Finance Committee on April 3rd, 2020

[Sherri Torjman]

Thank you, Ms. Dzerowicz, for the question.

I absolutely agree. In fact, I made reference to it in my comments that this is a real concern. It was inadvertent. People, I think, were acting very quickly and wanted to act in the best interests of their employees and thought that this would be helpful. Now many of them are telling me that they're very worried about facing potential lawsuits. Technically, they probably are legally liable.

If there is anything we could do to say that over this period of time, if you did this quickly, there may be some protections or something in place to avoid this particular problem because it is really stressful and it's stressing out a lot of people and unnecessarily so. They were acting in good faith. We really need to do something to protect these people against these kinds of unfair lawsuits that could potentially come their way.

[Julie Dzerowicz, Liberal, Davenport, ON]

I know that my time is limited.

I just wanted to be clear that it seems that it's because they laid off people very quickly, without proper notice. I think that's what you're referring to.

[Sherri Torjman]

That's exactly right, yes.

They just thought that's what they had to do. According to the information they had available at the time, many thought that simply was the procedure so that people could get money very quickly, not recognizing that there were other procedures that had to be followed. If there is any way of looking into that, that would be very helpful.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.

[The Chair, Liberal, Wayne Easter]

I'm sure the analysts have made note of that point.

[Sherri Torjman]

Thank you, Mr. Easter.

[The Chair, Liberal, Wayne Easter]

The way we'll try to finish up here, we'll go with Mr. Ste-Marie and Mr. Julian for two and a half minutes apiece, and then we will go to Mr. Morantz and Mr. Fragiskatos for five minutes each. If there is still time, I will give the witnesses the opportunity for a couple of minutes to close, if they have any important additional points they want to make.

Mr. Ste-Marie, you're up.

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

Thank you, Mr. Chair.

My questions are for Ms. Torjman and Mr. Mintz, and they relate to startups in the technology sector. In the Greater Montreal area, there are no less than 5,000 of them, and many of them contact us to tell us about their difficulties.

I have two questions for you about them. Very often, they had concluded a first sales contract. However, because of the COVID-19 crisis, these contracts were cancelled or postponed, to a relatively distant future.

The business model for startups involves a lot of expense in the beginning, until the first contract comes along. Now that first contract is postponed. Therefore, these businesses are not eligible for the 75% wage subsidy.

First of all, do you think these companies should be included in the subsidy program?

Second, in many cases, these startups are unable to borrow funds, and they rely on venture capital funds. These funds are now pulling out because they themselves are short of cash. Do you think the government should take over where the venture capital funds left off by offering something other than the $40,000 loan?

[The Chair, Liberal, Wayne Easter]

Go ahead, Jack.

[Dr. Jack Mintz]

Okay. Those are not easy questions.

On the start-ups and the wage program, the 30% rule is a problem, because obviously there are companies that haven't yet generated revenues but have made major expenditures. They expected contracts to come in, and in fact some of those contract revenues might be arriving soon, but they're not sufficient to deal with the expenditures they're facing.

I think the government needs to look at that. I don't have any brilliant ideas on how to address it, but one of the ways might be through the liquidity facilities given for investment. It could be way of trying to handle that in a different way from the wage program. I think it could be done through a small business lending facility that might assist.

With regard to venture capital, it's basically a very similar issue with regard to the money that's available. I think the liquidity measures that are being adopted by the government are the best thing that could be done now. There is some sort of additional assistance to be given to businesses that are facing major cash flow problems right now. In the case of venture capital, I don't think at this point.... Their most important thing is their ability to borrow, which I think will be part of the liquidity issues. I don't know enough about the various ones that have been put in place, but venture capital could be included.

[The Chair, Liberal, Wayne Easter]

Before I move to Mr. Julian, I have a question, Dr. Mintz, on Gabriel's first point and the need for a small business lending facility. From your experience, could regional development agencies fill that role?

[Dr. Jack Mintz]

Again, this goes back to my comment that I really think you need to use the banking system, because banks have the reach, and programs could be put into place much faster. There may be a role for regional development programs in assisting with things as they move along, but I'm not sure they have that ability to assist.

[The Chair, Liberal, Wayne Easter]

Okay.

Mr. Julian, you have two and a half or three minutes.

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

Thank you very much, Mr. Chair.

My first question is for Mr. Fortin and my second question is for Mr. Fortin and Ms. Spinks.

Mr. Fortin, given all the problems with the system that has been put in place and their impact on the cultural industries, do you think it would be easier for artists in Quebec and elsewhere if there were a universal benefit? That would avoid all the problems you just mentioned.

Second, regarding the banking system, credit card companies and banks are setting extraordinarily high interest rates, even though the Bank of Canada has lowered its key interest rate. So there are people who are paying 20% or 25% interest on their debts. Is that a problem for people in the cultural industry, such as musicians?

