Finance Committee on March 18th, 2021

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I do want to get Mr. Lee into this too, but first, Mr. Robson, Mr. Lee said in his comments that there is no justification to delay a budget, which I think you addressed, fiscal anchors, and the debt ceiling...giving yourself such room in the debt ceiling. Would you agree that there's no justification for any of these three things?

[William Robson]

I think maybe it's a problem that the government is allowing its net worth to become as negative as it is. The debt we're talking about in Bill C-14, as you know, is a particular type of debt. The federal government has financial assets and physical assets, and it has other kinds of debt. It has a very large unfunded pension liability. One of the reasons I would like to see a budget is that I think it's time for an update on all of those things.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Do you—

[William Robson]

You have heard me on the question of whether I think there's too much debt. I think there is too much debt. I think it's time to rein it in.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

Mr. Lee, I appreciated your experience in commercial lending. I have lots of experience in the mortgage industry myself. Yes, a loan application that contains no stated purpose is generally just utterly rejected. I understand that the borrowing limit.... They've tried to make the argument that the borrowing limit is not the same as actually borrowing the money, or even applying to borrow the money, but yet that is what it is under law. The debt ceiling is set under law, and there's an application right now to increase that.

Would you care to comment further on that or on either of the other points? Perhaps you would like to expand on the justification for a non-budget and fiscal anchors.

[The Chair, Liberal, Wayne Easter]

You'll have to be fairly quick, Mr. Lee.

[Dr. Ian Lee]

Okay.

In terms of the budget limit, I'm not religious about that. To me, it's another check and balance. I've been arguing with my students for years. We tend to think in a democracy, “Oh, yes, we understand checks and balances. It means an election.” But there are vastly many more checks and balances than elections. The annual report of every government to Parliament is a check and balance. The main estimates are a check and balance. All of these are checks and balances that are functional and necessary for the efficient functioning of a democracy.

It's not that I'm sitting around getting all excited and filled with angst over whether the debt ceiling is going to $1.8 trillion or $1.5 trillion. It's a check and balance on the government of the day to come forth with a plan to justify what it's doing. It's a very useful tool. It's not something we're doing just for fun. It's because it's a useful tool that helps democracies and stakeholders and citizens and journalists and academics understand what's going on.

I think if we think of it in those terms...rather than, “Well, the government's going to prove it anyways. Why go through the motions?” It's not about going through the motions. It's about the requirement to be accountable to Parliament and to the Canadian people.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go to Mr. Fragiskatos, followed by Mr. Ste-Marie.

Peter.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Mr. Chair.

Thank you, Mr. Lee and Mr. Robson, for being here.

Mr. Lee, I was quite interested when you mentioned the economist Arthur Okun. Thank you very much for bringing his example to the committee. You will be familiar with Okun's law, which states that for every 1% increase in the unemployment rate, there is a consequent and very dramatic decline in GDP.

Have I understood Okun's law correctly?

[Dr. Ian Lee]

I think so. I would make two points, because I think you're asking me to comment on that. The sixties in that context were very different. I grew up in the sixties. I do remember the sixties—going for Robin Williams' famous line—and it was a very different period. I wasn't invoking Okun's law so much as his insight about equality and efficiency or markets and rights. That's what I was trying to get across today.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Point taken, but by invoking him, I think you raise someone who's quite relevant and whose thoughts and ideas are quite relevant, specifically with regard to some of the matters that we're discussing at the committee today.

I know you have issues with government spending, and that's fair to raise, but in the context of COVID-19, I wonder what else government could have done.

For example, have you had a chance to read the recent report of the International Monetary Fund, the IMF, that focused specifically on Canada? It was released this month, so it's very recent. If you haven't had a chance to look at it, that's quite understandable.

It did say that if emergency programs such as the wage subsidy and the Canada emergency business account—which is, of course, the loan that now goes up to $60,000 for small businesses—the rent subsidy support, and many other examples that have been introduced, which admittedly are expensive, but have helped to sustain the country.... That's not just political spin here; that is the reflection of the IMF as well. It found, in this report, that unemployment would have risen by 3.2% beyond what we saw last April, which was 13% unemployment in Canada. It could have been even worse. As far as economic output goes, we would have seen, according to the IMF, a decline of 8% beyond what we saw in terms of the GDP decline.

