Finance Committee on March 18th, 2021

[Philip Cross]

No. Everything—and perhaps correctly—in fiscal monetary policy is being aimed at short-term stimulus to the economy. It's understandable. We're still in a major crisis. Until that's resolved, I'm afraid short-term considerations are going to dominate.

However, it is a concern that there's almost no focus on the underlying determinants of long-term growth in this country, in particular investment in innovation. There's virtually no talk about it. All the focus, all the discussion in policy, is on labour, child care and guaranteed annual incomes. Everything is about labour. You don't hear anything about investment. Especially, you don't hear anything about the number one determinant of long-term growth in this country, which is productivity and innovation.

[James Cumming, Conservative, Edmonton Centre, AB]

For investment to come back into Canada, because we saw an exodus of investment from Canada, the investors need some kind of certainty. Would you agree that, in this ask of significant dollars from the taxpayers of Canada, there should be at least some indication as to where that money would go to increase productivity and to encourage that kind of investment?

[Philip Cross]

I wrote a paper last summer for the Macdonald-Laurier Institute, which I'm representing today, that talked about innovation. We've had programs to stimulate productivity and innovation in this country for decades. We have government programs all over the place. They just haven't worked. We have to get away from this mentality that if we fiddle with the inputs of innovation, or the presumed inputs of innovation, like research and development and education and so on, that we'll fix innovation. That's not working. We have to get back to how we encourage an entrepreneurial mindset in this country.

We've heard a lot of talk today about how somehow being wealthy is almost a crime in this country. It's something we should penalize. If somebody becomes rich, we immediately should increase taxes on them. Why don't we celebrate these people? Why don't we ask them: What is it that you did right that the rest of us can learn from?

That's much more the mentality you see in the U.S., and guess what. Guess who's the number one most innovative country in the world by far. It's our neighbours to the south, but we denigrate them. I just don't get it.

[The Chair, Liberal, Wayne Easter]

Okay.

We'll jump over to Ms. Koutrakis, followed by Mr. Ste-Marie.

Annie.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Thank you to all our witnesses for presenting this morning before the committee. It's a great conversation.

Ms. Grynol, I listened to your testimony with great concern, especially the numbers you quoted with regard to hotels and possibly 70% of them going bankrupt unless the federal government extends, specifically, the wage and rent subsidies to the end of the year.

With that in mind, can you share your thoughts on the proposed application of the GST and HST to short-term accommodations through digital platforms such as Airbnb? How do you think this will level the playing field for hotels, which feel they have been disproportionately disadvantaged by these platforms?

[Susie Grynol]

We've had an uneven playing field for some time now, at multiple levels of government, frankly. Here you have an industry that's emerged where they're basically selling the same product, but they're just doing it online. Who is competing with us are the operators who are buying up whole buildings and kicking people out of their homes, who are taking long-term housing supply off the market and who are using it to rent on a short-term basis. They can do that right across the street from a hotel, in a condo building where Airbnb owns all the units, or half of them, but they don't have to pay tax, the same health and safety standards don't apply and none of the rules governments have put in place to govern the accommodation space have applied to them up until this point.

We are delighted to see—and we've been working on this issue for a long time now—that effective July 1 there will be a levelling of the playing field for GST and HST application. This means Airbnb and other short-term rental platforms will have to charge and remit GST at the point of purchase. That will help to level the playing field.

I will also say that we are also seeing people booking cottages all over this country through Airbnb right now. You have no idea what their cleaning protocols are. They're not subject to the same standards as hotels are. Hotels, which have been playing by the rules all of this time and which are building hotels and contributing to communities, are sitting empty. I'll just leave that as an open comment.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you.

This next question is for anyone on the panel who wishes to comment.

There's been a lot of commentary from our opposition colleagues that we have spent too much on these programs, and that the supports we have implemented caused us to go into debt. We heard it again today in certain testimonies.

There are few options for financing monumental programs like the ones created to help Canadian weather this pandemic: either increase Canada's annual debt, raise taxes on Canadian families and businesses, or cut funding to crucial programs.

In your opinion, how should the federal government have financed this extra spending during this time?

[The Chair, Liberal, Wayne Easter]

Who wants to start?

