Finance Committee on May 12th, 2020

[James Cumming, Conservative, Edmonton Centre, AB]

To bring that confidence, particularly investment confidence and the confidence in the business community and in the public sector, how critical, in your opinion, is the urgency of coming up with some sort of plan so that people can be aware that there is some thought on how we come out of this? How critical is the timing of that?

[Yves Giroux]

In my humble opinion, the sooner the better.

However, it's a bit difficult to ask the government to come up with such a plan right now, as governments—and not just the federal government, but provincial and territorial governments as well—are all struggling to keep up with the pandemic and to protect Canadians.

However, the public service is capable of coming up with proposals and options with respect to an economic recovery plan. I am sure, having worked at finance and PCO, that there are very bright minds working on providing advice to ministers and cabinet on a potential economic recovery plan. In my opinion, the sooner this plan is made available and is disclosed publicly, the better it is to instill that sense of confidence you mentioned in Canadians and in businesses so that once the pandemic is over there will be an economy to go back to, there will be investment opportunities and there will be jobs for people who have lost their jobs, There will be another side to that pandemic.

In my opinion the sooner it is out there, the better it is for all of us collectively.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Thank you for that comment, Mr. Giroux. I hope somebody upstairs is listening to that comment on the need for an economic recovery plan shortly.

We'll go to Mr. McLeod, and then I'll let you in for a five-minute round, Elizabeth.

Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

Thank you to the Parliamentary Budget Officer. It's a very interesting discussion we have going on today.

My question is to the Parliamentary Budget Officer. When you were before committee in early March, I had asked you about the worrying fiscal sustainability issues with the northern territorial governments and the situations they were facing.

I can only imagine your next fiscal sustainability report will show that the pandemic has made the situation far worse. Given our small tax base, high service and infrastructure gaps, and the very limited fiscal levers the territories have relative to the larger orders of government, would you agree that the north is in a particularly precarious situation now?

[Yves Giroux]

It's undoubtedly worse than it was before. Even though the health situation in the territories might not be as bad as it is in some provinces, the economic impact is probably felt very strongly in the territories, as it is in most regions of the country.

With the economic downturn and a recession this year, it's clear that the economic situation in all provinces and territories has clearly not improved. When we release our next fiscal sustainability report, probably next year, I don't think the situation will have improved for any jurisdiction. That is also valid for the Northwest Territories, Yukon and Nunavut, sadly.

[Michael McLeod, Liberal, Northwest Territories, NT]

Would certain steps by the federal government assist in addressing this situation? For example, there could be greater flexibility and cost-sharing for big infrastructure projects, greater usage of base plus per capita allocations of federal programming, and, last, increasing the debt limit, which is something we've been asking to have for a while and is an issue that is of greater urgency now. At the start of 2020, the Government of the Northwest Territories was about $300 million away from hitting its $1.3-billion debt limit.

[Yves Giroux]

When we released the fiscal sustainability report the last time, in January, and the report before that in 2018, they showed clearly that the federal government was on a sustainable track over the next 75 years and that provinces and territories, in aggregate, were not. I expected, maybe naively, that the discussion in the country would probably evolve towards different responsibilities or different sharing of revenues between the federal and provincial governments. That has not happened. The current crisis probably underlines that.

There will still be a need for that discussion, because in the end there is only one taxpayer. If one level of government is sustainable and the others are not, it's about time to have a discussion about the sharing of the fiscal pie and how we can generate revenues and allocate them differently, as well as responsibilities and who is responsible for what.

All that is to say that the suggestions you made all seem to be valid to me to ensure a better financial sustainability for the territories, but it's a policy decision as to which ones are the preferred ones for any particular situation. Nothing you mentioned strikes me as inappropriate or going against that, except maybe increasing the debt limit. If the territory or jurisdiction is unsustainable over the long term, allowing it to borrow even more might not be the solution. It might be a temporary solution, but it's probably not a long-term solution.

[The Chair, Liberal, Wayne Easter]

You have two minutes left, Michael.

[Michael McLeod, Liberal, Northwest Territories, NT]

I wanted to ask one more question regarding the fiscal sustainability report, which I think the Parliamentary Budget Officer said won't be happening until next year. Is there a way to get a fiscal snapshot through your office of where all the provinces and territories are at and where they rank on an interim basis?

