Evidence of meeting #34 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
The Chair Liberal Wayne Easter
Thank you very much, Mr. Semple. Hopefully there are some people from Finance on that. I know they are on here, so we'll just quietly tell them to get the job done and save these 3,200 jobs. It's that simple. Just do it.
We'll now turn to Mr. Julian, who will be followed by Mr. Poilievre.
Peter.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you, Mr. Chair.
My question is for Ms. Amyot.
Colleges and universities were already in crisis long before the pandemic. People were going into debt to the tune of tens of thousands of dollars; there were many barriers to accessing college and university.
After this pandemic, should the whole issue of accessibility to college, CEGEP and university be reviewed and a funding program put in place as is done in other countries, where there are no tuition fees? Tuition fees are a barrier for people to access post-secondary education.
Is this an opportunity to set up a much more accessible system?
President and Chief Executive Officer, Colleges and Institutes Canada
Your question is an excellent one.
In Nordic countries, it's clear that there are more students continuing their studies at the post-secondary level.
Liberal
President and Chief Executive Officer, Colleges and Institutes Canada
No problem. Sorry for this.
As I was saying, we know that in the nordic countries, the number of students who go to post-secondary is quite high. That said, according to the data from OECD, Canada is one of the first countries with respect to post-secondary attainment. This is partly because of the number of students who study in colleges across the country. We are extremely proud of that. In fact, it's the same percentage who have diplomas who are indigenous and non-indigenous. The big advantage of our country is the number of campuses across this country that help students and learners of all ages to upskill and re-skill.
I have to say that the great news the government announced not long ago, with the $9 billion, was a step in the right direction, ensuring that it is providing opportunities for summer jobs as well as work-integrated learning placements, but also student loans, to encourage those students to go back to school.
I will stop there, Chair.
Liberal
Conservative
Liberal
The Chair Liberal Wayne Easter
Yes. We can even see you, Pierre.
Go ahead. The floor is yours for a single question, if you could.
Conservative
Pierre Poilievre Conservative Carleton, ON
Thank you, Chairman.
I have a question for Mr. Semple or Mr. Switzer over at Brandt.
Congratulations, first of all, on your acquisition. Unfortunately, it has artificially created a revenue improvement that has disqualified you from the wage subsidy to which you would otherwise be entitled.
I've always known you as being an extremely successful Saskatchewan company. I didn't realize how many employees you have in Ontario and across eastern Canada. Of your 3,200 employees, you have 700 in what you call “eastern Canada”; I presume you include central Canada in that definition. Having grown up in the prairies, I know that everything east of Manitoba is eastern Canada.
Conservative
Pierre Poilievre Conservative Carleton, ON
That's right.
Mr. Semple, I want to find out how much it would help you to keep your employees and save jobs if you were to have rightful access to the wage subsidy that your two legacy companies would otherwise have qualified for, had you not done this acquisition.
Chairman of the Board, Brandt Tractor Ltd.
Thank you for that, and thank you for reminding me about eastern Canada.
It's critical to us. We have 3,200 employees right now, and as you correctly identified, there are over 700 in the east. It's our goal to retain all of them, to keep them intact, to keep their benefits intact and to top up the wage subsidy as well, to keep the employees whole.
In the absence of that, we will have no choice but to look at more layoffs and other measures to try to reduce our costs and mitigate our risks. That's really the last thing we want to do, but there's a lot of uncertainty out there. COVID-19 has had a negative impact on all of our customers, and that comes right through to us.
We need to act, and we need to act now. It's kind of urgent for us right now. We've been holding off, hoping we would get an answer, but we're kind of at the end right now.
It would be a substantial benefit to us.
Conservative
Pierre Poilievre Conservative Carleton, ON
Hopefully Finance is listening—I'll wrap up, Chair; sorry, I know I promised one question. I think it is the intention of the government to help companies like yours. I think this is an example, as the Chair properly said, of some of you falling through the cracks. Hopefully they can rectify that and keep all of those 3,200 workers building our economy.
