Finance Committee on June 4th, 2020

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

To your point on interest rates, we had the former governor of the Bank Canada and the PBO, Mr. Giroux, here, and both of them said the same thing you did, that interest rates will inevitably go up. I kind of have a feeling that people have their head in the sand about this. I remember very well the 1980s and the 1990s, and Paul Martin's budget when interest rates were 7%. That was a reaction. It certainly would be better to have some rules so that we could plan ahead as opposed to cutting transfer payments the way Mr. Martin did.

That said, just to put some math to this idea of interest rates going up, right now the bank rate is about 0.25%. I noticed, by the way, when I was looking at your article in the Financial Post, that there was also an article about “stagflation”, that word from the 1980s. That's a possibility as well.

If interest rates go up 1% on $1 trillion, based on the short-term rollover you mentioned earlier, how long do you think it would take for the carrying costs of the debt to rise, say, 1% or 2% in interest rates? How long would it take for that to be reflected in government expenditures?

[Dr. Jack Mintz]

I did a calculation, but I can't remember the details of it. I think the best thing would be for me to send it. Should I send a note to the clerk with that calculation?

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Yes, that would be great.

[Dr. Jack Mintz]

I would use the government bond rate of 10 years. It's at around 0.6% right now, or roughly around that point. It would be going up to 1.6%. The average term structure is, as I said, 5.6%. Actually, Canada has a lot of short-term public debt, so one has to look at that a little more carefully. Obviously, one point would make a significant difference, and it would show up relatively quickly because we turn over our debt so quickly.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Mr. Chair, do I have time for one quick one for Dr. Cross?

[The Chair, Liberal, Wayne Easter]

You have time for a very quick one. I'm lenient.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I'll make it very quick.

Dr. Cross, you just wrote about the advocacy of some people for the CERB to become a universal income. Could you give us your opinion on that?

[Philip Cross]

I think it's entirely.... We're going to learn a lot from the CERB program about how Canadians interact with a government program of such generosity. I think we should wait and see how that affects behaviour, how that affects participation rates and how many people took advantage of it, frankly. After we collect that data, we'll be in a lot better position to evaluate it.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you, all.

We're turning to Ms. Dzerowicz, who will be followed by Mr. Cumming.

Julie.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank everyone for their presentations. I wish we had more time on this. I think it's important for us to hear all the opinions.

My first question is for Ms. Yalnizyan, if she's available, and then Mr. Kronick after that.

Armine, it's nice to see you. It's been a while. The question I have follows from where my colleague just left off.

I support our looking very seriously at some sort of a universal basic income. What I'd love for you to talk to me about is whether you see it as a way to better address income inequality moving forward. I ask because you've been around; you've been on a lot of shows, and I've been hearing that you are a supporter of it. What would you see as being the next steps to get us from where we are right now to where we need to go?

That's with the understanding that there's provincial jurisdiction involved and that we'd probably be looking to replace a number of federal and provincial programs with some sort of an annual basic income. If you could address that, that would be great.

[Armine Yalnizyan]

Thank you for the opportunity.

I actually am not in favour of a basic income. I don't think CERB should have been the template. A lot of people think CERB was the portal through which we got a cheque for $2,000, or some amount of money, cut to everybody. They saw it as a portal to basic income. I don't think you could have a more misguided approach to what CERB was about.

CERB was about disincentivizing people from going to work so they could stay at home and contain the contagion. That was why people were given money. In a recovery, you don't want a system where you're throwing money at people universally. You're trying to get them back to work, particularly in the era of population aging.

This might take us six months, 18 months or it might take us 24 months to get through this health crisis. We are in a health crisis still. Once we get to the other side of it, we don't know how much of the ecosystem of business will have been destroyed, will have been blitzkrieged, by COVID because it could not withstand the lower volume of business. We don't know how much of the economy will be left standing.

The last thing in the world we want to do is encourage people to stay at home. We need people to contribute, because even a basic income requires people working and paying taxes so they can redistribute income.

This is why I believe in investments, and significant investments, in child care, not as in warehousing children so mommy can go back to work, but child care that permits the maximizing of the potential of preschoolers so that everybody enters school learning ready, and that supports learning throughout the course of school-age children's lives so that everybody can graduate and have the best opportunities to develop their skills and get a job. This is much more important to me than a basic income.

I'm sorry that you have misunderstood all of those shows that I've been on talking about basic income, because I really am not a supporter. I've been super clear about that all the way along.

[Julie Dzerowicz, Liberal, Davenport, ON]

That's fair. I just want everyone to be clear. I wasn't proposing that we actually extend the CERB, necessarily.

I think that, because the world of work has changed, because of the number of people in the gig economy, because we have short-term contracts, because a lot of the Canadian population doesn't have access to benefits, because we're a transitioning economy, many people feel that some sort of an annual basic income might be one of the solutions for us to address income inequality moving forward. It was one of the ideas proposed.

I don't want anybody to believe that I was proposing that we should be extending the CERB.

