Evidence of meeting #31 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was debt.
A recording is available from Parliament.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Brison.
I just want to follow up on a few issues here. It was mentioned in your opening presentations that Canada has recovered all the jobs lost during the recession. That is not true, though, in the United States. Another challenge in the U.S. is that there has been a lack of earnings growth in the U.S., so I want you to address the earnings growth issue here in Canada, as to what it has been and what you expect it to be over the next two years.
Mr. Tal.
Deputy Chief Economist, CIBC World Markets
Let me say yes, we were able to recover all the jobs, but if you look at the distribution of those jobs you can see that roughly one-third of all the jobs created during the recovery came from two sectors: construction and the public sector. You don't have to be an economist to predict that those sectors will not create too many jobs over the next twelve months. What we have seen is not only that the number of jobs is rising, but also that the quality of employment is rising significantly because those are high-paying jobs.
I predict that over the next six to twelve months not only will you see the number of jobs created in the economy slowing, because you will not have construction jobs and public sector jobs, but also, the quality of employment will go down. Therefore, I see income growth in Canada slowing in a very significant way. That's part of the reason why we believe consumer spending in Canada will not rise in a very significant way.
Senior Vice-President and Chief Economist, Conference Board of Canada
We estimate income growth in two different ways.
We have a number built into our forecast. We estimate that income will grow by about 2.2% to 2.3% for the balance of this year and into 2011.
We also do a survey that's not yet public. We do a survey of about 500 large employers, public sector and private sector, and then come up with a number. Last year, the number was 2.7%, which was higher than what we were forecasting. It's not a perfect survey, but we have a fairly good sense for what the number is going to be going forward. I wouldn't be surprised if that number is about 2.5% in 2011.
Conservative
Vice-President , Economic Studies, Mouvement des caisses Desjardins
It is true that there is the issue of the quality of employment and that many of the jobs created were part-time. They may not be jobs people want, and it may not be a very good distribution of jobs, but at the very least jobs were created.
In the United States, however, SMEs and businesses that normally create jobs have not done so. They still need to recover at least 7 million jobs that were lost during the recession.
So there are certainly risks, but at the same time, jobs have been recovered, which has led to increased consumption and better incomes. So we have been more successful, but there will still be risks in the quarters and years ahead.
Chief Strategist and Chief Economist, Laurentian Bank of Canada
I just wanted to add that the Canadian job market has in fact performed very well. The U.S. is actually facing a very significant structural shift. Thankfully, we are not in the same boat. The U.S. is now having to deal with issues surrounding long-term unemployment, and those issues are not being felt in the same way here. So we are in better shape in that regard.
Conservative
The Chair Conservative James Rajotte
Thank you.
I have about two minutes left. I do have at least two more questions, so perhaps I'll put them on the table and see how much can be addressed.
You talked about the debt and the quality of debt. One of the things that Canadians did during the recession period, because of the low rates, was to purchase homes. There was an article in the papers today with respect to whether further government action should be taken on housing to address the debt issue. I want to ask whether any of you four think we should do anything on the housing side.
Next, you talked about the manufacturing sector. One of the things I've supported is changing capital cost allowance rates so you can write off your equipment more quickly. A lot of economists say that's in fact a subsidy, a distortion of the economic life of an asset, and that you should not be doing that.
The government is in fact moving away from accelerated CCA rates for the manufacturing sector, but I just want your views as economists. Do you see that as a subsidy? Also, whether you see it as a subsidy or not, is it something the government should look at going forward in regard to the issue of addressing productivity and companies becoming more productive but also upgrading the equipment and the processes they have within their facilities?
I have about a minute, if you can just very quickly answer this.
Deputy Chief Economist, CIBC World Markets
Let me talk about the housing story. I'll let other people comment on the manufacturing.
The housing market is slowing significantly. House prices are falling everywhere, especially in the west, but also in central and eastern Canada. I think this will continue. The market is already adjusting and taking care of the business. At this point, I don't think the government should introduce anything, given the fact that the economy is already slowing. Doing so would really cause major risk.
Senior Vice-President and Chief Economist, Conference Board of Canada
I'll answer your question by putting it this way. If I had to choose between extending the accelerated CCA rates and reducing corporate taxes, I would probably invest my money in accelerated CCA for a period of time, because it really does allow firms to then invest more in technology and the kinds of things they're going to have to do right now to improve their productivity. That is, if you had to choose.
Chief Strategist and Chief Economist, Laurentian Bank of Canada
Just very quickly, one of the surprises, one of the disappointments in Canada so far, has been the poor performance of investments. Private investment hasn't been as strong as we thought it would be. So any sort of measure that would promote investment, even if it smells like a subsidy, might be welcome in the short term.
Conservative
NDP
Thomas Mulcair NDP Outremont, QC
Mr. Chair, Bank of Canada Governor Mark Carney recently gave chartered banks some free advice. He told them they would do well to make cuts to their own compensation and senior management. When you know that Canada's chartered banks raked in $15 billion in profits during the first 9 months of the year, you are not supposed to worry because they have promised to share those profits with themselves in the form of $7.5 billion in executive bonuses.
Mr. Leitao, what do you think of Mr. Carney's comment?
Chief Strategist and Chief Economist, Laurentian Bank of Canada
I will let my colleagues from the big banks answer that. As for us, the small banks, we do not have that kind of compensation. I will say, however, that yes, Canadian banks are very profitable, and that has served us well. It has helped us to get through this crisis and to preserve an important financial system. For every dollar we make in profit, we also pay a lot in taxes. The banking sector is a major contributor to government coffers. But executive compensation is not really much of an issue for us.
Chief Strategist and Chief Economist, Laurentian Bank of Canada
I am not a volunteer; I get a salary all right, but as far as bonuses go, we are not in the same league as our colleagues.
NDP
Thomas Mulcair NDP Outremont, QC
I am sure that, in terms of your analyses, you are in the same league. You are merely more modest.
Mr. Tal, I want to pick up on something you said at the very end, when we were talking about tax cuts for the most profitable corporations. You said, “if you can afford it”.
Can we afford it?
Deputy Chief Economist, CIBC World Markets
At this point, for the next 12 months, I don't think we can afford it. I think, given--
Deputy Chief Economist, CIBC World Markets
I don't think we can afford it.
I think that given the fact that there is so much uncertainty, I would not change the system so quickly. I would allow monetary policy to do the work. I would allow interest rates to remain low, and, if needed, would actually cut interest rates as the first wave of improving the economy. I would be very careful in tackling the fiscal situation by cutting taxes at this point in time.
My comment was from a long-term perspective and the medium term, but not for the next 12 months.
NDP
Thomas Mulcair NDP Outremont, QC
Good, that's a very clear answer. We're so unused to clear answers around this table, I want to say thank you.
Thank you, Mr. Chair
Conservative
Liberal
Paul Szabo Liberal Mississauga South, ON
Thank you.
I want to go back to where we are and where we might be going. We have an aging society. Budgets don't generally want to anticipate revenues, but they certainly want to provide for the expenses. The aging society is becoming a major area for planning and investing. I'm wondering whether, if you're going to suggest that we need to move into contingencies and other reserves like productivity reserves, we should also start to identify the significant priorities that we should commit to now, because you can't flip a switch in the short term. In the real world, it takes years. I'd be interested in your comments about thinking ahead.