Evidence of meeting #38 for Finance in the 43rd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was sector.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Jean-François Perrault  Chief Economist, Scotiabank
Sherry Cooper  Chief Economist, Dominion Lending Centres
Mathieu D'Anjou  Director and Deputy Chief Economist, Desjardins Group
Avery Shenfeld  Managing Director and Chief Economist, CIBC Capital Markets
Jeff Wareham  Chief Executive Officer, Catch Capital Partners Inc.
David Macdonald  Senior Economist, Canadian Centre for Policy Alternatives
Douglas Porter  Chief Economist, BMO Bank of Montreal
Catherine Cobden  President, Canadian Steel Producers Association
Gary Sands  Senior Vice-President, Small Business Coalition, Canadian Federation of Independent Grocers
Yannis Karlos  Co-Chair, Association for Mountain Parks Protection and Enjoyment
Bill Bewick  Executive Director, Fairness Alberta
Pascale St-Onge  President, Fédération nationale des communications
Sophie Prégent  President of Union des artistes, Fédération nationale des communications
Luc Perreault  Strategic Advisor, Independent Broadcast Group
John Lewis  International Vice-President and Director of Canadian Affairs, International Alliance of Theatrical Stage Employees
Arden Ryshpan  Executive Director of Canadian Actors' Equity Association, International Alliance of Theatrical Stage Employees
Lawrence Morroni  Marketing Manager, Triodetic Sales, Triodetic Ltd
Peter Chabursky  Manager, MultiPoint Foundation Division, Triodetic Ltd
Stuart Back  Co-Chair, Association for Mountain Parks Protection and Enjoyment

4 p.m.

Liberal

Sean Fraser Liberal Central Nova, NS

Thank you—

4 p.m.

Chief Economist, Scotiabank

Jean-François Perrault

—may not agree with that, but that's the reality as far as I can see it at present.

4 p.m.

Liberal

Sean Fraser Liberal Central Nova, NS

Thank you for that feedback.

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

4 p.m.

Liberal

The Chair Liberal Wayne Easter

Yes.

4 p.m.

Liberal

Sean Fraser Liberal Central Nova, NS

Excellent.

This is for you, Ms. Cooper. I was fascinated by your testimony. There were a number of pieces that jumped out, so thank you for being here.

One of the points you made was that the federal government should be looking to support viable businesses that will essentially be able to stand on their own two feet at the back end of this pandemic. We don't want to throw good money after bad. I completely agree. However, there is a part of me that wonders if the federal government is really the body to pick winners and losers because, quite frankly, the private sector can surprise people. There is an entrepreneurial spirit when people have their own skin in the game that oftentimes is more effective than policy-makers sitting in a boardroom in Ottawa.

I'm curious. How can we conduct an exercise that will give us confidence that the support that we're putting out there into the marketplace is actually reaching viable businesses and not just delaying the inevitable for businesses that weren't structurally sound going into this pandemic?

4:05 p.m.

Chief Economist, Dominion Lending Centres

Dr. Sherry Cooper

Exactly, and that's the great conundrum. I don't believe that it should be politicians or bureaucrats in Ottawa who should be making those decisions. Among businesses themselves, in even the hardest hit sectors, some will be big winners because they're making adjustments. There are so many examples of businesses learning to do business remotely, or to provide safe services and goods in a very user-friendly way, and they are going to outperform. That's going to be different for every sector of the economy. You can't have blanket money giveaways, and I do believe that there ought to be private-public coordination in how these assessments should be made.

As an economist, I believe that we need to let the markets work, and that means that if you aren't creditworthy, you shouldn't be able to borrow money. If you aren't creditworthy for a moment in time, for a short period, when you're cash strapped for very good reasons, and you've been forced not to open your doors and your fixed costs are being paid, that's one thing. But unfortunately, what this pandemic has done is shown us who the weak players were to begin with, and many of those people will not reopen their doors; nor should we subsidize them to make them do so, because it's an inefficient allocation of resources and very unfair to the taxpayer.

4:05 p.m.

Liberal

Sean Fraser Liberal Central Nova, NS

Thank you to our panellists. This has been terrific. I wish I had another hour of questions, but I'll corral it there.

4:05 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Ste-Marie, followed by Mr. Julian.

4:05 p.m.

Bloc

Gabriel Ste-Marie Bloc Joliette, QC

Thank you, Mr. Chair.

Ladies and gentlemen, welcome. Thank you very much for being here and for your presentations. They were most interesting. My questions are for Mr. D'Anjou.

Mr. D'Anjou, thank you for being here and for your presentation. You noted that the current crisis wasn't so much comparable to other financial crises and that it was more akin to those during war times, which is quite worrying.

I'm going to talk about something much more down-to-earth. How are your negotiations with the government going? The government is asking you for help in responding to the pandemic. It's asking you to partner with it, through some of its agencies, including the Canadian emergency business account.

How is it going?

4:05 p.m.

Director and Deputy Chief Economist, Desjardins Group

Mathieu D'Anjou

Thank you for your question. Honestly, it's a good one.

