Finance Committee on May 31st, 2012

[Peggy Nash, NDP, Parkdale—High Park, ON]

I've seen you on television. I guess you're a public commentator as well.

[Jim Stanford]

Yes, I do that. As part of my work as an economist for the union, I comment publicly on economic policy issues.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay.

You talked about Canada having one of the fastest population growths among the OECD and that we're still in a fairly fragile situation—I don't know if that's putting words in your mouth—but we're not fully recovered from where we were before the recession. Certainly, there have been announcements of public sector job cuts, 19,000 in addition to 10,000 previously announced.

I'm wondering, with these public sector cuts and some of the other changes you've mentioned, such as with OAS, EI, and immigration, do you agree that this is a budget that will create jobs and prosperity for Canada? That is the short title of the budget implementation bill.

[Jim Stanford]

I would judge that the general fiscal stance of this proposed budget is definitely contractionary. The reduction in the overall level of government spending is going to have a contractionary effect on the overall spending in the economy. Then, of course, the specific departmental measures, including the job cuts that you've mentioned, will be part of that overall trend.

In terms of the incremental changes to spending and economic activity from this budget, I would view it as contractionary, and it would result in a net reduction in economic activity.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay.

What do you think the impact will be overall on employment? I'm not asking for numbers. I'm just asking, when you say contractionary, what will that mean for the average Canadian who's wondering what this is going to mean for his or her future?

[Jim Stanford]

Well, individual Canadians, and it's a significant number, whose jobs will be directly eliminated by the measures will obviously experience a loss in employment.

Then there's the indirect macroeconomic effect of the general retrenchment in government spending. Economists call that effect “fiscal drag”, which means to say, you have a major player in the economy, government, pulling back its expenditure, and then you have not just the jobs that depended directly on that, but the indirect jobs from the knock-on spending.

Fiscal drag depends on what's happening elsewhere in the economy. If the rest of the economy—consumer spending, housing, exports, business investment—was growing significantly or quickly or vibrantly, then you wouldn't notice the fiscal drag effect in the overall performance of the economy. If those other sectors of the economy were not growing or were stagnant, then the impact of the fiscal drag could be enough to actually throw the whole economy into a recession.

That's clearly what's happened in Europe. The scale of the fiscal austerity obviously has been worse than is contemplated here. However, the fiscal drag effects of any contraction in spending by government, other things being equal, is a net negative impact on overall employment and growth in the economy.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

I have so little time to ask questions. What do you think the impact could be for the average person in terms of income levels? I'm thinking of not just the quality of jobs, but income levels in terms of wages that are being paid. I'm concerned about EI and the temporary foreign workers program.

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Jim Stanford]

I think a number of these measures that are aimed at compelling more labour supply into a labour market that is already marked by excess supply will tend to have a depressing impact on the overall level of wages determined in the labour market.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair, and I want to thank all the witnesses for their contributions today.

I'd like to start with Madame Brisebois.

You will recall in the late 1980s, when the GST was brought in, there was a cross-border shopping boom in the years 1988, 1989, 1990, and 1991. From that boom to now, if you were to graph that out, has it decreased from that peak? Has it increased from that peak? Has it remained stable? Could you shed some light on that?

[Diane Brisebois]

I'll use both words and gestures. It has increased substantially.

[Mark Adler, Conservative, York Centre, ON]

It has increased substantially. What's your explanation for that?

[Diane Brisebois]

The brief gives you an in-depth explanation.

Most consumers are much more value-conscious now than they've ever been. They are price-conscious. A large portion of the population now lives within an hour of the border. We've seen urban growth. It has brought more and more people closer to our U.S. neighbour, so it makes it easier, in fact, to cross and to shop. There's been an effort, even with increased security, to ease the crossing and the returning of shoppers, especially same-day shoppers. It is all of those things.

Also, obviously, there's the difference in pricing between Canadian goods and U.S. goods. All of this has in fact created an increase in cross-border shopping.

[Mark Adler, Conservative, York Centre, ON]

Border guards were moved from revenue—historically they were revenue collectors—to more of a security role, which they have now. In terms of revenue collection, is that a contributing factor to people bringing more items back across the border, in your opinion?

[Diane Brisebois]

Yes, absolutely. Most consumers are very much aware that the focus is on security and not on collecting duties or taxes. The effect, unfortunately, is that we are estimating, as the Bank of Montreal has estimated, over $20 billion spent in the United States. I think we can all do the math and understand how much tax is not collected in this country and the impact it has on communities, on businesses, and on workers. It has a huge impact.

[Mark Adler, Conservative, York Centre, ON]

Just going back to when the initial Canada-United States Free Trade Agreement was negotiated, did the Retail Council of Canada support that agreement?

[Diane Brisebois]

Absolutely, we did, yes.

[Mark Adler, Conservative, York Centre, ON]

Does the Retail Council conceptually support free trade?

[Diane Brisebois]

I would suggest that it goes further than conceptually supporting free trade.

[Mark Adler, Conservative, York Centre, ON]

Yes, it does, in all respects.

[Diane Brisebois]

I think the point, though, is that retailers and importers in Canada who are large employers are simply saying that this is the reality. We will never stop consumers from shopping where they want, when they want, but we need to make sure that we try to develop a level playing field. We're not here complaining that people are crossing. We're here saying that there are ways to level the playing field so that tax revenues and investments stay in Canada.

[Mark Adler, Conservative, York Centre, ON]

You support the right of Canadians to exercise their ability to engage in free trade—

[Diane Brisebois]

Absolutely.

[Mark Adler, Conservative, York Centre, ON]

—both at the retail level and at the individual level.