Finance Committee on March 5th, 2009

[Pierre Duguay]

The primary dealers are the ones that are the market-makers, market-makers in the Government of Canada debt, the large investment dealers.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

We'll go to Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman. I'll be sharing my time with Ms. Block.

I have one question for you, Mr. Duguay, and I thank you for coming this morning.

In the Calgary Herald this morning, Heather Douglas, president and CEO of the Calgary Chamber of Commerce, talks about, as she calls it, the “wise persons” committee that looked at a single regulatory agency for the stock markets across the country. I want just a yes or a no, or tell me if she's missed something in this thing. She writes:

Here's what the chamber suggests will happen by appointing a single securities regulator: Immediately enhance Canada's excellent reputation for prudent fiscal management and attract global investment capital. Enable critical and timely decisions with coordinated actions to rebuild investor and public confidence. Simplify regulatory compliance and save fees when member companies and all regulated entities no longer operate in as many as 13 jurisdictions. Use sound policy-making to ensure the needs of the jurisdictions are integrated into a cohesive and responsive set of securities regulations.

You talked earlier about regulations. Does the bank have a position on a single securities regulator?

[Pierre Duguay]

We have to make a decision. To us the substance is more important than the form, and we've mentioned that a number of times. Because we have a unified capital market, it's important that the rules be the same across the country, because there are sectoral differences or differences in the size of firms. That doesn't mean the same rule applies to everybody, but the same rule applies across the country to like bodies, if you wish. That's important. Uniformity of enforcement is important.

We've highlighted the principles, and all the principles enunciated are very good ones, but we don't have—

[Mike Wallace, Conservative, Burlington, ON]

A stated policy on it.

[Pierre Duguay]

—a stated policy, in terms of the form that would take.

[Mike Wallace, Conservative, Burlington, ON]

Thank you very much, and I'll share my time with Ms. Block.

[The Chair, Conservative, James Rajotte]

That's great.

You have about two and a half minutes.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair.

I would like to turn the discussion just a little bit to the deficit. Of course, no one likes to see a deficit.

I'd appreciate your perspective on how you see Canada's long-term fiscal situation. Specifically, I would be interested in hearing your views on Canada's debt-to-GDP ratio over the coming years. Can you place that in an international context for me, please?

[Pierre Duguay]

Thank you very much for that question.

I would argue that the longer-term debt-to-GDP ratio, in a sense, is the responsibility of this group and your successors. But what is important is that we are going through a recession; we are going through a period when, because of fear, businesses are spending less, consumers are spending less. And it is absolutely critical, in a sense, to stabilize the economy, to the keep the economy functioning near potential output. Clearly, fiscal policy has an important role to play to stimulate the economy, just as monetary policy does.

There are automatic stabilizers, obviously, in a recession. There will be less tax revenue, so one should not be panicking at seeing a deficit. It reflects the fact that the only way people can save more is that somebody has to use the savings, somebody has to run a deficit. And if there is not investment because businesses are not running the deficit, then the government does, and that helps stabilize the economy.

This is a cyclical deficit. This is a temporary situation. What is important for the long-term fiscal health of the Canadian economy is that it remains temporary, and that the decision-makers' policies stabilize the debt-to-GDP ratio.

In terms of where we are, Canada has probably the lowest debt-to-GDP ratio certainly among the G-7 countries, and beyond that, among many industrial countries. We are in a very, very strong fiscal position with very little risk of long-term deterioration.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. Block.

We'll go to Monsieur Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chairman. I'm going to continue on where we left off earlier. Mr. Duguay stated that there had been no increase in the money supply and that the Bank of Canada was going to work very hard to keep inflation under the 2% mark. We are, naturally, talking about the situation here, in Canada. We were not saying that there has been no increase in the money supply in the United States.

[Pierre Duguay]

There was a slight increase in the money supply in the United States, but not in a way to ensure, if you like, the billion-dollar assistance that was mentioned.

There is a difference between injecting capital into the economy, which for the American government means an increase in the national debt. Nevertheless, an increase in the U.S. government debt does not necessarily mean more money in the economy.

[Thomas Mulcair, NDP, Outremont, QC]

But the rule for debt is that, sooner or later, you have to pay it back.

[Pierre Duguay]

Sooner or later, you have to pay it back. Exactly.

[Thomas Mulcair, NDP, Outremont, QC]

One of the proven ways to pay back this tremendous debt—we saw this after the Vietnam War—is to pay it back through inflation. Hence the money borrowed at a certain rate is paid back more quickly with money that has been subject to considerable inflation.

