Evidence of meeting #53 for Finance in the 41st 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.

On the agenda

MPs speaking

Also speaking

3:45 p.m.

Conservative

The Chair James Rajotte

Thank you.

Thank you, Ms. Nash.

We'll go to Ms. McLeod, please.

3:45 p.m.

Conservative

Cathy McLeod Kamloops—Thompson—Cariboo, BC

Thank you, Mr. Chair.

Certainly it is always a pleasure to have you here and to get the updates.

When the budget was recently released I looked at the 2009 budget, and at that time, of course, we were heading into a global recession and were looking at stimulus spending. It was certainly indicated we were going to have short-term stimulus spending. In two years, the 2009 budget was saying, we were going to get back to a balanced budget. I think it was looking at 2014-15.

In essence, when I looked at the most recent budget it looked as if we had been following the plan in a pretty effective manner. Certainly I recognize there have been lots of storms and buffeting along the way and lots of changes in the forecast. So I'm really pleased to see that you're looking at the improvement and also the revision and expectations for real GDP growth in 2012 to 2.4% holding steady.

Certainly there are people who have said we need to continue with deficit spending. So at this point could you talk about the importance of a balanced budget and what the results for Canada and other western countries will be if they don't address their fiscal imbalances and continue to engage in a prolonged period of deficit spending without moving toward balanced budgets?

Could you perhaps look at how Canada is doing and where we're going and also talk briefly about some of the other countries in the G-8, in terms of how effectively they're moving back toward their targets?

3:45 p.m.

Governor of the Bank of Canada

Mark Carney

We meet today in an environment where there is certainly enhanced scrutiny by investors on the fiscal positions of all governments: federal, provincial, advanced economy or emerging markets. A premium is placed on fiscal sustainability. That means credible paths back to a budget balance level that is consistent with a sustainable level of debt. Depending on the starting point that can be a balanced budget, it can be a surplus, or it can be a small deficit. It depends on the initial stock of debt and the underlying strength of the economy.

So there is no question that sovereign risk is bearing heightened scrutiny by investors and that a variety of governments around the world, particularly in the advanced economies and across the G-7, are challenged with getting this right and getting the balance of the path of l'assainissement budgétaire, the consolidation of deficits, on the right path. I would note that one of the challenges that face some of the major European economies that are most in the sights of the markets is that there is the challenge of the pace of growth of expansion of nominal GDP, which has a pro-cyclical impact on efforts to reduce deficits and makes it even more challenging for them. One needs to look through to the underlying measures that are taken.

That said, to put Canada in context, Canada is in a leading position within the G-7 in terms of our combined government finances. If you look on a net debt-to-GDP ratio, it's lower than all other G-7 countries. Our deficit path is second to Germany. Given the underlying growth of the economy and measures that have been taken at all levels of government, federal and provincial, there is a strong sense of confidence in markets that is evidenced in our spreads on our bonds to other international bonds, on our spreads on credit default swaps, a strong level of confidence in the credibility of those plans.

3:50 p.m.

Conservative

The Chair James Rajotte

Thank you, Ms. McLeod.

Mr. Brison, please.

3:50 p.m.

Liberal

Scott Brison Kings—Hants, NS

I would like to thank the governor and deputy governor for being with us. I want to commend them for their continued important work during difficult times and also to commend the governor for his work globally as chair of the Financial Stability Board.

Governor, back in October you said that you found some elements of the occupy movement protests entirely constructive. You said in an interview that you acknowledged the movement is an understandable product of an increase of inequality, starting with globalization and then made worse by the financial crisis. You said, “You've had a big increase in the ratio of CEO earnings to workers on the shop floor and then on top of that, a financial crisis”.

How important an issue do you believe income inequality is for Canada?

3:50 p.m.

Governor of the Bank of Canada

Mark Carney

Thank you for the question.

First a couple of points of context. Income inequality in Canada has increased, as it has for all OECD countries, over the course of the last two decades. That said, Canada is in sort of the middle tier as measured in the degree of income inequality. There are quite substantial differences between income inequality in Canada before tax-and-transfer and income inequality after tax-and-transfer. It reduces it quite a bit. The Gini coefficient is something like 0.32 for the former, 0.26 for the latter.

