Finance Committee on Nov. 21st, 2007

[Finn Poschmann]

Of course, if I may, because I didn't have a chance to answer, the one thing you know is that if the U.S. inflation rate is sitting at 3.5 %, and ours is sitting at 2.5%, it's not going to stay where it is. That's not a choice you get to make.

[John McCallum, Liberal, Markham—Unionville, ON]

I think economists often ask, other than the equal rate question, what will happen to jobs with the currency at its current level. It could go up. It could go down.

[Finn Poschmann]

That goes back to the point about fixing currency. What fixing a currency does is mask real price changes, real relative price changes. The market price of oil is very high right now compared to the price of cars. You have to make a lot more cars to buy a barrel of oil. That difference, or that ratio, isn't going to change when you fix the currency. The high price of oil is going to draw resources out of the manufacturing sector and draw people and money into the commodity sector.

So you don't know that employment is going to go down.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to Mr. Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chairman.

I want to thank you all for coming today.

Many people have said that the main problem is the dollar's volatility. My question is for all of you. If you were the Minister of Finance and you had to prepare the next budget, what steps do you think would be the most effective in dealing with the negative impacts of this volatility? I am not saying that there are no positive impacts, but what would you do? What importance would you attach to that in preparing the next budget?

[Prof. Mario Seccareccia]

May I say something? I would just like to say that I do not think that the Minister of Finance would be authorized to act; that would be the Bank of Canada's role instead. As I said earlier, the current problem is that the Bank is not intervening at all in the exchange market. I think that is a problem in the current context, where we are seeing a great deal of volatility. I sincerely believe that something must be done in this regard, and this is essentially the Governor of the Bank of Canada's role. It is not really up to the Minister of Finance to take direct action, although he could give direction in this regard.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

If the Bank of Canada continues to act in this fashion, what tools will the Minister of Finance have to deal with the situation?

Perhaps Mr. Patry could reply.

[Pierre Patry]

As I said during my presentation, we believe that both parties must act. The Bank of Canada must act, and the government must act in any case. The next budget must contain business assistance measures. What was announced in the Economic Statement, that is, providing tax relief to businesses, is not really a good idea. Instead, our action should focus on encouraging businesses that create jobs. That's why we think there should be assistance policies for businesses, just as there are for research and development.

The last point I wish to make is perhaps not quite as relevant to today's topic, but the provinces must also receive assistance through an increase in federal transfers. Although transfers were increased in recent years, the provinces all agree that they need $1.2 billion in transfers for higher education, whereas only $188 million has been transferred for 2008. Higher education results in people who are better educated and this in turn leads to improved productivity and a more vibrant economy in the short and long term; this is proven fact.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

The other finance ministers...

Mr. Faucher, what do you think?

[Claude Faucher]

I tend to agree. The Minister of Finance is an orchestra conductor who must work in concert with the provinces to develop a support strategy for businesses, a strategy to revive businesses in certain sectors of economic activity and also a strategy to help re-skill workers, when it is possible to do so, or to provide them with financial assistance, when it is not possible to do so.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

So in your opinion, leaving the market to its own devices is not the answer. You referred to Montmagny, which is in my riding. I am well aware of the changes that have occurred there. New jobs have been created, but many people have been left to fend for themselves. In the long term, this situation becomes very difficult for the regions concerned.

[Claude Faucher]

Indeed. For people who have worked all their lives in a textile mill or in a factory that produces kitchen appliances, it is not easy to suddenly envisage going to work in a high technology firm. It is these people, who have neither the means nor the ability to find another job, that we want to help financially.

As for those who are able to find other work, they need assistance programs that will help them make this transition and receive the training they need to work in the new jobs that they find.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

What about the other finance ministers?

[Finn Poschmann]

Rob raised a few points in his discussion about policy measures, so I'll let him go ahead.

[Robert Fairholm]

As I mentioned earlier, the negative economic impact is larger when the price and wage system is less flexible. It doesn't matter whether it's an exchange rate shock or some other type of shock, encouraging the flexibility in your wage price system is helpful in mitigating the size of the impact and bringing the economy back to balance more quickly. So measures that help people find jobs, wherever they may be, would be beneficial.

