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.
Liberal
Sean Fraser Liberal Central Nova, NS
Okay, I'll squeeze one last one in.
I just want to put in perspective the total cost of the expenditures that we're putting out there. Obviously, they're substantial. I think Canadians appreciate that. After the debt is incurred to pay for these expenditures, where does that put our debt-to-GDP ratio compared to historic highs? Are we in the territory of breaking any records here?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Assuming that 2021 is the only year where we have a deficit, which is far from being certain, we would have a debt-to-GDP ratio of 48%, which is still some percentage points away from the record that was reached in the mid-1990s when it was 66.6% of GDP. You may remember that at that time The Wall Street Journal deemed Canada to be an honorary member of the third world, so we're far from that.
It wouldn't, however, take that many more years of deficits of that magnitude for Canada to reach that level of debt-to-GDP.
Liberal
The Chair Liberal Wayne Easter
Thank you both very much.
We'll turn now to Mr. Ste-Marie and then to Mr. Julian.
Gabriel.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
Hello, Mr. Giroux. I'd like to start by commending you and your team on the outstanding job you're doing during this crisis. Based on the number and quality of your publications, it's clear you're not slacking off. Far from it.
Let me start with a brief observation. You reminded us about the debt-to-GDP ratio from the mid-1990s. As we know, the solution that the federal government of the day came up with was to punt the problem to the provinces by cutting transfers, including health transfers. Obviously, we hope to see a near-term solution to the fiscal imbalance.
My first question is about accounting for loans and loan guarantees. The government has freed up nearly $200 billion for loans and loan guarantees. We don't know where it will end, because Canada seems to have unlimited money now. But Parliament only votes on spending. All those loans and guarantees won't become spending until they're written off in 10 years' time. By then, it will be too late to exert even a modicum of control.
Do you and your team think there's some way to get more control over what's being done? What would you suggest?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's a good question. I was asked this question during the last Parliament with regard to the practice of all governments of granting loans and then writing some of them off if the borrower defaults. This leaves parliamentarians out of the picture, since they never vote on those loans.
To give parliamentarians some control over debt levels and over these loans, which can result in write-offs and significant costs to the Crown, it would probably be advisable to allow parliamentarians to vote on the maximum limits to which debt can be increased by Crown corporations and government entities.
As you mentioned, the Crown does stand to make a net profit, albeit a small one, if the loans are granted at commercial rates. However, as we saw two years ago with Chrysler, sometimes the debt has to be written off. That means significant losses for the treasury that have not been formally approved by parliamentarians.
A mechanism allowing MPs and senators to vote on increases to loan limits would probably be appropriate. But that's obviously up to parliamentarians.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Giroux.
As we know, Chrysler got $2.5 billion two years ago. It's troubling.
Your work involves calculating the overall cost of measures, but you don't do any detailed tracking of the spending. For instance, how much money is actually being spent? What type of companies are receiving the Canada emergency wage subsidy, or the large employer emergency financing facility that was announced yesterday? It's not the details that interest me so much as aggregate data that would show whether the money is going to small or medium-sized enterprises or large corporations, or which sectors of the economy are getting the most.
Do you think that's something that could be done? As things stand, parliamentarians lack the tools to exercise any real control over the massive spending that's happening right now and make sure the money is going to the right economic priorities.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's a very relevant question about an issue that my team and I are concerned about. I've actually sent about 20 requests for information to various departments in the hope of tracking those measures.
We've asked for monthly, weekly or bi-weekly status updates, depending on the measures, to find out how fast the funds are being delivered and how much take-up the programs are getting from Canadians and businesses. We will then be able to do some follow-up that will be useful to us in the coming months. We've already thought about that.
So far, the departments seem to be pretty co-operative, although most of them have yet to respond. But I feel optimistic, and I think they're going to collaborate and provide us with the information, so that my office and I can inform parliamentarians about the progress of the government's efforts with regard to the support measures.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
I'm glad to hear it. Thank you. We look forward to reading your upcoming analyses.
Since this crisis began, you've been working tirelessly to calculate the cost of each measure as it's announced. Sometimes you have to adjust your calculations because the programs are being announced one by one and can even change after the fact.