Thanks for that, Armine.

My next question is for Mr. Kronick. We'll try to get you into this discussion.

As you know, in our last platform, we talked a lot about creating a sustainable economy, and we've made a huge promise around net zero by 2050.

I wonder if you might have any thoughts about how we can use this crisis to somehow pivot or move us into a more sustainable economy where we could meet not only our net zero by 2050 target, but our Paris Agreement targets. Would you have any thoughts on that?

[Jeremy Kronick]

I'll admit that that's not the direction I thought you were going to go with the question.

The government's made it very clear that net zero is going to define its thinking, and it's something that it wants to achieve. I understand the arguments about not wanting government to put conditions on how it extends government support through this crisis and then through the recovery, and that's fair.

My belief is that the private sector and the financial institutions are typically better at allocating capital than governments are, but if that is going to be one of the overarching principles that this government is going to be using, we have to think about how to unlock savings in the economy. It's been mentioned that there are a lot of people who have stayed home and have saved a lot during this—and it's true; they have—but how we unleash and unlock those savings during the recovery is going to be a critical part to the success of economic growth.

If we do need to think about that within the context of net zero, then those are the rules that we're playing by. I think we need to think about some of those things.

I'm not an expert in sustainable development, but we've talked a lot—or I have—about some of the ways in which capital has probably been stuck with some of our big institutional investors instead of invested in the Canadian economy. For example, when you have an unrated potential investment, life insurers have to put a flat capital charge on their balance sheets, and what that does is it disincentivizes low-risk investments in the economy. That doesn't apply to banks. Banks do have the ability to use their own models on unrated investments; life insurers don't. You have all this capital that's sitting there, and it's not being spent.

I think that we need to think creatively about how to unleash that capital or those savings for investment, and if it's within that net zero framework, then we need to think about it that way.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there. We're substantially over.

Thank you, folks.

We are turning to Mr. Cumming, followed by Mr. Fragiskatos.

James, you have five minutes.

[James Cumming, Conservative, Edmonton Centre, AB]

I'll start with Mr. Mintz and Mr. Cross for the first couple of questions I have.

We'll have one trillion dollars' worth of debt. It might even be $1.2 trillion—who knows?—by the time we're done with this. It strikes me that one of the things we need to start talking about is how we are going to.... We need significant growth if we're going to have any chance of starting to repatriate some of that debt.

It strikes me that two things have to happen. The preferred is private sector investment, getting companies to invest in Canada and invest in projects in Canada. Could you comment on what has to change, or what you see as fiscal levers that we could have to encourage that kind of investment?

The second piece is that we hear from witness after witness about shovel-ready projects for public funding. If we're going to consider more debt and more public funding toward any kind of project, should we not have some sort of filter that should focus on those projects that will improve productivity and maybe actually create some revenue, rather than create a drag on the other levels of government supporting their operations?

Could you comment on those two different things?

[Philip Cross]

I'll start, because I'm sure Jack will.... I'll give a very quick answer and Jack will give the right answer.

I certainly agree with the growth. That's something I emphasized came after World World II. The lesson there was that by far the easiest way to deal with these problems is always economic growth. We should focus on that. We spent a lot time in the last decade arguing about inequality and income distribution. We ignored income creation. I think, more than ever, we need to get back to that.

The other thing I'll mention is, as I said, a lot of studies have shown that in reducing the deficit spending, cuts are preferred to tax hikes, especially because of the stimulative effect it gives to business investment.

[Dr. Jack Mintz]

First of all I think what people want is to get back to work, and they want to see growth. The only way you're going to get people back to work is to start making sure that governments can get out of the way of that growth and not make it harder to achieve. In other words, there are going to be some very damaged sectors. We're going to have to see people move and some people take on new jobs or careers. Governments need to support all of those things.

Armine, you'll be very pleased to know that I totally support you. I might have questions about how you do it, but I totally support that child care is one of the things that help to get people back to work.

There are really two sets of issues. One is on the labour side and how we get people back to work. I am much more interested in wage subsidies than in the guaranteed annual income. I think that's a much better way of trying to get people back to work, and especially reducing the very high marginal tax rates when people start earning income that could be as high as 70% or 80% depending on circumstances.

I think private investment is going to be very critical to getting back on stream. It's been disappointing since 2014 in Canada. Outside of residential private investment, our private investment in all the sectors, not just oil and gas but other sectors, has been below par since 2014. Our productivity has been almost flat since 2014.

We need growth. We need to have policies that are going to encourage it.

On infrastructure, I think we should not just focus on shovel-ready, but we should also focus on growth-enhancing infrastructure and longer-term infrastructure. In fact, there is money to be spent on infrastructure right now, which the federal government has. They should hurry up some of the things they're doing, which is getting some of the projects going, even if they take longer. The trouble with infrastructure is that it's not a very good way of trying to deal with short-term demand issues; it's much more important in terms of longer-term issues.

