Finance Committee on Oct. 29th, 2013

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Keddy, please.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chairman.

I think what's being overlooked here.... It's almost, Mr. Chairman, the story about the emperor who has no clothes. What happens—and we see it happen all too often—is that independent members of Parliament are allowed to hold up report stage with hundreds, sometimes more, quite frankly frivolous and redundant amendments that would never have a chance of getting passed by any measure through the House, and often don't even get support from the opposition parties themselves.

So let's be clear. This for the first time allows independent members of Parliament to appear at committee to present their motion, to present their amendments, and to present arguments on behalf of those amendments for, as the chair said, up to a minute or two minutes. That is more than fair. I think it corrects an imbalance, and it allows report stage, after the committee has done its work, to proceed in a reasonable fashion.

The other point that needs to be made is that if the opposition members are extremely concerned about making sure that all independent members of Parliament are heard at committee, they have every right to open up one of their seats for any independent member of Parliament to present at committee. It's not up to the government to do that; it's government legislation. It's up to the opposition to do that.

So there are a number of ways to bring this forward.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Caron, the floor is once again yours.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Keddy just said what had been left unsaid so far, namely, that this is a motion to expedite the process in the House.

The committee's motion should not make it possible to expedite debate. We are here to study motions and amendments thoroughly and to debate bills. That's what we do.

Independent members cannot sit on the committee on a regular basis. In all other discussions, no independent member has the same right to speak that we, as regular members, do.

In that respect, the debate we could have in the House of Commons should focus on the ability of these members, who do not enjoy the same status we do, to assert their right to represent their constituents. That is the crux of the matter, here. For example, Green Party members, independent members and Bloc québécois members do not have the right to sit as regular members of a committee. As per its procedure, the House of Commons entitles them to represent their constituents in the House of Commons when a bill is being study at report stage, as we can here. That gives legitimacy to their right to represent their constituents.

Now, think about the fact that amendments are proposed one at a time. Mr. Van Kesteren can move an amendment, as I can, on behalf of the people of the riding of Rimouski-Neigette—Témiscouata—Les Basques. We can do it now because we are regular committee members. But just think about what it would be like if 50 other members of the Conservative Party and 30 other members of the NDP wanted to propose their amendments themselves? Would we let them sit alongside us, the regular members? We wouldn't. And yet that is what's being asked for independent members. In doing so, we would really establish different procedures for different categories of members, and that's not acceptable in our parliamentary system.

I repeat the fact that this method had never been used until this past spring, when we were studying Bill C-60. Since it had never been used, it can only be regarded—and Mr. Keddy was quite candid—as a strategy by the government to expedite the process in the House of Commons.

[The Chair, Conservative, James Rajotte]

Very well. Thank you.

I have Mr. Saxton and then Mr. Côté. I am hoping to get a vote before noon.

We'll go to Mr. Saxton.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

I want to follow up on some of the comments made by the members opposite. They're talking about equality and they're talking about an equal voice for members. In fact, this motion would create an equal voice, because independent members would be able to table their amendments here in committee before clause-by-clause. It's a right that we have as representatives of our caucus, and it's a right that they would have as well.

In fact, it would level the playing field. It would give everybody an equal right to bring those amendments forward at this committee during clause-by-clause.

I also want to point out that I'm not telling Mr. Caron or any members of the opposition how to vote on this motion. They will vote the way they want to vote. All I'm saying is that we ought to bring it to a vote. Let's allow a vote so that everybody has an equal opportunity. As the chair just mentioned, we ought to do this before we have to adjourn this meeting in ten minutes.

[The Chair, Conservative, James Rajotte]

Monsieur Côte.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

I have to admit that Mr. Keddy reminded me of two situations in the Standing Committee on International Trade: we were involved in a rather serious clash over certain matters of principle.

One of the government's responsibilities is to run our institutions. I would just like to say that one of the government's basic responsibilities is accountability. You can talk about accountability, but if you don't back it up, you are merely paying lip service to the idea.

We're facing the same problem: it's just lip service. In concrete terms, what we're seeing is a lack of will on the government's part to get on with the work, in fact, to defend the integrity of our institutions.

I won't go any further. I am sure we'll have the opportunity to go head to head over other issues later.

[The Chair, Conservative, James Rajotte]

Fine. Thank you.

All in favour of this motion by Mr. Saxton? All those opposed?

(Motion agreed to)

Colleagues, we have the governor coming in about five minutes. So I will suspend for five minutes and then we'll come back with the Governor of the Bank of Canada.

[The Chair, Conservative, James Rajotte]

Colleagues, I call this meeting back to order and ask you to take your seats. Thank you.