I'm not aware of all the negotiations, but I know that we're quite comfortable with the current collaboration. We serve as a conduit for a number of government programs, including business loans. We're quite comfortable in that role. We've taken much the same approach as we've taken with our relief measures. Something had to be done very quickly to support people and businesses affected by the economic downturn.

I can't tell you how the negotiations went, but I can say that we are comfortable enough in our role as a partner with governments to support our members and clients.

4:05 p.m.

Bloc

Gabriel Ste-Marie Bloc Joliette, QC

Thank you.

I was flabbergasted by the number you gave earlier. If I understood correctly, your members have made 950,000 requests for relief.

Is that the case?

4:05 p.m.

Director and Deputy Chief Economist, Desjardins Group

Mathieu D'Anjou

Yes, but that really includes everything. Members can submit several applications. It is not just about mortgages. It can be about credit cards or students. We have a whole series of programs. For businesses and households, we had an emergency loan. The approach includes a lot of relief programs. We find it is really important to be there for people, not just provide relief.

This was touched on briefly in the other questions, but I believe the transition will be key. Right now, people are on a lot of income assistance and not paying their mortgages. They are faring pretty well. In my opinion, we must steer clear of taking everything away at once. If people no longer receive any money and have to start paying their mortgages again, it will come as a shock. We have to avoid that. I feel we have to start thinking about the transition. We have to try to get people back to work and slowly starting to pay their mortgages and bills again. We realize that this will not happen overnight and that we will have to continue to support our members and clients.

4:10 p.m.

Bloc

Gabriel Ste-Marie Bloc Joliette, QC

Thank you.

The transition period is certainly going to be crucial, and it will be equally important to define the transition measures. The example was given of the Canada emergency response benefit, which is not adjusted for income. If you earn $1,001, you lose everything. It makes no sense. In the first few weeks, the government said it was unable to make these changes, and we understood that, but it has been more than three months now. We have to encourage people to go back to work.

Before I ask questions about what happens next, I would like to go back to one part of your presentation. You said that, because of the pandemic, the economy was voluntarily put on hold, but that we will be able to get it back on track and that it could go well. However, I am concerned that certain sectors of the economy will not be able to regain the same level of activity. Habits will have changed. The post-crisis period will not be the same as the pre-crisis period. Your colleagues mentioned that.

What will we do about struggling sectors? Take, for example, local businesses, assuming that people stay in the habit of making more online purchases. These are important jobs, businesses and services.

What do you think the government could do to support people in sectors that will not regain the level of activity they had before the pandemic?

4:10 p.m.

Director and Deputy Chief Economist, Desjardins Group

Mathieu D'Anjou

That is a good question. It will depend on how the pandemic plays out and how the lockdown is lifted. In the beginning, there was no question of choosing between the economy and health. We all agree on that.

In Quebec, we experienced an almost absolute lockdown. We saw that it had alleviated the situation, but that it was not a miracle solution. Over the next few months, there may be other cases. So we will certainly have to keep good health measures in place. We may even have to keep only the best measures. Masks may be a better solution than keeping two metres apart. If we continue to maintain the distancing measure, movie theatres and restaurants may reopen, but they will hardly be profitable.

We need to find the best way to achieve good health outcomes, while at the same time sending messages to affected areas so that they know what to expect. Now they are reopening, but they are doing it in total uncertainty. It will be very difficult. They must continue to have good financial conditions.

We should also remember that there was a labour shortage in Quebec and throughout North America. Certainly, people will lose their jobs, but we may have the opportunity to redirect them to other sectors or to other companies that are performing better in their sector. Some adaptation is certainly possible.

In Quebec, for example, many businesses were limiting expansion because they lacked labour. In many cases, they did not need a highly skilled workforce either. These businesses could perhaps take over the sectors that will reopen more gradually, more slowly and less completely.

We might be surprised too. For example, since the retail stores have reopened, there are a lot of people. Some things are going to change. I think telework is here to stay, but we might be surprised to see people starting to travel again sooner than we thought.

4:10 p.m.

Liberal

The Chair Liberal Wayne Easter

We are substantially overtime. Anyway, I think you'll get a second round, Gabriel.

We'll go to Mr. Julian, and after that, Mr. Morantz.

Peter.

June 18th, 2020 / 4:10 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Thank you very much, Mr. Chair.

Thank you to all our witnesses. We hope you and your families are safe and healthy through this pandemic.

I am very anxious to ask you some questions, Mr. Macdonald, and thank you so much for your presentation and the information you've brought.

Mr. Poilievre has asked questions about banking support. That's great. I feel he's starting to shift from traditional Conservative ideology.

Of course, I think the lessons learned from the last crisis are important. When the Harper government was in power, and we went through the financial crisis a little over a decade ago, what is your evaluation of the overall supports offered to the banking sector? Were there conditions on that? And what are the lessons learned?

4:10 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Macdonald.

4:10 p.m.

Senior Economist, Canadian Centre for Policy Alternatives

David Macdonald

Do you mean the conditions during 2008 or conditions during the present—

4:10 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Yes, the bank supports that were put in place. What's your evaluation of the amount? What were the conditions attached to that, if any? And what are the lessons from those supports that you think we need to think about this time around?

