Finance Committee on Dec. 8th, 2020

[Nicholas Leswick]

Thank you, Mr. Chair.

I wanted to point out that the fall economic statement prints a forward-looking expectation for the yield curve. It prints an interest rate path through to 2025. You can most clearly see that, if members want to jot notes, on page 121. The department surveys 14 private sector economists as a group and takes the straight average of their macroeconomic variables, which include a path for both short- and long-term interest rates. In that context, as the economy strengthens, there is an expectation that there will be a backup in rates across the yield curve, across three-month rates all the way through to 10-year rates—

[The Chair, Liberal, Wayne Easter]

Mr. Leswick, can you slow down a little bit and speak right into your microphone, if you can? The translators are not translating at the moment.

[Nicholas Leswick]

I will cut to the chase. A path for interest rates is published in the fall economic statement. That path and the cost are imposed on the term structure of the debt and the debt management strategy and brought into the fiscal framework that's presented in the document. It is explicitly outlined that there is an expectation of a backup in rates, and those costs are brought into the fiscal framework as published in the document.

[Sean Fraser, Liberal, Central Nova, NS]

That's very helpful. That was going to be question number two.

I'll skip to question number three. A lot of fear has been raised on this committee around the potential that we're going to fall into a position similar to the one that the federal government saw in the 1990s before significant measures were taken to erode the debt.

Obviously this is not the 1990s; the interest rates are not the same. Can you give a sense—perhaps Mr. Leswick or Mr. Halverson would be positioned to answer this—as to what percentage of the total expenditures of the federal government is expected to be used to service debt, as compared to the 1990s?

[Soren Halverson]

I can offer an answer.

[Nicholas Leswick]

You go right ahead, Soren.

[Soren Halverson]

I'm not sure it's as good as yours. Essentially what I can point to is that the maximum point in the data that I've seen in terms of federal debt charges would have been in the early nineties, and at that time you were looking at a multiple of six times what we have today. It was a number just over 6% of gross domestic product, whereas today the overall federal debt charges represent 1% of gross domestic product. There's a pretty significant interval between those two.

[Sean Fraser, Liberal, Central Nova, NS]

Mr. Halverson, that includes spending that was part of the government's COVID-19 response to date.

[Soren Halverson]

Those are the debt charges that we are paying today on the debt that is currently being issued, which would include the debt that was issued to support the government's COVID-related activities.

[The Chair, Liberal, Wayne Easter]

Okay. We will have to move on to Ms. Koutrakis.

Annie, that Fraser fellow only left you two minutes. Go ahead.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair; and thank you to all our witnesses.

I'm not sure to whom to address this question, so I'll just ask it and leave it open.

Benjamin Tal, the deputy chief economist at CIBC and an ex-colleague of mine many moons ago, recently pointed to significant savings of Canadian businesses and households as a potential source of massive economic growth as people regain confidence in the economy and return to normal spending habits.

Would you agree with Mr. Tal's views, and is there any reason to be concerned with the savings Canadians have collected during the pandemic? Would this, in the long run, help our economic recovery?

[The Chair, Liberal, Wayne Easter]

Who's on? I believe it's Mr. Leswick.

[Nicholas Leswick]

Yes. Thank you, Mr. Chair.

Following the release of the Canadian economic accounts for the third quarter, we saw a significant buildup of savings, added onto savings that we started to see emerge in the late summer and early fall, which in nominal terms is roughly $150 billion of savings sitting in deposit accounts, liquid accounts, at Canadian financial institutions.

Indeed, a lot of economists are pointing to that and using the term “pre-loaded stimulus”, because when the economy gets back to normal and virus risks are contained—whenever that is, because we don't have a crystal ball—consumers and businesses would be more willing to re-engage in the economy with those lower risks and would start to draw down on those savings. Therefore, they could provide a significant boost to the economy if some of those savings brought consumer spending back to its pre-pandemic levels, or even beyond if people have pent-up demand that they're going to release because they're sitting on all these cash accounts.

We'll see, but that's the general theory.

[The Chair, Liberal, Wayne Easter]

Okay. We are going to move on to Mr. Ste-Marie, followed by Mr. Julian.

Mr. Ste-Marie, you have six minutes.

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

Thank you, Mr. Chair.

