Finance Committee on June 16th, 2020

[The Chair, Liberal, Wayne Easter]

Not thinking about thinking—that's quite a line there, Francesco.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

It's not mine.

[The Chair, Liberal, Wayne Easter]

Mr. Lemire will be followed by Mr. Julian and then Mr. Cooper.

Mr. Lemire, you have four minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

Congratulations on your appointment, Mr. Macklem.

The government keeps reminding us that the situation is too unstable to provide an economic update.

Do you think the situation has stabilized since the government's first announcement in March?

[Tiff Macklem]

That is for the government to decide. It has been very transparent about its spending and the costs of several programs. It has provided an update on those.

As I mentioned, we think it's important to have a plan, a scenario to assess the need for monetary stimulus. In our next monetary policy review, we will propose at least one scenario.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

If I understand correctly, March was difficult, April was more stable and there was growth in the economy in May.

Given what you just mentioned, does the lack of an economic update from the government affect your work adversely?

[Tiff Macklem]

As I mentioned, what is most important in our monetary policy review is government spending, and the government has been transparent about it. It has provided several updates on its spending, including when it has introduced new programs. For example, spending on the Canada Emergency Response Benefit has increased and spending on the Emergency Wage Subsidy has decreased.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

What are your expectations about consumer behaviour after the crisis? Is there a change in behaviour, particularly with respect to the digital economy?

[Tiff Macklem]

These are difficult questions. On the one hand, I think most consumers would be very happy to return to more normal behaviour. They look forward to going shopping and doing things they did before the crisis. On the other hand, it's obvious that there will be permanent effects. For example, many people now have their food delivered. It is likely that many people will be satisfied with this service in the future.

You mentioned the digital economy. I am sure that this crisis will accelerate a large trend, a large force in the economy. New technologies are changing the way we work and entertain ourselves.

We're really at the beginning of that process. It will be important for the Bank of Canada to have a clear understanding of what changes will prove to be sustainable.

Ask me that question at a future meeting, and I may be able to give you more information.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

Ms. Wilkins, you were shaking your head. Did you want in to give a supplementary there? Okay.

Mr. Julian.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks, Mr. Chair.

I have a comment before I start with my questions.

When $750 billion is being handed in supports to the banking sector at the same time that people with disabilities have not yet gotten a cent in this country, I think that's why there's increasing resentment. People with disabilities are trying to put food on the table and keep a roof over their head, and they've received not a single dollar. Seven hundred and fifty billion dollars, three-quarters of a trillion dollars, is going to the banking sector with the results that I mentioned earlier.

There has been $5 billion in immediate profit so far in the pandemic. Governor Macklem mentioned 700,000 deferred mortgages, but they all come with penalties and fees and compounded interest charges, which means the windfall profits for the banking sector are going to skyrocket later on in this year. That's my comment.

My question is more on the issue of climate change, and thanks for talking about the importance of a whole-of-economy approach.

Deputy Governor Wilkins mentioned the issue of the risks of transition. We'd like to hear how the Bank of Canada and you as new governor evaluate the cost of climate change so far per year to the Canadian economy. What do you think the cost is, and how do you see that growing over the next decade if we do not take the action that is required to reduce greenhouse gas emissions?

[Tiff Macklem]

I'm not going to give you any numbers, but I'll give you some different ways to evaluate that question.

As Senior Deputy Governor Wilkins highlighted, the most visible tangible risks are the costs of extreme weather events. We're seeing this happen with increasing frequency in the eastern half of the country. It manifests itself mostly in increased flooding, particularly in the west, but also in the north, and in increased forest fires.

One way to measure the cost of that—though I don't think it really captures the human cost—has been the Insurance Bureau of Canada, which can show you the quite dramatic increase it has seen in the last 20 years in its claims related to extreme weather.

With respect to the other costs, we're going to need to adapt to climate change. Some parts of climate change are irreversible, so we're going to have to invest in the ability to adapt to it. We're also going to have to invest, and we are investing, in mitigating climate change. Those investments will cost money, but not doing them is going to be a lot worse.

[The Chair, Liberal, Wayne Easter]

Mr. Julian.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

You're giving me extra time, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

Yes, I am. I gave the other guys four minutes, so I'll give you the same.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

That's wonderful.

Let's go into the issue of offshore tax havens. The Parliamentary Budget Officer, a year ago, evaluated the annual hemorrhage outside our country, in what should be tax dollars used in common, at $25 billion a year, which he said was a conservative estimate.

