Evidence of meeting #28 for Finance in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was federal.
A video is available from Parliament.
11:55 a.m.
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Thank you very much.
How does that compare to the situation in G7 countries, if you look at the central governments and their debt-to-GDP ratios?
11:55 a.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's difficult to make a one-to-one comparison, central government-to-central government, given the different structures of many countries. For example, the U.K. is a unitary country with a unitary government for the most part. It's the same with France.
However, Canada is generally considered to be one of the good students in the pack, so it's probably at the low end of the spectrum when it comes to debt-to-GDP ratio.
11:55 a.m.
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Thank you very much.
I asked that because obviously the debt-to-GDP ratio is an important measure of debts levels and a good way to assess the fiscal health of a country's economy.
I did read your recent report, and although we are focused on Bill C-14 here, your recent report is, in my view, very relevant because it helps to provide a context for MPs, particularly on this committee, to understand the overall economic picture. Your recent report, of course, focused on a number of things, but mainly the federal government's expenditure plan and the main estimates for 2021 into 2022.
Correct me if I'm wrong, but there was a breakdown there. As far as the expenditures are concerned, transfer payments to provincial governments, municipal governments and individuals, as far as support goes, amounted to 64%. Operating and capital expenditures amounted to 30%. The public debt charges were 6%. Is that correct?
11:55 a.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I don't have the report in front of me, but for these numbers, if you quote them from the report, I assume them to be correct.
11:55 a.m.
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Okay. I just wanted to confirm the breakdown, because we do hear a great deal, particularly from our Conservative colleagues on the committee, about government expenditures and their worries about taking on especially the emergency programs, which have certainly added to our deficit and debt level. But in a context where interest rates are remarkably low, it would make sense that public debt charges are at only 6.1%, which is quite low compared to the other items I just listed.
Finally, Mr. Giroux, could you speak to the Canada child benefit? There is, in Bill C-14, additional temporary support of up to $1,200 for kids under six, and if Bill C-14 is approved, that support will go to families.
On the CCB's impact over the years for families in the middle-income brackets and lower-income families in general, but specifically in helping to lower child poverty, I know that Statistics Canada has monitored this closely. Hundreds of thousands of kids lifted out of poverty because of this one program: Could you speak to the importance of it from that perspective?
Noon
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Well, I can certainly remember studies released by Statistics Canada which indicate that the CCB has lifted a tremendous number of kids out of poverty. Because it's a Statistics Canada study, I don't remember exactly the numbers, but I certainly remember that it is the overall conclusion of that study that was released by StatsCan.
Noon
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Okay. You also identify with the findings that it has been an important program as far as alleviating child poverty in Canada goes.
Noon
Liberal
The Chair Liberal Wayne Easter
We will have to end it there.
Thank you, Mr. Giroux, and you as well, Ms. Yan.
On behalf of the committee, we certainly do want to thank you for all the work you do. There's no question that your workload went up with COVID and the many requests that are coming in from members of Parliament and so on. On behalf of the committee, we want you to thank your staff in the office as well, because it takes many people to come up with the kinds of reports you do, and we appreciate them very much.
I think we all sit up with interest when we know that a new one is coming out, because we're going to read it. The government members will read it from the point of view of saying how well we're doing and the opposition members will read it from the point of view of asking if there is something that they can dig into there. You cover all the bases.
With that, thank you again, and we will—
Noon
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thanks, Mr. Chair.
Mr. Ste-Marie mentioned potentially moving a motion. As I mentioned to you, Mr. Chair, I'll be leaving in about 45 minutes, so I won't be available to speak at the end of the meeting. If we are to treat his motion, I think it should be at the beginning of the next segment or now.
Noon
Liberal
The Chair Liberal Wayne Easter
Okay. Let's take it at the beginning of the next segment. We'll take a three-minute suspension and bring in the new witnesses.
With that, we're suspended.
12:05 p.m.
Liberal
The Chair Liberal Wayne Easter
We will call the meeting back to order.
We are meeting on Bill C-14. We have two witnesses here in this panel, and we have a hard stop at one o'clock.
We will take a moment before starting off the committee, gentlemen, to hear a motion from Gabriel Ste-Marie. He said during the last panel that he wanted to introduce a motion.
You may move your motion, Mr. Ste-Marie.
12:05 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Good afternoon, everyone.
Mr. Clerk, thank you for distributing the motion so quickly.
From the Parliamentary Budget Officer's remarks, I have certainly gathered that the Department of Finance's bi-weekly reports were useful. They provided us with good data to monitor expenditures related to COVID-19. As has often been mentioned, it is important that those reports resume. If I understood correctly, Ms. Koutrakis found it a worthwhile idea.
