Finance Committee on May 16th, 2019

[Rachel Bendayan, Liberal, Outremont, QC]

Of course.

When it comes to the substantive policy of what the government has put forward in the budget, let us use the example of the Canada child care benefit. Is that, in your opinion, something that works? Are there no recommendations from your organization in particular with respect to changing the CCB?

[Darlene O'Leary]

I think the CCB is one example of a program that's been effective. I think we have yet to see the full benefit. We've had some preliminary data come out with the Canadian income survey. There seems to have been a positive impact in terms of lowering the poverty rates of those who are eligible for that program. That's a good thing to see. It's one piece of what we would want to see as a comprehensive range of programs involved in the poverty strategy. I think that what we have at this point is a package of programs that has been put under the umbrella of a strategy, but it's not so much a strategy. There are good programs in place that are under that umbrella. We want to see more of the strategic approach in terms of how targets are going to be reached, item by item, in a comprehensive range of programs, and also more funding, as the strategy itself hasn't received any funding.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you, Ms. O'Leary.

[The Chair, Liberal, Wayne Easter]

We will have to leave it there.

We'll go to Mr. Dusseault, and then if there's a question over here...and Mr. Blaney will wrap it up.

Mr. Dusseault.

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

Thank you, Mr. Chair.

I'd like to come back to the debate on fossil fuel subsidies. I think Mr. Elgie mentioned them.

The majority of Canadians would like to see tax incentives or subsidies go to companies that really need them, companies that could make a difference if they had support.

Loblaws recently received a grant to make changes within the company and improve its energy efficiency by buying new fridges. But most Canadians wonder if Loblaws really needed $12 million. Didn't the company have enough money to cover that expense on its own? It was a commendable expenditure, but I think Canadians expect help to go to those who are truly in need.

Generally speaking, do you think that the fossil fuel industry, especially the oil industry, really needs Canadian taxpayer investment to make changes in order to reduce its energy consumption? Can't these companies improve their energy efficiency themselves by adapting to the stringent greenhouse gas emission regulations implemented by the government? They are required to comply. Taxpayers shouldn't have to subsidize that kind of change in practices, even if the change itself is commendable.

I'm just trying to understand your position on the issue of making sure subsidies go to those who actually need them.

[Prof. Stewart Elgie]

That's a good question. I think I mostly understood it; I didn't have a translation device.

There are a couple of things I would say. One is that we give incentives to businesses to take on new technology all the time. The accelerated capital cost allowance, for example, is an incentive to businesses. We've given incentives to the oil sands for years for adopting new technologies through accelerated cost writeoff. We do it for the mining industry. Government quite frequently picks particular businesses or technologies for which they deem an incentive is a good idea to encourage certain types of production or technology.

I would say that, if your goal is to encourage the uptake and investment of low-carbon technologies, you have three choices. You can regulate it, tax it or have an incentive. Those are your three tools, as government.

If you were to set a carbon price really, really high, you probably wouldn't need incentives, because people would have all the incentive they need, but it would have a lot of.... To put that high a price that quickly probably isn't a good idea. What the government is doing, starting at a relatively low price and ramping it up gradually like B.C. did, is really a textbook way to bring in a carbon price.

I would say, yes. You have to be really careful, though. The questions you have to ask are: Can you show that this is a type of technology for which there isn't already a business case for the firm to do it itself? Do you actually need a government incentive in order to encourage the uptake of that technology? Be rigorous about that.

In this case, yes, emissions from refrigerants is a huge area of greenhouse gas emissions. These kinds of technologies really are leading edge. Their uptake is just beginning, and if you want to encourage the country's largest employer to be an early adopter of that technology, it will encourage the manufacturing of that technology in Canada and create an example that will encourage others to do it.

I can't speak to the amount of the incentive. I haven't looked at the economics of it to know if they paid the right amount, but, yes, giving targeted incentives where there is a promising new clean technology, and there's not yet a market case.... It's exactly the same as the electric vehicle incentive. In the same way that we're giving consumers and businesses, too, an incentive to adopt electric vehicles, we're giving businesses an incentive to adopt low-carbon refrigerants.

That shouldn't be a permanent strategy, though. That's a time-limited strategy. As a new technology comes in to a market, costs come down, as we saw with computers and digital communication technology in the last 20 years.

[The Chair, Liberal, Wayne Easter]

Okay. We'll have to leave it there.

Mr. Fragiskatos is next, and then we'll go to Mr. Blaney.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Mr. Chair.

Mr. Taylor, prior to the stress test, 20% of mortgage holders held loans that were four and a half times in excess of their annual income. That's from the Bank of Canada. This was at a time when we saw—and we continue to see, but particularly at that time—historically low interest rates. Most people, if not all, who study these things would agree that these are not sustainable numbers. Post-stress test, that number has gone down to 6%, a much more sustainable situation, I would say, and I think you would agree.

What do you have to say to them? All of this comes from the Bank of Canada, which advised that a stress test be put in place. We've had the Governor of the Bank of Canada here, Stephen Poloz, who is much more confident now about where things are and who worries much less about household debt leading Canada into an economic downturn.

How do you respond to those figures and that narrative?

I found myself over the past couple of meetings questioning witnesses saying this. I don't mean to be combative with this. I'm genuinely interested in your perspective on it.

[Paul Taylor]

I understand. This is almost the exact conversation that we've had about a hundred times, honestly, and Francesco and I have debated this ad nauseam, almost.