That said, as you referenced in your question, there are some big forces that are feeding inequality globally. It starts with trade, which brings tremendous opportunity as well but pushes inequality. Technology and the ability to use technology.... What we're seeing across the OECD, and also very much in Canada, is that the returns to education are much higher.

So is this a big issue? Yes, it's an issue, because it's pointing to differential realizations, if you will, of the opportunities that are being created in the global economy. And if I may, that sort of leads to potentially the approach that can be taken and has been taken in the past here, which is to create greater equality of opportunity in this country.

3:50 p.m.

Liberal

Scott Brison Kings—Hants, NS

Should Parliament study and address the issue of income inequality?

3:50 p.m.

Governor of the Bank of Canada

Mark Carney

That's obviously a question for the committee to consider.

What I would underscore is that the forces behind this phenomenon affect all major economies. They are longer-term forces, not short-term cyclical forces. Understanding those, and designing policies that address them constructively, is a challenge that all major advanced economies face. So I'd leave it to you to decide.

From the Bank of Canada's perspective, let me say two things, if I have time, Chair. Our single biggest contribution to this issue is to meet our inflation-targeting mandate, because the one thing we know from hard experience is that inflation and inflation volatility hit the worst-off in our society the most. Others can hedge themselves.

The second thing I'll say, which is from an equality or fairness perspective--and you've referenced that quote.... One of the points I was trying to make in my comments, and maybe made poorly, was that one of the issues of fairness is whether the financial sector is special versus every other sector of the economy. In other words, if you have a family farm, crop prices are down, and you have a bad harvest, what things happen? If you have a small business or if you have a big business and you make a series of mistakes, or things move against you, or international competition, you fail. If you have a large financial institution.... What we learned during the financial crisis is that you have to be rescued. And those were legitimate decisions made in economies outside Canada; we didn't have to take these decisions.

But that should change. And a large part—not all of it, but a large part—of the agenda on financial reform, both globally and here in Canada, is to end “too big to fail”, which brings back a true element, in our opinion, of fairness to the system and addresses some of these issues.

3:55 p.m.

Conservative

The Chair James Rajotte

You have ten seconds.

3:55 p.m.

Liberal

Scott Brison Kings—Hants, NS

Okay.

TD Bank estimates that the housing market is overvalued by 10% to 15%. Craig Alexander is saying that it could have a significant impact with a correction. Have you done a study on overvaluation? What would be the percentage—

3:55 p.m.

Conservative

The Chair James Rajotte

I guess that's a yes-or-no answer, Mr. Carney.

3:55 p.m.

Governor of the Bank of Canada

Mark Carney

Not publicly.

3:55 p.m.

Voices

Oh, oh!

3:55 p.m.

Conservative

The Chair James Rajotte

Okay. Thank you.

Thank you, Mr. Brison.

We'll go to Mr. Hoback, please.

April 24th, 2012 / 3:55 p.m.

Conservative

Randy Hoback Prince Albert, SK

Thank you, Chair.

Governor Carney, it's great to have you here today.

Governor Carney, before I get started, I just want to compliment you on how you go about doing your role. The way you go about doing your job actually instills confidence in Canadians and in Canadian businesses. I think the way you and the finance minister have conducted yourselves over this last series of troubling years has been very reassuring. I think Canadian consumers and Canadian businesses thank you for the work you've done there.

One thing I would like to talk to you about is trade. You made a speech in Kitchener last week and you talked about the emerging markets and how important they are to Canadians. Of course this government has been out and about very actively pursuing trade agreements. Whether it's Minister Fast or Minister Ritz or Minister Ablonczy, or even the Prime Minister, it seems like every break week we have in Ottawa they're out and about around the globe, trying to open up new markets for Canadian businesses. Can you explain to this committee just how important these emerging markets are?

I'll just quote what you said in Kitchener, because it kind of sums it up, I think, pretty good:

Emerging markets represent the greater opportunity for Canadian exporters. Since the recession, these economies have accounted for roughly two-thirds of global economic growth and one-half of the growth in global imports....This is where Canadian businesses must increasingly look for export growth.

How important is getting into these new markets and these emerging markets, and what would be the consequences if we did not get into these markets?