Finance Committee on Sept. 27th, 2011

[Douglas Porter]

I think there certainly is more flexibility in Canada at this point than in almost any of the other major industrialized economies. On the monetary policy front, there are still things that can be done, of course. Interest rates can be cut. I think there's a very high barrier before we'll actually see the Bank of Canada cutting interest rates, but there is some room to go there. Even when we get interest rates down to zero—and the Bank of Canada has talked about this before—there are still options. There are things the Bank of Canada can do.

On the fiscal front, I would agree wholeheartedly with Glen's comments. I don't think there's any need for change at this point. Our triple-A credit rating is not in question. In a very bad case for the global economy, there is some room for Canadian policy-makers to move on that front.

Finally, I think the reality is that in any kind of a global downturn, we are going to see the Canadian dollar weaken, which will lend some support to our manufacturing sector and our tourism sector. That's not something we can control directly, but I think that would be a natural by-product of a downdraft in the global economy if it came to that.

The short answer is I do think there is some flexibility here, which is not the case in many other major economies.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Adler.

We'll go to Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair.

Thanks to each of you for appearing before us during these troubled times.

One of the things that helped Canada get through the last downturn was fairly consistent demand for commodities. That helped us during that period and since then during the recovery. With China having just reported a third month of contraction in the manufacturing sector, is there some fear that China will not be able to aid in Canada's recovery or that there will be separation from our trading partners in terms of their trends versus ours at this time?

[Glen Hodgson]

We don't do a formal forecast of China, but we look at the consensus forecasts. The view of other forecasters around the world is that China will still be able to grow by about 8% this year, plus or minus maybe a half a percentage point. It's absolutely true that manufacturing has pulled back in the last few quarters by virtue of the weakened demand globally.

China's biggest challenge right now is shifting from almost an over-reliance upon external sources demand--meaning export--to learning how to grow a stronger consumption base within the country. There are risk factors everyplace. You could look at the housing bubbles in Shanghai, for example. You could look at the fact that the Chinese have an underdeveloped financial system and are still developing instruments. But for the most part, most forecasters believe that China will still be able to sustain growth, not in the double digits any longer but at something like 8%. For me, that means chronically strong pressure on commodity prices, because we have a whole new source of global demand now, added through China.

Risky? Absolutely. China is going to have to go through a transformation internally, but we still build it into our thinking as a positive force on commodity prices.

[Scott Brison, Liberal, Kings—Hants, NS]

You've said that the government must not implement spending cuts at this time.

Mr. Porter, you've said that caution is the watchword and that there shouldn't be a change now in terms of cutting government spending at this time.

Mr. Schetagne, you've said that now is the wrong time to cut.

Mr. Hodgson, you've said several times “don't put on the brakes” and have said “no fiscal contraction”.

Mr. Leitao, you've said the same thing.

Further, Sherry Cooper, your colleague and the chief economist at BMO Nesbitt Burns, has described it thusly: “the misplaced belief that the road to economic prosperity is paved by near-term fiscal tightening, as espoused by...Prime Minister Harper...shows that we've learned nothing from Herbert Hoover's response to the Great Depression”.

Is it safe to say that all of you believe that now is not the time to cut government spending in Canada?

[Carlos Leitao]

Certainly. However, when we talk about fiscal austerity and we see what is going on in Greece, Portugal, and the U.K., and possibly in the U.S., the kind of fiscal austerity that is coming down the pipeline in Canada is fairly mild compared to that. We will still have a deficit next year in this country, a modest deficit, and there are some realignments in how the government is spending money, but overall, Canadian fiscal policy is still not as austere and not as restrictive as that in other countries.

What some of my colleagues have pointed out is that we still have the flexibility, if need be, early in 2012 to reverse some of that. We could do that. But I wouldn't put Canadian austerity in the same league as Greek austerity.

[Scott Brison, Liberal, Kings—Hants, NS]

You would make a good politician in some ways.

[Voices]

Oh, oh!

[Scott Brison, Liberal, Kings—Hants, NS]

Is now the time to reduce government spending in Canada, given that we're seeing, potentially, contagion throughout the European bank sector, seeing sovereign debt crises in Europe, and political and fiscal incapacity to deal with the situation in the U.S.? Is now the time to reduce government spending in Canada and change course?

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Carlos Leitao]

To change course? No. To have massive spending cuts? No.

[Marc Lavoie]

I would say that the prudent policy now would be to increase government expenditures, forget about “sound finance”, and move forward with an expansionary fiscal policy. It would be prudent, given all these negative signs around us.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

Unfortunately, his time is up. We'll have to move on to another round.

We'll go to Mr. Hoback, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you all for coming here this afternoon. I apologize for the late start because of the vote, but still it's great to hear your comments on the economy and what Canada should be doing.

I come from Saskatchewan, where the unemployment rate is about 4%. Our economy is booming. If you talk about recession or possible recession, people look at you cross-eyed. It's hard for me, in a lot of ways, to talk about spending or not spending, especially when we're looking at a budget that's going to come out in February or March next year. I guess what I'm trying to do is to find out some facts and things that we can actually say “Okay, what's concrete at this point in time that we can take forward?”

Most of you talked about being flexible, cautious but flexible. Basically it sounds to me as if there's an endorsement of what we're doing right now, that we should be ready or flexible in case we see things get worse. We don't have crystal balls, and I think the Prime Minister and the Minister of Finance have always talked about there always being flexibility with something moving forward. But there are things that we can do as a government regardless, to make us more competitive, to increase our productivity. I think the one area on which I'd like your comment is on the kinds of barriers or regulations that could or should be removed anyway.