Liberal
The Chair Liberal Wayne Easter
I thank you both.
We are out of time, but Mr. Devlin, I will give you a follow-up on Denise's earlier point on an example related to Julie's question.
President, Fanshawe College
Thank you very much.
Denise mentioned “re-skilling” and “upskilling”. I would use the example of last week, when we had 10 tech companies meet with our dean and associate dean. They were saying, “Here are the problems that have come about as a result of COVID-19 in our sector in terms of a skills gap.”
We have already built that into our curriculum so that the graduates will have those skills and will be able to support those tech companies. It's just part of what colleges do, with program advisory councils that support every single program we deliver, so that their curriculum is cutting-edge and able to support job generation and economic growth.
Liberal
The Chair Liberal Wayne Easter
With that, I sincerely want to thank each and every one of you for your presentations and the good discussion we had. Hopefully, out of this session, as we have had with many others, the programming can be improved. We are going to get through COVID-19, and we have to get the economy back on track and look to the future. On behalf of all committee members, thanks very much for your presentations and your time.
We have a second panel to go to, so we will suspend for about three or four minutes.
Liberal
The Chair Liberal Wayne Easter
We will now reconvene the meeting. It is meeting number 34 of the House of Commons Standing Committee on Finance, and we have our second panel of the day.
We are operating under the order of reference from the House to look into the government's response to the COVID-19 pandemic. I think most people on this panel know that the meeting is taking place by video conference and the proceedings will be made available through the House of Commons website.
With that, I welcome each and every one of you. Like some of you, I also had a microphone and headpiece that conked out today, so I'm just using my unit. I'll have to get a new one.
I'd appreciate it if you could keep your remarks as tight as you can to five minutes. We have a lot of witnesses and to get all the remarks in, we will have to keep them quite tight.
We'll start with the C.D. Howe Institute. Jeremy Kronick is the associate director of research.
Mr. Kronick, the floor is yours.
Jeremy Kronick Associate Director, Research, C.D. Howe Institute
Thank you, Mr. Chair, and thanks to all the committee members for inviting me to be part of the panel here today.
These are obviously extraordinary times, and the response by the government and the central bank has been equally extraordinary. They don't have a playbook for this crisis, and it's been impressive to watch the way in which we've all worked together and worked toward a common goal.
There's no doubt that the massive fiscal stimulus programs were necessary to support households and businesses through the immediate effects of the government shutdown. Similarly, there's no doubt that the massive increase in the Bank of Canada's balance sheet was necessary to support financial markets and overall financial stability to ensure the economic shutdown did not morph into a financial crisis.
In my few minutes here today, I thought I'd highlight some of the ways in which it's clear that the stimulus has been successful and some of the concerns as we look ahead to what we hope are better times.
On the fiscal front, it's difficult to fully evaluate at this point the success of all the programs, though the uptake in the CERB and the wage subsidy would suggest that they've certainly helped households and businesses bridge the immediate crisis period. The dollar figures associated with the programs—$2,000 a month for CERB and a maximum of $847 a week for the wage subsidy—appear to be appropriate, as they cover the bulk of core expenses across the bottom and the middle of income earners. Moreover, the fall in real GDP in Q1 2020 at 2.1% ended up being in the middle of the range of estimates in the Bank of Canada's April monetary policy report.
On the monetary front, of particular concern right off the bat were the strains in the Government of Canada bond market. Typically, Government of Canada debt is the safest Canadian-dollar denominated asset one can trade. Importantly, it then acts as a benchmark, creating a reference price for the market to price all other debt instruments. Therefore, an illiquid market for Government of Canada bonds can impair debt issuances across the entire financial system.
What we were seeing in March were huge spikes in illiquidity. As a result, the bank implemented the Government of Canada bond purchase program, which significantly increased how much Government of Canada bonds it purchased and held on its balance sheet. Those spikes in illiquidity were quickly brought back down and today look much closer to historical levels.
