity for Tiff and me to be here with you today to discuss the October Monetary Policy Report, which the bank published just last week.
[Translation]
The Bank of Canada aims to communicate our objectives openly and effectively and to stand accountable for our actions before Canadians. One of the best ways to do this is through appearances such as this one.
Allow me to spend a few minutes on the report's highlights.
[English]
I'd also like to flag some important changes introduced with this issue.
We are modifying the report's format and style in order to explicitly capture the uncertainty that is inherent in our outlook. The goal is to present to Canadians a reflection of the evolution of the risks to the inflation outlook that are embedded in our policy rather than simply comparing a snapshot of the current forecast with one of our previous forecast.
The picture is not always perfectly clear and so we have added new measures of ex ante, or before the fact, uncertainty to our five most critical projection variables. We've added rule-of-thumb ranges around the base-case projection for the growth of Canadian and U.S. GDP, for Canadian total CPI inflation, for the current level of the output gap, and for the growth rate of potential output in Canada.
With this, we are reminding ourselves and those who watch us that economic projections are subject to considerable uncertainty and are revised over time as new economic data become available. Our policy formulation process is more one of risk management than of engineering. In our policy deliberations we evaluate and assess all of the risks, both positive and negative, and use judgment to determine the balance among them.
[Translation]
As is customary in October, we reviewed the forecast for potential output. Due to lower-than-expected labour productivity growth in the past year, as well as the delay in the expected pickup in demand for exports and investment, the forecast for potential output growth has been revised down slightly.
Looking forward, we expect the global economy to expand modestly in 2013. However, its near-term dynamic has changed and the composition of growth is now slightly less favourable for Canada.
Uncertain global and domestic economic conditions are delaying the pickup in exports and business investment in Canada. This leaves the level of economic activity lower than the bank had been expecting.
[English]
While household spending remains solid, and various indicators in the housing sector continue to rise, slower growth of household credit and higher mortgage interest rates point to a gradual unwinding of household imbalances. The bank expects that a better balance between domestic and foreign demand will be achieved over time and that growth will become more self-sustaining, but this will take longer than previously projected.
We are expecting investment growth to contribute to a rebound in the rate of labour productivity over the next couple of years. However, demographic factors—primarily the aging population—are expected to put a drag on the growth of trend labour input, and this drag will largely offset the effects of rising investment. This is why we expect that the growth rate of potential output will remain fairly stable at around 2% over the next three years.
[Translation]
Real GDP growth is projected to increase from 1.6% this year to 2.3% next year and 2.6% in 2015. The bank expects that the economy will return gradually to full production capacity, around the end of 2015.
Inflation in Canada has remained low in recent months. This reflects the significant slack in the economy, heightened competition in the retail sector and some other sector-specific factors. With larger and more persistent excess supply in the economy, both total CPI and core inflation are expected to return more gradually to 2% around the end of 2015.
[English]
Although the bank considers the risks around its projected inflation path to be balanced, the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance.
However, the bank must also take into consideration the risk of exacerbating already elevated household imbalances and, weighing these factors, the bank judges that the substantial monetary policy stimulus currently in place remains appropriate and last week decided to maintain the target for the overnight rate at 1%.
With that, Tiff and I would be pleased to take your questions.
:
I'll begin with some general remarks and then perhaps pass the floor to my colleague Tiff. He gave an excellent speech on this topic just a couple of weeks ago at the Economic Club in Toronto.
When you use your model to construct these forecasts, of course you have all the data in place and a structure around them. As we went through time, we were noticing that exports were not recovering as rapidly as our model had predicted in line with the actual evolution of foreign economies. At the time we believed that this was a temporary thing and we still believe fundamentally that it is temporary.
When you do your forecasts, you assume that over the next year or two the error term that you're generating will actually go back to normal. That's how a forecaster would do this.
If the error persists long enough, you begin to look for deeper reasons and then assess whether they are temporary or permanent. The sorts of reasons that we put our finger on basically look at the mix of growth in the U.S. in particular, which is not classic, and not every sector has contributed to growth yet. That's something we can look forward to.
The second thing is that, this being a non-typical cycle, the export sector lost a lot of companies, some 20% of exporting companies, and a lot of other companies downsized. The conditions that will bring back the export path are more demanding than would normally be the case because of the length of this cycle. So it is taking longer than we saw in the past.
