Finance Committee on April 3rd, 2020

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Cross.

We'll come back then and start with Mr. Morantz's first question. We'll go to six-minute rounds on the first block.

Mr. Morantz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

Mr. Cross, in your opening comments you talked about long-term ramifications, which is really what I wanted to ask you about from an economic perspective. I touched on this in one of our earlier rounds, but after World War I there was massive spending, funded through debt and increases in the money supply. The Weimar Republic in Germany suffered one of the most acute episodes of hyperinflation in history. In 1923, the inflation rate was 3.25 times 10⁶ per cent per month. In other words, prices doubled every two days.

Today, we and the rest of the world are in a similar situation. We are funding our own war in the same manner through trillions of new spending, either through borrowing or increasing the money supply.

I am just wondering if you could give us your professional perspective on what this might mean in terms of inflation, the potential for high inflation or hyperinflation, and also the effect that it might have on interest rates going forward, after we come out of this.

[Philip Cross]

Sure, that's a question that's been asked a lot over the last decade. We saw in the 2008-09 crisis, for example, that there were large increases in debt but not necessarily in the money supply. The two can be separate things. The danger is that if the credit markets are unwilling to fund federal debt then the central bank may have to buy that debt and start to monetize it and print money to buy it. That's the risk that I think you're worried about. I don't think we're at that situation yet.

Clearly, in fact, federal government interest rates remain quite low because of the trillions of dollars that have been flowing out of stock markets, commodity markets and even private sector debt markets around the world. All that money is going to one place. People want to buy government debt, even at the ridiculously low interest rates being offered.

In the short term, there doesn't seem to be any need for monetizing debt. I think a bigger problem would not be monetizing debt, but as I mentioned in my opening remarks, we don't want credit markets that are only willing to finance federal government debt endlessly. At some point, we have to go back to funding private sector activity. It's worth noting that there's a lot of talk about how interest rates are low these days, but actually they've been rising for the private sector because people perceive that the risk in the private sector is increasing. We want to normalize that as quickly as possible.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Okay. Thank you for that.

Given the limited time, let me just go to my next question. It's on the carbon tax.

I know you've written extensively about the pitfalls of the carbon tax, particularly given how it's currently structured. Given the current economic crisis, do you find it curious that the federal government, given all the other changes they're making—tax changes, all the programming that's coming out, the CERB, the business programming—would still elect to go ahead with the increase in the carbon tax on April 1? In addition, what damage do you think this will cause and what industries do you think will be most adversely affected?

[Philip Cross]

I think it is curious. I think the number one problem of the business sector these days is conserving enough cash so that they can survive until we traverse this unusual disruption. I don't think it's just the carbon tax. I don't know why we would be collecting the GST. We're dividing a lot of schemes in which we get money from the federal government to businesses so they can stay afloat. Probably the easiest way to do that would be to stop collecting money from the private sector and transferring it to the government. That would be the quickest way of getting money and keeping money in the hands of the private sector so it could survive. I think there was an opportunity missed there. For the carbon sector, the industrial impact is, of course, going to be felt most severely in the oil and gas sector, which is dealing with two crises simultaneously: one, record low price, and the other, the general disruption of economic activity. It is that sector in particular that is amongst the most vulnerable.

But there are also a lot of service industries whose business operations are being completely disrupted. Hotels and restaurants are not being affected by this tax but they are also being severely affected. As I mentioned, when you start to think of the line that's going to be forming for help from the federal government, the demands on the federal government in the next few months are going to be simply gargantuan. I don't know how they're going to sort all of this out.

[The Chair, Liberal, Wayne Easter]

You have just enough time for a very quick snapper there if you could, Marty.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Okay, I'll be very quick.

I just want you to touch on the article you recently wrote, in which you were contrasting U.S. and Canadian policy regarding partnering with the private sector. You said, “the contrast between the business community's 'can do' optimism and the public sector's overall moroseness is striking.” Could you just comment on what you're getting at there in terms of what we could learn from how the U.S. is approaching the crisis in that aspect?

[Philip Cross]

One thing that was striking in the response of the federal government to this crisis was how initially all of the focus was on workers. Of course, workers are important, but what almost seemed to be forgotten initially and was then just an afterthought was that we have to make sure that businesses survive. Yes, we have to get help to workers, but we need to ensure that when this crisis ends, those workers have a job to go back to in the business sector. I think more thought needs to be put into how we can, as I mentioned, keep more funds in the private sector so that it can survive and be a good employer when normal business resumes.

