Finance Committee on Feb. 3rd, 2020

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

I don't have a lot of time, but I want to ask whether you feel that the federal government is doing enough, then, given this significant increase in insurance claims just over the last couple of decades—just one example of the many economic impacts of climate change.

[Craig Stewart]

We believe that in general, governments across the country, up until three years ago, were not taking the issue seriously enough, but we have seen that begin to change. Certainly over the past year, the commitments made in parts of the country and by the federal government to deal with the number one issue, which is flooding—that's the biggest loss area—have been significant.

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

Okay.

[Craig Stewart]

To answer your question, we are actually pleased with the direction, but we're waiting for the federal budget to see whether the money will follow the words.

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

Thank you. I'm sorry to cut you off.

I also have a question for Mr. Bourbeau and Mr. Letendre.

Back home in British Columbia, people are already talking about the lower percentage of Canadian and Quebec products in supermarkets. People are drinking more and more milk from the United States, which isn't of the same quality. Moreover, this obviously has an economic impact.

First, I want to know the current state of Quebec's dairy farms. Second, since you said that these gaps accounted for $450 million a year in losses, is $1.4 billion over eight years enough, given the losses incurred by farmers in Quebec and across Canada as a result of all the gaps in supply management?

[Alain Bourbeau]

The first part concerns the situation of farms in Quebec. Clearly, the situation over the past three years has been quite positive for us. The industry has seen exceptional growth. Over the past 20 years, we've seen a strong trend with regard to dairy production, which has grown by 1% to 1.5% per year. This has corresponded roughly to population growth. However, from 2016 to 2018, we saw growth in the range of 3% to 4% per year. This is the result of various events, which I could discuss if you wish. This sudden growth has also been seen elsewhere in the world. The demand for dairy fats has also increased significantly in the United States and Europe, and Canada is no exception.

This growth mitigates, to some extent, the impact of these concessions. However, the fact remains that our producers made investments based on the quantity that they committed to produce. Since the production volume won't be as high, these investments won't enable them to absorb the impact of these concessions to the same extent. This will hurt our companies.

Can you remind me of the second part of your question?

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

Is $1.7 billion enough, given the losses?

[Alain Bourbeau]

Obviously, this amount doesn't fully offset the losses. Juggling with figures of this magnitude may seem terrifying to the average person, but the amounts allocated certainly don't cover all the losses.

People from the insurance industry are here. An actuary's job is to perform the calculation for a loss in perpetuity. The values involved are in the billions of dollars. The government's move is a step in the right direction. It will offset some of the losses, but the producers will certainly absorb part of the losses.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you all.

Next is Mr. Cumming, for a five-minute round.

[James Cumming, Conservative, Edmonton Centre, AB]

Mr. Brunnen, can you elaborate a little bit on the economic importance of the energy industry to Canada, specifically the importance of the completion of TMX and what the economic impact could be if we had further access to markets and that spin-off to small and medium-sized businesses?

[Ben Brunnen]

We do survey our members to understand the impact, from an economic perspective, of our supply chain across the country. In 2016-17, the value of that was about $2.2 billion outside of Alberta. That decreased pretty substantially from 2014-15 when it was $3.5 billion. The decline in the investment in our industry has ripple effects, from an economic perspective, across the country. The biggest areas where we source from a supply chain are Ontario, British Columbia and Quebec. The provinces that have been hurt the most outside of Alberta are those ones.

In terms of the importance of TMX to our industry, certainly market access is the single greatest barrier to investment in our sector. Part of the reason why there is such a chill from an investment perspective is also the lack of certainty that comes with bringing forward these major projects. They've been delayed time and time again from a regulatory or judicial perspective, or from an FID perspective. There was the selling of the private company and the picking up of that company by the federal government. We support that they did that, though it's unfortunate that they had to. At the end of the day, investors are discounting market access in our industry to zero until we see the pipes actually built. As a result, our companies simply can't justify to their investors making growth investment decisions in our industry until we see the pipe in the ground.

TMX is a pretty substantial pipe that we really need if we're going to see some investment come back, absolutely. TMX, Enbridge's Line 3 and Keystone are the three main pipelines at play right now.

With regard to spinoffs for the small and medium-sized companies, effectively when we start to see the investment community have confidence that we'll have access to markets and that we will be in an investment jurisdiction, if you will, that attracts capital, that's when we'll start to see the dollars come back to the small and mediums. We've seen some very positive results in Alberta in terms of what they've done from a tax perspective, what they've done in addressing curtailment and enabling rail under that. The federal government's fall economic update from 2018 was also helpful. However, that's not sufficient and we do need to see a more holistic and committed effort from the federal government to align with demonstrating that there is a future for our industry and we can be the supplier of choice under the right conditions.

[James Cumming, Conservative, Edmonton Centre, AB]

Thank you.

I want to move to Mr. Cross.

We heard some testimony earlier about the current state of the economy. Your preamble was about the slow growth, high debt circumstances that we have today. How important are those fiscal anchors of lowering debt and having low debt-to-GDP ratios, and how concerned are you about the debt that we're seeing increasing outside of the federal government as well as provincial and municipal debt?

