Evidence of meeting #211 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was students.
A recording is available from Parliament.
12:10 p.m.
Liberal
12:10 p.m.
Conservative
Mike Lake Conservative Edmonton—Wetaskiwin, AB
On a point of order, I want to get clarification from the honourable member as to whether he's asking what would happen if they fulfilled their election promise from 2015 to balance the budget by 2019.
12:10 p.m.
Liberal
The Chair Liberal Wayne Easter
I don't think that's a point of order.
Mr. Milligan, the floor is yours.
12:10 p.m.
Liberal
12:10 p.m.
Prof. Kevin Milligan
No problem.
On both the fiscal balance and the social balance question, I will preface my remarks by saying we should take no lessons from the United States, where they currently have a budget deficit in the order of 5% of GDP, with a debt-to-GDP ratio that is growing. On the social side we've certainly seen a flow of both refugees and high-skilled tech workers into Canada that Bloomberg has referred to as the “human stimulus” that has been greatly beneficial to not just our current economy, but its long-run prospects.
On the issue of balanced budgets, what's important to keep in mind is that the best measure of fiscal sustainability is the debt-to-GDP ratio, the total debt compared to the size of the economy. What happens when you have a small deficit of less than 1% of GDP, as we have right now, is that the economy is growing so much that even if the debt goes up by a tiny bit, the overall debt-to-GDP ratio is still shrinking. That's the circumstance we find ourselves in.
We have a deficit in the order of, as I said, less than 1% of GDP. It is certainly a policy choice that one could make to attempt to balance the budget in one or two years, but of course, with that choice come consequences. One can only do that by cutting back on spending initiatives or by increasing taxes. Those are the two choices in front of us.
When I see proposals to move us more quickly to a balanced budget situation, I'm always curious to hear the precise details of what spending measures will be eliminated. As you mentioned, there's the GIS initiative, there's the Canada child benefit and many other initiatives of this government that would easily be argued to have been beneficial not just to the economy, but also to the society.
I'd be curious to hear what people have in mind when they suggest that we should move quickly to a balanced budget, which of these initiatives they wish to cut.
12:15 p.m.
Liberal
The Chair Liberal Wayne Easter
We'll have to end it there.
We'll go to five-minute rounds, starting with Mr. Richards, then Mr. McLeod, and then back to Mr. Lake.
12:15 p.m.
Conservative
Blake Richards Conservative Banff—Airdrie, AB
Thanks, Mr. Chair.
It was interesting to hear a member of the Trudeau Liberal government raise the idea of balanced budgets after, as was pointed out by colleague Mr. Lake, they broke their promise, of course, to have the budget balanced after running deficits and after, of course, being handed a balanced budget when they took office just a few years ago.
Why is it that they have run such large deficits? Well, Mr. Cross, you've provided us with the answer. You wrote an article following the last budget, this year's budget, for the Financial Post that was entitled “Another sprawling, unfocused budget, and so little to show for all the red ink". I will quote very briefly from it. You said that “during Trudeau's tenure, government spending has increased 20 per cent, from $296.6 billion to $355.6 billion”.
There's our answer as to why we have such large deficits and mounting debt in this country.
I want to ask you a couple of questions. The first one relates to this. First, for the benefit of others in the room for context, I'll provide another very brief excerpt from that article. You indicated:
The end result is an economy that looks largely as it was four years ago, except with higher government spending, persistent budget deficits and more stringent housing regulations. Economic growth is sputtering, oil prices are low, no pipelines have been built to access markets outside the U.S., manufacturing remains moribund, business investment has faltered, export competitiveness has eroded, and the federal and most provincial governments remain at each other’s throats. This stasis is hardly the “Real Change” promised by the Liberal 2015 election slogan.
Maybe you could walk us through what the effects are of higher government spending through these budget deficits and the mounting debt and what consequences that will have both short term and long term for our economic health and potential for growth in this country.
12:15 p.m.
Senior Fellow, Macdonald-Laurier Institute
I'm going to speak as a macro analyst. When I look at the overall performance of the economy over the last four years, it's been largely mediocre. The one exception is 2017 when Canada benefited from a pickup in the global economy, particularly in China and the United States, but there's very little to show for it.
One constant of the last four years has been large dollops of monetary and fiscal stimulus. That's generally been the case since the great financial crisis began in 2008. We don't have a lot to show for it in terms of improved overall macro economic performance. GDP has slowed down slightly over the last four years.
Without going into the specifics, you could argue that some spending in some areas has been beneficial, such as the GIS or the Canada child tax benefit, but a lot of spending hasn't. A lot of it, as has been increasingly the case over the decades, has been diverted into the civil service itself. People talk about our having to cut. What social spending programs are you going to cut? There are other areas where you can trim government spending without touching social spending programs, so I don't think that should be the only focus of restraint.
12:15 p.m.
Conservative
Blake Richards Conservative Banff—Airdrie, AB
I appreciate that.
We'll turn to another area that you have written on somewhat. You released a report in regard to incomes. I'll read a very brief excerpt from that one, because I think it says it pretty much completely.
12:20 p.m.
Conservative
Blake Richards Conservative Banff—Airdrie, AB
Yes.
It says, “The conclusion is that incomes, by any measure or using either price index, fared better in the Harper years”.
I wonder if you could talk to us a little bit about what average income growth for an average family has looked like under the current Prime Minister compared to the previous one.
12:20 p.m.
