Evidence of meeting #27 for Finance in the 43rd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was debt.
A recording is available from Parliament.
4:45 p.m.
Liberal
Julie Dzerowicz Liberal Davenport, ON
Thank you for that.
Mr. Giroux, do you know of any other country that has already produced some sort of an economic recovery plan?
4:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I do not. What I've seen is mostly in terms of deconfinement or resumption of businesses, but I haven't seen economic stimulus plans by countries. It doesn't mean they don't exist. It just means that I'm not aware of any right now. I've been quite busy with the current report and costing of government measures.
4:45 p.m.
Liberal
Julie Dzerowicz Liberal Davenport, ON
Perfect.
I have one last tiny question.
Because of the pandemic, do you see in any way the role of your office changing, with either it being enhanced or something more needing to be done as a result of this pandemic and our coming out of it?
4:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I see the absence of information that is credible and non-partisan—well, let me rephrase that. I see the role of the office being enhanced as a result of the pandemic. There is clearly an appetite for non-partisan and objective information and analysis when it comes to the state of the nation's economy and national finances.
The electoral period last year showed that we could provide credible and needed analysis and information costings in that case. In the current pandemic, while the government is busy coming up with economic measures and support measures, it hasn't paid that much attention to providing a fiscal picture, so the role of the office, I think, is appreciated by many stakeholders, including parliamentarians and Canadians, when it comes to providing a sense of the magnitude of expenditures so far.
I clearly see a need for the office, both in times of economic growth and in dire economic circumstances like this.
4:50 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you very much.
You do excellent work there, Mr. Giroux.
I have just a quick question before I go to Mr. Julian for one question, Mr. Morantz for one and then Ms. May.
To support business and the economy and the jobs that businesses create, the government has come in with a lot of measures to basically provide liquidity. How do you expect to measure, I guess, the cost as you go down the line and study and do reports on what we're doing as the government? How do you factor in those liquidity measures and the risks and the costs that might be there?
4:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We do that and we did that for the delay in remitting taxes that the government has offered to individuals and businesses. You look at the cost of borrowing. The government provides funding to businesses, so the government itself has to borrow that money or borrow more than it otherwise would. There is one cost there. It gets revenues in the form of interest income from these corporations and businesses, so these are usually offsetting or more than offsetting.
In looking at previous economic crises and difficult circumstances such as the 2008-09 crisis, there is a default rate that we can look at based on previous experiences. A number of businesses will not be able to repay the assistance and some will not repay it in full, so we look at previous experience to determine what proportion of these loans will never be repaid. That's how we can estimate the cost of these measures.
In some instances, there is no net cost because experience has shown that all these amounts get paid or that a small amount never gets repaid, but it's more than offset by the interest income the government makes. In some other cases, there is a small cost relative to the size of the overall loans, because there is a proportion of businesses that can't repay, and this is not offset by the income generated through interest revenues.
In a nutshell, that's how we estimate these costs or, sometimes, revenues.
4:50 p.m.
Liberal
The Chair Liberal Wayne Easter
Okay. Thanks very much. That's quite important.
We'll go to Mr. Julian, please, and then Mr. Morantz.
4:50 p.m.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Mr. Giroux and Dr. Yan, thank you very much for being here. You're rock stars, because you protect the public interest. You're very credible when you talk about issues during the pandemic, and in terms of coming out of the pandemic, you've identified a number of ways in which the government can ensure that we stop handing out money to Canada's wealthiest corporations and actually invest it to make a difference for people.
Another aspect of the recovery is making sure that every dollar counts, and we're actually making investments that help people, so I have to ask the question. You've explored the issue of the Trans Mountain pipeline. We spent a billion dollars more than we should have to purchase it, and recent construction costs have been evaluated at anywhere from $15 billion to $20 billion. It's the biggest boondoggle in Canadian history.
I'm wondering if you have a revised construction cost or whether the PBO has been looking into the escalating construction costs of Trans Mountain, and also whether you're looking into the escalating costs of climate change and its impacts on government operations, of course, and the Canadian economy.
4:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Mr. Julian, I have disappointing answers to both of your questions. It's, no, we haven't looked at providing an update to the construction costs of Trans Mountain, and we haven't looked at the cost of climate change. That being said, over the next several weeks we will be releasing an update on Canada meeting—or not—its Paris targets. There will be some work that will be released over the next several weeks. I don't want to give a timeline in front of the committee without being certain that we will be meeting it, but work is currently being done.
Hopefully by the end of the summer we'll have something for you on that, but sadly, not the cost of climate change nor a revised cost for Trans Mountain.
4:55 p.m.
Liberal
The Chair Liberal Wayne Easter
Okay. Thank you for that.
I would just throw in there, because Peter and I have had this discussion before, you should factor in the fact that the Alberta discount costs Canada close to $500 billion a year because we don't have a proper outlet for our oil.
Mr. Morantz.
4:55 p.m.
Conservative
Marty Morantz Conservative Charleswood—St. James—Assiniboia—Headingley, MB
Thank you, Mr. Chair.