However, I have just had a discussion with Mr. Fraser and, in order not to inconvenience our guests and in order not to get into extended debates on this motion, I would like everyone's agreement to discuss it next week when we will be discussing all the motions. As the subcommittee has decided, time will be set aside next week for discussion on the motions. If that suits everyone, we could discuss this one at that time.
12:10 p.m.
Liberal
The Chair Liberal Wayne Easter
I think I was going to have to rule in any event, Mr. Ste-Marie, that we are here on Bill C-14 and we would take this as 48 hours’ notice. I think we can be assured that the motion can be pulled up at the next meeting, because 48 hours will have passed by then.
I think the motion is before you, committee members. You might have received a copy of it. It is translated.
Thank you for that, Gabriel. We will consider that as notice and discuss it at our earliest opportunity when we get into motions.
With that, we will go to Ian Lee from Carleton University.
On the point that the clerk raised, Mr. Lee, perhaps you could go fairly slowly and maybe be a little louder. This is one of the difficult situations for translators in the booths when we don't have these kinds of mikes.
The floor is yours.
March 18th, 2021 / 12:10 p.m.
Dr. Ian Lee Associate Professor, Carleton University
Thank you, Mr. Easter.
I apologize for the technological hiccup. I do have a very high-speed connection, I assure you. I have Bell Fibe.
I want to thank the finance committee for inviting me to appear.
My disclosure is that, first, I do not belong to or donate to any political party, nor allow lawn signs on my lawn at all. Second, I do not consult to any company. I am paid by Carleton; that's who pays me.
Approximately 50 years ago, a very distinguished liberal professor of economics, Professor Arthur Okun, adviser to President John F. Kennedy, wrote a small monograph that became very influential. I studied it during my Ph.D. studies 30 years later. It was called Equality and Efficiency: The Big Tradeoff.
Professor Okun argued that almost every last public policy decision involves a trade-off between these two fundamental values, which could be understood, he said, as—to use synonyms—rights versus markets or equality versus efficiency. While most understand the idea of equality or equity today, or what some call “social justice”, the idea of efficiency or markets seems to be less and less well understood with the passage of time. “Efficiency” was the catchword that Professor Okun used to signify markets, economic growth, productivity, standard of living, jobs, or what Adam Smith characterized 300 years ago even more succinctly as simply “the wealth of nations”.
Restated using Professor Okun's phrases—and to be fair, I may be contradicting Professor Okun a little bit—equality requires efficiency; equality requires markets; equality requires growth, just as efficiency requires equality or equity if markets are to succeed. To state it even more bluntly, rights need markets if rights are to be achieved, while markets need rights to succeed.
Some may disagree. You can see the fact that I have travelled and taught, for 30 years, over 100 times, in developing countries, and I have noticed that remarkable correlation. The countries with the greatest degree of rights are the wealthiest and most successful countries, the OECD high-income countries of the world.
Unfortunately, it's increasingly fashionable among populists to claim that rights and markets, or equity and efficiency, are opposed to each other, antithetical. I am directly challenging the simplistic slogan “people over markets”. You hear it regularly.
Professor Okun understood that equality or rights are not free. Indeed, from Professor Okun's time in the 1960s to our time today, we have developed a much deeper appreciation of how costly policies and programs are to try to develop and achieve inclusion, equity and social justice. This is why we are at a critical point in Canada. The costs of equity have become so very large, and the deficits even larger, that we must seriously discuss, once again, efficiency or growth if we do not want to unwittingly undermine or sabotage policies to continue to offer programs to support equity or social justice.
If that is seen as a little bit extreme by some people, I just want to remind you of the 1995 largest downsizing in Canadian history. I wrote what was, I think, the definitive article on that in How Ottawa Spends.
I turn now to these issues in Canada, and to my criticisms, in order to make my philosophical comments to this point much more concrete.
One, no budget or plan has been presented to Parliament to provide the analytical and policy justification for increasing the debt ceiling. I would merely note that many years ago, in the seventies and eighties, in my previous incarnation in a decade-long career as a mortgage and commercial lender, I lent millions and millions of dollars. If a business owner met me to discuss their borrowing needs and they didn't have a business plan, I told the owner to go away, create the plan, and then return to talk to me about the plan, which was, is, and always will be the foundation or basis for credit authorization.
Two, there is simply no justification for delaying the presentation of the budget. The Government of Canada has an excellent digital financial infrastructure for financial reporting and accounting. Indeed, if I may say so, some of my finest graduates from our program over the past 30 years—I've been teaching for 32 years—have entered into the Government of Canada as financial analysts and accountants, and have become very successful at modernizing the now excellent financial and accounting systems. As someone who has lived in Ottawa for over 60 years, and with friends and relatives inside the public service of Canada who are familiar with the financial reporting systems, it is simply inaccurate to suggest that the empirical data of daily, weekly and monthly expenditures in the Government of Canada is unavailable to produce a budget.