Senior Fellow, Macdonald-Laurier Institute
Let me dig up my notes on that.
Again, I don't want to bore people with an array of statistics, but I looked at the growth of labour income, which is mostly earned income in this country. I looked at disposable income, which is income after taxes and transfers. I also looked at a measure of average weekly wages and salaries. I deflated it with different measures, whether it was with the CPI or the implicit price index for personal expenditure. By any of these measures, income growth was slightly less over the last three years than over the previous decade.
An interesting result is that, when you make the adjustment for taxes and transfers, that worked to slightly lower income growth over the last three years. While you can point to the Canada child tax benefit, for example, and say that the transfers did act to support incomes, that was more than offset by tax increases elsewhere, either at the federal or provincial level.
12:20 p.m.
Conservative
12:20 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you both.
I guess we changed the list. We'll go to Mr. Sorbara and back to Mr. Lake.
May 9th, 2019 / 12:20 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you, Chair.
Mr. Bourque, thank you for being here today. Looking at the Canadian housing market, obviously we had some imbalances in the system, I would argue. After having done the housing affordability caucus with my colleagues, it was apparent that we have a very sound and secure housing market, and we want to ensure that. We also want to ensure that Canadians who wish to enter the market at a point in time are able to do so, including middle-class Canadians, millennials, new immigrants, self-employed folks.
Our government has taken this issue on very seriously. Today the Prime Minister spoke at the Canadian Home Builders' Association conference down in Niagara. We know how important the whole real estate continuum or the whole housing market continuum is to Canadians from coast to coast to coast. It was apparent that there were some imbalances in the market and that actions needed to be taken by pertinent government agencies. Would you agree with that?
12:20 p.m.
Chief Executive Officer, Canadian Real Estate Association
When I've met with regulators, one of the points I make is that before 2018, particularly in superheated markets like Vancouver and Toronto, our members recognized that there were some irrational decisions being made and that it was time something was done to cool markets. As I mentioned earlier, I think it is a knife-edge in trying to ensure that we're not seeing that kind of activity, but at the same time not going so far that we're hurting the market itself given its importance in the economy.
We were very pleased to see the measures in the budget, very pleased to see the commitment to home ownership, and the programs that were announced we think will help people achieve home ownership.
12:20 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I go back to the fundamentals, and I always think to myself if I look at the Canadian housing market, unlike the United States where interest is tax deductible, we have a very large incentive to pay off our mortgages as quickly as possible. On a good share of homes in Canada, the mortgages actually don't exist. People have paid them off. It's a very high number. From my rating agency days, it was about 60-some per cent, if I remember correctly.
In York region, the area I represent, I met with the York region housing folks. Eighty-seven per cent of homes in York region are actually owner occupied, a very large differential versus Toronto. You cross the border of Steeles and it's a very large change. The numbers we were provided were 87% owner occupied and 13% rental, so it speaks to the importance of home ownership.
I think within our budget, we were able to lend something, an innovative product, shared equity mortgages, which I think you would have to agree will encourage homebuyers to take up in a very prudent manner.
12:25 p.m.
Chief Executive Officer, Canadian Real Estate Association
I think it's a program that has proven elsewhere to help first-time homebuyers access the market. Again, we're looking forward to seeing the details of it because we believe that it can help significant numbers of people enter the market.
12:25 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I do want to add that I looked at and read B-20 and heard commentary from every single stakeholder there is in the housing market. You may well know I put forward a number of recommendations on B-20. I think it was very prudent for the Minister of Finance along with the team to mention it in the budget. It was a measure I feel was appropriate to be introduced at a point in time. Now we need to revisit that point in time and it is under OSFI's direction and discretion, I understand. My personal view is that we're at a different point in the housing cycle now and we need to continue to monitor that data.
How would you feel in terms of having the stress test actually be a single numerical amount, e.g., 4%, and be it a cap and a floor, so if rates go down below 4%, you're still at four; you're stressed at four and if the rates go above 4%, you're still stressed at four?
12:25 p.m.
Chief Executive Officer, Canadian Real Estate Association
It would certainly be a lot simpler. I know from speaking to some of the banks that having to implement the systems for the various calculations was a very expensive exercise and it can be difficult to explain to potential homeowners, as well, so having a simpler approach might be good.
As I mentioned in my remarks, we're pleased to see the language in the budget. What we're hearing from our membership across the country in various markets—and I'd emphasize that it's not one single market in real estate, yet we have a single stress test—is that it really is having a very significant impact. When it starts getting past the tipping point, sometimes the people who are looking at the data find out too late, but the people on the ground see it in real time. That's why it's really important to be extremely vigilant on this point.
12:25 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Yes, if I can add to that, the point there would be to continue to monitor the growth in the private lending market in Ontario, especially in the GTA, because the private lending market is capturing a larger and larger market share. There is a reason for that, because individuals are turning to that market, which generally has higher rates and could potentially lead to other issues down the road.
Thank you, Chair.
12:25 p.m.
Conservative
Mike Lake Conservative Edmonton—Wetaskiwin, AB
I heard Mr. Milligan's argument regarding the size of the debt in response to one of the questions before. I'll give a bit of a history lesson. Back in 1968, we hardly had any debt at all and the Trudeau government of the day ran 14 deficits in 15 years and interest rates went through the roof. The Mulroney years had even bigger deficits, almost entirely interest on Trudeau's debt. Let me read from a commentary from 1996 in Maclean's magazine referring to the Chrétien-Martin Liberal government—
