Finance Committee on Feb. 23rd, 2016

[The Chair, Liberal, Wayne Easter]

If you're splitting your time with Mr. MacKinnon, you have two and a half minutes left.

[Steven MacKinnon, Liberal, Gatineau, QC]

Mr. Chair, can we get back to this during another five-minute round?

[The Chair, Liberal, Wayne Easter]

Yes.

[Steven MacKinnon, Liberal, Gatineau, QC]

Fine.

Mr. Leswick, I am going to begin with sick leave.

The previous government changed leave provisions in this regard. What motivated this decision at the outset? Why must we now review all of this in the fiscal framework? What was the thinking that led to such reversals in the context of the financial situation?

[Nicholas Leswick]

Thank you for the question.

In the previous budget, the previous government had booked a certain amount of savings related to intentions to implement a short-term disability plan. From an accounting perspective, we hold the liability on our balance sheets, which reflects the net present value of the total value of sick benefits. Those would effectively be replaced with a new short-term disability management system. By getting rid of the liability, the previous government had booked a certain amount of savings associated with those.

In this, what you saw yesterday in the backgrounder was a reversal of that entry into the fiscal framework, which signals a different approach on the part of the current government to negotiate a short-term disability plan with unions.

[Steven MacKinnon, Liberal, Gatineau, QC]

So the fact of having forced through the adoption of this short-term disability plan meant that the $900-million credit could be recovered. Now with the withdrawal of that provision, you are reversing the $900-million entry.

[Nicholas Leswick]

The previous government had given themselves the legislative authority to implement this system. The previous government never did exercise the authority, but in anticipation that they would exercise the authority, the savings were booked. Hopefully that's clear. There was never a legislative measure in the sense that they actually exercised legislation.

[Steven MacKinnon, Liberal, Gatineau, QC]

And these things tend—

[The Chair, Liberal, Wayne Easter]

Order. That's time.

Mr. McColeman, you'll be clean-up batter.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thank you, Mr. Chair.

What real purpose does the department's monthly “Fiscal Monitor” serve?

[Nicholas Leswick]

The “Fiscal Monitor” is a monthly statement of operations. It effectively shows our income statement on a monthly basis. The real purpose for us is two things. It shows the budgetary surplus or deficit in any one month, and it also sets our ultimate cash requirements. It's the income statement and the statement of cash flows, so we know how much money we need to raise on markets to fund any particular surplus or deficit in any month.

[Phil McColeman, Conservative, Brantford—Brant, ON]

To be clear, our understanding is from the period of April 1 to the end of December, there's a $3.2-billion surplus in the account.

[Nicholas Leswick]

Not an account per se, but yes—

[Phil McColeman, Conservative, Brantford—Brant, ON]

In the cash flow.

[Nicholas Leswick]

Yes, there's a cumulative surplus of $3.2 billion year to date December.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thanks.

You keep mentioning that there have been large fluctuations in the economy in the last two months. What produces those large fluctuations? What are the key components of those large fluctuations as you look back on previous fiscal years?

[Nicholas Leswick]

In 2015 in general we had two quarters of negative growth at the beginning of the year, driven almost entirely by a decline in investment in the energy sector. We bounced back in the third quarter and now we're anticipating our fourth quarter results at the beginning of March. But looking at the first two months of the last quarter, we see some weakness in retail. Statistics Canada released our retail trade numbers last week, which showed some weakness in consumer spending. Likewise, there's persistent weakness in investment in the energy sector. Quite frankly, we haven't seen Canadian exporters quite take hold of the potential advantages of the depreciation of the Canadian dollar. That's weighing on forecasts, I think, across our private sector surveys.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Would you say that your projections in terms of that retail component vis-à-vis the effect of the reduced Canadian dollar on Canadian exporters and manufacturers will kick in, and if so, when?

[Nicholas Leswick]

We don't have too many months of data just yet, but last week's data was very interesting because Statistics Canada also released consumer price inflation as well, which showed that prices are going up, so it's weighing on Canadian retailers. If you have a fixed budget, you can only buy so much with your fixed budget, and if prices are going up, then your real consumption, your real nominal purchases, will go down. I think we're going to see that with the lower Canadian dollar, so it makes it more expensive for us to import fruits and vegetables, as we've seen in the media in the last little bit. We're going to see that play out over the next couple months, and we'll see to what extent that weighs on ultimate retail sales.

[Phil McColeman, Conservative, Brantford—Brant, ON]

The reverse is that because of the lower dollar it makes it a lot more attractive for manufacturers and exporters. In fact, Ontario is currently projecting large increases on their fiscal balance sheet because of that effect, not the reverse, not the one you just mentioned, which was importing products and having to pay with Canadian dollars.

[Nicholas Leswick]

Absolutely.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Do you factor that into what Ontario is doing, which is factoring it into their upcoming budget?

[Nicholas Leswick]

Absolutely, and we're hoping that the manufacturing sector will make capital investments to enhance their capacity and respond to demand from markets such as the United States.

It's all factored in, but I guess at a higher level I think we're seeing some weakness in Q4. We and private sector economists are expecting effectively a flat quarter. The results will come out on March 1.

It's just a weakness in momentum that will carry forward into the first quarter of 2016. In that regard, I think it's definitely one part of the reason, along with lower oil prices, why 2016 has been brought down a notch in terms of expectations for growth.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Yes. Now—

[The Chair, Liberal, Wayne Easter]

I'll have to stop you there, Mr. McColeman.

We are at the end of our time for committee.

Just to make note, Mr. Leswick, I think we're—