Should the government take steps to force credit card companies and banks to lower interest rates and allow people to defer mortgage payments?

Next, Ms. Spinks, could you tell us about the impact of financial stress on people's lives?

I'd like Mr. Fortin to answer first.

[The Chair, Liberal, Wayne Easter]

Could you be fairly quick in your answers? Peter took all of his time on the question. Go ahead.

[Luc Fortin]

You talked about the guaranteed minimum income. That would certainly be the simplest solution. Anyone receiving this minimum income without really being entitled to it, because their income is too high, would have to pay it back on their next income tax return. This is one of the solutions that I think is interesting.

[The Chair, Liberal, Wayne Easter]

Okay. Is there anyone else?

[Luc Fortin]

You also talked about credit card interest rates. This is indeed a problem for artists and musicians, since people who have difficulty making ends meet will fill up their credit cards, which have very high interest rates, about 20%. This will only make their situation worse, and it will be even more difficult for them to get through the crisis.

Banks have already agreed, in several cases, to suspend mortgage payments for their customers for six months.

[The Chair, Liberal, Wayne Easter]

Okay. We'll have to leave that round there—

[Luc Fortin]

Credit card companies should make a big effort in this regard.

[The Chair, Liberal, Wayne Easter]

I'm hearing somebody. Mr. Morantz is next.

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

Dr. Mintz, I want to change our focus for a second to some of the broader economic implications of the drastic measures we are currently taking.

I was looking back at some of the history of countries that have experienced inflation and hyperinflation. If you go back to after World War I, the Weimar Republic suffered a hyperinflation rate of 3.25 times 10⁶ per cent per month. In other words, after the stimulus spending that went on after World War I, prices doubled every two days. It's a famous incident in history of hyperinflation.

Given the fact that the world is now, in an unprecedented way, throwing trillions of dollars of new spending at this through debt and monetary easing and by increasing the money supply, I am curious to know your economic opinion on where we will be when it comes to not only inflation but the utilization of interest rates to quell that inflation after we come out of all this.

[Dr. Jack Mintz]

Well, there are three potential responses when you have a huge increase in the debt-to-GDP ratio. At that point you have to be careful because you want to make sure you sell your bonds. The first way of trying to address that, as in different periods such as after world wars or similar major things, is to use repressed inflation, which is to try to grow the economy with a purposely low interest rate. That could lead to inflationary pickup, which would lead to higher GDP growth, with the debt problem basically eroded away by inflation, but inflation itself having some really negative impacts as a result.

Another approach is to try to undertake policies that will potentially grow the GDP much faster, and therefore over time the GDP ratio is going to be dealt with.

A third approach, of course, is what the IMF would call a fiscal consolidation approach, or austerity, which would mean having a tighter, stricter budget to move that to a balanced budget. That is what happened after the financial crisis of 2008. There was a very significant increase in the debt-to-GDP ratio after that because of the amount of debt that was taken on, but then it was brought down over time.

I think one has to look at what the various provisions are. One of the things I'm very concerned about is the fact that a lot of the deferrals that are being put into the system now for mortgage payments, rents and other things will need to be paid back when people are going to be facing two payments at one time. Governments may end up having to deal with that.

Also, unlike some [Technical difficulty—Editor], I felt that the GST increase and the child benefit increase were actually the wrong policy this time around. The reason is that the qualification in the income testing is based on past income taxes, for 2018 or 2019. A lot of people who significantly lost revenue and are now facing their income coming down actually won't get the GST or the child benefit increase. It was really the wrong policy, because a lot of the people who were in it were already living on government transfers and are now facing a loss of income. Those kinds of things we have to be very careful of as we come out of this, to try to make sure we handle our finances, including debt.

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

On the issue of inflation, just to continue on for a second.... You just touched on them, but of the options you suggested, what do you think we could be doing now? What would be the best policies from a Canadian perspective to guard against inflation—I'm not saying any inflation, but a high rate of inflation—given the quantitative easing that's going to be happening not only in Canada but around the world?

[Dr. Jack Mintz]

I think that when we come out of this, we will have destroyed some of.... This is a huge supply shock on the economy. We're also dealing with a reduced amount of supply and the misallocation of resources, to the extent that there are bankruptcies, firms going out of business, etc. That's going to require policies that allow for growth, and that goes back to looking at tax regulatory reforms and things like that. To the extent that it can help build up our GDP growth, then it's going to be more looking at tax revenue coming back.

At the same time, governments are going to have to watch their spending in the future and not build in major expenditures that will impact the economy. There will be a tendency for governments to spend more money as a way of building up consumption, but that's exactly the wrong kind of policy as we come out of that, because this was a supply shock and we have to deal with the supply problems that are going to be evolving over time.