In terms of mobility, if you lose a job in one area and there is a need someplace else, say within your province or within the country, ways to encourage people to overcome non-monetary barriers to shift from one part of the country to another would be helpful to get the jobs to those people.

Also, there are a number of barriers in terms of people switching between different types of occupations that seem to go beyond the usual economic barriers. So methods to recognize qualifications and the types of skills that people bring to the table would help them shift between occupations. There is a reluctance on the part of employers to hire people because they don't think they have the right skill set, even though analysis shows there is a fairly good fit between different occupations. However, employers have this view that the person can't do the job because it's a double transition, often, between the industry they worked in and to a different occupation.

We have some employers throughout the country who need people but who can't find them. Then you have other people who have the skill set who can't find work, so there seems to be a misfunctioning at a micro level within the economy. There are sector councils trying to work toward improving that fit, but still there is a mismatch occurring in the economy at a very micro level.

[The Chair, Conservative, Rob Merrifield]

I'm going to have to call it there. The time is over by a little.

I'll move on to Mr. Del Mastro. You have six minutes.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

Mr. Poschmann, you mentioned in your remarks that as much as we're talking about the Canadian dollar, it's really a U.S. dollar story, a weakness in the U.S. dollar. You talked about the world demand for energy. You mentioned the petro loonie and the effect that's having. You also mentioned the bright spots in the economy, like growing international trade.

I note that only today I learned of over $100 billion in investment going to 27 companies in Ontario as a result of activity in Alberta's oil sands. Pretty significant economic activity is occurring as a result of the growth in the energy sector. On the economic and fiscal update that was launched on October 30, you made a number of comments.

There's been some comment with respect to government incentives. Some people might call that corporate welfare. I would like to get your comments as to whether you think the very significant reductions we have made in corporate taxes, along with the accelerated capital cost allowances that we've introduced, are more beneficial over the long term to the Canadian economy. Or should we be entertaining these various notions of corporate welfare?

[Finn Poschmann]

Thank you. That's a very good question. These are all very good questions.

The role of government here is to make sure that resources, meaning people and financial investment, can go where they're most needed. Markets are very good at that. Governments can help.

But before I carry on, there are real impacts on real people here when you have major economic shifts, and we shouldn't ever lose sight of that. What governments can do is make sure that those impacts aren't worse than they should be.

One of the ways that governments can make matters worse is by inhibiting movement of people by making investment in plants, processes, people, and training unattractive. Bringing down the effective tax rate on business investment is a pretty good way of helping backstop workers, by putting more and more plant and equipment in place behind each worker, improving the job environment, improving their productivity, and thereby improving the wage outlook for our employees. These are things that the government can do.

The tax measures discussed in the economic update are not bad, but we could go a lot farther in improving the investment environment.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

Yesterday we had a number of straw polls here on the committee. One was a straw poll that asked panellists whether or not they thought the Bank of Canada should reduce interest rates, which leads to the notion that perhaps we're leaning toward asking people whether they believe the Government of Canada should intervene in the affairs of the Bank of Canada.

Do any of you believe the Government of Canada should intervene with the Bank of Canada directly to manipulate interest rates? Do any of you think that would be a good idea?

[Robert Fairholm]

No, that would be suicide. You don't want to have a directive from the finance department to the Bank of Canada to lower interest rates. That's not a very wise policy.

[Prof. Mario Seccareccia]

Needless to say, it is in the mandate of the governor to decide on interest rate policy--

[Dean Del Mastro, Conservative, Peterborough, ON]

Yes, I agree with you.

[Prof. Mario Seccareccia]

—and not the Minister of Finance. However, that said, we've had precedents, going back, that suggest that the fiscal authority could have a say ultimately about whether the governor is doing a good job or not, and hence indirectly have a--

[Dean Del Mastro, Conservative, Peterborough, ON]

No, no, I don't disagree that the finance minister has a role to play, absolutely. What I'm asking is should there be direct manipulation of the Bank of Canada by the Government of Canada?

[Prof. Mario Seccareccia]

Needless to say, no.