Mr. Macklem may have a follow-up.
:
Well, I think I should offer a brief remark on this, since it's really not a monetary policy issue but more of a fundamental economic one on which the government has others more qualified to speak. But I am a free trader. I wake up in the morning believing that free trade is good, that competition is good, and that having access to markets is very good.
Historically, protectionism has actually been not good for economies. There's plenty of evidence of this. I would say that I wouldn't want to measure the extent of the danger that you offer up, because it's a very hard thing to answer, but I think that unambiguously having more scope for exploring trade transactions with other countries is very good for companies, and FIPAs are a very important ingredient. These days, the model of international trade very often engages the company in making investments—possibly small ones, sometimes larger ones—in the foreign markets in order to have a presence there. That presence gives them a stronger foothold into selling into that market.
The FIPA, that agreement, is actually a very important part of it. In fact, if we look at the free trade and NAFTA deal, it was the investment reassurance that companies received that really drove the big growth in trade in that deal.
Thanks very much to both of you for joining us today.
In your report, you state, “The level of average hours worked continues to be below its trend, driven primarily by youth underemployment.” Young Canadians today still have 224,000 fewer jobs than they did before the recession, despite a slight growth in their population. Of the new jobs created in Canada since 2009, only 0.5% have gone to young Canadians, despite their representation of 15% of the labour force. Earlier this year, TD Bank estimated that this extended period of youth unemployment and underemployment would cost Canada's economy $23 billion over the next 18 years.
For Canadians who are watching this today and for the many middle-class Canadian families who have young people who are struggling to find paid work, can you describe the impact that youth unemployment and underemployment is having on the Canadian economy?
:
Yes, I can, and it actually follows nicely on Peggy Nash's question.
We were talking before about why exports have underperformed. Looking forward, there are some good reasons to expect that exports will come back and that the historical relationship with foreign activity will reassert itself. I outlined a number of those reasons in that speech.
It starts with the U.S. market, the U.S. economy. Headline growth in the United States is modest. By any measure they're going through a large fiscal contraction which is taking off headline GDP growth. If you look at underlying private demand, though, it has picked up, and as the effects of fiscal sequestration wear off going forward, you would expect to see U.S. growth strengthen. In many respects, the U.S. really is poised for stronger growth. That will be positive for our exports. As I mentioned before, the U.S. is, and is going to remain, our largest export market.
Secondly there's Europe. We certainly don't expect European growth to accelerate sharply. Europe is no longer contracting. It is now into positive growth, and combined with increased access to that market, that's going to be a positive for our exports. Japan, the third-largest economy in the world, which has been through two decades of stagnation, is now taking bold policy measures. Those are all positive for our export markets. So there are good reasons to believe that foreign demand will pick up.
To come back to the “hoarded cash” as you call it, the table is set for stronger investment. Firms have very good access to capital. They have prefunded; you can see that in their funding decisions. What they need to see is reduction in uncertainty of pickup and demand, and we think that will unlock their investment plans.
:
Governor, senior deputy governor, welcome.
I'd like to ask my questions on the issue of quantitative easing. I'll ask them in English because of the technical words, and I want to give some mercy to the translators.
According to Bloomberg, back in 2010 Minister Flaherty actually told CBC television that quantitative easing was an option for policy-makers.
In December 2010, still according to Bloomberg, Minister Flaherty said, “the U.S. has few options other than quantitative easing since President...Obama lacked the ability to win legislative backing for further stimulus measures”.
Now in 2013, earlier this month, in Washington, Minister Flaherty actually said and was quoted as saying that quantitative easing is “not good public policy”. He said the U.S. should never have implemented the policy “in the first place. Now that they've done it, they should get out of it as quickly as they can”.
So who is right? Is it the 2010 Minister Flaherty or the 2013 Minister Flaherty?
:
I believe that's a question for Minister Flaherty. I can only say from the Bank of Canada's point of view, as we laid out in 2009 in the midst of the crisis, all central banks have reviewed the full range of options. These are options that were not contemplated for a long time but were there in theory.
As you know, Chairman Bernanke was one of the foremost academic researchers dealing with these issues. So it was probably fortunate for everyone that someone so knowledgeable was in that position at that time.