What do you make of this? Absent the introduction of emergency programs, we would have had an enormously difficult time in Canada. We just heard from the Parliamentary Budget Officer, for example, who made clear to this committee that if emergency programs had not been introduced, Canada would have seen a situation of—he didn't use the term, but I think he might as well have—a depression.

What do you make of these things?

[Dr. Ian Lee]

To your first question, whether I read the IMF report, yes, I did. Yes, they commended us on our response. I've never suggested—I think you're dichotomizing this or turning it into a Manichaean argument of the light being on or the light being off. I have never said, and I don't think any Canadian has said, that we shouldn't have helped anybody. The issue has never been whether we should help anybody versus not help anybody. The question is targeting, I think, a more precise, surgical targeting. We're the only country—and I've looked at the OECD report on this and at the StatsCan report—that paid out 150% of the total job loss income. That violates, I believe, the principle of the unemployment insurance system that all Canadians have supported all the way back to Mackenzie King. That is that you don't get 150% of your loss. If you're making $1,000 a month, and you go into the unemployment insurance office, they don't give you $1,500. They give you a portion of your job-loss income.

We've paid out more, in percentage terms—so we're comparing normalized data and not absolute data—than has anybody else, and those resources are scarce. Those resources that were squandered with our paying more than we needed to could have been used to pay other people who needed more help.

The issue is not whether we should help people; the issue is can we not ensure that we provide the greatest amount of help to the people who suffer the most.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Mr. Lee, thank you very much. I think we'll agree to disagree. First of all, we're seeing a much better labour market participation rate in Canada than in other G7 countries. Also, the rate of savings in Canada has increased to the point now where many economists—not all, to be fair—are looking at it and saying that with the pent-up demand that currently exists, once we're past the pandemic, Canada will be very well positioned because there is a high rate of savings that Canadians have been able to accumulate. That will have, obviously, a tremendous positive impact on the Canadian economy.

Let me end on something that I think we can agree on, which is the need to focus on infrastructure and to focus on it in a way that will increase Canada's competitiveness. You gave a number of examples of how in a future budget, government could prioritize things like ports, and you mentioned rail, for example. Could you expand on that? I think it's an important point.

[Dr. Ian Lee]

I do, too. Thank you.

Infrastructure has been studied, as you can guess, literally going back to Adam Smith.

I would bring up something in response to your question. I testified before this committee back in 2008-09, and I looked up the data on infrastructure spending. I think the data I'm quoting to you today is still current—I could be wrong, so please double-check me. Infrastructure in 2010, 2011 and 2012, based on all the studies that were done, had a higher multiplier than any other form of government intervention. This was confirmed by U.S. studies and Canadian studies. The number was 1.6 at the time. I remember it, and in fact Minister Flaherty had it in the appendix of one of his budgets, 2011-12.

In other words, every $1 billion you spend on infrastructure generates $1.6 billion of economic activity, whereas giving cheques to people can be used to pay down debt, or they can put it in a bank account. They might not spend it, whereas with infrastructure you know it will be spent because the contractor who is building the bridge or the road or the pipeline will not be paid until they build the bridge or the road or the pipeline, so you know it's going to be invested in the economy.

Second, to your point, infrastructure has been studied, and the reason it's so important for economic productivity and growth is that anything that contracts...or increases the efficiency of the movement of goods or services across the country, whether digitally or physically, enhances the growth and the productivity of the economy.

I think that's why the multiplier is larger and has a net-positive impact on the economy—whether it's railroads, airports, airlines or digital infrastructure broadband.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

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

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

Mr. Chair, since Mr. Julian has to leave the meeting soon, if we could trade our turns, he could ask his questions now. I will then speak afterwards.

[The Chair, Liberal, Wayne Easter]

Yes, it's not a problem.

Mr. Julian, go ahead.

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

Thank you very much, Mr. Chair.

Thank you so much, Mr. Ste-Marie. This is extremely kind of you. I really do have to leave the meeting soon.

Mr. Chair, I would also like to advise you that I am going to give Ms. May the last minute of my time.

