Evidence of meeting #83 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was spending.
A video is available from Parliament.
12:45 p.m.
Liberal
The Chair Liberal Peter Fonseca
That's your definition of fun, MP Beech.
I think that's happening at six o'clock tonight, members.
Is that correct, MP Beech, so everybody is aware?
12:45 p.m.
Liberal
Terry Beech Liberal Burnaby North—Seymour, BC
Yes. Everybody has notice. It'll probably happen just after votes.
12:45 p.m.
Liberal
The Chair Liberal Peter Fonseca
Okay. Thank you.
Now we are moving to the Bloc, with MP Ste-Marie, please.
12:45 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
I would like to be certain that Mr. Baker's time is indeed up, as he left the remainder of his time to another Liberal member.
Is that right?
12:45 p.m.
Liberal
The Chair Liberal Peter Fonseca
Yes, his time is up.
MP Baker is done. He has finished, MP Ste-Marie.
12:45 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Okay.
I thank you for that clarification, Mr. Chair. This situation is one of the joys of joining you virtually.
Mr. Macklem, can the recent bank bankruptcies be detrimental to the development of clean technology or green finance?
12:45 p.m.
Governor, Bank of Canada
I didn't quite hear the end of the question.
You want to know what the bank bankruptcies may impact. Is that right?
12:45 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Yes, I was talking about the impact that bankruptcies can have on the development of clean technologies or of green finance.
12:45 p.m.
Governor, Bank of Canada
Okay.
The recent issues affecting banks are more related to traditional systems. So the impact in terms of the technology is not major.
You're right to point out that some of these banks, like Signature Bank and Silicon Valley Bank, or SVB, were used by the technology sector. What was striking was how quickly deposits were flowing out of these banks. This was probably due to the fact that customers, especially those at SVB, were very concentrated in one sector. They were communicating on social networks and using digital banking systems, so they were able to withdraw their deposits very quickly. That things could happen so quickly is one aspect of that bankruptcy.
At the global level, the Basel Committee is looking at the impact of this issue in terms of liquidity and its calibration. So there are questions about that, but it's being considered by the Basel Committee and the Financial Stability Board, or FSB.
12:50 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Okay, thank you.
I now turn to a completely different topic. Economist Anne O. Krueger, who has worked at the World Bank and the IMF, and now works at Stanford University, is concerned about the assistance that the IMF and international institutions are providing to developing countries that are burdened with heavy debts. The emergence of China as a private or individual lender to these developing countries has implications for how financing and support for these countries works. I would like to hear your views on this phenomenon.
Do you think we are likely to see debt crises in developing countries, and are international institutions, given the new environment, well prepared to deal with these crises?
12:50 p.m.
Governor, Bank of Canada
I agree with you that there are risks. Dealing with sovereign debt issues is always difficult, and there are more players now. China is a major player. What we have seen so far is that the process is slower. It takes longer to manage these situations, and that poses a risk.
From our perspective, in Canada, the IMF is an institution that has a very important role to play, and we work hard with it. It is very good at helping countries that have problems. I think its programs will be beneficial to countries that need them. I encourage them to go to the IMF.
12:50 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you very much.
My last question is on a completely different topic.
In your analyses, do you model a multiplier effect of federal government tax expenditures and tax cuts? If so, is that information public and can you talk about its significance?
12:50 p.m.
Governor, Bank of Canada
We are not experts on all tax issues, but we do look at different types of government spending. We may be talking about tax cuts, about investments in infrastructure, health and education, and so on. These types of expenditures can have various multiplier effects, and when they are high enough, we try to take them into account. We are conducting a few studies on the different multiplier effects.
For example, investments related to infrastructure spending tend to have a fairly high multiplier effect, as all the money flows through the economy and more people are hired. When people are given money, the multiplier effect tends to be lower, as they will save some of that money. We try to take that into account when we make our projections. It's not just a matter of the extent of the fiscal easing, but also of the type of metrics that are used.
12:55 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Ste‑Marie.
Now we'll go to MP Blaikie.
You'll be our final questioner of the governor and the senior deputy governor.
12:55 p.m.
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
Thank you very much, Mr. Chair.
Just briefly on the business item Mr. Beech raised, I believe at some point we had talked about the possibility—and I know last year we did this—of sending letters to other committees asking them to look at certain sections of the budget implementation act. We're obviously not in a position to do that yet because the bill hasn't been tabled, but I think it would be helpful to have a draft letter. I don't believe this is the first time I've said that.
I haven't seen a draft letter. I think if the committee is interested in pursuing this as a strategy this year, we should see one soon so that it can be part of our deliberations on Mr. Beech's motion when he chooses to move it.
I just want to lay that down as a marker for you, Mr. Chair and Mr. Clerk. Please get us a draft so we can take a look at it.
12:55 p.m.
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
Thank you.
On my question, we talked a bit about the negative amortization that's going on with the extension of amortization periods that banks have undertaken in order to prevent defaults on mortgages. I recognize that this is a way for banks to protect their profit. I also recognize it's a really important thing for Canadians right now who are in a difficult space. If they weren't able to extend their amortization period, they would likely be out of a home. That's had a stabilizing effect that may be working to some extent at cross-purposes with the monetary policy of the bank, but we've also seen that monetary policy has been able to reduce inflation, notwithstanding the fact that this activity is going on. There's certainly a benefit to Canadian households that I approve of.
Employment insurance can operate in a similar fashion when we see challenging outcomes for Canadian families. The extent of employment insurance available can have impacts on demand and supply.
I recognize that you don't want to comment on employment insurance as a fiscal policy, but I would be curious to know how the bank incorporates the adequacy of employment insurance into its forecasts for supply and demand at a macro level when you're thinking about the impact of interest rates on the economy.
Could you give us a little insight into how or whether you consider employment insurance policy as bearing on the impact for Canadian families or on the kind of macro analysis you have of the economy?
12:55 p.m.
Governor, Bank of Canada
I think you're going to be a bit disappointed with this answer. We don't model the employment insurance system directly.
In our macro models, we do model the extent to which there are automatic stabilizers in the economy. Largely, we do that based on when the economy slowed historically. How much did government revenue go down? How much did government expenditure go up? What is the automatic stabilizing effect that it has?
We sort of take the average stabilizing effect that we can observe over history and use that in our models going forward. We don't go a level deeper and model the various parts of those automatic stabilizers. Obviously employment insurance is one part, but we really look at the overall impact.
To get back to your previous question, I think automatic stabilizers play an important role in the economy. You want those to be effective. Then there are a lot of difficult discussions about how big you want them to be and all those sorts of questions, and I'm going to leave those questions to you.
12:55 p.m.
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
Well, thank you very much for your time here today. I think a colleague of mine expressed appreciation earlier for your willingness to accept our invitations to appear here at committee. I certainly echo that. I also commend you for forecasting my disappointment in the answer. I know forecasting is your business, and you certainly excelled here today. Thank you, nevertheless, for hazarding an answer of some kind to a question that falls a bit outside your normal purview.
1 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Blaikie.
On behalf of all committee members, the clerk, the analysts and all the interpreters, thank you for coming regularly, Governor Macklem and Senior Deputy Governor Rogers. We really appreciate the time you give us and the many questions you've answered. Thanks for your testimony and for help with this study. We appreciate it.
On MP Blaikie's question, the clerk is finding the draft letter that we sent out last time. We'll distribute that to all the members.
That will conclude our meeting.