I also want to remind people that private infrastructure is extremely important. If you look at broadband and the telecommunications industry, etc., that's where we really should be looking at developing our private infrastructure even more. I can tell you right now that there's huge interest in rural areas to have much better broadband. A lot of municipalities need support in that area. There is a government funding issue there.

However, a bigger issue is regulation. With regard to the spectrum issues right now, the federal government has been extremely slow in getting spectrum going in this country. It's been terribly slow. We are way behind on 5G, and we need the technology. When you look at Australia and other countries like that, they're way ahead of us right now. I think that needs to be a very important focus on the infrastructure side.

[The Chair, Liberal, Wayne Easter]

Okay, we're substantially over time.

Thanks. That's a lot of information there, folks.

Peter Fragiskatos, and then we'll go to some single questions.

Peter.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much, Mr. Chair.

In an effort to find some consensus, I'll go back to Mr. Mintz.

Mr. Mintz, it's nice to see you again.

Could you revisit your comment that you made about child care? Is it the case that you see it as a positive tool for generating economic growth?

[Dr. Jack Mintz]

The answer is basically yes. I guess the question is, how do you make sure it's provided?

Right now, I would just like to get kids back into school and get our current child care back on its feet, because the pandemic has closed down so many facilities. I do think that we just need to get things going right now and deal with these health issues so that we can get things back on their feet. I think there are some very severe issues that are involved right now for kids. I have a daughter who is a social worker. She deals with kids like this and with families. There are huge stresses out there right now.

Now, in terms of in the longer run, though, we've seen that essential workers need child care support right now, but I think that we do need to have child care as a way of supporting people in getting back to work. Of course, the question is, how do you provide it? My view is that I don't see a problem with private child care and I don't see a problem with public child care. I think sometimes we let our biases about public and private get in our way.

My view is that governments should think about a holistic approach, because one of the big issues, of course, is that child care workers are not very well paid. Maybe we need to start thinking a bit more about what sorts of things we can do to build a better child care system within each province. Of course, the question is, what is the federal role in all that? I think we need to understand that, because the provinces have a huge role themselves.

[Peter Fragiskatos, Liberal, London North Centre, ON]

It's an important conversation to have and one that I expect we will be having in the months and years ahead.

I'll go to Mr. Kronick.

Mr. Kronick, that was a great presentation. I wanted to ask you about something specific. It comes out of a recent C.D. Howe report. The report says, “Placing the economy in a partial coma made sense during the first wave of the pandemic, but if there is a second wave, a second economy wide shutdown should be avoided in favor of more targeted approaches”.

Now, obviously, many of these decisions around the economy, if not most, and around what is allowed to function and what is not allowed to function are in provincial hands, as we all know, but could you go into that a little more? I'm asking from an MP's perspective. I think parliamentarians need to be thinking about these things, too, because we are representatives in our communities, and we're hearing from a lot of businesses, in particular, and from workers who are impacted. What does it mean to call for a more targeted approach? What does the C.D. Howe Institute mean by that?

[Jeremy Kronick]

This was part of our monetary and financial measures working group that we put together. The comment there was less about the epidemiological perspective, as Ian mentioned earlier, and demographics and how vulnerable people should be self-isolating, and more about thinking about it from the perspective of what we can afford and cannot afford.

It comes back to a lot of the questions we've had around debt here, but also, I think part of why governments have talked about a staged approach is so that you can move between stages. If you get to stage three and you start to see that cases are picking up and there is some increased vulnerability to your populations, then you can move back, potentially, to stage two. Hopefully, we'd be in a situation where we have a testing and tracing program in place so that we don't have to shut down everything.

Part of why we had to shut everything down were the unknowns about the disease, but also, we had very little ability for the type of testing and tracing that would be needed—we still don't have sufficient ability, at least in Ontario and Quebec—and then isolating in order to not have to shut the economy down.

It was a little bit of everything in there: a bit on the debt side of things, a bit about the testing and tracing and a bit about the staged approach.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go with four single questions, starting with Mr. Ste-Marie and then going on to Mr. Julian, Mr. Cooper and Ms. Koutrakis.

Gabriel.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Mr. Garon, as we know, prior to COVID-19, Canada did not particularly stand out in terms of research and development spending, both in the public and private sectors.

Why is it important to invest in research and development now, in connection with COVID-19 and the future?

[Jean-Denis Garon]

The thinking is along the same lines as with workforce training. It is very important to reinvest in our productivity. We were not bringing up the rear, but among the G20 countries, we were not among the leaders in terms of investment in research and development. You're right in saying so.

If the Government of Canada spends some time thinking about the sectors, it will also have to think about our dependence on what we call our heritage sectors. For a long time, we did a lot of research and development in the oil sector in western Canada, and we have experienced a double crisis: the oil crisis in the west and then the COVID-19 crisis.

We will have to think about whether we still want to focus on that industry. Is short-term growth through the oil industry really thinking about future generations? Asking the question is part of the answer.