Finance Committee on Nov. 2nd, 2011

[Kevin Page]

Sir, as you know, we have done some work on crime legislation. We focused specifically on the Truth in Sentencing Act earlier. Now I'm looking at the costs of the omnibus crime bill, and it's clear that, depending on the bill, there are costs both at the federal level and at the provincial level.

When we did our work on the Truth in Sentencing Act, we weren't aware, and we were discussing with provinces that they had done detailed analysis of what the cost would be. We were surprised, which didn't allow us to actually do our work. We couldn't establish a baseline because they had not actually established a baseline for themselves going forward.

We're not aware actually that there has been a lot of work done. We haven't seen it from the federal government, to answer your question explicitly. We're not aware that the provinces have actually provided these sorts of estimates as well on what the impacts will be.

[The Chair, Conservative, James Rajotte]

Please make it a brief question and answer.

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

What impact will the projected EI premium increase of 5.6% in 2012, a $1.2 billion increase, have on jobs in Canada? What level of drag will that have on job creation?

[The Chair, Conservative, James Rajotte]

Give a brief response, please, Mr. Page.

[Kevin Page]

I don't have a job impact for you, but I could tell you that we are assuming an increase on our revenue side, starting next year, of 10¢ per year right up to 2017, so effectively a 50¢ increase. We could tell you that in our revenue projections it's bumping up revenues in 2016-17 by roughly $7 billion, so that's a big part of the revenue increase we're building into our forecast going forward. So that's implicit in our deficit track.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

We'll go to Mr. Hoback, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you all for being here this afternoon. Mr. Page, its good to see you here with your staff.

I must say, I'm really looking forward to working with your staff as you come to a way to develop the private members' bill costing. In talking with your staff, I think we have some ideas on how to move forward on that. It will be a positive for all members of Parliament, and I look forward to your cooperation on that.

My questioning this morning is on the stimulus package, and the idea that the opposition parties keep throwing on the floor that we need another stimulus package. I have a hard time with that. When I was back in my riding at the last break, talking to my mayors and towns and communities, I heard that they all have infrastructure needs over time, but when I talk to them, I find they don't have the ability to actually find the labour and the people to do these infrastructure projects.

Of course, I come from Saskatchewan, where we're looking for plumbers and electricians, and anybody with a trade who can hold a shovel can have a job, basically--and a good job. So I find it bewildering when we start talking about economic slowdowns. But when I go back home everybody is talking about building—another potash mine here, another potash mine there, more oil being developed, more gas being developed, uranium and mining being developed. I have to take everything I hear with a grain of salt, both here in Ottawa and back in Saskatchewan.

TD economists put out a report last week saying additional fiscal stimulus at this time in the Canadian context is not appropriate. I will quote them:

With enduring costs associated with stimulus and only temporary benefits, the bar dictating the need for additional support should be set fairly high.

Do you agree with that comment, “should be set fairly high”? By setting it high, what would be the measurement? How would we measure the time or the appropriate place to say that we need to transition from the track we're on now to a track where we need to borrow a pile of money and go into further deficits and start a stimulus package?

[Kevin Page]

It's a very interesting policy question, and there are all kinds of trade-offs that I think go way beyond our mandate but that I think are important issues for members of Parliament.

I think I can start by saying that when this government introduced stimulus in 2009-10, it was in the context of a significant weakening of the economy, again with significant uncertainty going forward, but knowing that the economy was going to operate well below its capacity. So in our terms, when economists talk about an output gap, in 2009 we're talking about an economy operating at close to five percentage points below its potential. Now we're saying, to update this context to 2011, we're operating somewhere in the nature of just below 3%, or two and a half percentage points below our capacity. And we're saying as you go forward, we don't really know.... I don't think it's fair to say there is just massive uncertainty, as expressed on both sides of this table, about what will happen in Europe, about what will happen in the United States, but we know that will have an impact on Canada.

We're saying that in our situation this will widen the output gap further, so we'll see a little bit of a dip in the output gap, something similar to what we saw in the 1990s, before it comes back up and closes.

Again, whatever decision is made by the government and whatever advice you provide...I think first as economists we want to give you a sense of where we think the economy is operating vis-à-vis its potential. This is significant. We're talking about--and I'm sure you heard this from Mr. Carney as well--a context of a world financial crisis, growth operating below its potential for a long period of time.... So in that context, any stimulus package has to be in the context of what it will do in terms of helping closing that output gap.

The government said that with this $47 billion package it could add an additional two percentage points to GDP and an additional 200,000 jobs.

I think for the most part, in our analysis, when we looked at those numbers they seemed reasonable from the point of view of our economic models. I think the IMF as well has been relatively supportive of the government's efforts in that stimulus package.

But going forward it's a judgment call you have to make. What are the risks of literally seeing a recession in Europe and potentially the United States, and what would that mean for Canada vis-à-vis the kind of growth forecast you're getting, mostly from PBO, from the average private sector forecast, the IMF—just sluggish growth. Even with sluggish growth, you have an economy operating below its capacity for a long period of time. Then you get into questions of design. How do I design a package for that kind of experience, and what would be the appropriate tools?

So it's a recession or a period of weakness that's very different from what we saw in the early 1980s, which was a very steep recession. You're talking about something longer. You'd have to design it in that kind of context.

[The Chair, Conservative, James Rajotte]

Make it very brief.

[Randy Hoback, Conservative, Prince Albert, SK]

I think it would be fair to say that what we've seen in 2007-08 and what we reacted to...it is totally different now from what we were reacting to in 2008. Our businesses weren't prepared for this type of dip. Our banks were in a good situation, but a lot of banks in the U.S. weren't prepared for this type of dip. But now, if you look at our businesses, a lot of them have socked away some capital. So it's not fair to compare what happened in 2008 to what we're seeing today. Is that fair to say?

