Finance Committee on April 27th, 2021

[The Chair, Liberal, Wayne Easter]

Okay. Thank you both.

I'm sorry, Ed. We are just slightly over time.

We'll go to Mr. Fragiskatos, who will be sharing his time with Mr. McLeod.

Peter.

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

Thank you, Mr. Chair.

Thank you, Mr. Giroux and your officials, for being here.

I want to ask you the same question I asked Governor Macklem a few minutes ago, and that relates to impediments to growth posed by risk.

At the end of March, I saw that you and your office forecast that this year, 2021, 5.6% is what's predicted in terms of economic growth for the country. In 2022, that drops a bit to 3.7%, but it's still robust. Those predictions are roughly in line with where the Bank of Canada forecasts things, as we heard earlier today.

My question to you is this: What sources of potential risk do you see that we all need to be mindful of and that could stand in the way of that strong growth?

[Yves Giroux]

Like the governor said, I will probably identify the same risks as he did. The biggest risk, by far, is how the pandemic evolves and, flowing from that, how Canadians behave. What I mean by that is how secure they feel to resume what will be the new normal if it is back to where we were pre-pandemic. The recovery will be highly dependent on Canadians' confidence that they can go about their daily lives with travel, going out, etc., without getting sick. A lot depends on how the pandemic evolves.

Another big risk or uncertainty is the level of recovery in the U.S. If the pace of recovery in the U.S. is faster, as many expect, then it will have beneficial impacts on Canada.

Another risk is the risk of faster-than-expected rising interest rates. Faster interest-rate rises could dampen growth by weighing on households and businesses that then have to support a higher burden of debt servicing costs—and governments as well.

I could go on. There are upside risks and downside risks, but these are the main ones that come to mind.

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

Thank you very much.

I don't usually ask the same question twice. It's simply because we had the governor here today and you, and I think it's important to get on the record where both of you think the risk is, how both of you judge it and the sources of potential risk. The fact that your answers line up almost entirely with each another—you gave virtually the same answer, Mr. Giroux, as Governor Macklem did—says a great deal about these factors. They are the key things to pay attention to for us as a committee, so I appreciate it.

With that, I'll turn it over to my colleague Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, and thank you to the presenter today.

I have two quick questions I want to ask. First, the IMF estimates that we would face much higher unemployment and debt costs of about the same amount as has been spent but with much worse economic scarring. Can you comment on their analysis and whether you agree with the notion that the economy would have been worse off without government intervention?

[Yves Giroux]

It's a tough question to answer because to be certain of that answer would require running a sadistic experiment, in which two identical countries would be subject to very different treatments.

One thing is sure. Without government support, widespread support, there would have been tremendous amounts of economic and social distress, even if we are talking only about all the small business owners who would have had to put the key under the mat and close down business, let alone all these millions of individuals who would have found themselves unemployed, facing bankruptcy. There would certainly have been a high cost to no government intervention or much smaller government intervention, not only in terms of dollar costs but also in terms of the tremendous social costs.

That's why it's difficult to comment precisely on whether it would have been worse or not that bad to have less intervention or no government intervention at all. It certainly would have led to a very high amount of fiscal, financial and social distress.

[Michael McLeod, Liberal, Northwest Territories, NT]

My second question is regarding the national guaranteed basic income. Earlier this month, your office released an analysis of the national guaranteed basic income and your office noted that because of the lack of data included in the Stats Canada database and the model that was used for this analysis, the report does not show how such a potential program could affect the people in the Yukon or the Northwest Territories or Nunavut.

Given how different our three economies are from those in the rest of Canada, could you speak to how useful it would be, not only for analysis but also for policy-makers and for the public at large, if Stats Canada were able to provide data that truly reflects the whole of Canada?

[Yves Giroux]

That's a very good point, sir. We often face the same issue when we are looking at policies or costings that apply nationally. When we look at the territories, the data is not as robust. We often imply that the impacts would be broadly similar in the territories to what they would be in the provinces, but we all know that the realities are different, especially when it comes to social issues. A guaranteed basic income is a very good example of a social policy that would have impacts that would probably be very different in the three territories from what they would be in provinces such as Ontario, Quebec, Alberta or B.C. because of the very different structures and natures of the populations.

