Finance Committee on April 3rd, 2020

[Jocelyn Bamford]

There are many ideas that you can benchmark. A lot of our members from the Coalition of Concerned Manufacturers have gone to the States and relocated their businesses because of the incredible incentives there. You just need to do a quick SWOT analysis. In fact, our company had Queen's University do a study and a SWOT analysis, which I provided a couple of years ago, and the incentives are only better. I would be happy to share that SWOT analysis with any government body that would be interested.

We are not competitive here, and we need to be competitive.

[The Chair, Liberal, Wayne Easter]

Go ahead, Gord.

[Gord Falconer]

I'll just wrap it up by saying that because we're in an international market and with the free trade agreements, we should be looking at different forms of how we're going to do this. I can tell you from the transportation sector that it will take 18 months, minimum, to actually get the confidence back for people to travel. This is not going to be a quick fix.

If anything, it showed us that the services that we have are under capacity and everything we're doing is to try to catch up. I honestly believe that this is showing us where all of the work is being transferred through free trade agreements, and it's indicating that we need to bring back work to Canada in some form.

I don't want to dwell on it, but I want to just say that it's obvious we have major issues that are going to be impacting this country for at least the next year.

[The Chair, Liberal, Wayne Easter]

We'll have to leave that round at that.

We'll go to Mr. Ste-Marie for one question and Mr. Julian for one question, so that we can get the last two in.

Mr. Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

My question is for Mr. Falconer, who represents the machinists.

You mentioned the near shutdown of the aviation industry. Obviously, this has a significant effect on the aerospace industry. There are a lot of jobs related to the aerospace industry, particularly in the Greater Montreal area. As far as supply chains are concerned, there are delays and restrictions. All contracts are put on hold and there are travel restrictions for deliveries.

When compared to Europe and the United States, our aerospace industry enjoys better recognition.

Do you believe that the aerospace industry should be recognized as a strategic industry?

[Gord Falconer]

We represent a lot of workers in the U.S., and the issue for defence is high on the demand. I can honestly say that in Canada we have to actually spend some.... We should have resources put together so that we have our own sector in Canada, instead of depending on other countries for our aerospace sector.

Airbus came to Canada and we're looking at supplying the kind of work that's here.

The quick answer would be yes.

[The Chair, Liberal, Wayne Easter]

Mr. Julian.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you very much, Mr. Chair.

I have a question for Mr. Thibault.

What you said about the catastrophic effects on hotels in Quebec and across Canada was very eloquent.

Mr. Gord Johns, our small business critic, and I wrote to the minister today to tell him that small businesses should receive the wage subsidies as soon as possible. We also asked him to remove the 30% decline in revenue requirement for employers with 50 employees or less.

Can these measures help you?

You also talked about investing in tourism in Canada and helping associations prepare conventions and meetings. Are there other measures needed to help the hotel sector recover?

[Dany Thibault]

As I explained earlier, one thing is certain: the difficulties with the wage subsidy are its comprehensibility and its application in the short and long term. The day this subsidy ends, there will be a problem, because our cash flow needs will still exist. So we have to get this subsidy well regulated and standardized so that we can support the industry for longer.

Measures to facilitate liquidity management were well received. There is no doubt that all levels of government have responded, whether it be regarding municipal taxes, the GST or the QST, in Quebec. These measures must be maintained and their sustainability must be ensured.

Today, we are no longer talking about 30% losses; we have reached losses of 90%. It is therefore obvious that these measures will have to be maintained for the tourism and hotel industry. We'll need some kind of special emergency fund when the industry comes back to life and the economy starts to recover. It is going to take a dedicated fund to help the tourism industry to maintain its businesses, especially small businesses.

We often think of the Royal York in Toronto or the Queen Elizabeth in Montreal, and these large hotels are important, but the overall picture of the hotel industry is a mix of small operators. They are there every day to serve their guests, to promote, to clean rooms and to serve meals. These people will need some kind of fund to help them get back on their feet. Otherwise, they will not be there in three, four, five or six months.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there.

I can assure you, Mr. Thibault, that we have the same kind of hotel structure here in P.E.I., with many small operators. That's good information you've provided.

We'll turn to Mr. Poilievre for five, then we'll wrap up with Mr. Fraser for five.

Pierre.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you very much.