This is a resumption of meeting number two of the Standing Committee on Finance. We are very pleased to have with us here today, pursuant to Standing Order 108(2), for our study on the Bank of Canada Monetary Policy Report, the Governor of the Bank of Canada, Mr. Stephen Poloz.

Welcome back to our committee.

We also welcome the senior deputy governor, a person we've had here many times, Mr. Tiff Macklem.

Welcome to you as well, Mr. Macklem.

We look forward to your opening statement and then we will have questions from members of the committee. Please begin.

[Stephen S. Poloz, Governor, Bank of Canada]

Thank you, Chair.

I have a very brief opening statement.

Good afternoon, everyone.

Thank you very much for the opportunity for Tiff and me to be here with you today to discuss the October Monetary Policy Report, which the bank published just last week.

The Bank of Canada aims to communicate our objectives openly and effectively and to stand accountable for our actions before Canadians. One of the best ways to do this is through appearances such as this one.

Allow me to spend a few minutes on the report's highlights.

I'd also like to flag some important changes introduced with this issue.

We are modifying the report's format and style in order to explicitly capture the uncertainty that is inherent in our outlook. The goal is to present to Canadians a reflection of the evolution of the risks to the inflation outlook that are embedded in our policy rather than simply comparing a snapshot of the current forecast with one of our previous forecast.

The picture is not always perfectly clear and so we have added new measures of ex ante, or before the fact, uncertainty to our five most critical projection variables. We've added rule-of-thumb ranges around the base-case projection for the growth of Canadian and U.S. GDP, for Canadian total CPI inflation, for the current level of the output gap, and for the growth rate of potential output in Canada.

With this, we are reminding ourselves and those who watch us that economic projections are subject to considerable uncertainty and are revised over time as new economic data become available. Our policy formulation process is more one of risk management than of engineering. In our policy deliberations we evaluate and assess all of the risks, both positive and negative, and use judgment to determine the balance among them.

As is customary in October, we reviewed the forecast for potential output. Due to lower-than-expected labour productivity growth in the past year, as well as the delay in the expected pickup in demand for exports and investment, the forecast for potential output growth has been revised down slightly.

Looking forward, we expect the global economy to expand modestly in 2013. However, its near-term dynamic has changed and the composition of growth is now slightly less favourable for Canada.

Uncertain global and domestic economic conditions are delaying the pickup in exports and business investment in Canada. This leaves the level of economic activity lower than the bank had been expecting.

While household spending remains solid, and various indicators in the housing sector continue to rise, slower growth of household credit and higher mortgage interest rates point to a gradual unwinding of household imbalances. The bank expects that a better balance between domestic and foreign demand will be achieved over time and that growth will become more self-sustaining, but this will take longer than previously projected.

We are expecting investment growth to contribute to a rebound in the rate of labour productivity over the next couple of years. However, demographic factors—primarily the aging population—are expected to put a drag on the growth of trend labour input, and this drag will largely offset the effects of rising investment. This is why we expect that the growth rate of potential output will remain fairly stable at around 2% over the next three years.

Real GDP growth is projected to increase from 1.6% this year to 2.3% next year and 2.6% in 2015. The bank expects that the economy will return gradually to full production capacity, around the end of 2015.

Inflation in Canada has remained low in recent months. This reflects the significant slack in the economy, heightened competition in the retail sector and some other sector-specific factors. With larger and more persistent excess supply in the economy, both total CPI and core inflation are expected to return more gradually to 2% around the end of 2015.

Although the bank considers the risks around its projected inflation path to be balanced, the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance.

However, the bank must also take into consideration the risk of exacerbating already elevated household imbalances and, weighing these factors, the bank judges that the substantial monetary policy stimulus currently in place remains appropriate and last week decided to maintain the target for the overnight rate at 1%.

With that, Tiff and I would be pleased to take your questions.

[The Chair, Conservative, James Rajotte]

Thank you very much for your opening statement.

We will begin members' questions, five-minute rounds, with Ms. Nash, please.

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

Welcome back, Mr. Governor and deputy governor. It is great to see you again.

I want to pick up on your statement about exports. You talk about uncertain global and domestic economic conditions. Would you detail some of the reasons why the bank had overestimated the growth in exports and why you are revising that estimate now?

[Stephen S. Poloz]

I'll begin with some general remarks and then perhaps pass the floor to my colleague Tiff. He gave an excellent speech on this topic just a couple of weeks ago at the Economic Club in Toronto.

