Evidence of meeting #40 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bank.
A recording is available from Parliament.
4:50 p.m.
Governor of the Bank of Canada
Yes, I understand.
We do have conflict of interest provisions; we do secure cooling off periods that are of appropriate length for individuals who leave, as does the government with people who are more junior in the ranks of those institutions. The responsibility—and that's my responsibility, the senior deputy's responsibility—is to ensure that appropriate arrangements are put in place for all our employees. We will discharge these responsibilities and we are responsible to ensure that this is the case.
4:50 p.m.
Conservative
4:50 p.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Mr. Carney, the Canadian dollar has been strong and flirting with parity, and the projection is that it might go back again and may be as high as $1.05, I heard, which is interesting. That's obviously driven by such things as the U.S. printing money and the demand for the resources we export.
At the same time, a high dollar means that you have pressures on the export manufacturing sector. All of a sudden its goods for export to the United States are not going to be as attractive, because of the strength of the Canadian dollar.
Is there a point at which there should be some concern about the potential impairment of the manufacturing sector?
4:50 p.m.
Governor of the Bank of Canada
As we indicated earlier, we manage monetary policy for the entirety of the Canadian economy, not for a specific region, not for a specific sector. Further to the point, we manage monetary policy specifically to achieve the 2% inflation target. The health of the manufacturing sector is obviously something we follow with great precision, both in our individual surveys and with data and with visits. Personally, I've been out to a variety of manufacturing locations across the country in the course of the last several months, and we are following the progress of the Canadian manufacturing sector.
We are aware of the pressures. We are also aware of the responses that have been seen from key manufacturing industries and firms that are starting to head in the right direction to build the productivity that we need.
We look at the level of the dollar, the persistence of strength of the dollar, the volatility around the dollar, as to how it affects the pressures on inflation in Canada. Then we will take that, with all other factors that influence the pressures on inflation in Canada, and ensure that we manage monetary policy to achieve what is a very clear target, for which we are accountable.
4:50 p.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Just quickly, here is a parallel. You said that growth projections are going to improve the lot for Canadian families. But if you break down Canadian families, among the seniors and near-seniors who are living on fixed incomes the low interest rate scenarios are causing some pressures on them because of the lower cashflows they're able to get to sustain themselves.
So I guess the question really is, are there any consequences, after a sustained low interest rate scenario, that would in fact translate into other extraordinary costs to handle the problems created by increased poverty among seniors?
4:55 p.m.
Governor of the Bank of Canada
We are aware that for people on fixed incomes, or more specifically for whom an important part of their income is the product of investments—particularly investments in bonds and broader fixed-income instruments—the low-interest environment is an adjustment, and I don't mean to underplay it.
The level of interest rates is appropriate to achieve the inflation target. Ultimately, Canadians need to retain the confidence that we're focused on the core objective that has been delegated to us. Just as we couldn't swing and manage interest rates for a certain class of investors, we can't swing and manage interest rates for a certain class of the economy.
4:55 p.m.
Conservative
The Chair Conservative James Rajotte
You have about one minute. You'll probably have one more round, too, Mr. Brison.
4:55 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Sure.
My question is about gross debt numbers as a percentage of GDP. If you combine federal, provincial, and municipal debt, according to the Department of Finance figures Canada is at an 82.5% debt-to-GDP ratio. This is actually higher than that of the U.S., which is at 75.5%; higher than that of the U.K., which is at 72%.
With public debt levels climbing at all levels, and with the aging demographic and the rising social costs, what should the government prioritize now: deficit reduction or tax reduction?
4:55 p.m.
Conservative
4:55 p.m.
Some hon. members
Oh, oh!
4:55 p.m.
Governor of the Bank of Canada
Let me, if I may, make a couple of points.
The gross debt levels in the country have become more elevated, obviously, in the course of the recession. They are not as high as they were in the mid-1990s, when they approached around 100% of GDP. Obviously, demographics were in a different position then from the one they are in now, as we've discussed at length here.
It's important as well, when looking at the debt situation in the country, to consider net debt, because the federal government particularly has considerable assets, not least in the Canada Pension Plan, and there are some cross-holdings in it. And Canada's situation—the net debt, including federal and provincial—is superior to those of the United Kingdom and the United States.