My question is for Mr. Cross. Mr. Cross, as we come out of this, I think the finance committee has to be thinking deeply about the economic recovery, the very painful, long economic recovery that will follow this massive supply shock. Yet with the ongoing conversation about stimulus, many believe and are arguing that we can just continue to permanently spend, borrow dollars to eventually stimulate the economy back to life.

There seems to be confusion between producing wealth and consuming wealth. It's true that when governments spend money, for example, propping up a failing business, there is economic activity; it's a consumption of wealth. When a profitable, self-sustaining business generates activity by selling products and services to people who want them, it produces wealth. The example that you and, I think, the concerned manufacturers gave was the massive subsidies for windmills and solar panels in Ontario, $30 billion or $40 billion. They did create economic activity in the sense of consuming those tens of billions of dollars. Then the businesses that had to pay the price had to lay off workers and shut down operations or move out of the country.

If a solar panel company got $100 in revenue, $90 of it was in subsidies and $10 was actually the value generated. If we run an economy that way, we're just going to bankrupt ourselves by consuming what we don't produce.

Can you help explain the difference between the production of wealth and the consumption of wealth?

[Philip Cross]

In five minutes? Okay, that's a challenge.

[The Chair, Liberal, Wayne Easter]

No, it's two and a half, Philip.

[Philip Cross]

One example I would bring out that should make people hesitate before advancing too far down the road of endless stimulus is to recall what happened to the economy in the 1970s. We suffered a major shock from the OPEC oil price increase. Even as the supply side was being dampened, we tried to stimulate demand. What we ended up with was the worst of both worlds, what's called stagflation, with both high rates of inflation and unemployment.

The current situation seems to have some analogies to that. Clearly, the supply side of the economy is taking a hit. We want to minimize the loss of productive capacity, but clearly, some firms are not going to make it through this. Productivity rates are going to be dampened. There's going to be a shock to the supply side. The risk is that if we overstimulate demand, we're going to be putting more demands on the economy than it's going to be able to produce and the end result is going to be inflation.

I've already seen examples of that in my local supermarket. I was quite surprised this week: they're rationing us to one bag of potatoes and the price of meat has doubled since last week because they can't get workers in the meat plant. We're not running out of cows and pigs, but we're running out of production capacity.

Those are some of the examples I would point to as to how, particularly when you're going through a period where you're destroying production capacity, that can have particularly nasty effects on the economy.

[Pierre Poilievre, Conservative, Carleton, ON]

To build your example out, Mr. Chair, if I may—

[The Chair, Liberal, Wayne Easter]

Just very quickly.

[Pierre Poilievre, Conservative, Carleton, ON]

I will make it quick.

If the government came out with a program to stimulate meat consumption today, then yes, people would sprint out and buy more steaks but there wouldn't be any more on the shelf and the result would be that prices would go up. Likewise, if after the lockdown ends, the government tries to spend more and more borrowed dollars stimulating artificial demand for products and services that no longer are produced, prices will do exactly as they did at your grocery store. They will go up, because you can't consume what you don't produce.

Would you agree with that?

[Philip Cross]

Very much so. That's why I think it's very important coming out of this that we focus not on short-term stimulus to demand, but on increasing the production capacity of our economy in the long run. For example, there should be less regulation, less restrictions in interprovincial trade, more encouragement to business investment, including the energy sector.

Yes, I think we really are going to have to focus on the production capacity side of the economy and not just the demand side.

[The Chair, Liberal, Wayne Easter]

I would point out that part of the reason for the shortage of capacity, at least in the pork industry, is a plant shutdown because of problems with COVID-19 among staff. That adds to the problems we have as a result of COVID-19 for sure.

I'll turn to Mr. Fraser to wrap it up.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you very much, Mr. Chair.

I'll start off with a question that I'll put to our guests from the hotel association and the ones representing the machinists and the aerospace industry.

I thank you for your comments about some of the benefits of the programs we've rolled out to date, particularly the fairly quick action and the importance of the wage subsidy to help maintain a relationship between employers and employees. As well, there are the measures that we've put in place to increase the flow of capital that will help with cash flow over the coming weeks and months.

One of the concerns that I see, and each of you have flagged this, is that there is a longer-term problem, particularly for our guests from the machinists and the aerospace sector, given the potential longer-term impacts on air travel. The hotel association mentioned on a couple of occasions there would be challenges when it comes to long-term stays because of, realistically, a serious systemic hit to the tourism sector.

