Evidence of meeting #32 for Finance in the 41st Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was million.
A recording is available from Parliament.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
I have an MBA in finance, but I don't think many people who are listening do. So I am curious if you could put that into layman's terms? So what you're saying is that for every one percentage point....
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
Increase in the interest rate? Effective interest rate?
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
You would see a deterioration in the budgetary balance of $800 million.
Conservative
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
That's in the first year. It would build to $2.3 billion by the fifth year. So it would have a dynamic effect.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
Absolutely. So what are we paying right now in interest charges per year?
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
Right now, on public debt charges in 2010-11 we have paid roughly $30 billion.
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
Thirty billion dollars in public debt charges.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
Thirty billion dollars, and what are we paying in interest?
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
The effective interest rate on that depends. The interest rates that we use when we do these projections are based on the private sector forecast. The short-term rate that was used for that was just below one percentage point, and the 10-year bond yield that we use for that forecast was 2.6%.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
So you're telling me about what would happen if we went back to about a 10% interest rate, which I think would be easily hit if we went back to what happened in the eighties? Would that be fair to say.
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
Ten percent would be historically, as you said, very high.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
It would be an absolute nightmare. So what would the situation be? There would be $800 million per percentage point, but we're talking about nine percentage points, which would have a compounding effect. So what would be the interest charge if we went back to 10%?
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
My arithmetic is very poor, but that would be a big number.
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
Well, as I said, if you went by 10 percentage points, it would be about $20 billion over a five-year period.
December 1st, 2011 / 12:15 p.m.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
Over a five-year period. All right. So it would be very significant indeed.
It would be fair to say that, if this were a home, if this were household debt and we were paying a mortgage, we would want to get rid of that debt as quickly as possible. Not only do we want to make sure we balance our books as quickly as possible, but we want to make sure that we pay down public debt and get rid of any interest charges as quickly as possible. Is that fair to say?
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
Yes, I think the Minister of Finance has been quite clear that having stable and low debt levels is very beneficial to the Canadian economy.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
So the only way we can really do that at this stage on a going-forward basis, because we and other governments have budgeted things, is to grow our economy. We either have to slash the heck out of all social programs in this country, including transfers, or we have to grow our economy.
Is that fair?
Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance
Well, to reduce the debt level, to start paying down debt again, we actually have to get back to a budgetary balance at some point. Growing the economy, obviously, helps in managing that burden, but in terms of paying debt down again, you have to get back to a budgetary balance, which the government has committed to do over a medium term.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
You said it helps. Wouldn't you suggest that in this particular case with our ongoing budgetary restrictions, the only way we could do that is by growing the economy?