Mr. Giroux, I want to respectfully circle back to a couple of the statements you made earlier.
One is with respect to this increased debt, $252 billion, not affecting the draw on the operating budget. My understanding is that pre-COVID debt is locked in for a long period of time and that those interest rates are set. Certainly adding more debt, and you said it was counterintuitive, must add more interest costs to be drawn against the operating budget.
In addition to that you also said—and I think I heard you correctly a moment ago—that you thought it was unlikely that interest rates would rise.
A few weeks ago, I had the opportunity to question the governor of the Bank of Canada, Mr. Poloz, on this very question. It's on the record that he said interest rates will most certainly rise once we come out of this. He thought that would be a good problem to have, from a Bank of Canada perspective, if there's inflation. Increasing interest rates would be a tool for him to use. He did say that, so I think we can't assume interest rates are going to stay low after we come out of this. Trillions of dollars in quantitative easing are going on across the world.
Assuming we're in that position, will the Liberals have to adopt a program of austerity and start cutting their budgets, as they did in 1990, or are they going to have to start increasing taxes, or a combination of those things?
4:55 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I'll address the second part of your question: interest rates rising.
When I say I don't anticipate interest rates to rise, it's in the context of the scenario we released, which only looks as far as the end of 2020, the current calendar or fiscal year. In that short period of time, we don't anticipate interest rates to rise, at least not significantly.
I agree with the governor that interest rates will probably start rising gradually as we get out of this difficult period of COVID-19, because once the economy starts to recover, I don't see any way for interest rates to go but up. They can't go much lower. They are close to a historical low, so they will probably rise. The question is when. Is it next year, early next year, late next year, middle of next year? I don't know.
As to the first part of your question, we have debt locked in, but we have a debt stock of $600 billion. A proportion of that debt always needs to be refinanced.
The Bank of Canada issues new debt instruments on an ongoing basis, because it's not all 50-year or 100-year bonds. There are some 90-day treasury bills, six months, nine months, a year, and these have to be constantly rolled over. That's why lower interest rates can result in slightly lower or stable interest debt charges, even though the debt goes up.
4:55 p.m.
Liberal
4:55 p.m.
Green
Elizabeth May Green Saanich—Gulf Islands, BC
Thank you, Mr. Chair, quickly then.
I know people will feel a natural impulse, when so much money has been spent, that when the pandemic begins to end and we begin to reopen the economy, there will be a call to put the brakes on; we've spent enough. I'm looking at that post-war analogy and the Marshall plan and the various things that continue to be spent.
I have a bias here. I think the federal government and government spending will be, in a lot of ways for governments around the world, the only game in town.
What would be the impact on our economy if we stopped the government stimulus spending as we recover?
4:55 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Thanks, Madam May. That's a very interesting question, and the answer is not straightforward.
The impact of stopping the stimulus will depend on the strength of the recovery and the speed of the recovery. If the recovery is strong and the engine is full speed ahead, then the impact of withdrawing economic support or stimulus would probably be minimal. In fact, it would be beneficial. It would avoid crowding out private sector investment and economic activity.
On the other hand, if the economic recovery does not materialize, then one could envisage economic support by the government to be needed. It may be at a lower level, because the economy will be reopened, but there might be scope or need for some level of support for more than right after the pandemic is over.
5 p.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
It's a terrific one. It will be very brief. Do you think I could just ask a 10-second question of the Parliamentary Budget Officer?
5 p.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
Thank you for all you do, PBO, and your office is fantastic.
Let me ask you this: Is it possible, or realistic, that the federal debt could reach $1 trillion in this fiscal year?
5 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's possible, yes, realistic, yes. Certainly, it's not unthinkable.
5 p.m.
Liberal
The Chair Liberal Wayne Easter
Okay.
Dr. Yan and Mr. Giroux, we thank you for your appearance. We thank as well all those in the back office who do so much in-depth work. We know that many in the public service are working overtime during this pandemic. Best wishes and safe health to them as well.
We thank you both very much for coming today and answering our questions. Your reports are very valuable to us. They certainly help us at finance committee to do our job.
With that, we will suspend the meeting and come back to our panel with the Auditor General.
Thank you.
5:10 p.m.
Liberal
The Chair Liberal Wayne Easter
We will call the meeting back to order.
Welcome, folks, to panel number two of meeting number 27 of the House of Commons Standing Committee on Finance. We're meeting pursuant to the order of reference of Tuesday, March 24, that the government meet on the government's response to the COVID-19 pandemic. As everyone knows, the meeting is taking place by video conference, and the proceedings will be made available by the House of Commons website.
For the second panel, we're pleased to have with us, from the Office of the Auditor General, Sylvain Ricard, interim Auditor General of Canada, and Andrew Hayes, deputy auditor general and interim commissioner of the environment and sustainable development.
Welcome, folks. I believe we have about 90 minutes, in that range. If you want to start with an opening statement, then we'll go to rounds of questions.
Just for committee members, we will start the rounds of questions with Mr. Poilievre, then Ms. Dzerowicz, Mr. Ste-Marie and Mr. Julian.
The floor is yours, Mr. Ricard.