The tool kit that we have available is there for when we are in an extreme situation, as when we've lowered interest rates as much as we possibly can. From then on, if the economy still has weakness or we're concerned about inflation falling even further and becoming perhaps deflation, that is when the textbook tells you to start looking into that tool kit.
We were clear then that in those cases we would make use of forward guidance, which in fact the Bank of Canada did, and that we would look into things like quantitative easing and qualitative easing. Those tools remain available, but I know we all agree that we're very fortunate we did not have to go into that situation and we hope never to do so.
:
So they're buying their own bonds.
Mr. Stephen S. Poloz: Yes.
Mr. Dave Van Kesteren: So in regard to what Mr. Caron is saying, as a matter of fact the United States is pumping—correct me if I'm wrong—$85 billion into the economy every month. They're printing that money. They're getting that money from bonds that they're buying, in essence, so it is printing money.
I just want to make this point, because you touched on the significance of our debt and getting that debt under control. There are governments, especially in the G-7 and G-8, that have engaged in a practice of exactly what the United States is doing, printing money. Whereas in the case of Canada, we have targeted 2015 to be the time that our budget is going to be met.
I want to ask you—and I think I know the answer, but I really want to hear you say this—how much more significant that is, and how much more important. And is there a danger in what's happening in the States and some of these other places, but especially in the United States, where when you start printing money you're going to be in the same position that the Weimar Republic was in, in 1920, where they'll lose confidence in that money?
I wonder if you could just clarify that and maybe tell those who are listening about the importance for Canada of balancing that budget.
:
It is of strong importance, but I do think of the two things as separable. That, I think, is the important distinction we should draw from that historical episode that you refer to. In the historical episode you refer to, the central bank was actually issuing money so that the government could spend it. If instead there is a stock of debt in the economy already, people have willingly purchased that debt, and now the central bank goes out and buys some of that debt at a higher price so that their interest rate is lower. What that does is put additional liquidity into the system, cause people to re-evaluate what the interest rates will be for investment or what have you over the course of the next couple of years, and perhaps influence their decision-making and strengthen the economy.
At a minimum what it does is give them assurance for the liquidity they need; they don't have to be concerned about the kind of market volatility that can deter investments. So they get extra certainty from it.
As a consequence, you're not having a massive impact on the real side, but on the margin. What the literature is showing us is that the U.S. program has influenced the economy and made it a little stronger than it otherwise would be. That's a good thing. Later on, of course, it has to get wound down just like every other such program.
But I think quite separately the U.S. is working on its own budget deficit, in different ways than we do here. That's a separate issue to the bond purchase program that the Federal Reserve is engaged in.
:
Well, the story you tell is exactly right. In fact, there are really strong cross-sectoral and cross-country linkages of the sort you describe. Spending in one province immediately affects many others. We'll see the aggregate numbers and say it must be because of that. It's not something you can actually trace at that level of detail.
The bigger picture here is that we've gone through a period where we had a down cycle in the global economy but strong commodity prices, especially energy, which meant that Canada had this extra income coming in. This drove additional investment and employment gains in that sector. Exports, investment and employment gains, and incomes—that's what we want for the whole picture. But this has been the leading part.
The spillover effects go across the country, but you can see that it's still concentrated. What we're expecting to see is a rebalancing as we go forward where everything begins to catch up to that kind of speed. There's a certain amount of regional difference. It stresses the adjustment process—people move etc. and it's unavoidable. Economists call that a terms-of-trade shock. In this case, it's a positive one, which is good for Canada because of the extra money coming in.
:
Colleagues, I will call this meeting back to order. I know that it's a long meeting today, but I hope you're going to get used to it, because this is what the rest of the fall will be like.
We're very pleased to have with us here today, pursuant to Standing Order 108(2) in terms of the study of the economic and fiscal outlook, the new Parliamentary Budget Officer.
[Translation]
Mr. Fréchette, welcome to the committee.
[English]
It is your first time before the committee. We welcome you.
I know that we're seeing some members who we've seen before, so if I could have you present your colleagues at the table and then give an opening presentation, we'll have questions from members after that.
You can call me J.D., like it has been for most of my years on Parliament Hill. Thank you very much.