Similarly, there was much consternation about the ability of some provincial governments to continue borrowing or, for that matter, borrowing at sustainable rates. On March 26, the day before the bank announced it would start buying up short-term provincial debt, spreads across all provinces were well above 100 basis points, with Newfoundland and Labrador closing in on 200 basis points. They had all been below 100 basis points before the crisis started. By April 17, two days after the bank announced it would also buy longer-term provincial bonds, spreads had returned to much more normal levels. The latter announcement also had the effect of reducing actual borrowing costs across all provinces back to levels that we saw in February.
The bank has also expanded its large-scale asset purchase programs to deal with stresses in the private sector. Here too, illiquidity was rearing its ugly head, threatening to impair credit and capital allocation. The bank put in place a series of private sector asset purchase programs. Again, spikes in illiquidity in March shrank in April and have returned to more normal levels. In April, new issuances of Canadian corporate bonds totalled $17 billion, representing one of the largest totals in a decade.
While obviously we are not out of the woods, it is important that we think ahead and ensure that our policy responses are appropriate for the level of risk in the economy and leave us with the fewest regrets in the long term.
Canada has benefited tremendously from having a fiscal and monetary anchor over the past 25 years, including very low-risk premiums on government borrowing costs. Fiscal anchors like the debt-to-GDP ratio were rightly set aside with the spending programs required to overcome the government-imposed economic shutdown, but economic growth is likely to be sluggish for some time, and there's a danger that these temporary programs will take on more permanence, turning one-off deficits into structural deficits. Should that be the case, investors will become concerned with fiscal sustainability, Canadian-dollar denominated debt will become riskier and borrowing costs could increase rapidly.
While other countries are in similar situations, Canada is nevertheless highly dependent on both domestic and foreign investor confidence so that public and private debt can be carried at a reasonable cost. This reinforces the importance of Canada's monetary anchor: a low and stable inflation target.
With the inflation control agreement coming up in 2021 for renewal, our commitment to that 2% target becomes even more important. This commitment gives the bank ample latitude to increase its balance sheet over the next couple of years to support the economy and the financial system in a deflationary environment but provide assurance that it will promptly move to deal with any inflationary pressures as we emerge from the shutdown.
As we move from the crisis to the recovery phase, the programs that governments have put in place are expected to be wound down or modified to reflect the changing economic circumstances. However, traditional risk metrics are likely going to make even healthy borrowers appear unhealthy until the recovery is well under way and economic uncertainty has eased. On the business side, we don't want zombie firms, but we also don't want healthy firms with viable business models disappearing.
Therefore, some continued government involvement is likely warranted with the big questions being what form it will take and what principle should guide this involvement.
Governments must work to reduce as much as possible the uncertainty that's in their control. Forward guidance is not just a central banker term; it applies to fiscal authorities as well. Governments must also plan with a clear timeline how any support will evolve as the recovery evolves and will be scaled down and eventually exit as things return to normal.
I'll stop there. I thank the chair and the committee again and I look forward to the question period.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Jeremy.
We'll go to Angella MacEwen from the Canadian Union of Public Employees.
Go ahead, Ms. MacEwen.
Angella MacEwen Senior Economist, National Services, Canadian Union of Public Employees
Thank you very much, Chair. Thank you to the committee for having me present today.
The Canadian Union of Public Employees is Canada's largest union, with over 700,000 members. CUPE members work across a broad cross-section of the economy, in such areas as health care and education; at municipalities, libraries and universities; with public utilities and emergency services; and in transportation and the airlines.
The COVID-19 pandemic has exposed the threads that connect us all. Our health and well-being depend on the health and well-being of everyone else in our communities, in our country and around the world. In the last few months, we've seen clearly that when some of us aren't safe and well protected, we are all at risk.
This current moment is unlike any previous economic recession or depression we have seen. Right now, real unemployment or labour market slack is around 30%. We're starting to see industries that were hit hard by the initial shutdown restructuring and facing permanent closures. Households and businesses alike are having trouble paying rent while their economic activity is shuttered.
