Evidence of meeting #155 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was marijuana.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Annie MacEachern  As an Individual
Luke Harford  President, Beer Canada
Brian Kingston  Vice-President, Policy, International and Fiscal Issues, Business Council of Canada
Angelina Mason  General Counsel and Vice-President, Canadian Bankers Association
James O'Hara  President and Chief Executive Officer, Canadians for Fair Access to Medical Marijuana
Jonathan Zaid  Founder and Advisor, Canadians for Fair Access to Medical Marijuana
Allan Rewak  Executive Director, Cannabis Canada
Pierre Killeen  Vice-President, Government Relations, Hydropothecary
Darren Hannah  Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association

5:10 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Mr. Kingston, my friend Mr. Sorbara wasn't happy with some of the facts you were sharing with him. At the risk of further displeasing him, I'm going to ask for some more of those facts.

To start with, what are the hard numbers on foreign investment in Canada this year as compared to prior years?

5:10 p.m.

Vice-President, Policy, International and Fiscal Issues, Business Council of Canada

Brian Kingston

We don't have 2018 data. The most recent data is from the 2017 balance of payments. StatsCan released this in March of this year. FDI in Canada was at $33.8 billion, which is actually an eight-year low for FDI in Canada.

5:10 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Is that in nominal or real terms?

5:10 p.m.

Vice-President, Policy, International and Fiscal Issues, Business Council of Canada

Brian Kingston

That's in nominal terms.

5:10 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

It's in nominal terms, so if you took into account inflation, it would be even worse.

5:10 p.m.

Vice-President, Policy, International and Fiscal Issues, Business Council of Canada

5:10 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

There's also a massive increase in Canadian investment in the United States. I understand it's up 66%, while American investment in Canada is down 50% over the same time period. So our money is leaving and we know that after money leaves, jobs go with it.

What do you think is the major cause of the decline in investment in Canada?

5:10 p.m.

Vice-President, Policy, International and Fiscal Issues, Business Council of Canada

Brian Kingston

I think the major cause right now is U.S. tax reform and the serious implication that has for a number of sectors. Secondly, though, I think there's the uncertainty factor, which I discussed a little bit earlier regarding NAFTA. Given that 76% of our exports go to the U.S.—it is our overwhelmingly largest export market—uncertainty around access to that market is definitely trimming investment in Canada.

May 9th, 2018 / 5:10 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Gluskin Sheff's chief economist David Rosenberg amassed all of the debt of households, businesses, and governments in Canada and found it's three times the size of the entire Canadian economy. It's a ratio that puts us above Greece when you put all that aggregated data together.

Do you worry what will happen to the Canadian economy as rates start to drift up over the next several years?

5:10 p.m.

Vice-President, Policy, International and Fiscal Issues, Business Council of Canada

Brian Kingston

Absolutely. As rates go up, there will be pressure on Canadian households. There will also be pressure on governments at all levels that have elevated levels of debt. I noted that the growth of direct spending on interest at the federal level is to increase by 36% over the budget horizon. That's using a relatively modest forecast for interest rates.

If interest rates go up at a higher rate than anticipated, which is possible, you could see that growing far faster, which would put the federal government in a very difficult position.

5:10 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Actually, you understated the problem because I think you're using this year as the baseline for the horizon. If you use last year, we're going to go from $24 billion a year in interest payments to $39 billion a year in interest payments within four years, which is an increase of 66%. That's money for which we as Canadians get absolutely nothing. The banks and the lenders will like it, of course. They will be getting more free money from taxpayers, but everyone else is worse off.

I note that RBC, TD, and I think CIBC was the latest, raised their posted rate for five-year mortgages. This will mean higher costs for Canadian homebuyers. Many economists linked that increase to the higher government bond yields. Government bonds are now paying, I think, a seven-year high. Banks and other lenders can get more interest by lending to the government, so they are demanding more interest when they lend to households.

Do you see a connection between higher government debt and higher borrowing costs for Canadian households?

5:15 p.m.

Vice-President, Policy, International and Fiscal Issues, Business Council of Canada

Brian Kingston

No, I don't. The increases in bank interest rates—and my colleagues from the Canadian Bankers Association may add to this—are largely driven by what the Bank of Canada is doing, and the Bank of Canada is trying to ensure that inflation stays within the target rate. I see that as the main driver of interest rate hikes.

5:15 p.m.

Liberal

The Chair Liberal Wayne Easter

Does the Canadian Bankers Association want in?

5:15 p.m.

Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association

Darren Hannah

The main thing I would say is that pricing decisions are done on an individual institutional basis. Borrowing remains very competitive. Canadians remain a very good credit risk. By and large, that's really about all I need to say.

5:15 p.m.

Liberal

The Chair Liberal Wayne Easter

If that's all you want to say, that's fine.

Mr. Poilievre, you have time for one more.

5:15 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

The level of household debt in Canada is the highest it has been since records have been kept. Do any of the panellists have any information on what the expected increase in interest rates over the next five years will cost an average household?

5:15 p.m.

Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association

Darren Hannah

I don't have an answer to that specific question, but what I can say is the biggest piece of household debt is typically a household mortgage. OSFI has put in place a stress test—borrowers have to pass a stress test to qualify for a mortgage—to deal with exactly that issue, to ensure that people are able to manage their debt in the instance they face an increase in their interest rate.

5:15 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you all.

We will go to Mr. Sorbara, and then we will come back to Mr. Dusseault.

5:15 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

I have a couple of comments, and then I will go to the CBA.

First off, the primary reason we have increasing interest rates is not due to an inflation issue. It's actually due to strong economic growth and the economy. If you look at capacity utilization levels, and I can name probably five or six other statistics, they are performing very well economically.

Wouldn't you concur with that? I think the Bank of Canada governor commented on that as well.

5:15 p.m.

Vice-President, Policy, International and Fiscal Issues, Business Council of Canada

Brian Kingston

Absolutely. The root cause of inflation is the state of the economy, so yes. I was just noting that the Bank of Canada sets interest rates based on the inflation rate.

5:15 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

It is based on inflation and on how the economy is performing as well, I would say.

To the CBA, a number of changes have been made to the housing market. I think most of the changes have been very prudent in terms of CMHC insurance levels, the stress test now being applied to low-ratio and high-ratio mortgages to the entire market, and the quality of the debt we're seeing come on to the market and that people are incurring.

If you look at the FICO scores or the credit scores, generally we have been turning the right way. We are taking the prudential measures, as I would call them, for a housing market and for people to incur debt who can afford it, and who had been stressed.

Isn't that generally a characterization of what we're trying to do with all different agencies?

5:15 p.m.

Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association

Darren Hannah

Arrears rates remain very low. They are historically low, far lower than you see in the U.S. Canadians are historically very creditworthy borrowers, and they remain so.

5:15 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

I'm done.

5:15 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Dusseault.

5:20 p.m.

NDP

Pierre-Luc Dusseault NDP Sherbrooke, QC

Let's get back to cannabis as such. The Cannabis Canada representatives may be in the best position to answer my question.

Are we taking adequate precautions to ensure that enterprises that ask for a cannabis production licence are not using suspicious funds, whether from abroad or from Canada? The Journal de Montréal and other newspapers have done some good investigations on certain businesses that were financed with money channelled here from tax havens.

In your opinion, is the framework sufficient to protect the recreational cannabis industry from the influence of shady foreign interests?