[The Chair, Liberal, Wayne Easter]

Thank you very much to you both.

Mr. Fragiskatos, you have six minutes, and then we'll go to Mr. Ste-Marie.

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

Thank you, Mr. Chair.

Mr. Thibault, bear with me, but I am going to ask my question in English.

Sir, I'm wondering if you could tell me your association's thoughts on the federal and provincial governments potentially providing support for hotels if these would be used as temporary hospitals for non-COVID-19-related cases.

In addition, do you have any thoughts on the federal government potentially working with provincial governments to help fund housing at hotels for homeless individuals, to ensure physical distancing during this time? I've seen in recent days steps towards that happening, hotels being very open to that happening, I should say. If governments were to encourage that by supporting it further, what would you think about that?

[Dany Thibault]

Thank you for your question. It's very relevant.

Again today, there have been many exchanges on this subject with the Government of Quebec and the Department of Health. Indeed, this is an opportunity to contribute to the effort to resolve the pandemic and support the health care system. Since we are not health specialists, the difficulty we are facing is related to the support we must give our staff to protect them. As the aerospace industry representative said, we do not have the equipment and the knowledge to properly protect our employees. That is the fear of many operators. In our case, in terms of support, we are there, but it is absolutely critical that we provide the training and the equipment to protect our people. For us, that support is a way to reduce our losses in the short term and at the same time be part of the effort to solve the problem.

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

Thank you very much.

Now it's Peter here.

Would you have data on how many members of your association own their building versus rent their building?

[Dany Thibault]

In Quebec, the majority of operators, or 85% of the industry, also own one or a few hotel buildings. For us, the special fund is extremely important, because the hotel operator is often the owner, especially in the small hotel industry.

Of course, large hotel companies own or manage hotels on behalf of some investment funds. They are mostly found in large cities, such as Montreal and Toronto, but in outlying areas or smaller markets, the majority of operators also own.

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

Thank you very much.

I asked the question simply because—and perhaps it's obvious—I'm trying to understand the implications of COVID-19's economic impact on renters and entrepreneurs who own their buildings and how that might unfold in the coming weeks and months.

Through your network of contacts, sir, would you say that it's the same sort of picture in Canada? I'm sure we'll hear from other hotel operators in the coming weeks here as we do these meetings. Do you have any ideas on that picture you've just drawn for us?

[Dany Thibault]

I don't have precise data, but the Quebec data are certainly a little different. In Quebec, investors and independent owners occupy a larger share of the hotel pool than in the rest of Canada. I cannot give you specific percentages, but that model is not very popular in the hotel industry because of the distribution of risk. It's often an owner who puts the management of a hotel in the hands of a hotel manager. Renting space to put a hotel in is not a model that is very popular around the world because of the investment required.

[The Chair, Liberal, Wayne Easter]

You have a couple of minutes left, Peter.

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

Mr. Falconer, does your association represent workers in the defence sector?

[Gord Falconer]

Yes, we do.

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

The U.S. has set aside $17 billion in federal loans for businesses that it deems critical to the maintenance of national security. That's straight from the policy that was recently enacted.

As you well know, Canada has a very large defence sector. Should Canada aim to do something similar in your view, or at least in the association's view?

[Gord Falconer]

In our view, we represent members who do repair and overhaul in the defence sector. We also represent the shipbuilding industry. One of the things that we need to do is to ensure that those are protected and, yes, there should be something that's put into play for that.

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

I'll just emphasize that it is loans that have been allocated by Washington, but I think it's something that is worth discussing.

[Gord Falconer]

Washington has a lot larger issue with the defence side than we do. I just want to emphasize that we do a lot of work for the Americans, which is obviously now in jeopardy because of the borders being closed.

The other thing that you have to keep in mind is that we have our differences between essential services between different provinces. Some of that work had actually been let go because of the provincial jurisdiction on essential versus non-essential. I just want to emphasize that as well.

[The Chair, Liberal, Wayne Easter]

That's a good point for us to know. Thank you very much.

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

Thank you very much.

[The Chair, Liberal, Wayne Easter]

We'll turn to Mr. Ste-Marie, followed by Mr. Julian.

Go ahead, Mr. Ste-Marie.