Finance Committee on June 18th, 2020

[Douglas Porter]

Well, of course, we're basically hostage to the virus over the next year or so, but I think that, longer term, the concern is that Canada's potential growth rate had faded to less than 2%. We'd seen very modest productivity growth in recent years. If anything, the medium-term potential growth rate of the economy might be further dampened by this.

If there are any encouraging points to make, it is that we've seen tremendous adaptation by business, by individuals, of technology during this episode. To some extent the future has been brought into the present. Whether or not it's by kicking and screaming, people have had to upgrade their technological skills. Perhaps that might help support productivity over the medium term.

I suspect that the end result of this is going to be slower medium-term growth as a result of the pandemic.

[The Chair, Liberal, Wayne Easter]

You have time for a quick one, James.

[James Cumming, Conservative, Edmonton Centre, AB]

Quickly to Mr. Wareham, prior to coronavirus, I would hear from small businesses all the time that credit availability, access to credit, has always been an issue. I'm intrigued a bit with your notion of the private sector being able to fill some of that gap outside of the major banks.

What kinds of policy or regulatory changes do you think have to happen to make that happen?

[Jeff Wareham]

I'd actually say almost none. Again, I'll point back to the fact that probably the biggest challenge is that at one time the pillars in our financial services industry were very distinct. Again, not slighting the big banks, they're an important part of the success of the country, but with their acquisition of the lion's share of the wealth management assets in the country, their conservatism trickled down to compliance oversight. There's enormous pressure on advisers and investment bankers and so on not to put forward a product that is risky to risk-adverse investors.

There is a way to manage that, but at one time there were literally hundreds of syndicated deals brought forward in Canada every year, investing in all manner of industry, through debt or through direct investment into the system. That market has almost completely dried up. I think it's the leasing companies, the factoring companies and so on, that could use an infusion of capital. That infrastructure exists, and it's much less regulated than the banking industry, but it has been dramatically constrained by the move of investment assets onto the big banks' balance sheets, for valid reasons. Again, I go back to moral suasion on the government's part, encouraging the banks to get behind structured products and investment alternatives, where advisers can talk to their clients about putting money back into the economy in ways that were done in Canada for a hundred years.

[The Chair, Liberal, Wayne Easter]

Okay, thank you all.

Following Mr. Sorbara, we'll go to one question each from the following: Mr. Desbiens, Mr. Julian, Mr. Lawrence and Ms. Koutrakis.

Francesco.

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

Thank you, Mr. Chair.

It's nice to see everyone this afternoon.

This pandemic we're in, and the recession that's followed, is obviously quite extraordinary and unique. I look here in my own riding of Vaughan—Woodbridge, where we have certain sectors, and representatives from certain sectors, doing quite well. The retailers, specialty stores, the CP intermodal facility, and a bunch of logistical operators are doing very well and have not been impacted as others have. Unfortunately we have had some bricks-and-mortar retail stores that have been impacted.

I received a call from a young woman yesterday. She's going to be losing her job. The store she works at—I don't want to name the entity— is closing down across Canada, and she's going to be looking for work. With that, she's probably going to be looking to upgrade her skills. In one of the budgets in a prior session, we brought in the Canada training benefit, which was put forward to allow Canadians to upgrade their skills when they have transition.

I think Ms. Cooper mentioned this, and I think another economist mentioned this as well. Looking forward, how important is it for our government to ensure Canadians have access to training to upgrade their skills, especially in those sectors where they're going to be late to come on and have been impacted severely?

I'll throw this out to Mr. Porter first, and then to Ms. Cooper.

[Douglas Porter]

It goes without saying that it's incredibly important because barring....We are looking at large chunks of the economy that will remain for a year, possibly two or three years.

As I mentioned in my opening statement, they tend to be sectors that punch above their weight in terms of employment. It could well be that eventually they get back to where they were in 2019, but we have to deal with the very real possibility that there will be large chunks of the economy that are just going to look different even two or three years out.

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

Thank you, Mr. Porter.

Ms. Cooper.

[Dr. Sherry Cooper]

I certainly agree with Doug that this is an essential component, and it's one that can be done remotely. There's so much training available.

Some large employers that have had to increase their payrolls dramatically, be it Loblaws, Walmart or some of the essential retailers, have gone to the businesses that have been shutting down, where people can't work from home, and making those switches and training, and anything the government can do to assist that is beneficial. That matching is crucially important.

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

Mr. Perrault, fiscal sustainability is very important for me. As an economist by training, someone who watches and reads the public accounts and the budgets year in, year out, we're obviously in a period of time where we need to support Canadians. We need to make sure they don't suffer financial hardship in order to make it through this, and build that bridge to when we can get the economy fully ramped up. About 20% of the economy was taken offline, or put in a frozen position with the pandemic. It's slowly coming back up.

When we look forward, in terms of Canada's fiscal sustainability and how we look at deficits going forward, because we need to continue to invest in Canadians, we need to continue to invest in Canadian infrastructure, broadband, hard assets like subways, roads and so forth. How important is it that we strike that balance of continuing to invest in key investments, not current consumption, but also maintain a good strong fiscal balance sheet?

[Jean-François Perrault]

One way to think about your question is to think about the starting point. We got into this with a debt-to-GDP ratio of about 31%. There's no magic GDP number. The reality was that we came into this, and we had a lot of space to support our folks. That was the result of a number of years of efforts to bring it down, so the advantage of having a sustainable fiscal framework is that in times of need like this one, you can draw down on that, and you can make the investments you need to support your economy.

The key thing is that we've done that. At this point I wouldn't worry about that. It's going to sound odd for a bank economist to say this, but I wouldn't worry so much about how quickly we need to get things back under control, because the reality is that we are going to be requiring substantial support, whether it's fiscal or monetary, for at least a couple of years. It's just entirely too early to start thinking about returning to a balance. It's just not the right time to establish a plan to balance.