For the Bank of Canada, is that a concern? Do you have a position on this hemorrhaging of these tax dollars overseas? It doesn't create jobs in Canada, it doesn't provide the economic stimulus here that is needed.

Does the Bank of Canada have a position and have you made recommendations around that? Do you not feel that it, plus the complete absence of taxation of the web giants like Amazon, is something that government should be dealing with?

[The Chair, Liberal, Wayne Easter]

Governor, beyond what is policy for the minister, answer as you can.

[Tiff Macklem]

You've pretty much nailed it. These are issues for the government and parliamentarians. These are issues for the Minister of Finance, so they're not really in the purview of monetary policy.

[The Chair, Liberal, Wayne Easter]

Okay.

Before I go to you, Mr. Cooper, I want to come back to the point that Peter made at the beginning about the $750 billion in support for the banks. I'll ask you about this, Governor, because I think some will view that $750 billion in liquidity for the banks as going to the banks.

Is this not money that flows through to businesses and consumers, to others in society, to make the economy run, to make capital available in these kinds of times? I would like you to expand on that if you could, because I do not believe we want the impression left that the government is just dumping money into the banks. We're not. We're providing a liquidity service so they can provide loans.

[Tiff Macklem]

Yes, Chair, your understanding is very clear.

I'll ask Senior Deputy Governor Wilkins in a minute to say a bit about the evolution of those liquidity programs.

Exactly as you describe, these programs from the Bank of Canada as well as other programs are effectively loans. These are effectively providing funding to the banking system precisely so it can defer mortgages and precisely so it can increase business loans. Those loans and deferred mortgages have to be funded from somewhere, and in March and April in particular, funding markets were seizing up.

Had the Bank of Canada not come in to provide that liquidity, which, as you said, flows through to households and business in the form of loans and deferrals, there would have been a massive credit crunch in this country. That would have severely exacerbated the serious economic impact of this crisis on Canadians. That's why we came in, and that's why the government has come in.

Here's where I'm going to turn to Senior Deputy Governor Wilkins. As conditions begin to normalize in funding markets, our repo programs are starting to run off, and Senior Deputy Governor Wilkins can give you some numbers to give you a sense of the order of magnitude.

[The Chair, Liberal, Wayne Easter]

Senior Deputy Governor.

[Carolyn A. Wilkins]

Clearly we've tailored our programs to be right-sized for the problem when it's occurring and not to replace private markets when it's not, when the problem has been resolved. That's why our short-term lending programs, lending for one year or less, or buying securities for one year or less, have been rolled off. They were great to use when markets were dysfunctional, but when market functioning was restored, they became expensive. So as we intended, banks and other market participants just started to use the regular programs at the regular private markets. I think that's extremely good news.

It's trying to see how much is flowing to people and what would have happened if we hadn't done that. We need a counterfactual. In our financial system review, we did two experiments. They're going to be imperfect, but I would direct you to those. There are chart 14 and chart 15, on which we said, okay, what would arrears be in our worst-case scenario that we had in our monetary policy report in April for households if we had not helped banks do the deferrals and if the deferrals had not been put in place? You can see that the arrears would have been much higher without that.

We do a similar experiment saying, okay, what would have happened if there were no government programs to households and businesses in terms of their non-performing loans? That's not a good thing for the financial system, but it's not a good thing for businesses or people either.

That's a way to get a sense of how much we could have helped. It's always hard to give a caveat around counterfactuals, but we've tried to do that work, and it shows that the effects are quite large. The positive effects are quite large.

[The Chair, Liberal, Wayne Easter]

Thank you.

We will go to Mr. Cooper.

My apologies, Michael. You were supposed to be the second questioner on our list and I jumped over you somehow. Then we will go to Ms. Dzerowicz.

I don't know if you want in, Ms. May. We'll give you an opportunity if you want in.

Michael Cooper, the floor is yours.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Great. Thank you, Mr. Chair.

Thank you, Governor, for appearing, and congratulations on your appointment.

I just want to ask a few questions to seek an update on some of the extraordinary measures that the bank has taken to deal with truly an extraordinary set of circumstances arising from COVID-19. Also in that regard, I would be curious to know whether you could provide an update on the provincial bond purchase program and the dollar value of purchases under the program to date.

[Tiff Macklem]

I am going to turn directly to Senior Deputy Governor Wilkins, who was instrumental in setting that up.