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.

On the agenda

MPs speaking

Also speaking

Yves Giroux  Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Xiaoyi Yan  Director, Budgetary Analysis, Office of the Parliamentary Budget Officer
Sylvain Ricard  Interim Auditor General of Canada, Office of the Auditor General
Andrew Hayes  Deputy Auditor General and Interim Commissioner of the Environment and Sustainable Development, Office of the Auditor General

4:15 p.m.

Bloc

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

Thank you.

Do I have any time left, Mr. Chair?

4:15 p.m.

Liberal

The Chair Liberal Wayne Easter

Okay, I'll thank you both. You're quite a bit over the time, Alexis.

We'll go to Mr. Julian.

4:15 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Thank you very much, Mr. Chair.

Mr. Giroux, thank you for being here today.

We just talked about the cuts that will have to be made or the austerity measures that will have to be taken as a result of COVID-19. Of course, there are other solutions.

We just talked about the money that is going into tax havens rather than flowing into our collective investments. Once the crisis is behind us, we could take measures in that regard. That could be part of the solution and could improve the quality of life of Canadians.

As Mr. Poilievre said, and I do not often agree with him, given that the debt households will be racking up because of all the cuts to federal public services, after the pandemic, we will have to allocate the resources necessary to improve people's quality of life.

I have two questions to ask about that.

First, there is one sector that benefited from this crisis, and that is the web giants. Has your office looked into how much money Canada is losing from the fact that these web giants often do not pay taxes or even employment insurance premiums for their employees and do not contribute to the Quebec pension plan or the Canada pension plan? Have you ever looked into that? If not, would you be prepared to do so?

Second, other countries already have a wealth tax. I know that you analyzed the positive impact of such a tax during the election campaign. Could you tell us the findings of that study? What level of investment must be made for the good of all Canadians?

4:15 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

To my knowledge, we have not looked into exactly how much money the government is losing as a result of web giants. However, we have considered a tax on revenue above a certain threshold for technology firms, namely, the web giants. We don't really need to name names; we know who they are.

For example, we considered the effect that a 3% tax on companies earning revenue over a certain threshold would have. I do not remember exactly how much revenue that tax would generate, but Ms. Yan might be able to tell you after I answer the second part of your question.

We also considered how much money could be generated by a wealth tax. Unfortunately, I do not remember those amounts either. Once again, Ms. Yan might have a better memory than I do. However, the important thing is to have control measures. When people see a wealth tax coming, we know that they will quickly do what it takes to avoid paying that tax. The important thing to consider when imposing a wealth tax is the way it is designed and the way we go about it. We need to think carefully about the exemptions we have in mind and we need to have a proper structure in place for applying the tax.

Perhaps Ms. Yan could round out my answer by talking about the amounts that could be generated by imposing a tax on web giants and a wealth tax.

4:20 p.m.

Director, Budgetary Analysis, Office of the Parliamentary Budget Officer

Xiaoyi Yan

As the PBO correctly put it, during the electoral platform costing, we looked into the web giants—the potential sales in Canada—and if we were to tax that part of the revenue, what potential income tax would come into this country. I don't have that number offhand.

We looked into several issues, but like the PBO said, we didn't look at it systematically, as a total amount that would escape the country through these web giants.

Regarding the taxation on wealth, during the electoral platform costing, we also looked into the taxation on net wealth of high-net-worth individuals. We were limited by time. We knew for sure that the top end of the net worth of individuals was underestimated, because we didn't have very good data to represent the top end of the high-wealth individuals.

The recent report that Monsieur Giroux mentioned is going to address this issue much more methodically and systematically. We are very confident now that we have come up with a modelling approach that can more accurately estimate the high-end net worth concentrated in a small percentage of individual families. That's also brought in line with the national balance sheet accounts. If I were to say what the number would be after all these refinements are done, it's going to be in that report.

Thank you.

4:20 p.m.

Liberal

The Chair Liberal Wayne Easter

Okay, thank you. We look forward to that report.

Sorry, Peter, you're well over time.

We'll go to Mr. Cooper.

May 12th, 2020 / 4:20 p.m.

Conservative

Michael Cooper Conservative St. Albert—Edmonton, AB

Thank you to Mr. Giroux for being here.

Before I ask some questions to Mr. Giroux, I do want to correct for the record. My friend Mr. Fragiskatos suggested that Andrew Scheer advocated cutting CERB or taking Canadians off it. That is simply not the case.

