Finance Committee on March 25th, 2009

[The Chair, Conservative, James Rajotte]

This is your last question, Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I have one final question with respect to the nominal EI deficit. Have you done a calculation as to what the nominal EI deficit might be for this year?

[Kevin Page]

No, we have not. It would not be hard to do, however.

[Chris Matier]

I would just point out, from my experience on the sensitivities, that there is, I think, an implicit assumption that the break-even contribution rates are operative in this case. To that extent, the numbers we've provided probably would understate its fiscal impact.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chairman.

First I would like to say hello to Mr. Page and his colleagues.

I want to thank you for the work you are doing. In a way, you guarantee the government's actions with respect to Parliament. It is an important job.

In your presentation, you say that “the government and Parliament have moved in a timely fashion to approve budget measures.” You also conclude that the recovery plan measures have not really influenced economic performance, given the various steps that have to be taken before contracts can be made.

Don't you think it would have been more appropriate to implement those measures in November 2008 rather than January 2009? Do you understand the question?

[Kevin Page]

I wasn't listening. Pardon me.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

If the budget measures had been debated and adopted in November 2008 rather than January 2009, they would probably have been immediately applicable. So we could have been seeing results now. And yet you say the government acted at the appropriate time.

[Kevin Page]

I believe I understand your question. It is crucially important to respond to the demands of our economy now. If budgetary measures could have been taken earlier, that might have had a positive impact on our economy.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

That somewhat clarifies what I was reading.

However, you don't really believe that other economic measures or stimulus can be brought forward now, given that we have an open economy and depend on the entire global economic context. You've nevertheless come to a lower final projection than that of the government. One could think of economic measures whose impact would be felt sooner than those previously planned. A little earlier, we were talking about employment insurance, about eliminating the waiting period and making immediate payments to unemployed workers that might stimulate the economy immediately. There's also the entire question of seniors to whom we could make an additional payment to improve their condition and to bring them up at least to the low income threshold. Those immediate measures would improve your prognosis and enable us to achieve the result desired by the government.

Do you maintain that no further economic stimulus can be put forward? Don't you believe that we can introduce direct action stimulus?

[Kevin Page]

Perhaps one aspect of our mandate has to be clarified. I'm not very comfortable proposing new options or policies in the context of a future budget or determining whether we need other measures.

However, I am comfortable outlining the economic context. On page 13 of our brief, there is a chart showing our output gap. As you can see it is very pronounced. If the government wishes to minimize that gap, it can add new stimulus. In the past, in our report, we have examined the level of stimulus contained in the budget and examined, in context, what is gross and what is net. I feel very comfortable saying that the output gap is much greater now than in the past or in the 2009 budget.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Would you be prepared to suggest adding fast-acting economic stimulus, then leave it to parliamentarians to decide?

[Kevin Page]

It is absolutely necessary to implement budget measures as soon as possible and to stimulate the economy in this context. However, I am not very comfortable proposing other measures.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Go ahead, please, Mr. Dechert.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thank you, Mr. Page, for your work.

As you know, late last week the United States government announced an additional extraordinary $1 trillion of support for financial institutions. This was obviously done after the Canadian budget came out, and in your report earlier today you mentioned that Canada's recovery depends crucially on global, economic, and fiscal developments.

Could you comment on the recently announced U.S. federal government stimulus measures and how these might affect Canada? Could you also comment on how the measures announced in the U.S. have changed since the budget was announced on January 27?

[Kevin Page]

It's probably fair to say that the budgetary process in the United States is a lot more complicated than ours. Many people were probably watching American news last night, and they got to see the President talk about the importance of implementing their budget. In our sense, because of the work of all parliamentarians, we're actually further down the road than the U.S.

In terms of the level of stimulus that's being offered in the United States relative to Canada, the International Monetary Fund recently produced a report that compared the different levels of stimulus. There are some problems in terms of comparing apples to apples or apples to oranges. It's clear that the U.S. stimulus is larger than Canada's, but it's probably also clear that the output gap or the economic problem in the United States is a little bit more severe as well.

In terms of the efforts we've seen recently and the potential impact they're having, it's fair to say from what we've seen in terms of monitoring private sector forecasts that the outlook is getting worse, notwithstanding the fact that we're seeing more stimulus going into the economy, particularly in the financial sense. It hasn't had the traction they were hoping it would have. You've probably seen that in a lot of commentary from former governors of the Bank of Canada. They're still waiting for the stimulus to really take hold, and I think it's being reflected in the weaker numbers that we're seeing in 2009.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

You would agree, though, and I think you pointed this out in your report, that even your own projections have changed dramatically since the previous report. Private sector forecasts are changing almost daily.