Thanks to our witnesses for being here. We certainly hope that you and your families are staying safe and healthy during this pandemic.

Thank you, Mr. Robson, for the shout-out to Jagmeet Singh, who is speaking today at the C.D. Howe Institute. I'm missing it too, so unfortunately we're both missing what I certainly hope will be our next prime minister speaking at the C.D. Howe Institute.

I wanted to come back to the issue that you raised, Mr. Robson, about the fact that there has been no budget. We just had the Parliamentary Budget Officer on, and he talked about the fact that there simply isn't another industrialized economy that has waited more than two years for a national budget, so I'd like to come back to that.

How big a failure is that, when we're the only industrialized country that hasn't produced a budget in over two years?

[William Robson]

I do think it is deeply regrettable.

We've already talked about the international comparison. Let me point out that here, within Canada, the provinces and territories have produced budgets, and municipalities have produced budgets. They all faced important uncertainties about what was going to happen. In some cases, those uncertainties would have been exacerbated by the fact that the federal government didn't produce a budget. The federal government's activities matter a great deal to the provinces, the territories and the municipalities.

One thing that I think is important to note is that budgets have traditionally been extraordinarily complete in the numbers they lay out and in their expression of the fiscal plan. I do not think the fall economic statement was an adequate substitute for a budget.

I will point out just one thing that really troubled me about the fall economic statement, and that was that we had between 70 and 100 billion dollars' worth of additional stimulus spending pencilled in, with different kinds of potential profiles over the three years, and yet even though this contemplated additional borrowing, there was no adjustment for the interest costs that would be involved in that additional borrowing. That looked to me a little bit as though it was pencilled in without the fiscal planning that you would normally expect around something as significant as that.

I do look forward to a budget. I think it's highly regrettable that we missed one, and I think it's high time that we got one that was appropriately complete when it comes to helping Canadians and parliamentarians understand the fiscal plan.

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

Thank you very much for that.

I have one more question before I pass things over to Ms. May, and it's around the issue of revenue. You talked about spending and how we raise money through taxation to make sure that we can pay for programs.

Over 80% of Canadians support a wealth tax. We've seen Canada's billionaires increase their wealth by over $60 billion so far during the pandemic. How do you see measures like a wealth tax actually ensuring that we have the wherewithal to pay for the programs that you have cited as programs that are important for the health and well-being of Canadians? How important is it for the federal government to actually get the revenue side right?

[William Robson]

I think increased revenues will definitely be part of the answer. We are not going to sustain the programs that we're talking about unless there is something done on the revenue side.

In fact, I would go back to what I said about the cost of a program dollar. I think you're doing Canadians a service by charging them full dollar for the programs they're getting, because ultimately—as I was talking about with respect to history and the projections—that's what it's going to cost. You're not doing anyone any favours by pretending that you can have these things for 50¢ on the dollar.

About particular taxes, including the wealth tax, I would say that we have to be realistic about what kind of revenue yield there is going to be. I myself am wary about taxes that hit high-earning people harder than others, because we already have a brain drain to the United States. We haven't paid so much attention to it over the last little while, but the people who leave Canada—and there are about 70,000 of them every year—tend to be relatively highly educated and relatively high-earning people. We don't want that to continue. We want them to stay here in Canada. The—

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

I'm sorry to interrupt, because I do want Ms. May to ask her question.

Thank you very much, and thanks again to Mr. Ste-Marie for his generosity.

[The Chair, Liberal, Wayne Easter]

Ms. May, you have about a minute.

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

Thank you very much.

Also, thanks to Gabriel Ste-Marie for giving Peter the time that he just gave me.

I'm going to resume with a question that I was asking the Parliamentary Budget Officer earlier. We're very concerned with any increase in inflation, as obviously we have a lot of debt as a nation, but in two conversations this committee has had with two governors of the Bank of Canada, Steve Poloz and Tiff Macklem, both expressed not so much concern about inflation, but see deflation as a bigger risk.

If there's time, I'm not sure which one of the witnesses, Ian or Mr. Robson, is more interested in taking this up. What do you see as the relative risk between deflation and inflation?