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

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Mr. Ste-Marie, a single question, and one from Mr. Julian, then we'll go on to Mr. Lawrence.

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

Thank you, Mr. Chair.

My question is for the economists representing the Bay Street banks. We have four of the five with us today.

When we look at the financial results of the big banks, we see very significant profits, not to mention the substantial compensation their executives are receiving. I find an imbalance in tax justice when, on the one hand, the big banks use tax havens perfectly legally for tax optimization purposes and, on the other hand, we are experiencing a pandemic and we are introducing economic measures that cost a fortune, which will have to be paid back.

What argument could you have against a request from Parliament to stop using tax havens that allow you to pay less tax in Canada? This question is obviously for Mr. Porter of the Bank of Montreal, Mr. Shenfeld of CIBC, Ms. Cooper of Dominion Mortgage Centres and Mr. Perrault of Scotiabank.

[The Chair, Liberal, Wayne Easter]

Who wants to go first?

I will say, Gabriel, that these are not the presidents and CEOs of the banks. These are the economists who work for them. However, I'll let them answer as they see fit.

We'll start with Mr. Porter.

[Douglas Porter]

Thank you for letting me start.

I guess what I would say is that we have to take a step back and ask what caused this downturn and what we're dealing with. It's obviously a health issue. It's not a credit issue. I think we should be looking at solutions that help us get the economy to grow from this point. I don't believe a lack of credit is at all the issue that the Canadian economy is dealing with, or the global economy.

I think we have to remain focused on how best to recover, at this point. We shouldn't be casting around for villains when the villain is obviously the virus.

[The Chair, Liberal, Wayne Easter]

Mr. Shenfeld.

[Avery Shenfeld]

The banks aren't making so much money this year, number one. Banks might like to tell you how well they did, excluding those provisions for potential future loan losses, but those provisions actually count against earnings. First of all, then, this is by no means a banner year for banks.

Someone talked about senior bank executive compensation. I'd like to be one of those senior executives. But all of us are at least compensated, in no small measure, in bank shares, which are down substantially this year. Compensation levels will not be as rosy as the numbers you looked at for last year; I can almost bet that.

Finally, it's not like taxpayer money has been poured into Canadian banks. Canadian banks have not come running to government for taxpayers' money. Obviously, the Bank of Canada has lowered interest rates, and OSFI has helpfully changed capital requirements a bit or loosened up some things, but that's creating lending room that the economy needed. These are measures designed to actually help our clients, which we're certainly happy about, because we want those clients to prosper.

I think the premise of the question is that there's been some magic gift. You need only go back to the recession of 2008 to see that the main program the government did was a program to purchase mortgages off the banks. It let the banks in effect raise money more cheaply than they could have in the market at the time, because the market was very concerned that banks [Technical difficulty—Editor] going under.

If you actually roll ahead and ask how the government did on those mortgage purchases, you see they did just fine. They made money. They contributed, actually, to the government. Not everything is a handout.

[The Chair, Liberal, Wayne Easter]

We'll go to Ms. Cooper, followed by Mr. Perrault, and then go on to the next question.

Ms. Cooper, keep it fairly tight, if you could.

[Dr. Sherry Cooper]

Oh, I can make it very tight, because I'm no longer a bank economist.

I can tell you, though, that having a strong banking system in Canada is a huge advantage for the country. The Canadian banking sector outperforms the rest of the world's banks and costs our government far, far less money than in other countries.

It isn't a good year for banks, but I do agree that there will be no tag days for the Canadian banks.

[The Chair, Liberal, Wayne Easter]

Mr. Perrault.

[Jean-François Perrault]

Mr. Chair, I have nothing to add to what was said.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go on to Mr. Julian.

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

Thank you very much, Mr. Chair.

I'm glad folks are proud of the banking system, but when we have a society where almost half the families are $200 from insolvency and families are in record levels of critical family debt, there's obviously a problem. I think the emphasis should be less on making sure we have a great banking system, a gold-plated banking system, and a lot more on actually helping the people who are struggling to get through this pandemic.

My question for you, Mr. Macdonald, is about coming through the pandemic and coming out of the pandemic. One of the big problems is the fact that we have mass abuse of overseas tax havens. I questioned CRA on Tuesday, and they admitted that they don't even have the tools to prosecute companies that are openly engaging in tax evasion through the use of tax havens. The Parliamentary Budget Officer, as you know, evaluates that we lose $25 billion a year, which could go into education, health care, affordable housing and all those things that make a society great.

You framed the issue of either cutting services or having a taxation system that actually responds to the needs of Canadians. How important is it to actually get a grip on these overseas tax havens? How important is it to do things like the wealth tax and make sure that we have a fair tax system in this country so that we're not getting to the point of cutting services but rather enhancing them, not only for a better quality of life but also because it makes smart economic sense?

[David Macdonald]

Certainly in terms of international tax havens, they exist because we allow them to exist. We allow them to exist in the sense that we don't require corporate entities operating in Canada to disclose where they declare profits, where they make revenue or where they employ people in this country. As a result, we can't tax them appropriately.

If you are a Canadian organization in Canada, you can't play these sorts of games, because you're required by law to declare where you employ people and where you make your revenue. You pay your corporate income taxes in the jurisdiction where those two things happen; you can't just declare all of your money in the jurisdiction where the corporate tax rate is the lowest.

Internationally, you can; therefore, we allow that. I think one of the big pieces in terms of the closing these types of tax loopholes is fundamental transparency about where companies that operate in Canada make their money and who they employ.

Certainly, their closure is a potential source of government revenue in Canada. At present it's simply being shifted overseas, and no one is paying tax on it.