We have no concern, or I should say, we are not averse to stress testing. We never have been. From the moment the first stress test was introduced only on the insured side of the marketplace, our association was recommending that it be applied to the uninsured space as well, but at a reduced level so that we didn't have the same impact on activity and erosion of marketplaces where the economy was not already firing on all cylinders.

There's a pretty easy narrative to trace. Because it was easier to qualify for an uninsured mortgage than an insured mortgage for a period of time, more people were finding their way, miraculously, to getting a 20% down payment. That increased the average loan to value of the banks' uninsured business, so of course there also had to be a task to mirror to make sure that that risk profile was returned.

What we've seen in the market though, I think, is an overshooting of the expected cooling or the rolling back of those debt-to-income levels that are the big concern. We're 100% supportive of making the marketplace more secure. Lenders and insurers are our members. We want to ensure that the system is fully capitalized and funded, but we do want to make sure that we're not disproportionately affecting the folks at the bottom end of the economic ladder with a 20% borrowing power reduction. If the stress test had been brought in at somewhere around a 75 basis point mark, we would still have had a far more prudent underwriting environment than previously without necessarily having the same, at times quite dramatic, reduction in activity.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I wanted to ask you one last quick question on a related but separate matter.

You talked about the shared equity mortgage proposal that the government has come forward with in budget 2019. You've said that those who are slated to take advantage of the initiative would have been able to get mortgages anyway, but at what rate of interest would you say that would be, on average, for the people in that category? Would you have a number? Have you looked at that?

[Paul Taylor]

I'm going to leave that for my banking friend here to address.

[Michael Wolfe]

We don't see any change in price for an individual who would take advantage of that program or for someone who wouldn't take advantage of that program. We don't see any pricing advantage for doing so. I could say that current interest rates in our environment on a five-year insured mortgage would be 3.04%. That's a current rate that would be available in the market.

Does that answer the question?

[Peter Fragiskatos, Liberal, London North Centre, ON]

Well, without a deep analysis, it doesn't answer it completely because that's lacking. I would just worry that a lot of those folks would be faced with very high rates of interest and it would be very difficult for them to make payments.

[Paul Taylor]

I'm not sure I agree.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I'm just suggesting it. I don't have that evidence. I was pointing to you to ask if you've done an analysis on that question.

[Paul Taylor]

There's not too much analysis required on that. Since the mortgage is going to be insured, you're probably going to get the best available rate in the market. In fact, if you have a down payment of less than 20%, because that mortgage is insured, you're generally actually qualifying for a better interest rate than if you had a down payment of greater than 20% today.

[The Chair, Liberal, Wayne Easter]

Okay, we'll have to leave that one there.

We'll go over to you, Mr. Blaney, and then we'll have to close. You have four minutes.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Thank you very much, Mr. Chair.

I'm pleased to be replacing Tom Kmiec.

May I remind you that he worked for me at some point? Although I've been here for a while, it's at least 10 years less than you have been.

Hello and welcome.

I didn't get to hear your testimony, but there's something I want to clarify with regard to an answer you gave Mr. Dusseault.

The flagship measure in the Liberals' budget is their much-touted first-time homebuyer incentive.

Mr. Taylor, I just about fell out of my chair when you said this measure doesn't seem to be having the miraculous effect we were promised.

The measure is described as follows: “To help make homeownership more affordable for first-time home buyers, Budget 2019 introduces the First-Time Home Buyer Incentive”.

My first question is as follows: Will this measure in the budget increase the number of families able to have access to a property?

[Paul Taylor]

We don't think so, no—

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

No?

[Paul Taylor]

—because the qualification criteria are effectively the same.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Okay.

I listened to Mr. Fragiskatos' question, but I would call it fake news. The budget says that we want to let new families get a new house, but what you're telling me—you're an expert, you're a professional, you're with Mortgage Professionals Canada—is it's zero. The only thing it will do will be for the person who already qualifies. Well, this person will get this benefit at the expense of all Canadians, but they already qualified. Frankly, I'm disappointed in the budget. I was willing to vote against it and now I have one more reason.

I'm also disappointed because access to home ownership is a major issue for future generations. As we know, the Liberal government just dug us $20 billion deeper into debt. Future generations will be footing that bill.

One way to build capital is to buy a house. Earlier, you talked about stress tests for mortgages. The Liberals have reduced access to home ownership by implementing stricter criteria. I'm a little disappointed, because access to home ownership is important.

You also said that this measure has negative effects. You talked about resale and the fact that people may not be willing to reinvest.

I'd like to hear what you think, Mr. Wolfe, if I have enough time left.

[Michael Wolfe]

My comment about investing or reinvesting in a property is related to the fact that the government would share in the equity if you wanted to do a refinance, add a basement suite or do some landscaping of the property. It's not yet known whether any of those investments back into the property would be shared with the government on the equity share program. When we have those details, we'll be better able to speak to it, but it is a concern we have.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

It's a concern I have as well, because we want to preserve the value of our housing stock and Canadian assets.

You're saying that this measure gives a new homeowner no incentive to invest in maintaining or increasing the value of their property. This doesn't seem like a particularly brilliant measure to me. In fact, it does the opposite of what was intended.

Thank you for that answer.

[The Chair, Liberal, Wayne Easter]

Okay.

Go ahead.