Finance Committee on Sept. 19th, 2017

[Pierre Poilievre, Conservative, Carleton, ON]

Fair enough.

[The Chair, Liberal, Wayne Easter]

We did invite them just on the basis of the economy, Pierre.

[Pierre Poilievre, Conservative, Carleton, ON]

Enough said.

Debt management strategy.

[Nicholas Leswick]

Yes.

[Pierre Poilievre, Conservative, Carleton, ON]

Correct me if I'm wrong, but in 2016, there was a very large volume of bond auction because of the number of bonds that were coming up for maturity and the return to deficit. The government auctioned off over $100 billion of bonds in that year.

Is that your recollection of that year?

[Nicholas Leswick]

I don't know those numbers off the top of my head, but I would agree that our financial service requirement with respect to funding the government operations and because of the budgetary outlook would have increased, I believe, in that year.

[Pierre Poilievre, Conservative, Carleton, ON]

I understand that your department consulted with the market to ascertain its desire for the terms of those bonds. As a result of those consultations, it indicated that the market was looking to purchase two-, three-, and five-year maturities. Is that your recollection of the consultations? It's what it says in the debt management section of the 2016 budget documents.

[Nicholas Leswick]

Again, very respectfully, I wasn't responsible for those consultations. We'd have to bring my counterpart from the financial sector policy branch who's responsible for the debt management strategy to answer your line of questioning.

[Pierre Poilievre, Conservative, Carleton, ON]

Do you have any knowledge of what term periods the Department of Finance concluded in general on the debt that it issued in the last two years?

[Nicholas Leswick]

I can't speak to the specifics of the term structure of our debt.

[Pierre Poilievre, Conservative, Carleton, ON]

All right.

The government released a document today in which it talked about the financial situation of the country, and it demonstrated that there is projected to be an increase in the 10-year government bond, roughly one-third to double, and that means that Canadians over time will be paying more interest on the debt we hold, even if that debt were to stay constant.

Is the government making a decision to sell 30- and 10-year bonds to lock in today's low interest rates before rates begin to rise?

[Nicholas Leswick]

I think with respect to debt management strategy, it's a balancing act between the cost/risk dynamics of the maturity of our debt, likewise, the price discovery need in capital markets for each of our debt issuances.

Again, I'd advise, to make sure that you're well informed and your questions are properly answered, to invite my counterpart from the financial sector policy branch. Sorry, Mr. Member.

[The Chair, Liberal, Wayne Easter]

We can do that at some point.

Go ahead, Pierre.

[Pierre Poilievre, Conservative, Carleton, ON]

What are the long-term projections for interest rates that the finance department is relying on?

[Nicholas Leswick]

We surveyed a group of 14 private-sector economists across a variety of economic indicators, long-term interest rates being one of those indicators. In our last published survey in budget 2017, the 10-year government bond rate was expected to be 1.8% in 2017, rising to some 3.3% by 2021, effectively over our forecast period.

We take those forecasted interest rates and bring them into long-term liabilities, the debt strategy and our non-market debt, as you reference, Mr. Member, so things like public sector pensions or benefits.

[Pierre Poilievre, Conservative, Carleton, ON]

That is a very large increase. It might sound like only a few percentage points, but really it's double, so the cost of borrowing is expected to double by 2021.

[Nicholas Leswick]

Roughly. Just as a commentary to the honourable member, we've gotten interest rate projections wrong over the last 20 years. Yes, this projection is reflective of an expectation of growth—

[Pierre Poilievre, Conservative, Carleton, ON]

Right.

[Nicholas Leswick]

—and a neutral rate of interest.

[Pierre Poilievre, Conservative, Carleton, ON]

I appreciate that, and we don't expect you to have a crystal ball. I prefer always to predict the past versus the future, but I think it's fair to say things ain't going to get any better for people borrowing than right now. Interest rates are going nowhere but up, and would you not agree that means the cost of servicing debt is going to go up with them?

[The Chair, Liberal, Wayne Easter]

That's your last question.

[Nicholas Leswick]

I would agree with the member. I mean, 80% of people in the residential mortgage market choose fixed-rate mortgages these days. The average term structure of their debt is around four years, so they're deciding to lock in.

That being said, we had the same debate seven years ago with other ministers and other deputy ministers. It really is about managing those cost-risk dynamics and also answering to the liquidity requirements of the market.

[The Chair, Liberal, Wayne Easter]

Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

I would also like to thank the witnesses for taking the time to stay with the committee today, even though we started a little late.

My first question is for Mr. Leswick, who will no doubt be in the best position to answer.

I enjoyed the comments on inclusive growth. It's an expression I use often. We hope that there will be growth, but also that it will benefit as many people as possible. It's always one of the indicators we take into account.

Do you have any indicators on economic inequality? Does the Department of Finance have any statistics on that? What is the current picture of economic inequality in Canada? What is the trend in this regard? What measures have been taken to improve the situation?

[Nicholas Leswick]

Mr. Chair, I would like to ask my colleague Claude Lavoie to answer the question. He's the closest to the research with respect to this particular issue.