Three, there is an urgent need for a fiscal anchor, per the IMF, the OECD, David Dodge, Don Drummond et al. There are many others. Contrary to those opposed, a fiscal anchor is not a lockbox that prevents government decisions. It is a tool of evaluation and accountability for all stakeholders. I understand that no one wants a bad report card. I can tell you that I hate student evaluations if they say bad things about me. I love them when they say nice things about me. But the genius of liberal democracy lies in the myriad of checks and balances that go far beyond mere elections. A fiscal anchor is a critical check and balance of fiscal policy.
Four, concerning the post-pandemic recovery, I urge the committee to debate and discuss whether the stimulus that has already been provided over the past 12 months via income support programs—I strongly supported them, as I think every Canadian did—and that drove the savings rate from roughly 2% to just under 30% is stimulus. I'm referring to the $200 billion. It can be argued that the Government of Canada, perhaps unwittingly and perhaps wittingly, engaged in post-pandemic stimulus with the plethora of income support programs.
Restated, there is approximately $200 billion—per the TD Bank and their economic analysis of only this week—in bank accounts in Canada, waiting for mass vaccination and confidence to return to individuals and businesses before they start spending. What I'm suggesting is that I don't think we need to stimulate the stimulus. However, although I don't think further stimulus is needed, I recognize that a good number of people out there do think that.
If we do proceed with stimulus, I urge the committee to recommend to the finance minister that we shift from consumption and income spending to investment. If stimulus is decided upon, it should refocus from general consumption and income support to infrastructure, and I mean real infrastructure, not mislabelled consumption spending on day care centres or hockey arenas, but investments that enhance the productivity of the economy: ports, roads, rail, airports, pipelines and digital infrastructure.
The economy has not underperformed due to lack of resources. Large numbers of Canadians, and I am one of them...I have been sitting in this house since last March, and 99.999% of my life has been in this house, because I am waiting for a vaccine, along with millions—
12:20 p.m.
Liberal
The Chair Liberal Wayne Easter
Mr. Lee, I'll have to get you to wrap up pretty quickly. We're about five minutes over.
12:20 p.m.
Associate Professor, Carleton University
I'm on my final sentence.
We can see light at the end of the tunnel, and I do not believe that it requires a hundred billion dollars to cause each of us to venture outside and to start to live normally again.
Thank you.
12:20 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Mr. Lee.
We'll now turn to the C.D. Howe Institute, with Mr. Robson, CEO.
Slow and steady, please, and fairly loud as well, Mr. Robson, if you could. Thank you.
12:20 p.m.
William Robson Chief Executive Officer, C.D. Howe Institute
Thank you very much for the invitation to appear with you today. It's an honour to be with the committee. My only regret is that, even as we speak, Jagmeet Singh, leader of the federal New Democratic Party, is going to be addressing a C.D. Howe Institute webinar. I had hoped to host Mr. Singh for that event, but when the invitation came, I thought it was best to respond positively to an invitation to appear in front of parliamentarians, so here I am. I hope my contributions will help you in the important work you're doing.
I look forward to your questions. My opening remarks key off Bill C-14's provisions related to borrowing.
The federal government's current reliance on borrowing, rather than taxation, to fund its programs is unprecedented. That means that the apparent cost of federal programs to taxpayers is unprecedentedly low. This situation will not last. I urge members of this committee to evaluate all fiscal proposals, including those in Bill C-14, in light of the sharp increase in the tax costs of federal programs that is inevitable over the next four to five years.
As you know and have discussed already, Bill C-14 would amend the Borrowing Authority Act to increase the debt limit from about $1.17 trillion to $1.83 trillion. Those numbers are astonishing, as is the fact that this is projected to cover borrowings only until March 31, 2024, so about three years from now.
Those of us who remember the federal government's fiscal problems of the 1980s and 1990s get little comfort from assertions that borrowing on this scale is not a problem. Some of you will remember that successive governments, Conservative and Liberal, had to deal with tough trade-offs among programs and taxes during a period when interest payments meant that the federal government was asking Canadians to pay more than a dollar in taxes for every program dollar. We don't want that. We make better decisions when we are paying a dollar in taxes for every program dollar.
It came up earlier, and let me just say, since I'm talking about the quality of decisions, that I have not had an opportunity to comment in this forum on the failure to produce a budget in the 2020-21 fiscal year. That was a failure of accountability that was also unprecedented. Parliament needs and Canadians need proper conversations about fiscal choices. Those fiscal choices have to hold up over time, when the normal healthy process of evaluating each program and each tax, dollar for dollar, resumes.