[Translation]
Mr. Chair, vice-chairs, members of the committee, thank you for your invitation and for maintaining the tradition of inviting the Parliamentary Budget Officer to appear before you at least twice a year. Speaking of tradition, as you know, I sat to the right of many committee chairs for a number of years and enjoyed a unique view of the proceedings. My view may have changed, but my goal of serving parliamentarians remains the same.
My colleagues and I are pleased to be here to present the Parliamentary Budget Officer's Economic and Fiscal Outlook Update, which we released yesterday. While here, I would also like to briefly discuss the results of the PBO's report, which examines Canada's fiscal structure from a longer-term perspective.
I am joined by Mostafa Askari, Assistant Parliamentary Budget Officer, and Peter Weltman, Acting Director General. I would also like to highlight the great work done by Helen Lao, Randall Bartlett and Scott Cameron, who helped draft the report.
The first part of my presentation will be in French, and then I will continue in English.
The global economic outlook has deteriorated somewhat since the April 2013 Economic and Fiscal Outlook. According to the most recent International Monetary Fund World Economic Outlook, weaker global growth prospects are driven to a large extent by appreciably weaker domestic demand and slower growth in several key emerging market economies. Modestly stronger growth than anticipated in some advanced economies is insufficient to mitigate those factors.
In the United States, despite improving fundamentals, the PBO has marked down its U.S. economic outlook in the near term. This reflects continued fiscal drag, as well as historical revisions to the U.S. System of National Accounts. Further, the commodity price outlook has been revised down over the projection, reflecting downward revisions to crude oil future prices, resulting, in part, from the continued strength of U.S. production.
[English]
These developments have led PBO to revise down the outlook for the Canadian economy relative to its April 2013 EFO. Currently PBO projects Canadian real GDP to grow by 1.6% this year, 2% next year, and 2.6% in 2015.
As the economy reaches its potential level of economic activity, PBO projects real GDP annual growth to average 2% per year over the period 2016-2018. PBO's current outlook for the Canadian economy reflects the effects of the government's economic action plan 2013, which resulted in projected savings of $10.8 billion as well as the freezing of the EI premium rate that was announced in September 2013.
Continued downward revisions to the private sector average forecast of real GDP growth have brought it broadly in line with the PBO projection through 2016. However the PBO's outlook for nominal GDP—the broadest measure of the government's tax base—is, on average, $25 billion lower than the projection based on average private sector forecasts, in part due to the downward revision to the GDP inflation projection.
PBO judges that the balance of risk to the private sector outlook for nominal GDP is tilted to the downside, likely reflecting larger impacts from government spending reductions as well as differences in views on commodity prices and their impacts on real GDP growth and GDP inflation.
On the basis of the revised economic outlook, PBO projects that a budgetary balance will improve from a deficit of $18.9 billion in 2012-13 to a surplus of $5.1 billion in 2018-19 due to cyclical recovery of tax revenues and restrained operating expenses of the government.
The improvement in the budgetary balance is less pronounced in the PBO's April projection due mainly to the lower level of nominal GDP. Assuming that the government does not increase its spending above planned levels, PBO estimates that, given the economic uncertainty, the likelihood of realizing a budgetary balance or better is approximately 50% in 2015-16, 55% in 2016-17, and 60% in 2018-19.
The weaker improvement in the budgetary balance relative to PBO's April projection is reflected in PBO's projection of the government's structural budget balance. PBO estimates that the structural balance will improve from a deficit of $6 billion in 2013-14 to a surplus of $4.2 billion in 2015-16 and will remain in surplus on average thereafter.
[Translation]
Finally, assessing whether a government fiscal structure is sustainable requires looking over a longer horizon to take into account the economic and fiscal implications of population aging in the context of the existing policy environment.
The PBO provided such an assessment for the federal government and provincial-territorial-local-aboriginal governments, as well as the Canada and Quebec pension plans, in Fiscal Sustainability Report 2013. The PBO's analysis shows that the federal government's fiscal structure is sustainable with fiscal room of 1.3% of GDP, while the Canada and Quebec pension plans are also sustainable. In contrast, the consolidated provincial-territorial-local-aboriginal government sector is not sustainable, with a fiscal gap of 1.9% of GDP.
[English]
Thank you, Mr. Chair. My colleagues and I will be happy to respond to questions you may have regarding our reports or any other relevant matters.
And thank you very much for attending today. Congratulations.