[Pierre Duguay]

What this exercise taught us during the 1970s and 1980s is that inflation creates very serious problems for the economy. This is not a very good way of dealing with a debt problem.

[Thomas Mulcair, NDP, Outremont, QC]

You seem optimistic to me, but time will tell.

Mr. Chairman, I would also like to give the witness an opportunity to explain...

I'm going to do it in English so that Mr. Kramp can understand me.

Through you, Mr. Chairman, I would like to invite Mr. Kramp to explain to us how, in his thinking, a national securities regulator would somehow have changed the situation at the Caisse de dépôt. Actually, not only was I a member of the national assembly at the time the law was changed, but I was a member of cabinet. I can talk to him about what happened in the House. I cannot talk to him about what happened in cabinet, but I can tell him that it is on the public record that the rules for the Caisse de dépôt were changed so that the only thing they were looking at was rendement--profitability, how fast the money was being....

So for the asset-backed commercial paper, I was here when Julie Dickson, our so-called Superintendent of Financial Institutions, came in. She denied all responsibility for it. None of the structures in place took care of ABCPs.

Does he really think that ABCPs would be something that a national securities regulator would have taken care of? What about the Criminal Code, which is simply not applied right now? It has all sorts of provisions on fraud. What about the fact that the federal government never took a single prosecution in the Liberal sponsorship scandal? The only prosecutions were taken provincially in Quebec. Someone like Vincent Lacroix is in the slammer right now because provincial securities regulators applied their rules, but the federal government has laid several thousand criminal complaints, and not the first hour of the first day of the first trial on the first charge has ever been held.

So how is this magic national securities regulator going to change the situation at the Caisse de dépôt et placement? I notice the solicitude of our friend Mr. McKay, who wants to bring in the Caisse before his committee, because he's decided that he knows how to handle this 800-pound gorilla. That's going to be fun to watch. But I want to understand from Mr. Kramp what in his mind, in his thinking--if he accepts to respond on my time, Mr. Chairman--a national securities regulator would have changed.

[The Chair, Conservative, James Rajotte]

It's an unusual practice to ask another member a question, but a member can share his time with another member if that member so wishes.

[Thomas Mulcair, NDP, Outremont, QC]

I'm offering him the chance. He made the statement before, and on my time I'd like to give him the chance to answer.

[The Chair, Conservative, James Rajotte]

Mr. Kramp, you have about a minute of Mr. Mulcair's time if you wish to respond.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

I really thank Mr. Mulcair for that courtesy.

I will readily admit that I'm not the expert in everything that he is. However, I do readily acknowledge that I take my licence and my opinions from many witnesses and testimonies, and you just have to read international papers and/or listen to testimony from across this country to know that they have collectively suggested that there would definitely be an advantage to having one system. It would be well recognized internationally. Our respect and consideration in the world economic markets, whether it's G-7 or G-20, would be readily recognized for the fact that we are speaking with one voice here, and we're not sitting with systems that either might be complementary or might be contradictory.

That is just one very quick response, sir.

[The Chair, Conservative, James Rajotte]

Go ahead, very briefly.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chairman, I am very pleased to see that what I had been thinking is in fact true, namely, that there was no reason to state that by having something like this exist, the situation at the caisse would have changed in any way.

However, I would also like to tell him that the passport system in Canada is a national securities regulator system, and that it is proving itself. The G7 recognized it as one of the most effective systems in the world. This wishful thinking on the part of the senior public service to want to always control everything has always been supported by the Conservatives and the Liberals, but not by the NDP.

Thank you.

[The Chair, Conservative, James Rajotte]

Merci.

That was unusual. I'm not used to presiding over question period, but that was an interesting discussion.

Mr. Duguay, I want to thank you very much for being with us here today. I'm sorry that in some cases I did have to shut you off. It was in the interests of allowing all members time for questions. We very much appreciate your responses.

There's one thing I would ask you to provide a written response for. In my riding, when the Bank of Canada lowers its rate by 50 basis points, consumers and businesses have a perception that the lower rate is not passed on fully to them by the financial institutions. I know this will be a question we'll have for the banks when they appear before us, but if you can provide a written response to me as the chair, I'll share that with all the members. I know we don't have time right now.

We appreciate your time here today. Thank you.

Members, we will suspend for a minute or two, and then we'll deal with future business.

[Proceedings continue in camera]