Mr. Macdonald, go ahead.

[David Macdonald]

In the short run those are exactly the three choices that governments face. They can raise taxes, they can cut programs or they can run deficits, or some mix of the three.

The decline in federal government revenues at $60 billion is so substantial that there would really be no way for you to cut government programs to anywhere near balance the budget. To do so would be devastating. You'd have to totally eliminate EI, totally eliminate, say, the Department of National Defence, and totally eliminate the Canada child benefit program. That would have been sufficient to balance the books in 2020.

Clearly, deficit financing is the right decision at this point. The federal government interest rate on 5- to 10-year bonds is at, or near, historic lows. We haven't paid this little in interest rates on bonds going back to the 1950s. Under 2% is extremely low in terms of what we're paying to finance this debt. It's very different, actually, than the situation we faced in the 1990s, when interest rates were much higher.

Certainly there's a risk that interest rates could rise and could increase costs to the federal government, but interest rates don't just affect the federal government. Interest rate rises affect the household and corporate sectors in addition to the provincial sector, all of which pay higher interest rates and all of which are much more highly leveraged.

The federal government is sitting at 50% of GDP right now in terms of mixed debt. The corporate sector is 130% of GDP and the household sector is at 110% of GDP. Those sectors would be hit much harder. We'd be driven rapidly back into a recession if we were to see a big increase in interest rates, before the federal government suffered in any real degree.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

Go ahead, Susie.

[Susie Grynol]

I would just say that without the investment in these programs, we wouldn't have a hotel industry today. I would just say thank you to the government for that.

However, I would say that moving forward, these programs have to be tailored. They have to be tailored to the people who really need them. If that doesn't happen, we will have spent all this money for naught.

[The Chair, Liberal, Wayne Easter]

Susie, let me just throw in one question there, and that's on the wage subsidy. We have announced it to June 5, I believe.

If there was to be a change, when does that announcement have to be made? I'm talking to my tourist operators, and they're telling me, “We have to know now. It's too late to tell us in June.”

What are your thoughts on that?

[Susie Grynol]

It has to be in the budget. The budget has to say to the travel and tourism industry, we've got your back; we are giving you predictability that you are going to be able to pay your bills through CERS, that CEWS is going to be there and you can hang on to your employees. It cannot be June; it has to be now, because the decisions on whether to close or stay open are happening today.

[The Chair, Liberal, Wayne Easter]

We have only two minutes left here.

Is it okay to let Elizabeth May in?

Okay, Elizabeth. Go ahead with your question.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

I have a very quick question for David Macdonald.

Appearing before this committee some time ago now, then Governor of the Bank of Canada, Stephen Poloz, was asked about whether these policies could become inflationary. With crystal clarity, as I'm sure many of you remember, he said, “That's a problem I'd love to have.” He was much more worried about deflation.

David Macdonald, would you comment?

[David Macdonald]

We're concerned about Canada's federal debt-to-GDP ratio at 50%, but the Japanese debt-to-GDP ratio is at 260%, and they're desperate for more inflation. They've been encountering deflation since real estate crashed there in the 1990s, and so that is exactly a problem that we should hope to have.

Certainly, higher inflation would give the Bank of Canada more flexibility. Frankly, they're scraping along with zero lower bound. There's no way to increase economic growth anymore by lowering interest rates; they're already at zero. Higher inflation would give the Bank of Canada more flexibility to have slightly higher interest rates and potentially provide a bigger kick to the economy in the next recession, which will inevitably happen.

[The Chair, Liberal, Wayne Easter]

Thank you very much to our witnesses for appearing.

An hour goes by quickly; usually we have an hour and a half. We have a panel with the Parliamentary Budget Officer right now.

We'll suspend three minutes for the committee and come back with the Office of the Parliamentary Budget Officer.

The meeting is suspended.

[The Chair, Liberal, Wayne Easter]

We will call the meeting back to order.

As everyone knows, we are meeting on Bill C-14.

The witness for this panel certainly needs no introduction. From the Office of the Parliamentary Budget Officer, we have Mr. Giroux, PBO. With him is Ms. Yan, who is the director of budgetary analysis.

The floor is yours, Mr. Giroux.

[Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Thank you.

Good morning, Mr. Chair and members of the committee.

Thank you for the invitation to appear before you today. We are pleased to be here today to discuss our recent economic and fiscal analysis related to your study of Bill C-14, An Act to implement certain provisions of the economic statement tabled in Parliament on November 30, 2020 and other measures.

As you mentioned, Mr. Chair, I am accompanied today by Xiaoyi Yan, Director, Budgetary Analysis.

Consistent with my mandate to provide independent, non-partisan analysis to Parliament, my office has worked diligently since the beginning of the pandemic last March to provide parliamentarians with reliable estimates of the impacts of the unprecedented COVID-19 response spending on the government’s finances and the Canadian economy.

We have also published independent cost estimates of a number of components of the government’s COVID-19 Economic Response Plan.

On December 10, we released our assessment of the Government of Canada's fall economic statement. Our report identifies several key issues to assist parliamentarians in their budgetary deliberations, as well as updated fiscal and economic projections.

In terms of transparency, the government's fall economic statement does include elements that are essential for credible fiscal planning and scrutiny, such as a detailed five-year fiscal outlook.

However, the statement falls short on transparency in several areas, such as the absence of a fiscal anchor, the lack of clear thresholds for fiscal guardrails and the lack of detail related to the employment insurance operating account.

In addition to our report, my office has also released independent cost estimates of selected measures contained in the fall economic statement, including the elimination of interest on Canada student loans, the Canada emergency wage subsidy and Canada emergency rent subsidy programs.

We would be pleased to respond to any questions you may have regarding our analysis of the government's fall economic statement 2020 or other PBO work.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

That was a minute and a half. You're a speedy guy today, Mr. Giroux.

Mr. Fast, the floor is yours for six minutes.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you Mr. Giroux, for keeping your remarks brief. That gives us more time to ask you the questions we need answered.

Bill C-14 includes a request to raise the debt limit by a historic $663 billion—approximately 57% over the existing ceiling. This includes $100 billion of undefined stimulus spending, and another $223 billion of additional unallocated borrowing capacity.

I'd like you to comment on the merits of asking for a massive increase in borrowing capacity in the absence of a budgetary framework, and in the absence of any fiscal anchors to guide the government's management of its finances.

[Yves Giroux]

It's an issue that we have expressed concerns with in our December 10 report following the fall economic statement. In that December 10 report, we indicated that it's a bit unusual to have such an increase in the debt ceiling when there are items that are included for which there is no clear path forward. For that, I refer to the $100 billion that was mentioned in the fall economic statement—$70 billion to $100 billion to be spent over three years for which there are no clear indications as to what the amounts will be spent on.

We've flagged that as an area worth considering for parliamentarians to ask questions to the government, because that's unusual. It's unusual because there are no clear identifiable areas of spending for that amount, and the debt ceiling already includes some contingency amount of about $87 billion, so there is enough room to at least get that spending going if the government wishes to provide economic stimulus.

In summary, we find that a bit unusual, and that's why we raised it in our December 10 report.

[Ed Fast, Conservative, Abbotsford, BC]

Is it not more prudent to first table a proper federal budget and then request the borrowing authorities required to support that budget?

[Yves Giroux]

That's the usual way to proceed with increases in the debt borrowing authority. It's usually included in a budget or accompanies a budget bill. That's usually the way to do it. You present your longer-term spending plan to parliamentarians and Canadians, and then you also seek, by the same token, an increase in the borrowing authority to accompany and to accommodate these spending plans.

Some would say the fall economic statement was a mini-budget, and in that respect it contained many budgetary measures, but it's not a traditional budget in the sense that we expect it to be, because, as all of you know, it's been two years that we haven't seen a budget.

[Ed Fast, Conservative, Abbotsford, BC]

As you just mentioned, there is a contingency already built into the debt ceiling, and yet there's a massive amount of discretionary spending or borrowing available beyond that. With respect to that additional discretionary spending and unallocated borrowing authority, do you believe that the amount is reasonable? We're talking about $100 billion of stimulus funding and then, beyond that, there's still some $223 billion of additional unallocated borrowing capacity.

Is that reasonable? If not, what would be a more appropriate ceiling to consider?