Finance Committee on Nov. 3rd, 2009

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Kramp.

We'll go to Mr. McCallum, please.

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

Thank you.

Concerning third-quarter GDP, my understanding is that in the first two months of the quarter, monthly GDP growth was zero, then -0.1%. That doesn't sound very good. I know that the quarterly numbers are not exactly comparable to the monthly ones, but do those two numbers lead us to think that maybe the growth rate in the third quarter will be negative? Or are you confident that it will be positive?

[Kevin Page]

We've spent a lot of time today talking about uncertainty and risk and whether we're confident about any of these numbers. For the third quarter, when we see the quarterly numbers come out, we think you could quite easily get a number around 1% growth.

We've been fooled a little bit by looking at the monthly basic price industry output data on a month-to-month basis in the past, but we think that in the third quarter you'll see, because of the information we've seen on retail sales, relatively strong growth in retail sales, and in consumption we'll see some bounce-back.

We'll see continued strength in the government sector. We'll probably see a little bit of bounce in the investment sector. Even in trade, where we've had eight consecutive quarters of declining real net exports, we'll probably see the first boost in exports in the third quarter. It will be a small boost. What will weigh down the growth numbers there will probably be imports.

So we think 1% is possible for the third quarter.

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

Thank you.

Just to expand a little bit on your conversation with Mr. Mulcair, can you explain.... This is information that should be available but is not available to you, and this is, I believe, the quarterly reporting that municipalities are required to do. Are they required to indicate jobs and things of that nature?

[Sahir Khan]

Sir, from our discussions with jurisdictions both provincial and municipal, we understand that there is some fairly detailed progress reporting, and specifically on implementation progress of the various initiatives they're undertaking. From what we've seen, we're not sure whether jobs is a specific indicator, but certainly other attributes associated with progress are detailed in these reports--or at least they're designed to be inputted and received by the government, so that would be our expectation.

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

So these are reports that the municipalities receiving money are required to submit quarterly. Is that right?

[Sahir Khan]

Yes, sir. The program has its own guidelines and there are reporting requirements from the recipients back to the government, so the government would be collecting this type of information. Our presumption, then, is that there's an availability of information on the quarterly progress of this program.

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

Do we know in what months the government would have received such reports already?

[Sahir Khan]

Well, sir, we know at least that there was an input period in June and we have specifically asked for the quarterly report. We have not yet received it.

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

So we know that such information exists and is in the hands of the government, detailing the degree to which progress has been made on various projects, which is precisely the information we've been looking for over many months. We know that exists, but we know that the government simply does not agree to give it to you. Is that right?

[Sahir Khan]

It's our presumption that it exists and has been reported back. Our understanding is that it's part of the program guidelines. But we have not yet received it.

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

Okay. Thank you very much.

[The Chair, Conservative, James Rajotte]

You have one minute, if you want it.

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

I'll end on that note. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

I'm going to take the next round as the chair.

First of all, Mr. Page, I want to thank you for all your work for this committee, and especially, as we're doing our pre-budget consultations, your work on the fiscal situation as we move forward. It's a very sobering outlook in terms of projected deficits, but it is, I think, a very good background for us as committee members as we deliberate over the recommendations we have been given.

As you might suspect, we've been given very few recommendations on how to reduce spending, but quite a few in terms of increasing spending, so it will make our decisions much more difficult.

I do, though, want to address your point on the output gap. You make a statement that “the level of real output compared to its potential indicates that the depth of the weakness in the Canadian economy is more severe than [in] the recession of the 1990s and similar to the recession experienced in the early 1980s”.

Could you expand on that? My recollection in terms of the unemployment rate and interest rates is that the perception is that the recession experience of the 1980s was much harder on the Canadian economy and on Canadian individuals and families. So could you expand in terms of comparing those two recessionary periods? Also, if you wanted to give more background on the output gap, I'd appreciate that.

[Kevin Page]

Maybe we should start with a little explanation of what's behind our output gap. Then we'll do a comparison of labour market and other indicators.

Do you want to start, Chris?

[Chris Matier]

In this report, what we've done is produce our own independent estimate of potential output. In previous reports, we relied on estimates from the Department of Finance over history and on going-forward estimates from the Bank of Canada and private sector forecasters. This time around, it's a fully independent estimate.

Potential output really reflects the output that would be produced if all the inputs in the economy were fully utilized. The unemployment rate would be at its trend level. Productivity would be at its trend level. It's a very useful metric for comparing previous recessions, as opposed to just comparing what the unemployment rate was in 1980 versus what it is now.

When you compare the past recessions in terms of the unemployment rate gap, you find that this recession is actually quite similar to those previous downturns. What's changed is--

[The Chair, Conservative, James Rajotte]

It's similar to 1980, but not to 1990.

[Chris Matier]

They're not that much different in terms of the gap between what we observed to be the actual unemployment rate and where we think it should be or where it is close to its structural estimate. What has happened through time is that these trends have moved. When trends typically move, it's somewhat misleading to compare levels across time.

[The Chair, Conservative, James Rajotte]

In terms of potential output, based on analyzing the output gap, are there policy measures? Are there things parliamentarians should be looking at in terms of fulfilling that potential output? We can look at indicators such as unemployment, but in terms of reducing unemployment or taking action so we've fulfilled that potential, are there areas this committee and other parliamentarians should be examining?

[Kevin Page]

Sir, we think it's our role to provide the economic and fiscal context. How big is that output? How weak is output in Canada? What is the unemployment rate gap relative to some measure of full employment?

We're quite comfortable in terms of analyzing stimulus spending in terms of the stimulus we've seen go out the door at the Canadian level, at the 2% level, and IMF practices.... We looked at various principles--timing, temporary, and the targeted nature--and we think that for most part the package we produced for stimulus in Canada is consistent with those three principles.

In the context of an output gap, what is significant is 5% in the third quarter and, again, not closing until 2013. Would there be measures you want to be mindful of? In the context of the unemployment rate, right now it is at 8.4%, and the gap is closing very slowly. Even in 2013-14, it still will be upwards of 6.5% to 7%. Are there measures? What do they look like?

These issues have already been raised here today, such as what the potential impact could be. Increasing EI premium rates is an example. The total cost to employers and employees would be upwards of $700.

In the context of trying to stimulate, to grow the economy faster, and to close the gap faster, what are the appropriate policies? We're more in a position.... If you put questions to us and ask us if we can analyze them in the context of this output gap, we'd be more comfortable doing that than recommending specific measures.

[The Chair, Conservative, James Rajotte]

So if we asked whether you could analyze if the stimulus should be carried forward or not, you could analyze whether that would reduce that output gap.

[Kevin Page]

Well, we can certainly if we get.... I mean, we've talked here today about stimulus and with the money going out there whether money will flow in 2009 and whether some of that will roll forward in 2010. We're quite comfortable in terms of looking at that type of information and what it would mean for the output gap and for the fiscal balance.

But yes, it would be in the context of your request.

[The Chair, Conservative, James Rajotte]

Okay. Thank you very much.

We'll now go to Mr. Mulcair, please.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you very much, Mr. Chair.

I would like to give Mr. Page an opportunity to repeat what he stated earlier on in French, in other words, unless his office receives the amounts unanimously allocated by the Senate and the House of Commons, he might as well close it down, quite simply. I'd like to start by asking him to repeat that in French. Then, I'd like to know whether he believes it is intentional, whether that is what some people would like to see happen.