To better assess the government's overall response, do you think the government should present all of its measures in a single document, like in a budget update, for instance?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I would probably have two answers to that.
The first is that it's very clear to me that it's past time for the government to table an economic update, or at the very least a budget update. Of course, it's hard to have an economic update at a time of tremendous uncertainty, but the government could do a budget update setting out all the revenue it expects to receive and, most importantly, its planned spending from the start of the crisis and over the coming months. That would be very important for parliamentarians, but also for all Canadians.
The second answer is kind of cynical. If the government doesn't want to do this, I would be happy to do it myself with the limited information at my disposal. It would be a way for me to keep parliamentarians and Canadians informed. The amount of information obviously wouldn't be the same because I don't have access to information that's discussed in cabinet, but I could still keep you reasonably informed. The lack of government figures means more visibility for my office's work. That's my opportunistic answer, if you will.
Liberal
The Chair Liberal Wayne Easter
Thank you, both.
We'll turn to Mr. Julian, and after him we'll go to the five-minute rounds. I think we have lots of time. Mr. Poilievre is after this.
Peter.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you, Mr. Chair.
Thanks very much, Monsieur Giroux, for being here again with the finance committee, virtually this time. You've been very generous with your time with us. We certainly hope your family is safe and healthy, as well as the families of everybody working for the parliamentary budget office. You play an important role in our Parliament.
My first question to you is very simple.
You've talked about the debt-to-GDP ratio coming out of the pandemic, or what we hope will be the rebuilding phase out of the pandemic. How does that debt-to-GDP ratio compare with the level we had after the Second World War, which also was a period of intense spending and rebuilding our infrastructure and building a social safety net? How does it compare with other countries that have a strong social safety net in place?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It compares favourably to what we had as a country coming out of the Second World War. However, comparisons with World War II have to be taken with a grain of salt because the system of national accounts was different back then. In the 1940s we didn't talk about GDP, gross domestic product, we talked about gross national product, which took into consideration the production of Canadians, regardless of where they were in the world. That's one difference compared with the GDP, which takes into consideration production within the physical boundaries of Canada. There were differences, but by and large, we're far lower than we were coming out of World War II.
Compared with other countries that have reasonable safety nets, G7 countries are a good point of comparison, and we are probably the lowest or second lowest. We have the second-lowest debt-to-GDP ratio of the G7. There are countries, such as the U.S., that are close to or above 100%. Japan is above 200%, which I sincerely hope we don't get to. We are in a very good position when we compare ourselves with our international competitors: Italy, Japan—as I mentioned—and France. Germany is probably in a very good position, but the U.K. and the U.S. have higher debt-to-GDP levels than we do.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you for that because I think, obviously, there is going to be some pressure from Bay Street to push austerity models. We're seeing many people, of course, who are struggling to make ends meet, so the idea of austerity coming out of the pandemic does not make any sense.
You have traced, I think, a possible path coming out of the pandemic, and that's with your landmark report from last year, your call that came on the final day of our last Parliament. On June 21 you presented a landmark report, “Preliminary Findings on International Taxation”, talking about the impact of international tax havens on taxes in Canada. In the conclusion you said it would represent, if we include electronic funds transfers, “approximately $164 billion in taxable income and $25 billion of tax revenues lost.”
Since that time, have you been able to see additional figures? You said at the time, on June 21, that this was a relatively conservative estimate. Do you have an idea now of the upper threshold of those tax revenues, the monies that we have in common to make investments in programs and jobs, and how much of that is not part of what the federal government should be collecting?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We have built a bit on that work since then, notably in response to requests from various political parties during the electoral campaign to cost various measures to combat tax evasion or to tax web giants that have income that they repatriate to their home countries or to their head office countries, which are often in tax havens. We haven't built up or refined the estimate of $25 billion that was mentioned in our report of last June, but we have refined our understanding of various types of aggressive tax planning, and in some cases, tax evasion and tax avoidance. It's unfortunate that I cannot provide you an updated number to that $25 billion, but we have a much better understanding than we had then. We also have a much better understanding of the high-net-worth individuals and the various types of arrangements they enter into to minimize their tax bills.