As the previous guest commented, government deficits globally are going to reach record levels. In this environment it is essential that we continue to put our absolute priority on the health of Canadians, which includes providing income supports to help households make ends meet and continuing support by public services to help them meet their needs. This will not only help us contain the pandemic but also ensure that our economy and our communities can bounce back faster after it's over.
The federal government acted very quickly to put in place supports like the emergency relief benefit and market liquidity programs. This made a difference for millions of people in Canada. Now that we're passed that immediate response, though, it's appropriate to take a quick look back to see if we can make improvements or to think about what kind of investments will help us chart a course back to more stable economic waters.
As previously mentioned, the Bank of Canada would usually have already purchased federal government bonds in the primary market, which means directly from government. At the beginning of the pandemic they began purchasing both federal and provincial bonds in the secondary market.
That distinction might seem academic but it can actually mean very different distributional outcomes. The direct purchase of government debt allows governments to spend more money on providing programs or other supports. The secondary purchase helps keep the rate at which we can borrow lower but it also directly benefits existing wealth holders. The hope is that those wealth holders will use that money to make productive investments in the economy. However, this is a little bit like pushing on a string. We know from recent experience that there are no guarantees that money will be used to stimulate new production or employment.
Similarly when the Bank of Canada or their government-owned corporations buy up mortgages or corporate debt, there is little reassurance that support is actually trickling down to homeowners, to small businesses or to workers.
This reality makes it really important for the federal government, when it is designing its programs and implementing its programs, to ensure the effectiveness and fairness of public spending while keeping that background distributional impact of liquidity support in mind. It's important that the federal government strengthen the conditions and improve the transparency and accountability of the programs that it is implementing right now.
There are some things you can do to ensure that. You can make public information about how public money is being spent. You can include clauses and agreements that mandate labour protections for workers, including protection for the continuation of benefits and the implementation of health and safety protocols, and include penalties so that if these clauses are not upheld, the subsidy will be clawed back. At the same time, you can make sure there is protection for whistle-blowers so that people feel comfortable reporting violations of these clauses. Where there is a union in the workplace, make sure it is included in the negotiations for the wage subsidy or other supports that the government gives. Publish details on any procurement or any other government contracts that you enter into during the recovery period. Don't provide subsidies or procurement contracts to companies that engage in tax avoidance, for example, through the use of tax havens or where the beneficial owner of the company is unknown.
We're going to face a strong tendency to want to do stimulus the way we have in the past, focusing on shovel-ready physical infrastructure projects. This recession is different though. It has affected different industries, different occupations and different communities. It has especially hit women, low-income service workers, racialized workers and migrant workers.
Investment in the care economy, including in health care, child care and social services will have social and economic returns far higher than the current cost of borrowing. It will create good jobs for the workers who have been hardest hit by this economic crisis.
There are already calls for austerity and privatization, including privatization through the federal government's Canada Infrastructure Bank.
However, you can't rebuild by cutting, and you know that privatization costs more while delivering less. That's clear, especially in the long-term health care sector.
After the 2008 recession, the federal government removed economic supports too quickly and focused on cuts and balancing the budget instead of strengthening our safety net. Infrastructure spending prioritized inefficient and expensive P3s, which locked municipalities across Canada into low-quality projects and growing debt.
Even though the debt-to-GDP ratio has jumped significantly, there is no reason to panic or pull back now. Whether we continue to borrow at historically low rates or eventually increase revenue to ensure tax fairness, or some combination of the two, we can well afford to increase federal spending. In fact, if we make public investments in sectors like health care, child care, livable communities and energy-efficient buildings, we'll see a stronger impact on economic growth alongside lower inequality and improved well-being.
The federal government in particular has the ability and responsibility to shoulder the majority of this cost of the pandemic response as well as a higher share of social spending going forward. Many polls have shown that there's widespread support for this type of project. There's a growing consensus that there's no room for profit in long-term care or other care work.
As Canada starts rebuilding and recovering, we have the opportunity to reimagine what our economy looks like. I invite you to take that chance.