[Yves Giroux]

The last report we released on that, the fiscal sustainability report on the provinces and territories, was released in January. We didn't have sufficient data to disaggregate the three territories, but I don't think individual territories would have that different a picture.

When it comes to updating that report or the numbers, I think it would probably be premature to do that now, given that the economic and fiscal situation is very much in flux. We can look at what we can do, but I don't think it'll be possible to do anything that would be solid or at least remotely reliable when it comes to the provincial and territorial fiscal situation any time between now and the end of the year, given all the expenditures and the very fluid economic situation, sadly.

[The Chair, Liberal, Wayne Easter]

Thank you you both for that round.

We'll go to five-minute rounds. We'll start with Ms. May, and then we'll go to Mr. Brunelle-Duceppe, Mr. Julian, Mr. Cooper, Ms. Koutrakis, Mr. Poilievre and Ms. Dzerowicz.

Elizabeth, you're on.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you, Mr. Chair, and thank you colleagues on the committee.

First of all, I can't see Pierre Poilievre because his picture isn't on, but I'm hoping he's sitting down, because I'd like to start by thanking Stephen Harper for creating the parliamentary budget—

[The Chair, Liberal, Wayne Easter]

Is anybody else having a problem hearing Elizabeth? Just hold on Elizabeth. We're having a little.... There you go.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

I apologize. I was teasing Pierre.

Oh, you are sitting down, Pierre, that's very good.

I want to start by thanking Stephen Harper for creating the parliamentary budget office. We've begun to take it for granted.

Your work is excellent, Mr. Giroux and Dr. Yan. We're in your debt. I'm extraordinarily grateful, because I have questions from constituents all the time about what it means for our future—how much deficit, how much debt can we handle. I find the clarity of your reports in this pandemic enormously helpful.

I want to drill down on something you just said. You said you hoped that the stimulus spending, when we see it post-pandemic, will be “productivity enhancing”. I wonder if you have some specific suggestions of what you think, by category obviously. What kind of spending would meet your goals of seeing something that actually takes advantage of a crisis to improve our economic indicators, particularly productivity?

[Yves Giroux]

That's a very broad question, Madam May. You're putting me to the test right now.

There's a long list of potentially productivity-enhancing stimulus measures. One can think of investing in technology or investing in health research, for example, which these days is what we clearly are begging for. Infrastructure spending is also very useful when it comes to facilitating transport, communications and trade. So, there's a long list of potential investments and it's up to people like you—members of Parliament—with the support of public servants and stakeholders, to decide on the best mix.

This is far from what my role is, and I don't pretend to have all the answers, but there are several types of investments that could be made that are productivity enhancing and that could also stimulate the return to a more normal economy.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you for taking a stab at something that was quite broad.

I'll change gears. Taking part in this committee is an extraordinary privilege, and I thank my colleagues that I'm able to participate at all. We've had the great privilege of hearing people like you, of course. The Governor of the Bank of Canada, Stephen Poloz, has testified and he expressed the orthodoxy of global central banks, which is that in times like this, you have to do whatever you can to fight deflation, and that our policies, such as cutting interest rates to near zero or having quantitative easing, can be inflationary.

We had one witness who was quite an iconoclast. I don't know if it's fair to ask your opinion on this question of whether we should actually rethink this, but a witness named Jeffrey Booth, who wrote a book called The Price of Tomorrow, said that we can't keep fighting deflation. The marginal cost of many things is going to start approaching zero. If it's renewable energy, the marginal cost of energy approaches zero, and then consumer goods and artificial intelligence....

I don't know if it's fair to ask you an opinion, but I found this contrast rather startling. It certainly is an iconoclastic view, and I wonder if you would offer an opinion.

[Yves Giroux]

Sure. I don't believe that the marginal cost of anything can be close to zero without there being an infinite demand for it. You mentioned that if the marginal cost of energy gets close to zero, then there'll be no incentive to save energy if energy costs virtually nothing. Demand will meet supply and there'll be a cost to it, so its cost won't go back to zero.

You may think that streaming costs zero, that the marginal cost is zero, but eventually when everybody is on the Internet, as we are finding out these days in our neighbourhoods, Internet starts to be a bit slow and Internet service providers start thinking about increasing their prices because they'll have to increase the bandwidth.

