Finance Committee on Nov. 22nd, 2007

[Stephen Jarislowsky]

We have to come back to a market for these types of instruments, and to the extent that the mortgages are not bad mortgages, I think the plan put forward by the Caisse de dépôt to turn them into longer-term bonds, and also the plan put forward by the commission, which is headed by my favourite lawyer-friend who says those who need money immediately should be helped and those who can stand owning bonds long term should not be helped as much but should be owning the long-term bonds.... But we have to come to a marketability of these, and I think as far as the Bank of Canada is concerned, the best thing to do is to make money available to the banks so that at least the banks have money to lend and can support the economy until such time as this gets cleaned up.

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

One quick final question.

You seem to advocate a continental currency. I find that a peculiar position in that you are effectively linking yourself to decisions that are made in Washington. Over the past number of years, both the monetary and the fiscal decisions that have been made in Washington have been, how should we say, something less than stellar. The trade deficits, the government deficit, some would argue the ill-advised war in Iraq, etc., lead me to not quite understand why you would be an advocate of a continental currency where essentially you're giving away any control you have over your economy, your monetary policy.

[Stephen Jarislowsky]

I go back to the European example, where you have a common market, a common currency in Europe. We don't have a common market. We saw it in the softwood lumber situation, where we made an agreement that I didn't think was very good.

I agree fully with you that the Americans have been totally out of control. I think that Bush is the worst president in American history, personally, and I would rather do something else. But I do believe that we cannot permit them to beggar us and have us make obsolete trillions of dollars of industrial investment over 60 years.

We have to get through that. We cannot allow these industries to be bankrupted, and we cannot help them with government money during these periods to stay alive, waiting for the time when the dollar goes down again, for the simple reason that the cyclical industries and the commodities go back down in price, which they have always done before. I do believe that we have to have stability for our industries in these periods. And however much I agree with you on the suitability of the American central government and of Mr. Greenspan, who never saw a bubble he didn't like, I think we have no other alternative.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We have to move on to Monsieur St-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you, Mr. Chair.

I would like you to continue what you were saying, Mr. Jarislowsky. I liked your presentation very much, precisely because you were telling us about the short-term problems that we should be acting on. You also said that, in the longer term, a similar situation will keep happening periodically as long as we keep putting up with our fluctuating dollar.

I would like you first to return to the short term and to the measures that we have to take. Do you think that the Bank of Canada should intervene with the tools it has at its disposal, such as interest rates, for example? Should it intervene on the money market, buying and selling currency?

In the longer term, in connection with the single currency idea, that the Bloc Québécois shares, how do you see it working in Canada? What timeline would we use to put the idea into effect?

[Stephen Jarislowsky]

Now that we are at par, I think that our dollar is too high for us to come to an agreement with the United States. That seems clear to me. We have to wait for a more appropriate time.

If you have been watching the situation in recent months, you will have noticed that, in Canada, we have raised interest rates by 0.5% while the Americans have lowered theirs by 0.75%. That kind of thing clearly causes our dollar to rise.

The other solution is to impose a moratorium on the mass sale of the Canadian companies we have left. It is a certainty that people are going to want to buy companies like SunCor, Canadian National, Talisman and so on, at prices that, once more, are going to make the Canadian dollar rise.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

In the longer term, you mentioned the possibility of, for example, accepting a 5% variation in a dollar whose value has been fixed, or going all the way and having a common currency as they do in Europe. These are different scenarios. Do you personally prefer one over the other?

[Stephen Jarislowsky]

I prefer a 5% or 10% margin on either side. I think that it is the way to go, but you have to know that the rate of increase in productivity here is less than it is in the United States. So we would eventually have to change the margin from time to time.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Now I have a question for Mr. Pellerin.

As to the timelines, how do you weigh the importance of acting now or acting later? For example, do you think that the situation that you are going through at the moment is because of what the exchange rate is now or even what it used to be? Even if we acted now, would the negative impacts continue? How urgent is it for us to act, in your view?

[Laurent Pellerin]

There are two kinds of actions. If you want to keep areas of economic activity like agriculture, which is not about made in China T-shirts, but about products almost exclusively produced for Canadian consumption—over 75% of Canadian agricultural production is consumed here—the first priority is to make sure that, in the future, we will not depend on agricultural or agrifood imports. So that is a change in course that we should make quickly.