That said, what is important and was acknowledged by the government at the core of the G-20 Toronto commitments is to achieve sustainable fiscal balance over the course of the next five years. The Toronto path for that is very clear: a halving of deficit by 2013, and achieving a sustainable level of debt to GDP in all G-20 economies, including Canada's, by 2016.
4:55 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Mr. Brison, you will have another round.
Mr. Paillé, you have the floor.
4:55 p.m.
Bloc
Daniel Paillé Bloc Hochelaga, QC
I had other questions regarding the hazards and the indebtedness ratio, but I would like to come back to Mr. Timothy Hodgson's role—perhaps I will be more calm than my colleague was.
As I have already been awarded contracts as a consultant for governments, I know that there are cooling-off periods. They depend on the period of time during which one has worked. There is always a minimum period, and this period is established by considering the nature of the position that was previously occupied and the nature of the upcoming position.
Just now, you introduced Mr. Hodgson as a very high-level adviser with regard to the regulation of over-the-counter derivatives, with regard to maintaining the resiliency of the pension markets and the adequacy of the capital of financial institutions. In fact, this is how he is introduced. Up to this point, I agree. I think that he was hired because of his exceptional capabilities in these areas, for 18 months. We could say in more familiar terms that when you come out of the Bank of Canada, you're less naive; you have gained some value, and valuable knowledge.
Besides, I also note that he is the chief representative of the bank in Toronto with regard to monetary policy. From Toronto, he directs a team from the Bank to maintain communications with the Toronto financial markets. Mr. Hodgson currently sits on two committees, and one is the very important Monetary Policy Review Committee, and the other is the Financial System Review Committee.
I would like to have a simple yes or no answer to my question. At the time when Mr. Hodgson was hired, did the contract between him and the bank indicate the details about the cooling-off period, as we could say as well in Chinese or in Latin as in English? I do believe in foresight, but, in other words, was he already aware of what his cooling-off period would be? Was this provided right from the outset in the hiring contract?
5 p.m.
Governor of the Bank of Canada
First, I would like to make a clarification. The committee in charge of monetary policy is the governing council of the Bank of Canada, which is composed of myself as governor, of the senior deputy governor and four other deputy governors of the bank. That is all. There are six of us.
5 p.m.
Governor of the Bank of Canada
There is a committee, comprising about twenty people, that provides forecasts and reports on current conditions in finance and economy, but it is the governing council, with its six members, that manages the bank's monetary policy.
5 p.m.
Governor of the Bank of Canada
He manages the bank's financial policies.
To give you a more specific answer, I can tell you that it is no; there is no cooling-off period stipulated in his contract.
5 p.m.
Bloc
Daniel Paillé Bloc Hochelaga, QC
Do you think that this is sound management? Today the report of the auditor general on the oversight over chartered banks was published, but the Bank of Canada was not reviewed in that report.
Far be it from me to cast doubt on these matters, but I believe that it would have been better, for a high-level manager who is hiring somebody, to stipulate this kind of cooling-off period. Let me tell you that I am somewhat astonished, because in the government, when contracts are signed by consultants—as it was my case, and my colleague from Outremont had much to say about it, a year ago—cooling-off periods are established.
5 p.m.
Governor of the Bank of Canada
In Mr. Hodgson's case, he is working on two or three specific reforms. He is an executive banker. He is not an expert in derivatives—
5 p.m.
Governor of the Bank of Canada
He is not an expert in shareholders equities, but he is an expert in negotiation. More specifically, with the reform of over-the-counter derivatives, this involves extensive negotiations between us and the bankers, between us and the funds, between us and the Americans, the English and the Europeans. These are broad negotiations. He is working in the field of mergers and acquisitions. He is specialized in investment bank services. This is important.
5 p.m.
Governor of the Bank of Canada
For this reason—
This is not someone who comes from the derivatives world, works on derivatives, and goes back to the derivatives world. This is someone who does equity issues, who does mergers and acquisitions, who's a negotiator, and who is an expert at execution—so that we are the experts in derivatives, we are the experts in these reforms, we are the ones who make the final decisions—
