Finance Committee on May 18th, 2021

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

I promise I didn't try to pull a trick there, Mr. Chair. I promise. Thank you.

[The Chair, Liberal, Wayne Easter]

I think Gabriel and Peter Julian are competing with colourful rooms here today.

Go ahead, Gabriel. You're on for six minutes, followed by Mr. Julian.

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

Thank you, Mr. Chair.

My regards to all the witnesses and my thanks for their presentations, which were very interesting.

My questions go to Mr. Poloz.

Good afternoon, Mr. Poloz. It is always a pleasure to have you at the committee and to hear what you have to say. Your presentations are always crystal-clear.

I will start with a question about what you have just said on immigration as an important engine of economic growth.

When you say that an immigration rate of 1% can bring about a 1% increase in economic growth, does that also hold true in measuring the per capita GDP, the gross domestic product?

In your opinion, one of the factors limiting an increase in business productivity is the labour shortage. Did I understand correctly? Would you like to mention anything else?

[Stephen S. Poloz]

Thank you for the question, Mr. Ste-Marie.

If you don't mind, I'll answer in English.

I was making a very rough statement. Let me dig into it a little more.

Labour force growth will be at roughly the same rate as immigration because Canada's aging workforce is no longer generating growth itself. It's going to stop generating growth in the next two or three years. All of our net labour force growth will therefore come only from immigration, unless of course we're able to boost participation from under-represented sectors, such as women, indigenous Canadians, etc. These are important considerations around the edges.

That 1% growth is roughly the immigration target. The government has actually targeted a little higher than that 1% growth. We can assume about 1% economic growth from that. Doing it that way suggests there is no increase in per capita growth. That's implicitly what I'm saying. I'm not saying that's what will occur; I'm saying that's just a simplifying assumption. In fact, we would expect that it would add to productivity for two reasons. One is something you alluded to, which is that there are, in many sectors, shortages of workers. That impedes the productivity of firms that can't find the workers. These would be in various skill sets. The other is that, on average, the immigration populations are more entrepreneurial than the average domestic population is—that is, they start more small businesses—and those new businesses add to productivity at the margin. These are not large effects that I'm talking about, but that's what you need to boost per capita income—some extra effects like that.

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

Thank you. Your comments are very interesting.

Is this labour shortage cyclical or structural? Is it a problem, or a challenge that will last a number of years, given the aging population?

[Stephen S. Poloz]

I think it is fairly structural. It's not just a short-term cyclical thing. What we have are very important structural changes in the economy that are giving rise to persistent excess demand in the trades— construction trades. We know we're going to be building infrastructure heavily for the next 30 years—lots of green infrastructure for sure, lots of transit infrastructure, since ours is aging. We know there is going to be a lot of demand for the construction trades. The housing sector continues to grow of course, and immigration will fuel that. I think that is a structural shortfall.

I think we're going to see increasing demand in the health care sector given the aging workforce. There are going to be shortfalls there, not just in doctors but throughout the whole chain. Those are just some examples. I definitely think it's not a cyclical thing; it's a structural thing.

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

Thank you very much.

How much time do I have left, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

You have two minutes.

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

Okay.

Mr. Poloz, it is a little early to draw conclusions about the current pandemic, which we are not yet out of.

However, we can still see what the last 14 months and a few days look like in the rear-view mirror.

In your opinion, could some policies or actions have been different, both for the Bank of Canada and for the government?

[Stephen S. Poloz]

You're asking about lessons learned, I guess.

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

Yes, exactly.

[Stephen S. Poloz]

Okay.

Well, I do think it's early to be drawing real lessons, but I guess from my own point of view, I would say that speed mattered. You see some countries that were slower to react, just because fiscal policy requires a bunch of negotiations or something passed in their parliament or in Congress. I think one of the things we did well was that we made tools that are, as I call them, “elastic”. They get bigger if the economy is more challenged. They get smaller when the economy does better. That's a form of automatic policy. I think the lesson that everyone around the world has learned is that the more automatic tools there are, the better things work in this situation.

We also learned that fiscal policy is the most important tool when interest rates are so low. Not only is it the only one that really can work, but it's a very powerful tool. That's something we knew since Keynes in the 1930s, franchement, but I'm glad it worked the way that it was said it would.

That's a limited answer for now. I think we should give it more time.

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

Thank you.

[Stephen S. Poloz]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you. We're getting you economists on a roll.

Welcome, Colleen Kennedy, to the screen. We see you.

We'll turn to Mr. Julian for six minutes. Then there will be a split between Mr. Falk and Ms. Jansen, I believe.

Mr. Julian.

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

Thank you very much, Mr. Chair.

Thanks to all of our witnesses for coming forward today. It's very important testimony. We hope that you and your families continue to be safe and healthy through this pandemic as the third wave crashes on our shores.