We'll start with the hotel association. What are the solutions that will help bring that traffic back? I know you mentioned a potential incentive for having business meetings recommence, but are there other suggestions that would help restore the volume that would bring your business back to an even keel? I have the same question for the aerospace sector. What measures can we be implementing in the short term that will help you with the long-term recovery, so that temporary programs like the wage subsidy may not be needed in the longer term?

We'll start with the hotel association and pivot to those representing the aerospace sector.

[Dany Thibault]

Thank you for your question.

Demand being what it is, no matter how much promotion we do, what will make a difference is the money people will receive to take concrete action for the economy.

Mechanisms must be put in place to stimulate tourism demand, whether for business or individual tourism. Travellers could receive compensation or credits. Businesses must be stimulated to hold events or travel to hotels and convention centres within Canada and the provinces concerned. If money is put back into customers' pockets in some way, they will be more inclined to spend. This is the first step.

Secondly, we must position ourselves as the destination of choice. We saw this after the attacks of 2001. Canada, including Quebec and Ontario, became a safe zone for Americans on the east coast of the United States, just as western Canada became a safe zone for people in Washington State.

Once the pandemic is over, can Canada once again become that safe zone where people can thrive safely, both in terms of health and crime? The answer is certainly yes. In order to do so, Destination Canada and the tourism ministries in each province need to promote Canada aggressively and in a well-organized manner in our nearby border markets.

If we can orchestrate this by giving money to our members, our citizens and our businesses to spend on business and leisure tourism, they will take planes to get to our hotels and restaurants. This will also stimulate business for taxis and all those who are tied to our industry.

In addition, Destination Canada will work to bring people in neighbouring areas to our destination, including through substantial and much larger budgets than in the past. We're doing poorly when it comes to the money we spend promoting Canada.

[Sean Fraser, Liberal, Central Nova, NS]

My final question is for our guest from the Macdonald-Laurier Institute.

You flagged the risk of overstimulation leading to endless inflation. I take it then it would be important to signal that we will be returning to a more normal environment in the short term and to signal how we're going to do that. Do you have advice for the government, which we could provide, that would demonstrate how it could signal to lenders, for example, in the long term that we will be returning to a more normal spending environment?

[Gord Falconer]

Can I just say something from the machinists' side, from the IAM?

One of the things that we're looking at is that we have to have consumer confidence. One of the things that is taking a while for people to understand is that the air transportation industry asks people to have confidence in what they are actually taking. They need to have confidence in the cleaning of the aircraft, that they have a safe environment to go from post to post.

International travel is going to be based on people's confidence to go to different locations. For people to come to Canada, they need to have confidence that they are coming to a safe environment.

The stimulus package we are talking about is not only for workers to have jobs, but we also have to protect the industry. The industry needs to have a stimulus package to maintain it so that we are not getting eaten up by the big multinational corporations and the small places can still survive. There needs to be stimulus from the government to make sure that people have confidence in the economy in order to move from place to place.

From an airline component, people need to know that they are going onto an aircraft that safe. They need to know that when they go to the airport they are protected from any pandemic. I think that in the short term it is about putting programs together so that people will feel safe, but in the long term, what we need to do is to build consumer confidence that they can come and be safe when they are travelling to different destinations. I think that's the easiest way to put it.

[The Chair, Liberal, Wayne Easter]

We are going to have to close it there before the line shuts down on us.

I do want to thank all of the witnesses for their presentations, for responding to our questions, and for the advice they have given us.

Committee members, we had some suggestions for themes for the meetings next week. What I would propose—and email me if these do not suit you—is that for the first panel on Wednesday we would look at indigenous issues as a result of COVID-19, and for the second panel in the second two-hour period, we would look at the tourism and hospitality sector. On Thursday, it would be small and medium-sized businesses for the first panel, and for the second panel it would be the financial and banking sector and what they are and are not doing.

Are people okay with that as the proposals for next week? I would ask members if they could to get their witness lists to the clerk by six o'clock on Sunday evening so that folks can start to get the invitations out early on Monday morning, especially for that Wednesday meeting.

One other thing, in case people are listening, that came up earlier is that the fastest way to get the money out to people is for them to register now with the CRA My Account and the CRA My Business Account. That will be the fastest way, when the program kicks in, to get the money out through the system directly to bank accounts.

With that, we are at 6:59. The system will likely close down. I want to thank the witnesses again and thank all the committee members for their endurance, their questions, and their thoughtful discussion.

With that, we'll adjourn the meeting.