So I don't think that it's pointless to fight deflation, because if the marginal cost of something goes down to zero there will be an infinite demand for it and it will mean that its marginal cost will not go down to zero. There are, of course, exceptions, but generally speaking, I don't think you can have deflation that's unbeatable or “unfightable”.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you. I've been wanting to ask someone that question, and I appreciate the opportunity to ask it to you, Monsieur Giroux.

Thank you again for all your work, and thanks to your whole team.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Mr. Brunelle-Duceppe.

You have five minutes, Alexis.

[Alexis Brunelle-Duceppe, Bloc, Lac-Saint-Jean, QC]

Thank you.

Hello, Mr. Giroux.

First of all, like my colleague from Joliette, I salute you for staying so busy lately. Well done.

You recently talked about measures for stimulating the economy when the time comes for a reboot. Last week, a question was asked by Mr. Littler, who was appearing before the committee as a representative of the Retail Council of Canada. Mr. Littler has been advocating a certain measure for years, over a number of Parliaments. We asked Mr. Morneau the same question, but we didn't get an answer. It's about the interchange fees that retailers have to pay for every transaction. As we know, because of COVID-19, people are mostly using credit cards. The use of cash is way down.

I was wondering if we should imitate Europe or Australia and cap the fee at 0.3% per transaction, instead of the current rate of 1.5%. In reality, the rate is around 2% and sometimes even goes up to 2.5% in certain situations. That eats directly into retailers' bottom line. Wouldn't capping these rates at 0.3%, as is being done elsewhere, stimulate an economic recovery, among other things? It would mean a lot more money in these retailers' pockets, but also more tax to pay because they would be making higher profits.

Has this measure previously been studied by your office? This is a long-standing request. Would it be advisable to implement such a measure here in Quebec and Canada?

[Yves Giroux]

Thank you, Mr. Brunelle-Duceppe.

That is not an issue that we have looked at, at least not since I have been the Parliamentary Budget Officer. That being said, it probably should be considered. Service providers hold a virtual monopoly over interchange fees. Merchants don't really have any other choice but to offer this method of payment. It has become very common over the past two months. It is the preferred method of payment of many employees who work in the retail and food industries. Merchants therefore have practically no other choice than to use these payment methods. They also have very little choice about service providers. If it is not a monopoly, it is an oligopoly.

With regard to public policy, the logical response when faced with a monopoly is to regulate to ensure that prices are reasonable. I am not a payment system expert. Are interchange fees reasonable or not?

As an ordinary consumer, I find it a bit troubling to know that, when I go to the local pizza joint and pay with my credit card, 2% or 3% of the amount of the sale or possibly even more goes to various financial intermediaries. It would likely be a good idea to examine the issue and to establish regulations if the fees seem excessive. As I said, this is not my area of expertise, but, as a consumer, I find the situation worrisome.

[Alexis Brunelle-Duceppe, Bloc, Lac-Saint-Jean, QC]

It comes down to common sense. Thank you very much, Mr. Giroux.

Your office has worked on measures to help seniors before, particularly during the election. I would like to know whether you think that an increase in old age security or guaranteed income supplement benefits would be sustainable in the long term budget-wise. For example, old age security could be increased by $100 a month and the guaranteed income supplement could be increased by $50 a month.

Wouldn't money invested to help our seniors have a positive impact on our regions and our merchants? Have you and your team looked at these scenarios? If not, were other scenarios considered in this regard?

[Yves Giroux]

We looked at what it would cost to increase the guaranteed income supplement and old age security benefits.

[Alexis Brunelle-Duceppe, Bloc, Lac-Saint-Jean, QC]

Okay.

[Yves Giroux]

We looked at how much it would cost, but we did not determine whether we could afford it or not. Whether or not to increase the guaranteed income supplement and old age security benefits is a public policy choice. It depends on the choices that parliamentarians are prepared to make. All of the choices that you make involve trade-offs. If more money is invested in the guaranteed income supplement, that means that the government has to raise taxes or invest less money in other public policy areas.

We also did not consider the economic impact that increasing the guaranteed income supplement would have on regional economic activity. If the government gives more money to low- or middle-income Canadians, they might be inclined to spend it on local products. Of course that would have a positive impact on the economy of all the regions of Canada, since there are seniors living all across the country.