I, too, want to welcome all of our experts from the Department of Finance. Thank you for being with us.

To start, I want to follow up on something I asked you about when the committee met in camera on the economic statement. It was about the employment insurance fund. Correct me if I'm wrong.

As far as I know, the employment insurance fund has a mandated break-even point. Contributions and benefits have to even out over a period of seven years. This period, however, we can expect a considerable deficit. Has the government introduced any legislation to transfer the exceptional deficit to the consolidated revenue fund, or does the employment insurance fund still have to adhere to the mandated seven-year break-even horizon as things currently stand?

[The Chair, Liberal, Wayne Easter]

Who wants to take that?

[Nicholas Leswick]

Thank you for your question.

Indeed, the government has done a couple of things. One, it has frozen EI premium rates for the next two years, and two, it has made whole the EI account for costs related to the Canada emergency response benefit.

That said, the pressure on the account to take on just status quo financial pressures related to employment insurance benefits just because of the weakness of the labour market will likely leave the account in deficit over the medium term, and this puts upward pressure on premium rates.

That said, legislation constrains those EI premium rate increases to 5¢ per year, but I don't want to predetermine any policy decision on the part of this government or future governments in terms of how they might want to treat those premium rate increases in the context of pressure on businesses and workers who are trying to get back on their feet.

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

Thank you.

If I understand correctly, then, the issue could be resolved and legislation could be introduced. Since it hasn't been done as of yet, we can expect an increase in premiums to balance the deficit in the fund over seven years. Is that right?

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Leswick.

[Nicholas Leswick]

Thank you for the question, Mr. Chair.

That is the policy setting right now, but I just want to emphasize that the government has been sensitive to the pressure of rising EI premium rates. It has frozen the rate for the next two calendar years, giving itself some runway to consider the recovery path and where workers and businesses may be in, let's say, 18 months, before it sets premium rates in stone beyond that time frame.

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

Thank you very much. That was very clear.

My next question is about something else entirely.

After the pandemic began, the government introduced a measure to help seniors with registered retirement income funds, or RRIFs. A registered retirement savings plan, or RRSP, is converted into a RRIF when the individual retires. Through the measure, the government is allowing seniors with a RRIF to withdraw only 75% of the minimum amount normally required. The government gave seniors the gift of a 25% reduction, if you will, saying that the measure was introduced to help them.

However, a number of seniors have told us that, like everyone else, they had no idea the pandemic was coming and had withdrawn 100% of the minimum amount at the beginning of the year, as they had been accustomed to doing.

The measure was introduced in March. Those seniors should not be worse off than other seniors who have to withdraw from their RRIFs and who are able to take advantage of the 25% reduction. For that reason, the seniors who withdrew 100% of the minimum amount would like the option to repay, before the end of the year, the extra 25% they withdrew but didn't need to. They want to have the same opportunity as seniors who were able to withdraw just 75% of the minimum amount once the measure was in place.

I appreciate that it's obviously a political issue, but do you see any technical barriers to a measure that would allow seniors to repay that 25% so they don't end up with the short end of the stick?

[Andrew Marsland]

Thank you for the question.

You're correct in that earlier in the year, the government announced a temporary reduction in the minimum registered retirement income fund withdrawals in recognition of the circumstances that existed then.

I must admit that I don't know the answer to the question. I would like to take it away and consider the technicalities associated with it. Perhaps I could return to the committee with that answer.

[The Chair, Liberal, Wayne Easter]

Thank you.

We are out of time, so it would be great if you could provide that information in writing, Mr. Marsland.

We are turning to Mr. Julian for a six-minute round.

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

Thank you, Mr. Chair.

Thank you to our witnesses for being here today.

With the pandemic going on, I hope their loved ones are safe and healthy.

I have a series of questions, and I'd like short answers.

My first question is about companies that received financial assistance during the pandemic and paid out dividends, gave out executive bonuses and bought back shares.

When will that information be made public?

[Andrew Marsland]

Thank you for the question.

I don't know the answer to that question. The wage subsidy is provided under the provisions of the Income Tax Act, and the act generally prohibits the disclosure of taxpayer information.

There is an exception with relation to the name of those employers who receive the wage subsidy, but it's just the name, just to identify them. That's the way the law stands, and as to when that information is made public, I don't have that information.