When you use your model to construct these forecasts, of course you have all the data in place and a structure around them. As we went through time, we were noticing that exports were not recovering as rapidly as our model had predicted in line with the actual evolution of foreign economies. At the time we believed that this was a temporary thing and we still believe fundamentally that it is temporary.

When you do your forecasts, you assume that over the next year or two the error term that you're generating will actually go back to normal. That's how a forecaster would do this.

If the error persists long enough, you begin to look for deeper reasons and then assess whether they are temporary or permanent. The sorts of reasons that we put our finger on basically look at the mix of growth in the U.S. in particular, which is not classic, and not every sector has contributed to growth yet. That's something we can look forward to.

The second thing is that, this being a non-typical cycle, the export sector lost a lot of companies, some 20% of exporting companies, and a lot of other companies downsized. The conditions that will bring back the export path are more demanding than would normally be the case because of the length of this cycle. So it is taking longer than we saw in the past.

Mr. Macklem may have a follow-up.

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

Mr. Macklem, before you speak—and I'd like to hear your comments—I'd like to hear more about the domestic factors. Does the level of the dollar play an impact on our level of exports?

[Tiff Macklem, Senior Deputy Governor, Bank of Canada]

Yes, I can pick up on that. Before getting into the reasons for the underperformance relative to what we expected, it's worth underlining that the biggest reason exports have been weak is that the U.S. economy, our major export market, has had the deepest recession and the slowest recovery since the Great Depression. That by itself sets a weak track for export recovery.

It has, as you mentioned, been even a little weaker than we had expected. If you look at our report, we break down the components of exports a little bit. What you can see is that we have had relatively strong—in fact quite strong—exports in our particular energy complex, oil in particular. Oil has been gaining a share of our exports and has gone in the last decade from about 10% to 20% of our exports.

Where we've had weak performance is in our non-commodity exports, and they represent about half our exports. You can see in chart 14 in our Monetary Policy Report that since about the end of 2011 and the start of 2012, our non-commodity exports have not grown. They have not grown in line with—

[The Chair, Conservative, James Rajotte]

As chair, I would ask why.

[Tiff Macklem]

Yes, I'm getting to that, but you need to know what part of the exports. It is the non-commodity exports.

Why? A big part of it is exactly what the governor was saying: this was a very deep recession. A lot of firms closed, and it takes time to rebuild that.

Second, there are competitiveness factors, the dollar being part of that. When we break it down, we estimate that about two-thirds of it is the dollar and one third is the weak productivity performance we've had over the last decade.

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

If I understand, you say that two-thirds of the domestic issue is the dollar and one third is productivity.

I would love to come back to this issue, but as the only member on this committee I feel an obligation to ask a question. There is a petition that now has tens of thousands of signatures asking if the Bank of Canada is going to support the principle of having diversity on our banknotes. The only women we had were eliminated on our banknotes in 2011.

Have you any comments on that?

[The Chair, Conservative, James Rajotte]

Just a very quick comment, please.

[Stephen S. Poloz]

We have a new series with a new design based on a frontiers theme, which was developed in consultation with a large number of Canadians over a long period of time. It is what it is today. As you know, we are now thinking about the next series, which is a multi-year project, and we're open to all suggestions from all Canadians.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Saxton, go ahead, please.

[Andrew Saxton, Conservative, North Vancouver, BC]

I thank the Governor of the Bank of Canada and the senior deputy governor for being here in committee today.

My questions are along the same lines, on exports and the importance of trade. Recently, in your monetary report, you state:

In Canada, uncertain global and domestic economic conditions are delaying the pick-up in exports and business investment, leaving the level of economic activity lower than the Bank had been expecting.

Our government's proactive free trade agenda has led to some exciting prospects and opportunities for the Canadian economy, as demonstrated in the recently announced Canada–EU free trade agreement. How does this impact your consideration of exports and of business investment in Canada? I would imagine free trade deals like this would be very positive.

[Stephen S. Poloz]

Indeed, such infrastructure investment is what a free trade deal is. It really is a fundamental shift in the landscape, which is very positive for trade, and the effects accumulate over a very long time. We don't have a way to incorporate those kinds of changes in our outlook, except to guess that they would be positive. We have models that suggest how much trade will grow, and those are very informative. What will happen is an increase in growth in exports to Europe. It will be two-way: there will also be imports from Europe, and that increased trade will be very good for companies involved in those sectors.

That sort of structural change, as I indicated, takes a very long time to bear all its fruit. In fact, the benefits can accumulate for many years to come.

[Andrew Saxton, Conservative, North Vancouver, BC]

Would your concern for weakened exports be somewhat alleviated by the fact that we're putting in place these free trade agreements?