Mr. Giroux, you noted in answer to a question posed by Mr. Cumming that the current projected deficit of $252 billion is a very optimistic projection. It's certainly understandable that you would say that. On April 9 in your fiscal scenario, your office estimated a budget deficit for fiscal year 2021 to be $184.2 billion. Three weeks later, that is now up to $252.1 billion, $70 billion more in the span of three weeks. In other words, it's more than three times the estimated deficit pre-COVID for fiscal year 2021. They're really staggering numbers when you put it in that context.

Now your figure of $252.1 billion, as you note, is up to federal measures taken to April 24, so presumably that excludes the Canada emergency commercial rent assistance program as well as the student package, among other measures.

In your testimony, you stated that, taking into consideration federal measures after April 24, the budget deficit would be a few billion dollars more. I was wondering if perhaps you could elaborate on just how much more, if you're in a position to be able to comment.

4:25 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

I would like to be able to elaborate more on that but we don't have details of some of these measures. For example, the large employer emergency financing facility is a new measure, and I don't have the details, so I'm not in a position to determine how much it would cost. The same with the extension of the wage subsidy past June. I don't know how long it will be extended or the terms of the extension. The emergency commercial rent assistance was announced on April 16 but the details were announced after we went to print, so we don't have the details.

All that to say it's very difficult to estimate a likely deficit figure, given that details are missing for some of these potentially very expensive measures. I'm not judging them on their merit but they're very likely to be expensive. That points to what I said before, the need for a fiscal update by the government to give Canadians a better idea as to what the deficit is likely to be, because the government probably has in mind a sense of how much it wants to spend on potential stimulus measures, but we don't have that information.

Again, that's why the figure of $252 billion is very likely to be the very optimistic scenario as opposed to the number for the deficit for the current fiscal year.

4:25 p.m.

Conservative

Michael Cooper Conservative St. Albert—Edmonton, AB

Thank you for that, Mr. Giroux.

I want to ask a question about the federal debt-to-GDP ratio, but certainly I would underscore the point made by Mr. Poilievre that when you look at public and private debt, the debt-to-GDP ratio was over 350% before COVID and where that puts Canada relative to other G7 countries is second after Japan in terms of the highest debt-to-GDP ratio.

Nonetheless, in your report you do make reference on page 13 to the debt-to-GDP ratio stabilizing, but you note that this would not necessarily be the case if measures were made permanent or extended.

Would it be fair to say, much as your $252-billion deficit projection for fiscal year 2021 is very optimistic, so too is your projection of debt-to-GDP ratio stabilizing?

4:25 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

We finished drafting the report on April 24.

These days, a week can feel like a month. Sometimes it can feel like a year depending on who you are living with, because we're spending most of our time at home.

Lots of things change. I would say that on the debt-to-GDP ratio stabilizing once the economy recovers, again, it depends a lot on government action, for example, whether it will return to deficit levels that we saw before the pandemic, which seems very unlikely, at least in the short term, and maybe even in the medium term, given the state of the economy. On debt-to-GDP ratio stabilizing, that's only once the economy returns to its pre-pandemic growth rate and we see deficits at the federal level returning to the $20-billion range that we had before the pandemic, or even better, which is not for next year. I'd be very, very surprised.

4:30 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you very much, both of you.

We'll go to Ms. Koutrakis.

4:30 p.m.

Liberal

Annie Koutrakis Liberal Vimy, QC

Thank you, Mr. Giroux and Dr. Yan, for your testimony today.

Your testimony is staggering to me when I hear all the numbers, as I'm sure it is for all my colleagues on the committee here today. What I heard with interest and more importantly is what Canadians would be going through had the government not stepped in and had not taken these drastic measures and continued to address this. If we had not done it, I shudder to think of where our economy would be headed and where Canadians would be at this point.

I'm going to be sticking to the analogy of World War II, because it's the first time we've faced a crisis such as this since World War II. At the time, we mobilized the entire nation and the economy and we won, but we ran deficits of approximately 20% of GDP for about five years. When the war ended, the economy kept growing and we were into surpluses two years later. Is there any reason for you to think that if we continue in the short term with deficits of 15% to 20% of GDP we cannot come out of this stronger post-COVID-19?

4:30 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

That's a very interesting question. I think the fundamental reason why we are not in the same position coming out of COVID-19 as we were coming out of World War II is the demographic structure.

Coming out of World War II, the population was much younger and the baby boom was about to start, leading to a long period of growth. Coming out of COVID-19, we have a much older population, with fewer working-age individuals. I'm not sure that we'll see a baby boom. Maybe we'll see a divorce boom, depending who you are confined with, but I certainly don't see a baby boom to the same extent that we had in World War II. For that reason, I'm not sure that we should expect the same level of government surpluses that we had at the end of World War II.