I'm interested, in regard to balancing the budget, since of course, as you know, we've undertaken to do that during our mandate.
We had the governor here previously. I didn't get a chance to ask him a question during committee, but I did immediately after. I asked him what the impact on productivity in Canada would be if pipeline capacity were able to meet the current demand. In other words, if we didn't have to discount our oil by $30 million to $50 million a day, what would be the impact on our economy?
In particular, based on your analysis, what would be the impact on the economy if we added that?
That's somewhere in the neighbourhood of $18 billion per year that is simply not going into the Canadian economy because of pipeline constraints. I know you're well familiar with the file, and I'd like you to comment on it—if that weren't the case, if we did not have to discount our oil to the United States.
Welcome to the committee.
My first question comes from your fiscal sustainability report last month that showed that the provinces and territories have a significant long-term fiscal gap, 1.9% of GDP, or around $36 billion in 2013. Much of the fiscal gap of the provinces is tied to demographics, the pressures of an aging population on health care, and other provincial programs.
Your report states that one of the main reasons for the federal fiscal surplus in the long term, which you estimate as being $24.8 billion in 2013, would be reforms to the Canada health transfer escalator. What would happen if the federal government reversed its recent changes to the Canada health transfer escalator and provided the provinces with greater financial support for health care? What would be the impact on the provincial situations?
:
Thank you, Mr. Chairman.
Welcome, witnesses.
I'd like to extend congratulations as well to Monsieur Fréchette and the rest of your team. Welcome to the committee, and, Mr. Fréchette, thank you for your service to the Parliament of Canada before this appointment.
A number of points have been raised. I just have to question one of the points Madam Nash raised. She mentioned—and maybe we could get some real numbers here—67,000 fewer jobs. I'm trying to understand where that came from, when we know that the jobs that were lost during the economic downturn of 2008–2009 especially have been replaced. I'm questioning where that came from.
Taken along the lines of Mr. Jean's comments about commodity prices and lack of pipeline capacity, in your comments you looked at the improving fundamentals in the U.S. They're still modest, but they are improving. We heard just a few moments ago that their entire debt ceiling has dropped by two-thirds. Now they still have one third of enormous debt which affects our ability to trade with them. But if you take that back again to pipeline capacity and commodity prices, and if we actually had that extra $18 billion a day, that would adjust every measurement we look at in our economy. I guess I'm just asking if you would agree or disagree with that, and how we as a nation can move forward on that type of infrastructure.
:
This is a standard way of measuring fiscal sustainability. The OECD and the IMF and all the other countries do exactly the same thing.
The measure we use is to take the debt-to-GDP ratio of a jurisdiction, whether it's the provincial or the federal government, for the time being—let's say in 2012.
Sustainability means that, over a long period of time—in this case 75 years—the current policies will allow the government to go back to that debt-to-GDP ratio, the present debt-to-GDP ratio.
For example, in the case of provincial, local governments, we see that if the current policies continue, with the demographic changes, the debt-to-GDP ratio of that sector will significantly increase.
The fiscal gap is what they need to do to bring that debt-to-GDP ratio back to the current level after 75 years; it is 1.9% of GDP. If they reduce their spending or increase their revenues or a combination of the two equal to 1.9% of GDP of today, and maintain that at 1.9% of GDP over the 75-year period, their debt-to-GDP ratio will not increase, it will come back to the current level, which is about 31.5%.
:
Thank you for the question.
I would not go that far. The problem is the following. As Mostafa explained, part of the $7-billion amount—about $1.9 billion—stems from additional revenue, especially that from corporations and institutions. Part of the remaining billions was adjusted at the end of the year, or rather “the next year”, for some departments that did their calculations based on cash rather than based on accountability, as they should for that report. That time frame and information are not available. As Ms. Nash said, this is a matter of confidentiality for the Cabinet. That data has not yet been verified or approved by the Cabinet.
Nevertheless, as I mentioned earlier, I thought it was encouraging when the minister said that he was prepared to provide us with explanations on that issue. He did partially explain matters. I think it is a positive development that a new openness exists and that a new bridge has been created. That being said, I am continuing to work on building bridges and accessing that data. You are entirely correct in saying that we need to have access to the data to be able to provide parliamentarians with some explanations on everything that is happening at the executive level.