Finance Committee on March 11th, 2015

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Cross, in your statement in terms of Canada's dependence on oil, you said that our overall dependence on oil should not be exaggerated. Oil extraction accounts for about 3% of Canada's GDP, while adding investment by the industry lifts the total share of oil-related activity to 6%, compared with 11.7% for manufacturing output and investment and 6.8% for housing.

I think I'm certainly reading that you're advising governments not to overreact, in part, and saying, take a realistic assessment in terms of the size of the industry and the impact it's having. You do, I think, point out that there's obviously a different impact in provinces like mine, like Alberta, from a fiscal point of view.

I wanted to open it up to anyone. Obviously we're moving toward a federal budget here in the spring. Is there any advice you have related to the size of the oil sector, and then how the government should be reacting in its upcoming budget?

I'll start with you, Mr. Cross.

[Philip Cross]

I think I was basically just responding to this attitude that because of the dramatic growth of oil sands output in this industry generally over the last decade, that somehow we've become a petrostate. I'd very much agree. I remember back in the fall, Jack Mintz was asked if the Canadian dollar was a petrocurrency. I thought he gave a very good response. He said that if it is, it isn't a very good one. If we're a petrostate, we're not a very good one.

We're not. Yes, petroleum grew rapidly and the resource sector generally grew. What people don't remember is how much that industry shrank during the 1990s. To me, a lot of this growth of resources was simply getting back to the kind of balanced economy between resources and manufacturing that traditionally has underpinned prosperity in Canada. I thought it was dangerous to become overly reliant on a low dollar and manufacturing for growth, and I think that was borne out by, first, the ICT bust in 2000, and then the ongoing troubles in textiles and forestry-based manufacturing.

I think we've seen an appropriate rebalancing away from manufacturing and back to resources. I don't think we're overly dependent on resources. Manufacturing is still a much bigger industry than the resource sector. I think people should keep that in mind. We're not Alberta, which does have an outside dependence on the resource sector.

[The Chair, Conservative, James Rajotte]

Thank you.

Any advice going forward, Mr. Locke?

[Prof. Wade Locke]

Sure. I would advise you and industry not to let short-term issues dictate long-term plans. The question you need to make a decision on is, how long the lower prices will prevail and what their impacts will be. If this is a one- to two- to three-year problem, then we shouldn't be cutting expenditure. We shouldn't be doing anything dramatic. We should try to deal with the situation, to get through this as best we can.

I think the one piece of advice is, don't let short-term problems dictate long-term strategies.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Wright on this.

[Craig Wright]

I think it's a similar view, to stay the course and don't get distracted. I think I would prefer the focus remaining on improving Canada's speed limit, that 2% speed limit for Canada in its labour force growth and productivity. I think that's the way of growing the economic pie, which we're all after.

That means tax relief, tax reform, regulatory relief, and keeping the focus on how to improve productivity, with a particular focus on small and medium-sized enterprises in Canada, as 99.8% of our firms are made up of under 500 employees. Helping them grow will help productivity grow, which is what we're all after.

[The Chair, Conservative, James Rajotte]

Thank you.

I have about 10 seconds, Mr. Cross, if you want to add something.

[Philip Cross]

I would just throw it in that along with 1998 being instructive, 1986 was also instructive. In 1986 prices fell so rapidly they wanted to shut down the Hibernia project. The government had to bail out. That proved to be a very far-sighted decision.

It just goes back to “don't panic”.

[The Chair, Conservative, James Rajotte]

Thank you.

We could probably do one more NDP round and one more Conservative round.

Monsieur Dionne Labelle.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

I had to step out for a moment, so good afternoon once again, gentlemen.

I have carefully read the document from the C.D. Howe Institute. In terms of monetary policy, you are very critical about the drop in the Bank of Canada index. I especially noticed in your document that your monetary policy council has 12 economists and they do not agree with each other.

The document does in fact show that you don't agree on what the impact of a drop in oil prices will be on the provinces. Do the provinces have to raise their taxes or rack up deficits? Your council is discussing that. There are no consistent views in terms of inflation expectations. According to your document, there is no consensus on the scope of the positive effects on the economy. You also don't agree on the effect of the decline on the stability of the Canadian economy.

When we insisted that the study bring together experts, we were hoping to find out where we were heading, but we seem to get a different answer from one economist to another.

I say this with sympathy, but the fact remains that it is difficult for us to see where we are heading if the price remains at $50 for four or five years.

[Dr. Steven Ambler]

I think we all agree here around the table that there is a lot of uncertainty about the positive effects. Each individual has their own way of weighing the uncertainties, but I think there is still a consensus that the overall impact on the Canadian economy is negative. That being said, the opinions do actually diverge in terms of the magnitude of the negative impact. Finally, we agree that the positive effects are more in the medium and long term and that their scope is also more uncertain.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Do you agree that the falling price of oil will boost the global economy in general?

[Dr. Steven Ambler]

Yes, it is certain that, for a country or a group of countries that does not produce oil, the impact is positive. In that sense, I think Canada is lucky that the U.S. is its main partner. That is where it seems the strongest real growth will be in the next two or three years.

Some countries or groups of countries that do not produce oil, such as Japan, China and the eurozone, are unfortunately lagging behind, but for other reasons.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Yes.

[Dr. Steven Ambler]

The falling oil prices are definitely helping them, but they are facing a whole host of other structural problems, unfortunately.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Yes, I agree with you.

I don't remember who among you said—and I really like this comment—that we are overestimating the impact of the oil sector on the Canadian economy as a whole. We talked about the GDP percentage earlier. The Bank of Canada says that it is 6%. It certainly represents 14% of our exports, but overall, Canada remains relatively balanced economically.

Have I understood your viewpoint correctly?

[Philip Cross]

Yes, I think I said that.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Yes.

[Philip Cross]

Let me just reiterate that, even with the increasing growth, partly in response to the decline in the development of resources, the idea is that we are more dependent than before on resources, especially in the oil sector. That is relatively small compared to the manufacturing and housing sectors, for example.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

...all the strengths of the economy.

[Philip Cross]

The government has 23%, for example.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

The Bank of Canada says that there will be a slowing of growth, but not a reversal. We will be heading toward growth, but more slowly.

[Philip Cross]

Yes. According to the Bank of Canada's best estimate, by the end of the year, the growth of the oil industry will be reduced by 0.3%, which would not have been the case if there was no decline in the sector.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, sir.

Mr. Saxton, go ahead.