Finance Committee on March 18th, 2021

[Susie Grynol]

Yes, that was from a survey that came out of the field just three weeks ago.

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

That is a very troubling statistic.

You suggested some solutions, such as extending the programs for your sector, at least until the end of 2021.

You gave us one optimistic scenario and another more negative one. Given those scenarios, do you think that your members will see a return to normal in 2022, or will they have to wait even longer?

[Susie Grynol]

I think the best shot at recovery for our sector is next summer, but all of the projected data on that recovery suggests that a true recovery to 2019 levels is not forecast for several years to follow. By next summer, if we have restrictions lifted and people can move around and we are able to generate enough revenue to pay the bills, we are not going to need more government support at that time.

What we're asking today is for the government to acknowledge the fact that we are still being asked to effectively close down. We can't operate in these circumstances, and we're one of the only sectors that has been asked to do this from the beginning to the end of the pandemic. There's just not enough money to pay the bills.

We can't have an entire sector go under—at least, I certainly don't believe that makes any sense—so we are asking the government to acknowledge the reality that there are going to be some sectors that fall behind, and we are certainly in that category.

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

Thank you.

Your sector and your members play an essential role in the economy.

What case can you make to the government to remind them of the important role that your members play in the economy?

[Susie Grynol]

There are critical infrastructures that support the travel economy. Hotels are one of them. Airlines are one of them. When we get back to a post-COVID universe, in order to have a functional society we are going to need this infrastructure in place.

With the numbers we're talking about, this kind of loss with 70% of the industry going down, what this means is that when we have.... There are only two or three hotels in some of our northern and remote regions. How do you get essential services up there to provide to those Canadians? How do our tourism regions survive? The first thing you do when you plan a trip is look to see if there's a hotel available. There are not that many hotels in P.E.I., as an example. If we start to see the crumbling of the infrastructure and flights reduced so that people can't move around, and if when they get there there's nowhere for them to stay, it will significantly affect the rebound of the overall economy.

It's not just about Canadians booking their next holiday. It's about people moving around this country and having the infrastructure there to support them. It's about the rebound of business travel. It's about our downtown cores. What attracts people to downtown cores are the events: the conventions, the festivals, all of those things. Our cores are hollowed out right now. Our hotels have been sitting empty for 12 months. We can't even bid on those international events if we don't have an accommodation sector to support them.

My plea to this committee and to anyone who is listening today is that we cannot let the critical infrastructure that supports this industry crumble. The cost on the other side would be even greater to the government, on the backs of Canadians, and to the functioning of our society.

[The Chair, Liberal, Wayne Easter]

This is your last question, Gabriel.

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

Thank you. That is very clear and very heartfelt. I hope your members will manage to get through the crisis, that the government will manage to properly target the support measures, and that it will extend them.

That said, I am very concerned about the hotels in large cities. A good part of their revenue comes from international conventions. I'm particularly thinking about those in Montreal and Toronto.

Can you talk to us about the importance of those international conventions?

Do you believe that, after the pandemic, we will be able to get those events going again?

[Susie Grynol]

Well, we certainly won't be able to play host to them if we don't have accommodation. That's the first thing you do when you bid on any of these international events. You need to have enough places for people to stay, so first of all we need to preserve the infrastructure. I do believe that Canada has the capacity to build back if we get the kind of tailored support that we are looking for.

I would echo your comments that our downtown cores have been devastated. In terms of the loss in the cores, even today we're sitting at between an 80% and 90% RevPAR loss, which is revenue per available room, the metric that we use to measure in the hotel industry. Nobody is moving around. These events are not taking place. They are going to be critical if we are to see a rebound of our urban cores.

[The Chair, Liberal, Wayne Easter]

Thanks, both of you.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

We will go to Mr. Julian, who will be followed by Ms. Jansen.

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

Thanks to all our witnesses for being here today. We certainly hope that you and your families continue to stay safe and healthy during this pandemic. We appreciate your coming forward today to talk about Bill C-14, but also the fall economic statement.