[The Chair, Conservative, James Rajotte]

A very quick answer.

[Kevin Page]

There's still significant uncertainty. We've had a stimulus package. We're now talking about a debt-to-GDP ratio in Canada of 35% vis-à-vis where we are hoping to be at 25%, and other countries have experienced the same thing as a result of this recession. So it is different. The context is different.

[The Chair, Conservative, James Rajotte]

Okay, thank you, Mr. Hoback.

We'll go to Mr. Mai, s'il vous plaît.

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

Thank you, Mr. Chair.

First of all, thank you very much for being here. I can't say enough how great the work is that the Library of Parliament has done. You've helped us a lot. Being a new member, there are a lot of things I can learn thanks to you. You've been doing great work regarding the F-35 and Bill C-10 and everything.

Just from my understanding, and for budget purposes, you know there was a motion brought forward by members opposite, and it was adopted here, to have the PBO automatically always provide the committee with detailed and comprehensive costing analysis of a private member's business item. Our concern was...we know you're busy, but maybe you can tell us how that will affect you in terms of the PBO, and if that will be possible or not. If it is possible, how will that affect other work you're doing?

[Kevin Page]

Thank you.

First of all, it is part of our mandate to provide costing for private members in the context of private members' bills. We've found, just in the various work that we've done in the past--it's up on our website--that we've actually learned a lot, and we've really appreciated the kind of engagement we have had with members of Parliament. So we look forward to that kind of work.

It certainly will put capacity pressures on us. It's fair to say that not just PBO but other departments are looking at restraint. We're trying to restrain our spending. We're having discussions within the Library of Parliament on how to restrain our expenditures to potentially shrink our budget, how we would deal with it. So it's one of those issues where, literally, if we were to absorb a 5% cut, we would almost like to come back to you to say, here's our mandate; we need some advice as to where you'd like us to focus.

So we would probably need some type of interaction. But again, we look forward to doing the work. It's certainly a consistent part of our mandate, and we've learned a lot by doing the work.

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

Thank you very much.

Regarding your report, we're concerned with household debt. You also mentioned that might have a negative effect on the growth of the economy. Can you expand more on that?

[Kevin Page]

We've noticed, really over the past ten years, a significant increase in the amount of household debt, both credit and mortgage, that's being carried relative to personal disposable income. We're now at levels of debt relative to personal disposal income that we've never seen before. When you're an economist and you see these things that don't look sustainable, they're probably not sustainable, so something has to happen to correct them.

As economists, we feel this will mean that the rate of growth of real consumer spending over the next few years will be slower, so we've adjusted our forecast downwards to deal with that. That will potentially account for one of the big differences between our forecast and even the average private sector forecast. We think you have to recognize that consumer spending has to be slower. You have to have balance sheet repair at the consumer level.

Perhaps Chris....

[The Chair, Conservative, James Rajotte]

You still have two minutes.

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

What will the impact be on individuals if we continue the way we're going and they continue getting more debt?

[Kevin Page]

Again, we tend to look at the relationship as really an equation. You have the buildup of debt, but you have growth in incomes, and the growth in incomes is tied to the growth in the economy. Obviously, as everyone does, we want the economy to grow. Good, healthy balances overall can contribute to some of that growth.

What it will mean for individuals--and again, we actually tend to look at it more from a macro perspective than from an individual perspective--is a slower growth in consumer spending going forward, so that we can bring back the savings rates to more sustainable levels, bring back the amount of debt relative to income over time. We've sort of built it into the forecast, but that does contribute to sluggish growth over the next few years.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Mai.

Mr. Adler, go ahead, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair.

I too want to welcome Mr. Page and his colleagues here this afternoon.

I have a few questions. I want to preface my question. There's no doubt that Canada is an emblem of stability around the world. Our economy has demonstrated great resilience and flexibility. We've been recognized by a number of international economic organizations around the world as having the leading economy among G-8 countries. You yourself just said a little while ago that we are in good shape and we have a good plan.

In your report you strongly suggest--and both the IMF and the Bank of Canada have said the same thing--that the two biggest threats to the Canadian economy are from outside our border, namely Europe and the United States. Could you comment on that? And I'll follow up after.

[Kevin Page]

As has been discussed really across this table, we think the significant risks to the economic outlook are external in nature, and that's one of the reasons we've seen softening growth projections across the private sector, and certainly by the bank and by us. But we're budget officers, so when we're trying to provide advice to you on fiscal policy, we want to make sure we're having as much focus as we possibly can and make sure we have credible fiscal policy in Canada. It also means looking at the medium and the longer term.

[Mark Adler, Conservative, York Centre, ON]

Yesterday Craig Alexander, from TD Bank, released a paper entitled “No to Stimulus, Yes to Deficit Reduction in Canada”. Is that something you would agree with?

[Kevin Page]

Again, it's really what we provide for you as a planning environment. We want you to understand where we think the economy is vis-à-vis potential, what the nature of our fiscal balance is, how much is structural, how much is cyclical. So I think it's your policy choice to say, “Here are the trade-offs we're prepared to make in order to get back to balance”. I think we do have a plan that gets us close to balance over the medium term, and that's a good thing.

In terms of saying yes to stimulus or no to stimulus or fiscal consolidation, we have a plan right now whereby we're making that shift from stimulus to consolidation. We're okay with that. In the analysis we have done on fiscal sustainability, what we have said is that we cannot lose sight of the longer term. As you get to the second half of this decade and move into the next decade, we're dealing with significant demographic transition, and there are fiscal issues associated with that.