Finance Committee on March 11th, 2015

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

I have a question for Craig Wright. Craig, what impact do you see this lower oil price having on consumers? I know that in my riding of North Vancouver, consumers have been saving $20 to $25 every time they fill up their tanks. Mind you, that has narrowed in the last few weeks, because the price has actually gone up quite a bit. I think we are at about $1.25 right now. Are we seeing this extra disposable income go into other parts of the economy?

[Craig Wright]

When we looked at the impact of oil, I mentioned some of the offsets. In particular, we looked at the gas savings, if you will, for the U.S. Our numbers calculate net savings for the U.S. consumer of about $150 billion. Doing the same math here, we don't get quite the same pass-through from the decline in oil prices to a decline in gas prices. As you suggested, they tend to go down more slowly than they go up, but we have seen what we think works out to about $11 billion equivalent tax cut for the Canadian consumers. That's going to help.

I think earlier there was discussion about the debt-to-income ratio. We do have consumer spending slowing down. The effective tax cut from lower gas bills will cushion the slowdown, but we do have consumer spending moving more in line with income growth rather than getting the extra kick from debt accumulation. The debt-to-income ratio is a concern, and we'll get more data out tomorrow, which suggests we'll have another record-high debt-to-income ratio. Consumers will slow down growth more in line with income, but the help from the lower gas prices will cushion the slowdown.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay, thank you.

My next question is for Mr. Locke. Mr. Locke, you mentioned the impact that the lower oil prices are having on the economy of Newfoundland and also the government budget being the main recipient of the royalties. What more can the federal government do in this regard, or have we done enough? Is it more of a provincial issue at this stage?

[Prof. Wade Locke]

It's more of a provincial issue. I don't think there is anything we can do as nation about the issue. What I would hope is that the people in the industry take a longer-term perspective on what's really happening. They are reacting to the short-term price changes as if they are a long-term phenomenon, and there is a lot of uncertainty around issues. If you look at the underlying factors that determine supply estimates, they will give you a lot of pause for concern. When you look at that, there is a lot of uncertainty, a lot of volatility. People are reacting because of the uncertainty and the risk, trying to get through this the best way they can using whatever discretion they have. It will have long-term consequences for us, both as a society and as a province.

[Andrew Saxton, Conservative, North Vancouver, BC]

Have there been significant layoffs in Newfoundland, and if so, have the employees being laid off been told to be ready to be rehired in the near future? What sort of state is that in?

[Prof. Wade Locke]

There certainly have been people not recalled to Alberta jobs. There has not been a lot of reduction from existing operations within Newfoundland. There has been a delay in one of the projects for a year, the White Rose extension. Right now there aren't a lot of fundamental changes in the province itself. The concern would be that if people delay investing in new projects—and there are lots of new projects—it will have long-term implications for the province and for the country as a whole.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay, thank you very much.

Mr. Cross, can you tell me where you see the Canadian economy going this year? What sort of growth rates are you predicting?

[Philip Cross]

I'm almost tempted to hand this off to Craig.

I'm happy to say—

[Andrew Saxton, Conservative, North Vancouver, BC]

I'm trying to spread my questions around.

[Philip Cross]

Coming from Statistics Canada, I have very few reflexes about forecasting and policy-making.

My general impression.... I produce a leading indicator that has declined 0.2% in the last month. Basically, it's all because of the commodity price component. If you exclude that, it's up 0.3%. I agree with the general idea that the costs are going to be front-loaded from this. We'll have a weak first quarter, and then we'll see the positive impacts on household spending and especially U.S. growth. Overall, I'd be quite optimistic, just because of the U.S. economy. It's been stuck at 1.5% to 2% for years now, and the consensus seems to be that it's finally going to break out above 3%. The employment data in the U.S. has been quite good, so I think that will pull us along.

[Andrew Saxton, Conservative, North Vancouver, BC]

So you do not expect a severe economic downturn as a result of the oil.

[Philip Cross]

No. I saw a poll in the paper that the majority of Canadians think that the economy is declining and you sit there and go, people read too much into the stock market and the dollar. There are a lot of headlines surrounding this. It's a big price effect, it's a big story, but the idea that this is going to pull down our whole economy exaggerates the importance of this sector in our economy.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Saxton.

I want to thank, on behalf of all the committee, the witnesses who appeared today. For your responses to our questions, thank you so much. If there's anything further you wish us to consider please do submit that to the clerk. We will ensure all members get it. Thank you for your patience with respect to the two votes.

Colleagues, if I could just have the subcommittee members stay behind, we will adjourn this meeting and come back with that one. Thank you.

The meeting is adjourned.