How would you suggest the government would respond, given that the economic projections are constantly changing? Obviously things are being done in the United States and other countries in the world. That's got to have some impact on Canada. A forecast was done on the best information available in January. Those measures have just been passed in Parliament, and the funds are about to be spent. Wouldn't it be prudent to see those funds being spent, make sure they are spent, and then measure again to decide what further measures might be necessary?

[Kevin Page]

Like the Department of Finance, we survey private sector forecasts and we do our own survey. We make this information available to you so you can see the broader planning context. We're not in the forecasting game itself. We do this so you can think about it in terms of budgetary measures, the stimulus, as Mr. Carrier suggested recently. But we don't do our own forecasts. We provide a different and more detailed outlook for the first half of this year because we think what we're seeing now is actually historic in terms of the quarter-to-quarter declines. That is, as you say, sir, very much a global problem.

In terms of implementing the budget, it is fair to say that most commentators would say we need to move as quickly as possible to put that stimulus in place. It will take a significant effort, but I'm sure the government and public service are working hard to get the money out the door so it's flowing for the various projects that will touch all aspects and sectors of the economy in all regions. The premium should really be on making sure that stimulus is implemented. But the situation is worse right now.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thank you.

You mentioned former Bank of Canada governor David Dodge. I note he was quoted from a speech he made yesterday in Kingston. The Kingston Whig-Standard is saying this morning that he wanted to make it clear the Stephen Harper-led government is not to blame for the state of the economy. Dodge said that Canada will continue to face financial difficulty, not because the government or the banks are failing, but because problems in the world are so large this will take time to resolve. I wonder if you heard that, and if you could also comment on the projections that were made in terms of unemployment.

[Kevin Page]

Yes, sir, absolutely. If you look at the International Monetary Fund and its projections, this is definitely a global recession. They call it “the Great Recession”. It's unprecedented, and we're seeing the world economy decline in real terms on a year-to-year basis. As Paul Krugman says, this is a situation where sometimes bad things happen to a good economy, and Canada is a good economy. So it's definitely a worldwide phenomenon.

Also, sir, if you look at slide five, where we look at Canada-U.S. monthly real GDP, and you look at what's happened since January 2008, you'll see that the numbers, even on a real GDP basis, actually track fairly closely, again highlighting how the situation in the United States impacts very importantly on Canada.

[The Chair, Conservative, James Rajotte]

Thank you.

Ms. Hall Findlay, please.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Thank you, everybody, for being here.

One aspect of the budget involves projected asset sales. It involves projected numbers for a combination of savings from departmental spending review as well as asset sales. In another committee yesterday we were given splits of the amounts, so it's a little over $10 billion over five years. By far the majority of that $10 billion is expected to come from the sale of assets. It's not clear at all what kind of assets. In fact it was confirmed yesterday by the department using words like 'hypothetical'.

We were told we were not likely to get a list of assets until at least the summer. We raised concerns about making a commitment to revenue on the sale of assets that have not yet been identified, the challenge of determining how you could arrive at that number--in particular, a commitment then to sell assets at an economic time we're facing now when the value of those assets may be significantly reduced. We clearly have some concerns. I'm just wondering if you can comment a little bit on the validity of the budget including those kinds of numbers and any concerns you might have.

[Kevin Page]

We've examined and have written a report on issues coming out of the November economic statement from Minister Flaherty. In words that we've actually printed and that are available on our website and as well in direct discussions that we've had with departmental officials, we've said that it's not a good practice to adjust the fiscal framework for the hypothetical sorts of situations that, at a minimum.... And we also asked for a list of what those assets would be that are under consideration.

I think the better practice would be, if they were planning to look at asset sales, to put together a list and the process they would have for disposition of that list. We would be happy to do due diligence on that list. Then, if it looks as though there are potential net fiscal revenues to come to the consolidated revenue fund, we would do appropriate due diligence on it.

But we share those concerns about lack of transparency and the adjustment of fiscal framework without specifics.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Let me ask a specific question about the projection for this coming fiscal year. It's $2.3 billion, about $0.3 billion of it being from departmental review, so about $2 billion in 2009-10 being specifically from asset sales. We won't see even a draft list of those until the summertime. Even if there were an appreciation of the value of those assets on the books of, say, 10%—and I would question that, given the economic times we are facing—a commitment, or as we keep hearing, a “fire sale” of assets.... We're looking at selling assets to achieve $2 billion. With an appreciation that is questionable even at 10%, it would require the sale of $20 billion worth of assets in 2009-10 to achieve that.

Is that even remotely realistic?