I know, Mr. Hodgson, you talked about a bridge, I believe, in Montreal, the Champlain Bridge, that should be replaced not because of stimulus but because it needs to be replaced. Is there anything in government right now that should be replaced just because it needs to be replaced, whether it's regulatory or programs that no longer meet the demand or are no longer relevant? Have you identified any of those things, whether regulatory burdens or stuff like that we should look at?

Maybe, Mr. Hodgson, I'll start with you.

[Glen Hodgson]

Thank you very much.

We actually wrote a brief about three weeks after the election to give free advice to the new majority government, and it was a fairly comprehensive brief. We covered macro policy, which we're talking about today--that is, fiscal policy and the form of that--but also some of the micro adjustments required. I say this because our research program at the Conference Board is fully aligned around boosting Canada's real potential, raising productivity and prosperity for the country. It's a fairly long list. It's things like expanding our horizons when it comes to free trade and entering free trade negotiations with other parts of the world. We've made great progress in Latin America and we're now talking to India and the European Union. I'd like to see our being part of the trans-Pacific partnership, for example. Unfortunately, we have this thing called supply management that precludes our sitting at the table. That's the kind of barrier that's actually preventing Canada from seizing its full potential when it comes to free trade.

We believe we're severely under-invested as a country in infrastructure. We haven't done the numbers, but others have, including engineers and the Federation of Canadian Municipalities, and I think their number going back five years was of a deficit of about $130 billion in terms of infrastructure investment. That tells me there is huge scope for realigning government spending priorities and making sure we're making adequate investments in roads, ports, and bridges to ensure that the Montreal economy, for example, works well. Could you imagine if the Champlain Bridge actually broke and you could not have commerce between the south shore and downtown Montreal? That would be a huge loss to Montreal's GDP and to Canada's GDP.

So with things like that, reform is possible on many fronts. Maybe I can share the brief with you and we can have discussion about that in detail. It's on our website, by the way, but I will share it, perhaps with the clerk to share with the committee.

[Randy Hoback, Conservative, Prince Albert, SK]

It's interesting, because you talk about the bridge in Montreal. I have a bridge in my own riding in Prince Albert that's in similar shape, where we only have two lanes of traffic and normally have four lanes.

Again, there are things that have to be replaced just because it's time to replace them or they need to be replaced because they need to be fixed. It's not necessarily a stimulus package, just the reality of running a day-to-day operation of a good government.

I guess what I'm looking for is on the regulatory side of things, for example, having a consistent securities office across Canada. There are some things like.

Would you have any comment on that, Mr. Hodgson?

[Glen Hodgson]

Certainly. We're on the record and have been for some time now that there should be a single national securities regulator. That's not popular in at least two provinces; it's not welcome in Quebec and Alberta. That's why our finance ministers keep talking about a plan B, the passport system, things that would look like a national regulatory body.

We're on the record, though, talking about the need to eliminate barriers in many forms between provinces and to have much closer alignment between the federal government and the provinces when it comes to a whole variety of regulations. I could point to something like environmental regulation, for example, where we actually have processes that often run federally and provincially on the same project, when clearly the right outcome is to have a Canadian standard and one process that's much more efficient and yet protects the environment at the same time.

[Randy Hoback, Conservative, Prince Albert, SK]

Would you probably say the same thing about skills assessments, so that a plumber in Quebec would be recognized as a plumber in Saskatchewan?

[Glen Hodgson]

Absolutely. And workers who live in Quebec should be able to repair routes in Ontario. There have been discussions between provincial governments on that, but the more we can do to bring alignment between federal and provincial practices and across the country among provinces the better, because that's a natural way to boost productivity.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

We'll go to Monsieur Mai, s'il vous plaît.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

First of all, thank you for being here.

More specifically, I would like to thank Mr. Hodgson and Mr. Leitao for talking about the Champlain Bridge. The bridge is in my riding. I am the member for Brossard—La Prairie, and I am working very hard to get the government to invest in this matter.

As we have seen, reports show that Montreal's economy could lose some $740 million. Also, there could be a loss of $1.3 billion in productivity because of traffic issues.

This question is for all the witnesses and economic experts. Is there an economic reason not to invest in the Champlain Bridge right now?

[Carlos Leitao]

There is neither an economic reason nor a logical reason. I don't see what the reason is. I don't understand why this is being delayed.

Once again, I feel that this investment is important, not as a way to stimulate the economy, but because it has to be done. It is a very important link for the regional economy.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

That is exactly right.

Let's talk about job creation. In terms of the current state of the Canadian economy, the government keeps saying that the action plan from a few years ago is still valid and that no specific changes need to be made.

Without mentioning the stimulus, I would like to use Mr. Porter's words in the article from yesterday's Gazette:

Governments shouldn't be aggressively cutting spending when the economy is gasping for air. That's certainly the wrong prescription.

Are those your words?

[Douglas Porter]

I missed part of that. Sorry.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Basically you're saying that governments shouldn't be aggressively cutting spending when the economy is gasping for air, that it's the wrong prescription.

That's basically what Sherry Cooper, your chief economist, said in another article, that the economic policies advocated by Prime Minister Stephen Harper and others in response to the European debt crisis could lead to another global recession and financial crisis.

Do you believe that it's now time for the government to roll out a new plan that would at least set out the objectives, and maybe the priorities, if we're talking about infrastructure? Do you think we should do that now?