That being said, will we be coming out of this stronger? I certainly hope so. I am optimistic that we will be coming out of this stronger. It's outside of the mandate of the PBO, but there will be more social cohesion, I think. It will have bound people together. Spending months together with your kids and spouse certainly strengthens these bonds. It sometimes cuts them for good, but in many cases it will have strengthened them. Some businesses will go under, which is very sad, but, like a wildfire, there are things that bloom after a fire. New businesses will emerge out of that economically and socially very sad period.

I am optimistic overall that in a few months—maybe years—we will have a very strong country, but it will come at a price that some of our colleagues and citizens will pay, and it will be dear.

4:30 p.m.

Liberal

Annie Koutrakis Liberal Vimy, QC

I hope it doesn't come to a divorce boom. We just came up with a new expression, and I really would hate to think that this COVID pandemic created a divorce boom.

Going back to the financial crisis in 2008, are there any lessons we can draw from it that may be pertinent in the current environment from a public finance perspective?

4:30 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

Sure. Coming out of the last recession, 2008-09, the deficit level was very high back then—or so we thought—at $55 billion. However, with efforts, the economy started growing again, and the fiscal situation of the country improved relatively quickly. It seemed long at the time. All that to say, there is hope, as long as governments intervene to support people in need and also withdraw these supports when they are no longer necessary.

The experience of 2008-09 suggests that governments, at all levels, have a role to play during a crisis. They also have a role to not play when the crisis is over, by withdrawing the support that becomes unnecessary. As we saw in 2008-09, credit that was made available through financial institutions and various actors was temporary in nature and was allowed to expire. Businesses returned to normal, with economic growth that was there to support Canadians.

4:35 p.m.

Liberal

The Chair Liberal Wayne Easter

Okay, we will have to end it there.

Thank you both.

We'll go to Mr. Poilievre, who will be followed by Ms. Dzerowicz. We will probably have time for three single questions, if people want to give me an indication that they want to ask one.

Mr. Poilievre, you have five minutes.

4:35 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Thank you very much.

Madam Koutrakis talked about the deficits that ran in the World War II period, but your report points out that in the years following, the government actually ran a 5% of GDP annual surplus. Those would be, in today's terms, $115-billion surpluses. If we were running huge deficits before this crisis even began, which the government was, it's hard to imagine that it's going to be returning Canada to a $115-billion surplus in the next fiscal year or even the one after that, or ever, for that matter.

I want to ask you, though, about the 1990s. You pointed out that in the mid-nineties, we basically went bankrupt and governments brought in massive spending cuts. The Liberal government in Ottawa cut spending by 10% in absolute terms; governments across the country did likewise. In the aftermath of that, the economy experienced massive economic growth. Unemployment fell, basically by a third.

Do you find that interesting, given that we're told now that the only way to precipitate growth is through more and more deficit spending?

4:35 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

It's true that once the economy is over a very difficult period such as a crisis, reducing government intervention tends to have positive impacts. One can think of government interventions that are necessary in times of crisis, such as in 2008-09 or the current crisis. It's not unthinkable to imagine a world where we return to the pre-crisis level of government spending and that unleashes economic growth because of the sad economic downturn that took place.

It's not surprising to me that in the 1990s, where we had poor economic prospects, the country was deemed an honorary member of the third world by The Wall Street Journal. Governments took action to change the mood and instill confidence by reducing spending and ensuring that the finances were on a more sustainable path. It led to increased investments and economic growth. That's very often what happens.

4:35 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Right.

From the early nineties to the late nineties, all-of-government spending as share of GDP went from 53% to about 38%, a massive reduction in the size of government relative to GDP. What happened is that the economy grew dramatically and unemployment dropped. That is the historical record.

Getting back to the present and dealing with the massive debts that our country faces today, do you have a calculation of the contingent liabilities faced by the Government of Canada as a result of its insurance on private debt, like mortgages or other loan guarantees of private enterprise?

4:40 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

I don't have that number off the top of my head, but that area has attracted quite a bit of interest in the office and from me. We are closely following that, and we are looking at the total number of loan guarantees and contingent liabilities that could result from all these various hundreds of billions of dollars of loan guarantees and support programs to the private sector through various government agencies. We don't have a number right now, so it's difficult to come up with the contingent liabilities that could be forced on the government books.