I'd like to start with you, Mr. Macdonald. Thank you so much for your testimony today. You pointed out a number of things that should happen with overall revenue. You're not concerned about the deficit, but we all need to be concerned about the profoundly unequal tax system that we have. The government is refusing to put into place a wealth tax, though it worked in the Second World War; is refusing to put in place a pandemics profits tax, even though we know it's an effective measure that other countries are taking; and is refusing to take any meaningful action against overseas tax havens that the PBO tells us cost over $25 billion a year.

How important is it to have a fair tax system to actually put in place those measures so that we have the wherewithal and the resources to help so many people who are struggling now through the pandemic and in the rebuilding afterwards?

[David Macdonald]

Thanks, Mr. Julian, for the question.

Certainly, the tax system can play the role of equalizing or creating a more equal society in an after-tax sense, which is to say taking that money and redistributing it, but also restricting the maximum gains you get at the top end.

In terms of raising the revenue, of course, what this does is it provides us with fiscal room for additional programs. For instance, if we wanted to further expand the child care program or provide much better standards of long-term care from new transfers to the provinces, this is the sort of thing that would give the federal government more flexibility in doing so.

The present federal government's take of the Canadian economy in terms of revenue to GDP is relatively low. It has been much higher in the past. We're nowhere near all-time highs in the revenue take on either the revenue side or the expenditure side of the federal government. The points that you mention about a wealth tax or an excess profits tax are additional things that I think are worth examining in the context of COVID-19. That's in addition to other measures—for instance, some way in the short term of clamping down on profit-shifting as we wait for the BEPS committees at the OECD to work through international proposals on how we do that in a more coordinated way.

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

Thank you very much.

I'd like to come back to one of the big missing pieces of this budget. We had a vote in February on our proposed Canada pharmacare act. The government members voted against that legislative framework modelled on the Canada Health Act for pharmacare. Pharmacare, of course, has basically been tossed aside, even though it was something the government committed to in the 2019 election.

How important is it to have in place pharmacare given the economic costs of not having public universal pharmacare in place, and also the social costs of having 10 million Canadians who have no drug or medication plan to pay for often life-saving medication?

[David Macdonald]

Certainly, in the context of the pandemic, many Canadians are receiving drug insurance through their employers. With the big disruption in employment over the course of the pandemic, in particular in the sectors where there are often more women than men, not only are you seeing a certain sector of the population that is just not covered for drug insurance, but you are also seeing another section of the population whose drug coverage may well have been interrupted during the pandemic.

When we look at this as an economy-wide problem, there can be substantial savings from a national pharmacare plan. One of the challenges, of course, is that the savings don't necessarily all go to the same place. The provinces might see savings from pharmacare, because they would see reduced health care costs, whereas it might be the federal government that pays for it. I think that sorting out the jurisdictional issues has, unfortunately, really retarded the development of a national pharmacare plan that, in an aggregate sense, would likely lead to savings, except that those savings will go to different places from who pays for it.

Certainly, in the context of a national pandemic, it highlights the need for coordinated action on health care issues generally in public health, but also certainly on things like drug coverage.

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

Thank you very much.

You also referenced a climate emergency. We have a bombshell—there's no other way to put it—International Energy Agency report this morning that states that if we are to stave off a profoundly damaging climate emergency, we have to say no to new oil and gas projects.

This government has invested heavily in oil and gas subsidies, as we know. We have the government as well, so far, pumping $18.5 billion into the Trans Mountain project, which is vociferously opposed by first nations, by British Columbia and by the cities involved. To what effect should the government be switching from these massive subsidies for the oil and gas sector and building Trans Mountain to actually investing in clean energy infrastructure, clean energy development, and the hundreds of thousands of jobs that come with that?

[David Macdonald]

This is really an ideal time, when we look at the cost, to take out new debt to pay for the things that we need to move away from reliance on fossil fuels, not only to get around in terms of transportation but also in terms of key industries in particular provinces. This is the time to start to develop just transition strategies, so that workers who did work in oil and gas, who made good money working in oil and gas and flew in to work in that sector, can find someplace else where they can also make good money. It's not reasonable to simply abandon workers on this path to net zero.

That's not going to happen tomorrow. It's not going to happen by 2025. It's going to happen by 2040 or 2050. But now is the time to start, particularly at a time when we can make critical investments in those areas. It's not a time to put this off out of some fear of high interest costs when we have such low interest costs on new debt that we might incur toward that end.

[The Chair, Liberal, Wayne Easter]

We will have to end that round there.

We will go to, I believe—you'll have to correct me if I'm wrong—to Mr. Falk and Ms. Jansen, who will be splitting their time. No? Who's on?

[Ed Fast, Conservative, Abbotsford, BC]

Mr. Easter, I'll be taking this round.

[The Chair, Liberal, Wayne Easter]

Okay. You guys are switching all over the place today.

[Ed Fast, Conservative, Abbotsford, BC]

We are.