Evidence of meeting #79 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was economy.
A recording is available from Parliament.
12:25 p.m.
NDP
12:25 p.m.
Conservative
The Chair Conservative Brian Pallister
I'll finish my comments and then I'll go to your point of order, Madam Wasylycia-Leis.
I will endeavour to include everyone in the questioning, but I'm going to continue with the normal practice I've used in every other bill, for every other witness, and each discussion. I don't want to depart from that. It's not out of a lack of a desire to deal with Mr. Pacetti's motion; it's simply because we don't have the time today available to do both this and that.
On a point of order, Madam Wasylycia-Leis.
12:25 p.m.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
You didn't give any indication of my motion, which has been before the committee for some time.
12:25 p.m.
Conservative
The Chair Conservative Brian Pallister
We'll discuss it at the steering committee on Thursday. Please bring it forward at that time and we'll have a discussion about how we'd like to proceed to deal with your motion.
We won't have time to deal with either your motion or Mr. Pacetti's motion.
12:25 p.m.
NDP
12:25 p.m.
Conservative
The Chair Conservative Brian Pallister
There's been considerable lobbying and back and forth on the timing of dealing with his motion and this is why I address it now.
We'll continue with Mr. McCallum now, for four minutes.
12:25 p.m.
Liberal
John McCallum Liberal Markham—Unionville, ON
Thank you.
I have a follow-up to Mr. Dykstra on the governor's future. I note that if the Bush-Harper axis fails to defend Mr. Wolfowitz, there may be a position opening up at the World Bank in the not too distant future, but that's not my question.
To the governor on the question of--
12:25 p.m.
Conservative
The Chair Conservative Brian Pallister
Thank you, Mr. McCallum, for letting us know it wasn't your question.
You have a couple of minutes remaining, and I encourage you to address Mr. Dodge in your comments.
12:25 p.m.
Liberal
John McCallum Liberal Markham—Unionville, ON
Thank you very much, Mr. Chairman.
On the question of babies and bathwater, I think you've twice said it's difficult, but important, not to throw the baby out--the baby in this case being the ability of Canadian companies to compete on a level playing field in their overseas expansions.
I would contend that if you have a bad policy that is delayed, it's still a bad policy. My contention would be that if the minister simply delays the implementation of his broad-brush policy so we get the baby thrown out later, rather than sooner, it's not a good outcome.
My question to you is, is it desirable that the policy be altered to protect the ability of Canadian companies to compete on a level playing field, rather than simply delay the date at which they will be unable to so compete?
12:30 p.m.
Governor, Bank of Canada
In all tax legislation, as you know, transition is absolutely critical regardless of what you're going to do, but at the same time, the credibility of the whole tax system does come into question. This is the very difficult issue we struggled with in the 1980s and again in the 1990s. I'm not saying it's easy, but I think it is important that we try to deal with it, if possible. That's the technical job the department, the minister, and you as a committee will have going forward. I can't really help you very much more than that.
12:30 p.m.
Liberal
John McCallum Liberal Markham—Unionville, ON
On the point of principle you made about the baby, we don't want to throw the baby out in two years or ten years, do we?
12:30 p.m.
Conservative
The Chair Conservative Brian Pallister
Can I get some clarification on this baby? What exactly are we talking about here?
12:30 p.m.
Governor, Bank of Canada
One has to be careful. The issue is that of a Canadian firm wanting to do an expansion abroad, that expansion is being financed by debt, and whether that debt ought to be deductible against the normal business operations here in Canada.
In principle, what one would say is that if it's part of their normal business operations, if it's not feeding through a tax haven to get some special deal, it shouldn't be very different from doing an expansion here, because indeed what you're trying to do is build a global enterprise that's of great benefit to all Canadians.
The problem is, to write a law that allows companies to do that and doesn't allow all sorts of fancy games to hide revenue offshore--to feed it through tax havens and so on--is an enormously difficult job. That's what you would like to do. That's what the minister, I took it, intends to do. All I would say from my own experience, is that it is a very difficult job to get right, but it's certainly something that the minister, the department, and this committee ought to try to do.
12:30 p.m.
Conservative
12:30 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Thank you, Mr. Chairman.
I have a few technical questions from the piece here. They're probably not that technical, but they are to me and I think to the general public who are watching.
I need to understand what the difference is between a chain price index and the consumer price index. I don't understand what the chain price index is, to be perfectly frank.
12:30 p.m.
Senior Deputy Governor, Bank of Canada
Very simply, there are two ways of measuring prices. One is a consumer price, such as the consumer price index, so it represents the increase in prices for a basket that is deemed to be representative. The other way of measuring prices is in terms of producer prices, the price of goods that are being produced by manufacturers, by the service sector. This chain price index is a producer price index linked to our national account. So they're conceptually quite different, and this chain price index can be very much affected by the swings in trade that we've been talking about.
So it is a technical question. That's a technical response. It's the difference between a consumer price and a producer price.
12:30 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Right. So if I understand correctly--and you've used it here today a few times--when you say core price index, that excludes some of the more volatile things. I think the list includes fruits and vegetables, gasoline, inner-city transportation--I don't know what that is, but I guess it's transit--tobacco, and mortgage interest costs.
Who made the decision to exclude those things?
12:30 p.m.
Governor, Bank of Canada
We did a study, and we continue to study this issue. Our best estimate was that constituted or gave us an index that was the best forward-looking indicator of where consumer prices were likely to move, because our policies act only in a forward manner.
We actually calculate three or four others, which we publish on our website as well.
12:35 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
The average guy on the street I've talked to talks about the consumer price index. You've provided me in chart 1 a range within which, I'm assuming, you as a bank try to keep inflation. Is that an accurate statement? Is that what that means?
12:35 p.m.
Governor, Bank of Canada
Our target is to keep total CPI inflation, including these volatile--
12:35 p.m.
Governor, Bank of Canada
Yes, that's our target.
We recognize that those elements are volatile, so we're likely to bounce around our target a little bit. The band of one to three gives you the normal range you might expect that total CPI to bounce around. It's not that we're happy if we're at three or we're happy if we're at one. We're happy only if we're at two, but we do expect the thing to bounce around.
12:35 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Okay. So when I look at this chart, halfway between 2002 and 2003 all three indices, total CPI, were significantly up. And then, from a Bank of Canada perspective, that forces you to make a change in the monetary policy to try to bring that back down.
Is that what you're using?
12:35 p.m.
Senior Deputy Governor, Bank of Canada
Yes.
As the governor indicated, we need to be forward-looking. Monetary policy works with lag, so any change of interest rates today, for example, would have an impact on the economy and on inflation, a full impact, only out 18 to 24 months. So we need to look ahead.
What we do is look at all of the trends in the Canadian economy to get a sense of what we think the underlying pressures are on inflation. That's why we look at a core measure, because you wouldn't want to respond to a volatile movement if it was temporary. The objective certainly is always to bring inflation back to our 2% target as we look out over what I would call that policy planning horizon.