My first question will be for you, Mr. Macdonald. The fall economic statement, when you look at the summary statement, foresees as of the next fiscal year starting April 1—starting in two weeks—a dramatic reduction and cuts in program expenses. At the same time, we've had many witnesses talking about the importance of continuing supports, particularly in light of the third wave, and in fact expanding some of the supports to sectors that have suffered the most during this pandemic, yet in the fall economic statement there was really no effective initiative around revenue.

I'm particularly addressing the issue of the wealth tax. The CCPA did a study a couple of weeks ago, which showed that the wealth tax would be bringing in substantially more revenues than originally foreseen. When we're looking at a scenario where Canada's billionaires have added over $60 billion to their wealth through this pandemic, do you not believe that the idea of tackling that massive inequality that we're seeing, through such provisions as wealth taxes, is a good way for the government to respond to the crisis?

[David Macdonald]

I certainly think that there will be a time to come in the next couple of years to start to examine new revenue measures. Broadly, when we start to look at new revenue measures, I think one of the things to understand is that this pandemic has not been bad for everyone.

Financially, there are certain firms in certain sectors that just happened to be on the right side of the pandemic and have made record profits as a result. As a result of firms making record profits, CEOs attached to those firms will make record profits. Even CEOs working for companies that did not make record profits will still likely see massive bonuses at the end of the year as the rules are changed, such that if the economy does really well, CEOs get massive bonuses, and if the economy does badly, they change the rules so that CEOs get massive bonuses in any event.

Then we come to the issue of wealth taxation. Again, for the highest decile of Canadians, this recession was over in July. Jobs had completely recovered for people in the top quarter of earnings. Also, for the top 1%, asset values had increased, based on stock market valuations as well as real estate valuations. This has not been bad for everyone.

I think that as a general principle we should certainly be considering things like a wealth tax, and Canada is the only country in the G7 that doesn't have an inheritance tax. Every other major country does have an inheritance tax. A wealth tax would have to be built on lessons learned through inheritance taxes elsewhere. It's easy to make wealth taxes that are terrible in terms of their implementation, but that isn't to say that we shouldn't try to learn from lessons from other countries to build more effective wealth taxes.

I think other things that we might want to start considering are things like a surplus profits tax, again, for the corporate sector or sections of the corporate sector that have done very well from the pandemic, as well as, potentially, new top marginal tax rates for individuals, again for people like CEOs who will see record bonuses out of this.

I think it is worth questioning who should, in part, contribute to the pandemic. The people who've done the best, at the very high end of the income spectrum, I think should be asked to contribute some of what they've gained, so that other people, particularly low-income Canadians, are more likely to get support and more likely to get a job.

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

Thank you for that.

When you appeared before this committee on June 18, you said something very prescient. You said that the protected nature of the Canadian banking sector has led to extraordinary profits to its shareholders and tremendous bonuses being paid to its executives. However, in a time of great need for many Canadians, it is time for more to be asked of this sector—not only for the good of Canadians but also the good of our economy.

Now, one of the most striking aspects of the government response on the pandemic was the $750 billion—three-quarters of a trillion dollars—in liquidity supports given within days of the pandemic hitting. It appears that nothing was really asked of the banking sector in return, so we've seen banking profits of over $40 billion so far during the pandemic. This is through this government's policies.

Do you feel that enough has been asked of the banking sector in light of the unprecedented levels of liquidity supports given to it?

[David Macdonald]

There was a Financial Post story looking at CEO bonuses at the big banks despite the fact that revenues were off from last year, although they were still making profits. Despite the fact that revenues were down in the banking sector, CEOs' benefits and their bonuses seem almost entirely unaffected. CEOs will continue receiving the same massive bonuses that they received in previous years, despite the actual performance of the company. The situation is that if times are really good, CEOs get big bonuses. If times are bad, you change the rules, and CEOs get big bonuses, and I think we'll see exactly the same thing this year, as we've already seen most of the proxy circulars come out for the big banks.