In that case, especially in the case of a GBI, it would be very useful to have solid, robust data related to the territories and their inhabitants.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

We'll turn to Mr. Ste-Marie, followed by Mr. Julian.

Gabriel, you have six minutes.

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

Thank you, Mr. Chair.

Good afternoon, Mr. Giroux. I also want to say hello to your colleagues Mr. Shaw and Mr. Matier.

I am somewhat hesitant to put specific questions to you on this 800-plus-page budget that was just tabled. I think it would be preferable to give you and your team time to analyze it in detail. I will rather come back to your opening remarks.

You are announcing that you will analyze the $69 billion in stimulus spending. Ultimately, the question we ask ourselves is whether this is a good investment. As you said during your discussion with Mr. McLeod, the urgent income support measures implemented during the pandemic had social objectives, including the preservation of income, but also economic objectives. We want to have the best possible economy when the pandemic ends. The idea is to incur a debt, but to know at the end of the day that it was worth it and that it will have helped preserve the economy as much as possible.

Do you already have an opinion on that $69–billion envelope?

[Yves Giroux]

I have no opinion on whether it is appropriate or not.

I can reiterate what I previously said. In its fall economic update, the government said it would use $70 billion to $100 billion to stimulate the economy and help it recover to ensure that labour market indicators would return to their pre-pandemic levels.

As I have said several times, even without that kind of economic stimulus, forecasters—us included—predict that most labour market indicators will return to their pre-pandemic levels by late 2021 or early 2022. That is why I said that the chosen moment and amount may have been poorly evaluated—in other words, this could be too little money too late—if the objective is solely to return to the pre-pandemic labour market indicators.

What is more, some think that the economic impact of those amounts may have been overestimated in last week's budget. That is what we will try to estimate over the coming days and weeks to determine the positive economic impact of those economic stimulus measures. The government may have been overly optimistic when estimating the impact of those measures on employment and GDP.

Mr. Matier and Mr. Shaw are currently working on this to get a clearer picture. We will have to appear before the committee again to tell you about the more detailed estimate of the specific impact of those measures on GDP and employment.

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

We look forward to seeing your findings on this key issue.

How do you think this $69-billion in stimulus spending compares with the spending committed by other industrialized countries? We are seeing that this debate is giving rise to controversy around the world.

[Yves Giroux]

That is indeed the case.

We looked at the comparisons done internationally before we appeared here. No distinction can be made between economic stimulus measures and economic support measures related to the COVID-19 pandemic. Most comparisons take both types of measures into account, without distinguishing between them.

When we look at comparisons made by the International Monetary Fund, we realize that Canada is ranked fifth out of the 29 major economies for its direct support and stimulus measures. When it comes to access to credit or financing measures, especially for businesses, Canada is a bit further behind the leading countries.

My colleague Mr. Shaw has a better understanding of those international comparisons.

Mr. Shaw, do you have anything else to add?

[Trevor Shaw, Director, Fiscal Analysis, Office of the Parliamentary Budget Officer]

I don't have anything to add on this issue.

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

Thank you.

Do I have any time left, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

You have one minute.

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

Mr. Giroux, you reminded us that the debt-to-GDP ratio has increased to about 50%. That is clearly attributable to the high spending. You were saying that, over the medium term, it should be about 45%, which is higher than the pre-pandemic ratio.

You also talked about a potential increase of half a percentage point, which would have certain consequences.

Owing to the current interest rates, will this ratio lead to higher spending than before the pandemic, or will the spending be the same?

[Yves Giroux]

Investments and budget spending clearly increase the deficit. Before the budget, we had predicted that the debt-to-GDP ratio would stabilize at levels slightly below that. The debt-to-GDP ratio, with the budget spending, will exceed 51% and will decrease only slightly over the next four or five years. If we combine that with the increase in interest rate predictions, it means that interest spending over those five or six years, between the budget and the end of the planning period, will be about $17 billion or $18 billion more than what we predicted in late March or what the government predicted in late November.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much to both of you.

We will now have Mr. Julian followed by Ms. Jansen.

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

Thank you very much, Mr. Chair.