In the medium term, decisions should be made to restructure sectors like slaughtering, to change Canadian rules so that our industry can be at least as competitive as our American neighbours'.This is certainly not the case at the moment. There are gaps that make competition completely impossible. In other areas, like market gardening and other fresh products, all the annoyances about cross-border trade need to be dealt with soon. Everyone has fresh products sitting at the border for 24 or 48 hours. You know what happens with fresh products that have spent two days at the border, they are no longer good enough to sell.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you.

I have one last question.

[The Chair, Conservative, Rob Merrifield]

Your time is gone. Thank you very much.

Mr. Dykstra.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair. I'll try to be brief in order to turn it over to my colleague.

Mr. Jarislowsky, obviously we're doing some pre-budget consultations and some discussions around the rapid rise of our dollar, but one of the other issues that we think, and certainly our finance minister has indicated.... Canada is the only industrialized country without a common international securities regulator. In the past you've indicated that a common securities regulator with real teeth would be a lot more effective in protecting Canadian investors than the multitude of provincial and territorial regulators we have now that have no teeth...or from that perspective to be able to prosecute folks, at least in federal jurisdiction. You've also indicated, too, in a speech, and I'll quote, that “most of the 13 securities commissions do little other than make people fill out forms and take in fees”. I see I got a smile out of you there. That's great.

Having a national regulator, one of the aspects that we've talked about and that our finance minister has talked about, is the ability of one regulator in this country, with some teeth, to be able to bring forward and ensure that we've got security measures in place that would make sense from a regulatory perspective.

Could you comment on that?

[Stephen Jarislowsky]

As you know, I'm a director of the Canadian Coalition for Good Governance, which comprises about $1 trillion of Canadian institutional money. I haven't talked, of course, to all the members, but there isn't anybody on our board who wouldn't want to see one coordinator for all these kinds of things. But it would take a lot more than that. We would have to give to that coordinator both criminal and civil responsibilities, which are currently divided between the provincial and the federal.... We would also have to have judges who understand this kind of legislation, because the average judge isn't going to say he is smarter than a board of directors. Also, the process of being eight or ten years in court at millions of dollars doesn't give any small or medium-sized investor protection. The Castor Holdings case, I think, is now 12 years in the court and costs $20 million on each side every year. So that's no solution.

We also have to get an RCMP or a police force that understands white-collar crime, which is also not the case today.

So there's a real problem there. But the passport system, whereby the things that are decided by two people in the Yukon are going to be binding on all of Canada, I just can't see as a solution.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you very much.

I'll turn the rest of my time over to my colleague.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you.

Most of the discussion has been on the value of the dollar. There have been some strategies that have been suggested to address the rise in the dollar. Most of those are focused on the accelerated capital cost allowance as well as the SR and ED program.

We have heard, however, from Mr. McCallum that he doesn't believe the government can do anything about the high dollar. I believe it was Mr. Lazar from the previous delegation who suggested there was a role the government could play in trying to reduce the value of the Canadian dollar. Mr. Jarislowsky, of course, has proposed that we either peg the dollar to the greenback, the U.S. dollar, or we actually go to a common North American currency.

The one person we haven't heard from is you, Mr. Stewart-Patterson. Could you give us your views on whether there is a role for the government to play in depressing the value of the dollar? If so, why, and how aggressively should the government do that?

[David Stewart-Patterson]

If I may, perhaps I'll address both halves of that.

First of all, obviously it is not the role of the Government of Canada to tell the Bank of Canada what to do. So what the government can do is not on the monetary policy side; it's on the fiscal policy side. I believe the government has all sorts of levers, not to change the value of the dollar necessarily but to enable companies to cope with that and to ensure that companies are able to continue to maintain and to build jobs in Canadian communities despite whatever value the dollar may achieve from one day to the next and from one year to the next.

Some tools the government can use would be more useful in the short term. Refundability of tax credits, for instance, is one of them, whether research tax credits or other vehicles. Faster writeoffs is another. Those are things that I think can be helpful in the short term.