I'm using this concept of the tax cost of a program dollar because the hundreds of billions or trillions of dollars that we're now talking about in programs and debt are a bit hard to grasp. I think it helps if we boil it down to ask how much tax each year Canadians are paying to the federal government for each dollar of program spending they get.
To give a simple example, if the budget is balanced, the number is going to be a dollar. It will be a bit more than a dollar if there are a few cents that are covering interest payments. If the government is targeting the ratio of debt to GDP—and I know many of you have talked about this and many economists have advocated it—then the number is going to be one dollar plus interest and then as much borrowing, as much of a deficit, as GDP growth allows subtracted from that. If interest rates are higher than growth rates, as was the case in the late 1990s, the number will be larger than one. If interest rates are lower than growth rates, it will be less than one, but over time it always gravitates towards one.
In the fiscal year about to end, the numbers in the fall economic statement show that the tax cost of a program dollar was 46¢. The federal government borrowed more than half of every program dollar it spent. To repeat, that is unprecedented. Even in the late 1970s, when the seeds of the fiscal problems of the 1980s and 1990s were planted, that number never got below 80¢. It won't last.
Even the projections in the fall economic statement, which has very low interest rates and continued heavy reliance on borrowing to finance programs, prefigure the tax cost of a program dollar doubling to 92¢ in 2025-26. If you project further out, it keeps rising. If you allow for the higher interest rates we're already seeing, it will surpass a dollar.
The message in my opening remarks is that the apparent cost of federal programs to Canadians is currently very low. It's less than 50¢ on the dollar. It is going to rise. In round numbers, it's going to rise back to a dollar. Our choices have to make sense when the cost of programs is not half-price. Easy credit undermines good decision-making. We prevent people from using credit cards to buy lottery tickets for a reason.
The federal government overextended itself in the 1970s. It expanded many of the programs, including income supports to people, and transfers to provinces got cut when the tax cost of a program dollar rose in the 1980s and 1990s. If we build big ongoing programs on the premise that Canadians can have them at 50¢ on the dollar, we build them on a foundation that will shortly melt away.
The only programs the federal government should promise are ones we can sustain: those for which the government is willing to charge and those for which Canadians are willing to pay full price.
Thank you for allowing me this opportunity to appear. I hope you found my opening remarks helpful. I look forward to your questions and comments.
12:25 p.m.
Liberal
The Chair Liberal Wayne Easter
Thanks, both of you, for your presentations.
We are going to be tight on this timeline because we have a hard stop at 1 p.m. We have about 30 minutes.
Mr. Kelly from the CPC is first on my list.
12:30 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Thank you so much to both witnesses for their great testimony.
Mr. Robson, I was particularly struck by the way you've illustrated through history how decisions made in the past, in the 1970s, led directly to the debt crisis of the mid-1990s. When Conservatives or other commentators talk about the concern for future generations, this is exactly the history you spoke of. I'll maybe give you a minute if you want to address that when we undertake decisions today in a certain environment of interest rates.
To be clear, we understand that we are in a crisis and support the spending measures that were necessary to get us through the crisis, but looking forward, if we don't deal with public finance, we risk doing exactly what the governments of the 1970s did, which would be to put the future generation at risk. Can you comment further on that?
12:30 p.m.
Chief Executive Officer, C.D. Howe Institute
There is a lot to be said about the intergenerational impacts of what has happened. COVID has been very hard on young people. It has interrupted their schooling. Those who are graduating into the labour market currently are facing a rough time. There are many other things to be concerned about in addition to the question of when we are going to pay down the cost of this pandemic.
I know that there are arguments for spreading it out over a very long period of time. My own inclination would be to try to get the people who benefited directly, including from the transfer payments, to shoulder some of that cost in the near term, partly because other things are going to happen in the future. We have now begun to think perhaps these extraordinary events come along a little more frequently than we used to think they did.
It is very common for people to talk about the very good fiscal position Canada was in going into this crisis. That naturally followed from the prudent fiscal policy in the past. I think it would make sense for current governments to think similarly about what kind of legacy they're going to leave, because there will be additional problems in the future and you'd like future governments to also be able to say “we were in good fiscal shape when we went into that”.
On the particular point I was making about how much you pay per dollar of program spending, I think what I might do in response to the question is observe that the numbers I'm talking about will be different depending on the level of interest rates and the level of growth rates. You can run a deficit consistent with a steady debt-to-GDP ratio if you are persuaded that it's a good guidepost. I'm not a big fan myself, but it makes sense. It's sustainable.
No matter what variation on that you choose, at some point the tax cost of a program dollar is going to be gravitating back towards one dollar. As I said, if you take apart the numbers in the fall economic statement, you'll see that, even though it's relying on low interest rates and heavy borrowing, and if you look at the Parliamentary Budget Office projections, again you'll see the same thing. It's just going to happen, so my plea—