Good afternoon, Mr. Giroux, Mr. Shaw and Mr. Matier. We are very happy to have you with us. You make an amazing team. You don't have a huge amount of resources, but you do extremely important work. We are also very impressed with your availability to participate in the committee's work. We thank you for that.

Today, your office published an important study on applying a tax to excessive profits earned during the pandemic. I would like you to highlight the importance of that analysis, which is added to the other studies you have conducted over the past two years. You have carried out a number of studies that are very important, but I am also thinking about the financial repercussions of the wealth tax, especially when it comes to tax havens and the money transferred to them.

Can you talk a bit about all those analyses and about what this means for the country's tax policy?

[Yves Giroux]

Thank you for your kind words, Mr. Julian.

The report we released earlier today on corporate profits is designed to estimate how much extra revenue the government could raise if it imposed an additional tax on companies that earned higher profits than would have been expected based on the average of previous years.

Businesses that have revenues of $10 million or more and that have had revenues above that threshold in any of the previous three years are targeted, and their profit margins and the transactions in 2020 are taken into account. Profits in excess of what would normally be expected based on previous years' profits are subject to an additional tax of 15%, and this tax in the 2020 tax year would generate almost $8 billion in revenue.

This is part of a series of other work we've done at the request of various political parties, yours included, Mr. Julian. We've concluded that a tax on the web giants could generate between $2 billion and $3 billion, depending on the parameters. We've also done some work over the years on the tax gap. This concept tries to estimate how much money the government would raise if all the money it is owed were paid to it. We estimate that about $25 billion is lost to the government through a combination of tax evasion, tax avoidance, and loss caused by people who report their income but fail to remit the money they owe the government.

So there is a range of measures that could be taken to reduce this gap. It isn't realistic to eliminate it completely, since there are people who go bankrupt between the time they report their income and the time they should be paying their taxes. So there are some unrecoverable taxes, but it would be possible to reduce the tax gap by $25 billion with some legislation and some tax collection measures, including at the Canada Revenue Agency.

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

Thank you for this. Those studies are extremely important, I think, for the public domain, because we have, in my opinion, an absolutely failed fiscal policy under the previous government. Under the current government it is even worse. We're seeing increasingly this chasm between very wealthy Canadians, with billionaires increasing their wealth by $78 billion during the course of this pandemic, and most Canadian families, who are within $200 of insolvency in any given month. I mean, there is this chasm now of the very wealthy and an increasing number of very poor people in this country, which has been exacerbated by the pandemic.

You mentioned in your comments “exhausting” the fiscal room. You indicated in the past at committee, and you indicated again today, that there really are only two doors. One door is to slash and cut existing programs and simply remove those supports from Canadians who already are struggling to make ends meet. The other is to create new categories of taxation that allow the wealthy, the ultra- rich in this country, to pay closer to their fair share of taxes.

Could you comment on what the impact would be, if we talk about the policies you mentioned—the wealth tax, the excess profits tax, shutting down overseas tax havens—and what that could mean in terms of expanding the fiscal room and allowing for investments that will actually make a difference in people's lives?

[Yves Giroux]

It's all a matter of policy choices that the government makes or could make. For example, if we were to look at more aggressive tax compliance measures, either legislative or administrative policies in terms of actually enforcing more aggressively the legislative pieces that are already on the books, that could contribute to narrowing the fiscal gap of $25 billion. That is the difference between what should be paid to the government, if everybody fully complied and paid the amounts owed under the legislation, and what the government actually ends up collecting. Plugging some of that gap could allow the government to either spend or reduce taxes, depending on policy choices the government would decide to make.

There's also the possibility, as you mentioned, Mr. Julian, of increasing taxes, or rather levying new taxes, on corporations or individuals. These are all policy choices.

As your humble servant, parliamentarians, it's not up to me to comment on whether one should be implemented or not. It's for you collectively to decide as parliamentarians, but additional revenues, of course, could lead to more government spending on programs or reducing other types of taxes.

[The Chair, Liberal, Wayne Easter]

Thank you to both.

We will turn to Ms. Jansen, followed by Ms. Koutrakis.

Tamara, you have a five-minute round.