Finance Committee on March 18th, 2021

[The Chair, Liberal, Wayne Easter]

Who wants to go?

Go ahead, Bill.

[William Robson]

I wrote a piece in The Globe and Mail on this just this week, so perhaps I'll jump in.

The answer to your question is very much dependent on what kind of time frame we're talking about. I think the central banks have had a tough time even hitting their inflation targets over the past decade. I'll call them tactical errors: misreading the strength of the economy and perhaps being too quick to raise their short-term interest rates because they thought the economy was doing better than it was. We saw generally around the world this failure to hit inflation targets.

As I look at the longer term, and particularly when I look at what's happening in the United States, I feel a little differently. Central banks are buying huge amounts of these government debts that are being issued. Here in Canada, as you know, the Bank of Canada has a commitment to keep buying at least $4 billion per week. The Fed, similarly, is absorbing large amounts of U.S. government debt.

What happens when the central bank gets to the point where they see inflation back on target, back where they want it, and they stop absorbing that debt? We've been there in the past. When the federal government had its fiscal problems in the 1990s, I remember that a lot of people said that the Bank of Canada should be buying more debt and getting those interest rates down to make the fiscal challenge easier to meet.

We didn't go that way, ultimately, but that was because the memory of inflation—when you did have too much debt being monetized by the central bank—was so fresh. People hate inflation when they actually experience it. I do worry as we look out over the longer term that we might be on that road. It would very much reassure me, particularly in the United States—not just in Canada—if I saw the federal government there willing to match its revenues and its expenditures more closely and stop relying on the central bank to buy so much of its debt.

[The Chair, Liberal, Wayne Easter]

Thank you.

We went considerably over there, but I think we needed a fulsome answer on that question.

We'll turn to Mr. Ste-Marie, and then we'll have time for one question each from Ms. Jansen and Ms. Dzerowicz.

Gabriel, go ahead.

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

Thank you, Mr. Chair.

Good afternoon, gentlemen.

My questions will be going to Mr. Robson and Mr. Lee.

I would like your advice on the following. A few weeks ago, the former Senior Director and Regional Representative at the Bank of Canada, Mr. Miville Tremblay, wrote an opinion piece in La Presse.

In that piece, he seemed to align himself with the thesis put forward by Ben Bernanke, the former Chair of the Federal Reserve in the United States, who described a global problem of too much money saved and too little invested, saying that the imbalance can particularly be seen with the low interest rates.

Do you agree with that analysis? Do you believe that the imbalance could resolve itself more quickly than we think and that interest rates and, potentially, inflation could go up?

[William Robson]

If I may jump in, I'll say that in the short run, I think there is going to be upward pressure on interest rates, because the economy is reviving and governments are still borrowing a great deal, so you have competition in credit markets that is likely to raise interest rates.

Over the longer term, many people who look at the situation that Mr. Tremblay was describing have looked at demographic explanations, in that we have had such a large proportion of the population in many countries, including here in Canada, in their peak saving years. To the extent that is responsible for the glut of saving and the fact that we saw low interest rates, that is now going into reverse.

There have been major forces that have caused interest rates to be low and there to be a large amount of saving looking for opportunities in the world. Some of those—both in the short term because of the revival of the economy and in the longer term because of demographics—are now reversing, and we will likely see higher real interest rates in the future.

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

Thank you.

What do you think, Mr. Lee?

[Dr. Ian Lee]

I'll be very quick.

I agree with Bill completely.

I just want to mention a couple of names. Charles Goodhart, the 81-year-old retired LSE professor of monetary policy, has written several books and was 30 years before that at the Bank of England. He is making the same argument in his latest book that Bill was. The boomers, in our peak years, were generating huge amounts of savings, and now we're going into our senior years when we're going to start—the evidence shows—to dissave. That's an ugly term for saying that you start to spend your savings because long-term care homes are expensive, you go on trips and cruise ships, and so forth.

The second point he made was that the emergence of China and the collapse of the Soviet Union in the early nineties brought hundreds of millions of consumers and workers into the world, which drove down wages, and that contributed to the very low interest rates as well. That's going to reverse, going forward.

He is on the record—I saw an interview of him recently, this year—suggesting that rates could go to 5% over the next five years. That's not huge compared to when I was at the bank, when they hit 20%, but we're used to one-quarter of one point. To go to 5% is going to be just apocalyptic for many of us.

I am agreeing with Bill, and I think rates are going to go up, for those reasons.

[William Robson]

Chair, if I may advertise, we're missing Mr. Singh's presentation at the C.D. Howe Institute, but if you're interested in what Charles Goodhart has to say, you can tune in to that. We should have more parliamentarians at our meetings.

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

Thank you.

I will stop there, so that my colleagues can ask their questions.

[The Chair, Liberal, Wayne Easter]

Thank you, Gabriel.

We'll have about two minutes each for Mrs. Jansen and Ms. Dzerowicz.