In the longer term, I think it's a matter of keeping fiscal policy on the right track. I think this government has done a lot of things right. I think the previous government laid the ground work for some of that, particularly on corporate income tax rates, and that has to be recognized. I'm glad to see a cross-party consensus on the fact that high corporate tax rates don't pay and lower ones in fact are generating more income tax revenue for the federal government than ever before.

So I think it's important to use the levers that governments do have, whether on the tax front or through regulatory policy, as I mentioned, for instance. Look at what tools are actually going to be most effective in reducing the costs that companies face or enabling commerce to move more quickly. The number of years it has taken—still is taking—to even get near a second bridge between Detroit and Windsor, which is a crossing that's currently carrying 20% of our exports.... It's staggering that it has not been able to move forward faster. Clearly, the federal government has a role in that. It can't do it alone.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

I shorted Mr. Mulcair about two minutes, and I want to give that back to him now.

You have two minutes.

[Thomas Mulcair, NDP, Outremont, QC]

Actually, Mr. Chair, I would like to give the time to Mr. Jarislowsky, because I would really like to finish by giving him the opportunity to give us his opinion.

In the coming days, we are supposed to meet with the person nominated to succeed Mr. Dodge. If you were a member of our committee, and in the light of what you have told us today, what would be your first question to Mr. Carney? You can be sure that he will read it.

[Stephen Jarislowsky]

I am going to ask you the first question that I would ask Mr. Carney. What powers should be given to the Bank of Canada so that it can accomplish two missions: controlling inflation on the one hand, and, on the other, keeping the value of the Canadian dollar somewhat separate from the value of the American one?

The Bank of Canada is telling us today that it can do nothing about the value of the dollar, and that it is only worried about inflation. If the dollar appreciates by 50% or 60%, there will not be a lot of inflation here. Canadian salaries are so high that people are starting to buy in other places, especially China, where the currencies are valued much lower than the Canadian dollar.

Let me give you an example. I am chairman of the board of Goodfellow Inc. in Quebec. We are not so much a sawmill as wood sellers. We even have a few manufacturing plants. Recently, we have bought our wood in the United States because it is cheaper than we can buy it here in Canada. The situation is quite bizarre. People are buying flooring for houses in China and having it sent from China in boxes, which takes two or three months. The price is better than if we used Canadian wood. And I can tell you that we have plenty of wood in Canada.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Jarislowsky.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

As we're going into another round, I've been trying to talk our committee into considering doing it in a very tight way, so one minute or two minutes. Let's do it as tightly as we possibly can, no more than a couple of minutes, and we will get into a short, snappy, quick round.

Mr. McKay.

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

Mr. Jarislowsky has just dropped a little bomblet about continental currency, Mr. Stewart-Patterson. He readily admits that the management of the economy in the United States has been somewhat less than stellar in the last decade. And some argue that we are being really whipsawed by that whole exercise.

My recollection of the previous testimony of your organization in past years is that it has been something of a similar argument. So could you correct me on what the position of the chief executives is on that particular issue?

[David Stewart-Patterson]

We've always been willing to look at the costs and benefits of that strategy. On balance, we have in the past believed, and we continue to believe, that adopting the current currency or adopting the U.S. dollar would not be in Canada's interests.

Frankly, there are two options Mr. Jarislowsky has put forward. One is to try to maintain a band. There are a lot of currency speculators around the world who got rich taking advantage of governments or central banks trying to prop up bands. George Soros springs to mind, in the U.K.

The other possibility is simply to adopt the U.S. dollar, which would give up all control of monetary policy in this country. We're not Europe. We're not going to get a significant say in U.S. monetary policy if we adopt their currency.

What you really have to look at, whether we're looking at short-term problems--the sub-prime mortgage crisis, and so on, going on in the United States, and the impact that may have on U.S. inflation and U.S. interest rates--or the long-term impact of these huge U.S. deficits on the government side, the fragility of their social security system and what's going to come out of that in terms of U.S. inflation rates down the road, and therefore U.S. interest rates.... When we look at the U.S. doing all the things wrong that we did wrong in the nineties and fixed...do we really want to pay the price for that by paying U.S. interest rates, by hooking our currency to that over the long term?

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

Amen, brother.