Finance Committee on Nov. 5th, 2013

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I think you know where I'm going with this, because I looked up on my BlackBerry the word “austerity”, and these are all terms that we keep coming up with. It's an economic term, and here's the definition: reducing budget deficits during adverse economic times. You would agree, then, that we need to lower the debt, and it's not a good thing to increase that debt.

Forgive me, I'm not trying to be hard or crass about this, but I wonder if you have done a study—and if you haven't, this would be a great suggestion—to analyze personal debt and find out what it is. You've said—and if you have statistics to prove it, that's great, because that would help this committee as well—that when people increase their debt, it's a result oftentimes, or many times, and I'd love to have that percentage, of when they're having financial difficulties. I've wondered about that. If that's the case, that's a good thing to know. But if it's not the case, I want to just give our chair here some kudos. Our chair has introduced financial literacy as legislation, and I don't think there are too many people who have the knowledge and depth and breadth of finances as our illustrious chair. I appreciate what he's doing because he wants to pass that on to everyone.

But I'm curious, is there a study, has a study been done, to determine where that debt is coming from?

We live in an age where we're bombarded with advertising, and it's so easy to get in debt. Is the problem because people are in financial difficulty? I guess that's not the right question. Is it because they're unemployed, or is it because we just spend too much money on areas where we shouldn't spend it?

[David Macdonald]

Thank you for the question, and I think it's a good one, particularly on what's causing the personal debt increase. The personal debt increase is largely tied to the increase in house prices, and that debt is largely mortgage debt. What we're seeing is an accumulation of mortgage debt in the household sector.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

[Inaudible—Editor]...bubble, too, though?

[David Macdonald]

It could be, and that has certainly been an argument that I've made, particularly if we do see interest rates rise rapidly. We would see households under some duress to try to make increased interest payments, because this household debt is much larger than it has been historically.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Have you done a study, though, to determine where all that debt is going? If you have it, great. I think our committee needs to see it. If not, is it something you—

[David Macdonald]

Where which debt is going?

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

To see where the debt is accumulating. What is causing this rapid increase in personal debt?

[David Macdonald]

As I said, it's people in Toronto or Vancouver trying to buy more and more expensive houses. One of the reasons they've been able to run up these types of debt levels is because mortgage rates have been going down. They're now hitting historic lows, so your monthly payment is actually quite affordable for big leverage to get into large houses, or to get into small houses that cost a lot. One of the challenges for households that are entering the market, particularly for young households, is they're paying substantially more than their parents to get into the household, but they can still make the monthly payments at record-low mortgage rates. The real question is, when mortgage rates rise, how much pressure does that put on households and constrain consumer spending?

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

It was just a quick question, because I have 30 seconds.

The other question I wanted answered was, why is it a good thing to lower household debt and why is it not a good thing to lower government debt?

[David Macdonald]

I think the issue is that household debt is dramatically higher than government debt. I think if the situation was reversed, if we had a debt-to-GDP ratio in the federal government of 100% and households were at 10% or 20%, it would be a very different conversation.

What we are seeing is that the federal government is ideally placed compared to both households and provincial governments, going back to Mr. Brison's question. It has more fiscal capacity and is better able to drive economic growth than the household sector or the provinces.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

Thank you, Mr. Van Kesteren.

I'll start with Mr. Rankin. I understand you're sharing your time.

[Murray Rankin, NDP, Victoria, BC]

That's correct.

I want to thank all the witnesses for being here. I'd like particularly to welcome my fellow Victorian, Mr. Black, all the way from the northwest of British Columbia. Welcome.

I want to ask a question about your project, if I could. I think you accurately report the results of the Mustel report that says only 30% of British Columbia residents support the Enbridge Northern Gateway pipeline project, and I think 70% are opposed or are unsure. That seems to me to ring true, with my experience. But I want to talk about support from the oil sands producers as well. Is your project supported by them? Don't they simply want to sell raw bitumen abroad?

[David Black]

Pretty much, Mr. Rankin. That's correct.

[Murray Rankin, NDP, Victoria, BC]

How are you going to garner their support? Won't they be critically important to your venture?

[David Black]

Well, we need their crude oil, but that won't be a problem. They are more than ready to sell the crude oil, but they don't particularly want to invest.

Of course, the main reason is that we have allowed that whole industry to escape us. All of the majors that we think about every day are owned by parent companies elsewhere. One of our biggest oil companies, in fact, took a look at all of my numbers. I mean, I wasn't trying to be the owner of this refinery; I was trying to get them to do it in order to protect our coastline. One of our biggest oil companies looked at our numbers, was quite keen, and took three weeks to study it. They came back and said, “We agree with all your numbers. This is quite viable, but we can't do it.”

I took that as code to mean that their parent said no, because their parent has huge refineries down in the gulf and they probably didn't want their Canadian subsidiary screwing up a wonderful thing. They're making a fortune.

[Murray Rankin, NDP, Victoria, BC]

Yes, that's right.

Mr. Black, when you talk about submitting your environmental application this fall, we're already at this fall. Are you going to wait until the joint review panel gives us its report on the Enbridge project before you submit yours?

[David Black]

No, I think I'll get it in this fall.

[Murray Rankin, NDP, Victoria, BC]

All right. Thank you.

Monsieur Côté.

[The Chair, Conservative, James Rajotte]

You have three minutes.

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

Thank you very much, Mr. Chair.

Mr. Black, I have a General Electric toaster that my grandmother bought in the 1960s. It works perfectly. In fact, it is as young as I am, but I feel it is a symbol of our national pride being relinquished when it comes to production. In your project specifications, you talk about the installation of large refinery components from lower wage countries.

Could you tell me how you justify your request for support from the Government of Canada when you are looking for cheap labour elsewhere in the world?

[David Black]

In terms of the way all big refineries are built, they build them out of prefabricated components built in parts of the world where the costs are low—just like all big ships—and then they're assembled. That's why all major export refineries are on the coast. It doesn't matter where you are in the world, that's the way it's done.

Even so, even though all those components will be built elsewhere, we still need 6,000 people in British Columbia for five years to build this refinery. It's a very, very big plant, the biggest ever in the history of Canada.

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

Thank you, Mr. Black.

How much time do I have left, Mr. Chair?

[The Chair, Conservative, James Rajotte]

One minute.

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

Mr. Godbout, I would like to talk about the fiscal sustainability of the federal government compared to other levels of government, particularly provincial governments. There is a real discrepancy. I would like to focus on the issue of health care transfers. I have been describing those as chainsaw massacres for 20 years.

Do you think slowing the growth in provincial health care spending is a responsible approach, considering what the system needs and especially since the provinces have made a significant effort to support their health care system?

[Prof. Luc Godbout]

It is important to understand that, because of an aging population, the provinces will feel pressure on their health care spending in the coming decades. Spending will outpace economic growth. With that in mind, we can strive for health care innovation to get the best value for our money.

The fact remains that health care spending will increase at a faster rate than the economic growth because of demographic pressures. If the federal government keeps its health care transfers at the same level as the economic growth, federal health care transfers to the provinces will have to drop significantly over time.