[Philip Cross]

I attach a great deal of importance to it. I think we're at a level of debt to GDP now of over 300%. It's definitely a level at which debt crises tend to occur. We've seen repeatedly within the last decade in the western world that countries with very high levels of debt almost inevitably at some point will have trouble servicing that debt and have problems in their financial sector and so on and so forth.

It's hard though. You can't just point a finger at one sector. As I mentioned, all sectors in our economy have gorged on debt: household, corporations, government. You can't pick out one and say it's their fault. It seems to be a response that all Canadians have done this because, first of all, the Bank of Canada cut interest rates to historically low levels. The bank has issued some warnings about household debt. It's very interesting. They have next to nothing to say about corporate debt, which is the highest in the western world. They have next to nothing to say about government debt.

At the same time the federal government did run up big deficits during 2008-2009. I think it's inevitable that when you are in a severe downturn, you're going to run deficits. You simply cannot cut spending enough. When you're in a downturn there are going to be deficits, but you want to get out of those as quickly as possible.

What I think has encouraged people to go into debt since 2015 is the fact that the Bank of Canada lowered interest rates, the government said they were going to run deficits and it sounded like it was a good thing. There was nobody saying, “Oh, there are risks to this strategy”. Instead people just said, “Well, interest rates are low, so, great, let's run up some debts”. Here we are today where if interest rates ever did turn up or if our incomes ever did start falling, we would be in a considerable amount of trouble.

[The Chair, Liberal, Wayne Easter]

Okay.

Thank you, all.

We'll turn to Ms. Dzerowicz, and then we'll come back to the other side.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.

I want to thank everyone for their excellent presentations.

I'm going to try to be ambitious and get to three people, so please keep your responses short.

I'm going to start off with some of Mr. Stewart's comments.

I want to say thanks so much for mentioning that the Honourable Ralph Goodale had been working on a flooding plan. I think it's remarkable how few Canadians actually know about it. It's so important that we started that and that we started focusing on it.

I want to quickly go through your recommendations because I think they're important. I'm hoping you can say yes or no or maybe add a couple of comments if I've forgotten. Then I'm hoping to get to Ms. Zvan, and then if I'm lucky I'd love to get to Mr. Brunnen.

You had started talking about a recommendation for dedicated funding to designed flood mapping; I think we started that. I think we've actually put it all in our platform; that is, the flood mapping, the insurance program for high risk investment pool that you were talking about, and then coming up with some sort of a plan for the small percentage that needs to relocate.

That's basically what your three recommendations are, yes?

[Craig Stewart]

Yes. It's all in your platform, and it's all in a ministerial mandate letter somewhere.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay. That's wonderful.

I was just telling a wonderful friend of mine who is very worried about what was happening in Canada. When I told her we were doing this, she felt completely relieved. If we get this done and we make it public, I think Canadians will have a lot more confidence in our planning around climate change moving forward.

The second thing I want to talk about is home retrofits. We have a number of commitments around free energy audits, retrofitting 1.5 million homes and then helping with interest-free loans of up to $40,000. But this is for energy efficiency. You've added the words, “flood resilience”.

What is the addition that we have to add to that recommendation or what we've already put forward?

[Craig Stewart]

You could use the exact same mechanism that you're using for energy efficiency. In fact, you could use the exact same home inspector and offer interest-free loans, for instance, or your cash incentive, for those people who wanted to either elevate their home if they're in a very severe situation or just take simple measures to change landscaping around their house—you know, make sure their eavestroughs are intact. These are simple measures. These retrofits, on average, cost less than $1,500. You have experience in doing this with energy efficiency. We could be doing the exact same thing with flood resilience. In fact, the Intact Centre on Climate Adaptation at the University of Waterloo has a package that does exactly this.

[Julie Dzerowicz, Liberal, Davenport, ON]

Lastly, you had talked about disaster mitigation and adaptation. We have already committed $2 billion. We have committed to adding an additional $1 billion.

I hate asking this question. It's like asking if you want your taxes to go up. Is that going to be enough, the $1 billion that we've committed?

[Craig Stewart]

No, and it's important.

Ms. Zvan actually referred to this. The expert panel touched on this. It's important to attract private sector investment to that as well. That's where the Canada Infrastructure Bank could potentially play a role. We believe that you could bring a fair amount of private sector wealth and capital to match those DMAF funds, and you could grow the pie, frankly, with our help. We just need to have a mechanism by which to do that.

[Julie Dzerowicz, Liberal, Davenport, ON]

If you have a specific recommendation, could you write that in to us? That would be really helpful.

[Craig Stewart]

Certainly. I will.

[Julie Dzerowicz, Liberal, Davenport, ON]

I would like to move on to Ms. Zvan.

I have followed the work of the panel very closely. I'm a very big believer in sustainable finance. I'm a big fan of Mark Carney. He's written a lot about a number of the things that are in your report.

I love all 15 of your recommendations. We're in our pre-budget consultation. I'd love to be able to say that all 15 need to be adopted right away. How do we get started? Do you start with your first three? Or, is it that you say you need a bit of a committee to get together to determine how you can start working on all cylinders at the same time?

What would be your recommendation on how to get started on this?

[Barbara Zvan]

We did complete a five-pager that I can give you.

[Julie Dzerowicz, Liberal, Davenport, ON]

Yes.