Liberal
The Chair Liberal Wayne Easter
Thank you very much.
We will now turn to, as an individual, Jean-Denis Garon, professor of economics, Université du Québec à Montréal.
Mr. Garon.
Jean-Denis Garon Professor of economics, École des sciences de la gestion, Université du Québec à Montréal, As an Individual
Mr. Chair, members of the committee, I would first like to thank you for your invitation to appear before the committee. I'm delighted to be here.
I would like to share with you my thoughts on three main elements: first, on the nature of current and future assistance measures; second, on the need to train the workforce; and lastly, on the need to work well with the provinces.
First of all, I note that the public debt is large and sustainable at the moment. We can afford to run a large deficit this year, but the real test for budgetary policy lies ahead.
Following the 2009 crisis, the Organization for Economic Cooperation and Development, or OECD, suggested that the government take consistent measures applying the three Ts rule: “timely, targeted, tailored”.
I believe that these principles should be at the heart of our reflections from here on in, and that, eventually, the almost unconditional assistance that is currently being given to individuals will be detrimental to the recovery.
Policies based on maintaining the employment relationship came somewhat late, after the Canada emergency response benefit, or CERB, which was intended to transfer large amounts of cash to individuals as quickly as possible. Of course, for a variety of reasons, the wage subsidy did not take well.
Transfer policies, which are extremely broad in scope, are effective when it comes to redistribution. However, they also have a significant social cost, first, on the government's budget, and second, because they interfere not only with the wage policies of provincial governments, particularly in the area of health, but also with those of private companies. I'm thinking of Quebec's agricultural sector. Some groups will have to continue to receive assistance for months, if not years. I say certain groups.
I believe that the government should not continue to pay the CERB for too long for one simple reason: to promote recovery and to fight unemployment, we must be careful not to subsidize it. If we are going to reform the employment insurance program, it must take over from the CERB.
Of course, the CERB has paid out so much money to so many people over such a long period of time that it will be difficult to move on to the next stage because many Canadians will feel they are losing out.
I am of the opinion that the pedagogy of getting back to normal should start as soon as possible in Ottawa.
Second, in terms of workforce training and productivity, let's mention that we made the decision to put the economy of a G8 country on hold in order to save human lives. And the longer that pause, the greater the risk of creating long-term unemployed people with the scars it leaves on their careers, on their employability and on the human capital they represent.
Canada, through employment insurance, will have to break with its tradition of not focusing enough, at times, on the employability of Canadians. Employment insurance should be redesigned quickly to fund labour market training in partnership with the provinces, and it should be enhanced.
Obviously, linking the employment insurance program to these new priorities will be complex and will require coordination with the provinces, particularly Quebec. This requires that discussions begin as soon as possible.
Finally, the opening up of trade has enriched us enormously since the post-war period and has brought us a lot. However, we have relocated a lot of economic activity. Some of my colleagues who work in international trade expect that there will be a return to the regionalization of certain economic activities that have been relocated. This regionalization will involve artificial intelligence, robotics and home automation. We have to be ready and we have to open a major national training project for the workforce.
I would add that the provinces need short-term financial support for the delivery of front-line public services, and I'm thinking of health care. And I believe that we should, at least in the short term or if not permanently, continue the practice of further increasing Canada health transfers.
Furthermore, in the short term, Ottawa could consider immediately transferring a significant amount to the provinces in the form of transfers, for example, on a per capita basis, which would have the effect of transferring part of the provinces' debt to the federal government, which has more means to act than many provinces.
In conclusion, I think it would be a mistake to weaken the provinces by succumbing to the short-term temptation of establishing new transfer programs based on the federal spending power. The provinces are on the front lines. Their needs are different, and they are changing too quickly. I think the provinces need to be treated as full partners in the transfer and aid programs that will follow in the coming months and years.
Thank you very much.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Mr. Garon.
We will now turn to Ian Lee, associate professor, Carleton University, who is no stranger to this committee.
Mr. Lee, the floor is yours.