4:15 p.m.

Senior Economist, Canadian Centre for Policy Alternatives

David Macdonald

There were few conditions, as there are this time around, in terms of accessing some of those supports.

The programs were actually, in some ways, quite similar: the Bank of Canada, particularly, engaging in large-scale repo operations with the banks; CMHC itself engaging in mortgage buybacks; and many of the Canadian banks accessing American facilities, as well, through the Federal Reserve.

During that last period, we had supports. I think maximum supports topped out in the $130-billion range. I haven't really done the full numbers here, but I'm sure that we're in excess of that this time around, although what the banks are using is very different. This time around, the Bank of Canada's repo operations have been much more substantial, and there's been almost no take-up of CMHC's mortgage buyback program. This is in stark contrast to what happened in 2008, when it was the complete reverse and there was much more interaction with the mortgage buyback program.

Now that program continues, and there may well be some.... The deferral of 14% of all mortgages in a deferral situation is extraordinary. That will presumably go down to some degree between now and September, but it may well be that, if deferrals continue, the banks may be inclined to send more of their mortgages to CMHC if they start to go bust.

In that regard, I think it is positive that OSFI has rules this time around in terms of limiting share buybacks from the big banks. That has been a positive change. I don't think the capping of dividends and executive pay really does much, in the sense that three of the five banks already had increases in place. In many cases, dividends will have increased in any event.

I'll leave it there.

4:15 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Thank you.

You raised the point in your presentation, which was excellent, about the prepayment penalties as people are...emerged and not able to keep up their mortgage payments, the penalties, fees and compound interest charges for mortgage deferrals. In fact, we haven't seen the banking sector do anything like certain credit unions. Vancity and Community Savings sort of dropped their interest rates to zero.

What are the impacts when we provide so much support to the banking sector, but there's no responsibility to pass that on to people who are struggling: small businesses in my area, people who are struggling with consumer debt or people who are really having difficulty making ends meet? It appears that they're just going to be part of the windfall profits that go to the banking sector.

4:15 p.m.

Senior Economist, Canadian Centre for Policy Alternatives

David Macdonald

The deferral program itself is premised on OSFI's exemption of banks in terms of increased....

What would have otherwise happened is that these loans would have been considered non-performing. The moment they become non-performing, all of a sudden the banks need to put up more, in terms of capital, to back them. It's not to say that those people are bankrupt; it's just that the banks need to put up more money to back them. As a result, those are tangible increased costs for the banks, particularly when in some cases 18% of all mortgages are in a deferral position. This change to the OSFI rule that provides material benefit to the banks allows for this deferral program.

I would certainly argue that this benefit that OSFI has provided to the banks could be used, or committees like this one could request that the banks, in trade for this rule change, defer penalties as well as interest charges over the period of the deferral. This would be much more important for credit cards and lines of credit; it could be useful for mortgages, as well.

I think that we haven't really encountered this yet because the deferral program is in place, so anyone who has difficulty paying a mortgage would go into the deferral program. It's really when the deferral program starts to wind down that we'll see this start to play a much bigger role, the penalties for prepayments of mortgages. This is particularly true for fixed-rate mortgages. It exists for variable-rate mortgages, but they're lower, generally.

I think that, in preparation for that, this committee could discuss this with banks and encourage them to waive most or all of the penalties of prepayments of mortgages as Canadians attempt to downsize. If job losses that people thought were temporary become permanent or if the deferral period is over and they still don't have a job and they need to downsize, I think we need to make it as easy as possible for people to do that without undue penalties that would have to be paid to break mortgages.

4:15 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Thank you so much.

The $5 billion that banks have made so far during this pandemic is something that the public certainly observes.

The PBO has just produced a report that is shocking to most Canadians. It shows the concentration of wealth as being much higher, as I'm sure you're aware, than the former government's statistics indicated: 25% of the wealth in the hands of the top 1%.

Do you feel that one of the things we need to do, as we come through this pandemic and out of this pandemic, is envisage a wealth tax on that massive concentration of wealth? Certainly, the Broadbent Institute did an opinion poll, and even the majority of Conservative voters now believe in a wealth tax.

Do you think a measure like that could make a difference in starting to hit this record level of inequality that we're seeing in our country, and build a broader-based, more equal society?

4:20 p.m.

Liberal

The Chair Liberal Wayne Easter

Could you give us a fairly tight answer, Mr. Macdonald?

4:20 p.m.

Senior Economist, Canadian Centre for Policy Alternatives

David Macdonald

I don't think we're at the stage yet of discussing increases in taxation, but I think we will soon be at the stage of discussing cuts in programs in order to reduce deficits, particularly provincially but also potentially federally.

You can balance the books two ways. You can increase taxes or you can decrease expenditures. I think that new thinking around taxation, particularly a wealth tax, is certainly one way we could increase taxes instead of cutting expenditures, which is the other choice, and I think we will see increasing pressure in the fall to do that.