4:40 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Right, but back to my earlier point, we cannot separate government debt from private debt because, in the case of mortgages, government-backed enterprises like CMHC, Canada Guaranty and Genworth are responsible for insuring default losses on the vast majority of mortgages in this country. If Canadians lose their work, lose their homes, and banks lose money on repossessions, taxpayers are going to have to take on all that debt to back up the banks. That's even more of a liability that you have not included in the 48% number of debt-to-GDP ratio.

There are so many liabilities—other levels of government, private sector, households, and in addition to that, government-contingent liabilities like the one I just described—that are piling one on top of the other. When you consider all these levels of debt, are you not concerned that we could be in some trouble in two or three years if we don't act quickly to get ourselves out from under it?

4:40 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

It is concerning, especially if you consider a scenario where interest rates start going up and debt-servicing costs become unbearable. However, such a scenario is not likely. It doesn't mean it's impossible. It is indeed concerning, but the Governor of the Bank of Canada and various stakeholders have warned Canadians for a number of years to stop piling on such high levels of debt because it's risky. However, Canadians have a big appetite for debt, as demonstrated by their spending habits and the fact that they incur more and more debt.

It is concerning, but when you look at these individual components, the question is this: Is the federal government in and of itself in a worrisome position right now? The answer is no, because debt-servicing costs are not that high. As you asked, if you start adding all these debts and you take the catastrophic approach whereby the federal government or the taxpayer ends up being responsible for all these, yes, it is a concerning amount of debt. The likelihood of all that falling on the shoulders of taxpayers is quite low.

4:40 p.m.

Liberal

The Chair Liberal Wayne Easter

We'll go now to Ms. Dzerowicz.

I see Peter has a single question following that. Is there anybody else? We'll go to Marty and Elizabeth, and then we'll end it at that.

Okay, Julie.

4:40 p.m.

Liberal

Julie Dzerowicz Liberal Davenport, ON

Thank you.

I just want to say thanks so much, Mr. Giroux, for being here today, for your hard work and for your extraordinary service to Canadians.

Hearing the conversation today, I was wondering what residents of my riding—Davenport is my riding, in downtown west Toronto—would think. If they were listening and they were hearing about the fact that our deficit might go past $252 billion and that our collective debt levels in Canada would go beyond $900 billion, there would be a lot of concern. I think, though, if the average Canadian thinks about what the cost of our doing nothing would be or of our being frozen with fear because of these debt levels, the costs to our economy and to our banks, in terms of bankruptcy, and to our health, as was mentioned in our discussion, would have been even worse than where we're at today.

I also would probably take some comfort knowing that Canada is doing relatively well in the G7. In comparison, we were doing well before this pandemic, and we continue to line up fairly well right now. Then I think I'd also take some comfort in what Governor Poloz mentioned the last time he was with us when, in response to a question on whether he thought Canada would be able to recoup or re-establish growth of the anticipated 4% to 6% GDP loss from this pandemic, he said that there was no reason to believe that we couldn't recover that growth or that we wouldn't actually be able to make positive structural changes.

Then last week, the Prime Minister, when asked by the media what he thought about moving forward in terms of the economy and how to support the Canadian economy, said that the Canadian government is very much focused on building back better. So that is where we're focused. I really take to heart your encouragement to our government to make sure that any type of economic recovery plan is actually put forward to Canadians as soon as possible.

My question to you, Mr. Giroux, is this. To build back better, we have a lot of opportunities. There's a generational opportunity to actually rebuild better both our economy and our society. I wonder if you might have any ideas or any contributions about how we “build back better”.

4:45 p.m.

Parliamentary Budget Officer, Office of the Parliamentary Budget Officer

Yves Giroux

Thank you for the compliment, and thanks to all of you who have complimented the work of the office.

With regard to building back or having a stimulus package, I've already responded, I think, to Madam May, who had a similar question. As long as these are productivity-enhancing measures, I think they have prospects for longer-term growth or for inducing longer-term growth. I've already talked about investments that facilitate transportation, trade or communications. Research is also an area that is productivity enhancing. It can be hit and miss, but once you hit a gold mine, that rewards that investment in research.

It's not my area of expertise. I'm not in the business of providing policy advice, but you get the general gist of what I said and what I mean. As long as these are productivity-enhancing investments, those are the things that would have the most benefit while also providing economic stimulus.

On the question of whether or not there is a need for economic stimulus, it is also a bit premature to answer. It depends on what type of recovery we have. Assuming there is a need for economic stimulus, these would be the types of investments that would make the most sense from an economic perspective.