Mrs. Jansen.

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

Thank you, Mr. Lee, for pointing out that no bank will lend money to a private business without a plan.

I made many a bank presentation in my time and, as you pointed out, was always required to present a clearly articulated plan on how the farm was going to spend those borrowed dollars. Without a budget and a plan, no regular Canadian is able to borrow a dime.

This government just seems so out of touch that it doesn't think those rules apply to it, and honestly, I have a tremendously hard time voting for Bill C-14 as is. Although Canadians continue to need support for what appears to be longer than any other G7 country due to the government's poor vaccine procurement, to green-light $100 billion in consumption spending, as well as to increase the debt ceiling, without a plan or a fiscal anchor in sight is just painful.

Without assurances that funding will focus on growth and innovation, as well as a corresponding budget to detail the fiscal plan, I am wondering if you think we, as parliamentarians, should vote in favour of this bill. I honestly feel I'm between a rock and a hard place because of the way the bill is crafted.

[Dr. Ian Lee]

Ms. Jansen, I won't tell you how to vote, as that would be presumptuous of me, but I do want to once again reiterate that these norms.... I've been fascinated all my life by British history and the constitutional evolution, because my late father was a Brit. I've studied it. The idea of a budget goes back to the dawn of the Westminster parliamentary system. It goes literally all the way back, 500 or 600 years, to when they seized control from the Crown, who insisted on saying, “I'm in charge. You get lost. I'll do whatever I want.” They said, “No, no, no. In a democracy, you can't do that.”

It's a tool of accountability. It's not some bureaucratic rule that's arbitrary. It's a tool of accountability and it's used for decision-making. I mean, investors look at budgets. The credit rating agencies look at budgets. Professors do. Voters do. Journalists do. This is not some frivolous requirement. Any government should be willing to say, “Look, this is who we are. This is what we stand for. Here is our plan.”

[The Chair, Liberal, Wayne Easter]

Ms. Dzerowicz, you get to wrap it up.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

My question will be directed to Mr. Robson, but first I want to make sure that something else is on the record around the budget. I don't want Canadians who might be listening to think that there's been a deliberate attempt by our government to not be transparent or accountable. Last year we actually announced a budget date. That was Monday, March 30. We didn't follow through with it, because there was a massive pandemic, and that had to be sidelined.

I also want to remind everyone that we did have reports every two weeks, once we started up with the finance committee, to make sure we were transparent and accountable with our spending. It took part right up until the end of August, when we prorogued. When we came back into session, then we were accountable through our Parliament. There also is an intention to be presenting a budget. I don't want people to think that's not coming—it is—or that we haven't been accountable and transparent.

Mr. Robson, in your opinion, how should the federal government have spent or financed emergency and economic restart programs? We have heard time and time again from many economists that if we hadn't spent what we did, our economy would have been much worse. We also have really good data to show that we're actually doing fairly well, considering. When we look at our labour participation rates, we are doing better than Germany, the U.S. and Japan. When we look at the fourth quarter of Canada's GDP growth, we grew more than the U.K., the U.S., Germany, France and Italy.

If you are worried about our debt levels, how would you have done things differently?

[William Robson]

The C.D. Howe Institute and I myself were at the forefront, early on, of urging some of the relief measures that we have seen. I am not critical of the CERB in principle. I am not critical of the CEWS in principle. I am not critical of many of the credit supports the government put in place. I admire them. I think they were timely. I was impressed with the speed of execution.

The concerns I have are more forward-looking. As was alluded to earlier, we are in a situation where many of the challenges we face economically are not related to propping up demand. The demand is there and the savings are there. What they are related to is the reopening of the economy...both the safety from the coronavirus and many of the infrastructure challenges. I'll just elaborate by saying that much of the investment that we now need to undertake in airports and at the border, for example, is related to the need to make travel and the movement of goods and services safer and easier now that we are in this new situation.

The main point of my remark about the tax cost of program spending was about what comes next. There is a lot prefigured, in the fall economic statement, the Speech from the Throne and other promises that we have heard, about new ongoing programs. I would say that's out of place, at this point. We really ought to be thinking about things that will make the economy function better as we reopen and as we need continuing protection from the coronavirus. That's the main focus and the appropriate focus for future economic growth.

[The Chair, Liberal, Wayne Easter]

With that, we will have to end it.

Thank you, Mr. Robson and Mr. Lee, for appearing. We had very good, wide-ranging discussions, I think. They brought out quite a number of key points.

Before I adjourn, I want to wish Pat, Tamara, Ted and Ed a productive, fruitful and good convention.

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

Thank you, Wayne.

And thank you, everyone, for your flexibility. That will allow us to attend our party's convention. I appreciate it. Thank you.

[The Chair, Liberal, Wayne Easter]

It's not a problem. That's great. Have a good convention.

The meeting is adjourned.