Finance committee  Okay, let's deal with that. There are two issues here, short term and long term. I think we really do want to separate those. In particular in the automobile industry and the industry that makes the bits and pieces for housing, we are going through a short-term cycle, which we certainly do expect to recover.

Finance committee  These are really difficult issues. First of all, I think we have to be very careful about saying that there should be solvency at all times, because that solvency calculation is based on a whole bunch of hypotheses and a whole bunch of rules. Quite frankly, I worry that we've defined it so tightly that we have plans that are going to be perfectly solvent over a period of time and at another point in time may appear to become insolvent because of our rules.

Finance committee  Pensions are probably the most complicated area from a technical point of view, and I am not the expert from a legal drafting point of view or from an accounting point of view, but clearly it's very important that firms and workers do have the option and the ability to have defined benefit plans.

Finance committee  The answer is yes; we are concerned. We face real competition from the rest of the world, and unless we stay in the forefront in terms of the legal and regulatory structure for our markets and the structure of our industries, then we are going to suffer. For a number of years, starting from the Porter commission back in the early 1960s, and then with revisions to our structure in 1967, Canada was actually a leader.

Finance committee  In the medium term, the best contribution that monetary policy can bring to economic performance is to maintain a low and stable inflation rate and to have very clear expectations in this respect. In the medium and long term, this is the best thing to do. Of course, the short term inflation rate is very much influenced by pressures on the economy, either upward or downward.

Finance committee  It seems simple, but it is quite difficult.

Finance committee  First, just let me say that, as you'll note from the lack of hair on the top of my head, I've been through a number of these cycles before. I remember very well the cycle of the 1970s and then the early 1980s and then the early 1990s, when adjustment in the Canadian economy was slow, when in fact at all levels we tried to cushion the adjustment process, and the result was not great.

Finance committee  This was not mathematically set, but a target was chosen that would give the best economic performance. After 10 years, namely after we established a 2% target, expectations have stayed steady at 2%. It still remains to be known whether there is a target that could be even better for economic performance.

Finance committee  Let me begin to answer and then I will give the floor to Paul. The impact of the recent cut in GST on inflation — this time we are dealing with mathematics — is a little over 0.5%, which is between 2.5% and 2.6%, and will last from July 2006 until July 2007. After July 2007, we think that the effect will disappear.

Finance committee  This is always tricky, because at the bank we really don't work on that, and I have to be here to speak about the work we do. What we focus on is the importance of fiscal balance, and in particular we focus on this at a time when we have stronger than anticipated growth. Clearly, then, we would look for governments to be running surpluses.

Finance committee  This is a good question. Let me answer you first and then I will give the floor to Paul. In 1991, the government and the Bank of Canada tried to find a formula for slowing down inflation, which was very high at the time. Thus, deflation targets were established until 1995. This is how the inflation rate went from 4 to 2% at the end of that period.

Finance committee  Let me go to the underlying factor here. What's happened, of course, is that we were surprised with the strength and growth of nominal GDP, in particular in 2004 and 2005, largely because of improvements in terms of trade. As everyone around the table knows, we tax nominals, not reals.

Finance committee  What we have assumed is that governments as a whole will adjust their spending and taxes in order to stay in fiscal balance over the period.

Finance committee  Let's start with the world at large. If you look around the globe, growth is probably going to be a little better than we had thought at the time of our July update, and certainly a little better than we thought last spring. That's largely due to a continued strong performance in Asia.

Finance committee  Thank you very much, Mr. Chairman. It's a real pleasure to be back at this committee. It's been a year since we've been here, so I want to say that we do appreciate your taking the time to meet with us, and hopefully we'll be back on track, meeting twice a year, at the time we release our monetary policy reports.