One of the arguments I was making in June was around the deferment of mortgages, which came about as a result of federal government regulatory changes. It wasn't at the banks' behest that this happened but rather because the federal government changed the rules. Household debt has risen from about 100% of GDP, where it stood for several years, up now to 110% of GDP, as of the latest data, partly because of those deferments. People took banks up on those deferments and built up a bit of a cash reserve so they were better able to make their mortgage payments. Thankfully we haven't as of yet seen mass defaults as a result of the deferment programs ending.

When it comes to asking more of banks, I think one of the things the federal government could be asking for from banks is a substantial reduction in the cost for homeowners to break particularly fixed-rate mortgages. Those fees can be high. They can be very unpredictable, and given the support that the banking sector receives and that CEOs continue to receive through bonuses, I think it's fair to ask the banking sector to reduce the fees that they're charging people to break mortgages, typically fixed-rate mortgages, in the hopes that if Canadians do continue to see sustained job loss and they can't make their mortgage payments, then at least in a high-cost housing market, they're able to sell their houses and get into something that they can afford.

[The Chair, Liberal, Wayne Easter]

We will have to end it there.

We now turn to Ms. Jansen, who, I believe, is splitting her time with Mr. Cumming, followed by Ms. Koutrakis.

Go ahead, Tamara.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Thank you.

Mr. Cross, the finance minister has told Canadians ad infinitum that we can easily afford the debt we have because interest rates are so low and are guaranteed to stay low.

Would you say that her confidence is based on fact or fantasy?

[Philip Cross]

When it comes to interest rates, there are no guarantees. I said I think central banks have made it clear they will not be raising interest rates under any circumstance this year, but as you get into next year and the following year, that's where already we're seeing inflationary expectations and upward pressure on longer-term interest rates building in the U.S. We're going to have to match that; otherwise all the money will just leave this country and go to the U.S.

Counting on interest rates staying lower forever is, I think, already.... That's been the story of financial markets so far this year—that interest rates may rise faster than central banks had thought or promised.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Okay. Thank you.

It breaks my heart that Bill C-14 links the help Canadians need to survive the pandemic with huge increases in borrowing capacity, basically giving the government a blank cheque. Do you think it's responsible for MPs to vote yes on Bill C-14 or do you think we should split the bill so we can vote yes to further support but no to massive increases in spending?

[Philip Cross]

As an economist and lifelong employee of Statistics Canada, I don't have any idea as to how bills should be presented in Parliament. I'm going to pass on that one, thanks.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Okay. I'll pass my time to my colleague Mr. Cumming.

[The Chair, Liberal, Wayne Easter]

Mr. Cumming, welcome back. The floor is yours.

[James Cumming, Conservative, Edmonton Centre, AB]

Thank you, Chair.

I'll direct my questions predominantly to Mr. Cross.

It's good to see you at committee again, Mr. Cross.

You talked quite a bit about quantitative easing and the Bank of Canada's massive bond buy. Should we be concerned that the majority of Canada's debt is really at a floating rate right now? What's the impact of that? Even if we were to fix it today, would we see an uptick in debt-servicing costs?

[Philip Cross]

It's not all floating. As I mentioned, the PBO study found that an increase in interest rates in one year would have an impact of $4.5 billion, but over five years, it would be $12.8 billion, and that's because it takes time for that longer-term debt to roll over. It wouldn't be immediate, but even $4.5 billion is significant. Once rates start rising, they're not going to stop at the 1% scenario that was in the PBO's report. Once rates start rising, there's a potential there for them to rise quite significantly.

[James Cumming, Conservative, Edmonton Centre, AB]

Prior to COVID, we had pretty anemic growth in Canada. Did you see anything in Bill C-14 or the fall statement that would give you some comfort that there's an actual targeted program on growing our way out of the crisis we're in today?