For example, we have a report in the making about high-net-worth individuals and how wealth is scattered or attributed by income level. We have a report in the making that will outline the share of wealth held by various types of families, showing that, unsurprisingly, a very high proportion of net wealth is held by a small fraction of the population. We are refining our understanding of the whole phenomenon of tax avoidance and tax evasion.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
As a quick question, when would that report be made available? Do you have a target date at this point?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I'll refer you to Dr. Yan. She has a much better handle than I do on the state of readiness of that report.
Xiaoyi Yan Director, Budgetary Analysis, Office of the Parliamentary Budget Officer
Thank you, Mr. Chair. I'm happy to respond to this question.
The report is recently finished. It's in good shape. It should be available to parliamentarians in the near future. That's my view, and I would advise Mr. Giroux accordingly in terms of exactly how much time we're going to need from today until it's released.
My personal view, after managing this project, is that it's very close to the finish line.
Liberal
The Chair Liberal Wayne Easter
Thanks.
I'm going to go to six minutes in the next round, because we have lots of time for this session. We'll start with Mr. Poilievre, and then go on to Mr. Fragiskatos.
However, before I go there, I've been thinking about, in the first round, under questions from Mr. Morantz, the concern that has been raised both in Parliament and with the Prime Minister of the bureaucracy or the government not going after those who maybe shouldn't be getting the CERB.
I really want to be strong on this point: Fraud will not be tolerated. It's that simple. In my view, the ministers weren't as clear as they should have been today. I have lots of people calling my office who were on EI and have gone back to work, but they automatically get transferred to CERB, so they get the $2,000 from it. They've called my office to find out what they should do. I tell them to set the money aside and not spend it. It will be sorted out at the end of the season at income tax time.
They know they shouldn't have received it, and there might be some people out there who are taking advantage of CERB. However, the fact of the matter is that at the end of the day these people are going to be picked up on by CRA or somebody else. Therefore, I want to emphasize that fraud will not be tolerated. I think parliamentarians will certainly push that. It will be addressed.
Pierre, we'll go on to you, for six minutes.
Conservative
Pierre Poilievre Conservative Carleton, ON
Thank you.
I took a look at the government's balance sheet today for the year 2018-19. It showed that the Government of Canada had a negative net worth of $685 billion. That was before the coronavirus.
Parliamentary Budget Officer, according to the updates you've provided, it's now $968 billion, by the end of the year. We call it the federal debt, but it is actually assets minus liabilities, which typically we would call the net worth. How is it possible for any entity to have a negative net worth of a trillion dollars, $968 billion? The answer is that the major asset of the federal government is not on its balance sheet. It is taxation power. Therefore, when we ask whether the government can afford to pay its bills, the major question we need to consider is whether the population can afford to pay the government.
That's why I find, frankly, your and other officials' reference to our debt-to-GDP ratio as being so deceptive. Our debt-to-GDP ratio for this year is not 48%. It is somewhere closer to 360%, because the federal government does not have a claim on the entire economy. That economy has to support the debt of federal, provincial and municipal governments, plus corporations, plus households. When you add all of that together, we were at 356% of GDP back in 2018, before the coronavirus struck.
You said that we have all this room to spend before we reach the 1995 levels of near bankruptcy, but what was the total economy-wide debt-to-GDP in 1995, as compared to today?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That number would have to take into consideration the provincial debt, as well as municipal and other public bodies, such as school boards, hospitals and so on. I don't have that number as to where it was in 1995-96, but I suspect it was probably way above 100% of GDP. We could get back to you with that level of debt if you want, but for sure, it was much higher than just the federal debt.
Conservative
Pierre Poilievre Conservative Carleton, ON
Yes, but it's not just other levels of government. It's households as well. I'm reading from Dr. Jack Mintz, in the Financial Post:
According to the IMF, our total private and public debt, including all financial instruments, was 356 per cent of GDP in 2018, not far off its 1995 peak of 378 per cent of GDP when we faced a crisis selling our public debt to the international market.
My point is that we are not miles away from the 1995 crisis levels. We're only roughly 20 percentage points of GDP away, all public and private debt included, and with this year, the federal government alone will add 12% of GDP to its debt. God knows how much households are adding, and God knows how much the provinces and corporations are adding. Given that we have one economy that has to service all this debt, are you not concerned that in the next several years we could hit a wall?