Finance Committee on Nov. 26th, 2020

[Pierre Poilievre, Conservative, Carleton, ON]

Yes.

[Tiff Macklem]

That's putting a lot of downward pressure on inflation, so we're leaning against that downward pressure to try to keep inflation from falling and, in fact, nudge it back up toward the target.

[Pierre Poilievre, Conservative, Carleton, ON]

That being said, you're quite right that the economy is much worse here than it was in 2008, both in absolute and in relative terms to our competitors. We are the second worst in terms of unemployment in the G7 right now. That was not the case back then.

It is possible for inflation and high employment to coexist. In fact, we had something called “stagflation” in the seventies and eighties. It's incredible that we have core inflation almost at target, even with exceptionally high unemployment, which suggests that you cannot necessarily expect that inflation is going to stay low until unemployment comes down.

What makes you so sure that we will not experience the same kind of bout of stagflation that happened back in the late seventies and early eighties, when governments were pursuing the exact same policies as now, which are big deficits financed by printing at central banks?

[Tiff Macklem]

I agree with you. There are important supply elements to this shock, as well as demand elements. To effect that supply is constrained, it adds cost pressure that will counterbalance some of the downward pressure coming from lack of demand. We are seeing that in some parts of the economy, where we've seen increases in demand or particularly severe supply constraints.

However, certainly from what we've seen so far and that we expect to continue, we think the disinflationary aspects outweigh those cost-push elements, so we think the net effect is negative.

[Pierre Poilievre, Conservative, Carleton, ON]

Could I just ask one last question, Mr. Chair?

[Tiff Macklem]

It may not be that we're entirely right. That's one of the beauties of an inflation target. Our goal is the inflation target and that keeps us grounded. That is what we're focusing on. If it turns out that we're wrong and there's more inflationary pressure than we expect, we will adjust. We have the tools to adjust.

[Pierre Poilievre, Conservative, Carleton, ON]

Can you commit to this committee that you will not abandon the current inflation target? It's a yes or no.

[Tiff Macklem]

Yes.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We'll go to Ms. Dzerowicz and then we'll follow with Mr. McLeod for a couple of minutes.

Ms. Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you, Mr. Chair.

I want to start by saying an enormous thanks to you, Governor, and to the deputy governor, for your tremendous leadership during this pandemic and for your wonderful service to our nation.

I'm going to start with you, Governor. I have three sets of questions, so I'm going to try to get through them very quickly.

You mentioned that Canada has the lowest debt to GDP ratio. You also mentioned that the emergency support programs we've implemented have been very helpful to our economy and prevented a worse outcome.

Can you please tell us how Canada compares with our G7 allies in how we are doing?

[Tiff Macklem]

How it compares on what dimension?

[Julie Dzerowicz, Liberal, Davenport, ON]

It's in terms of how well we're doing with our debt to GDP ratio and our programs. You heard Mr. Poilievre mention that we have a really bad unemployment rate compared with the other G7 nations, even though 76% of all jobs that were lost during the pandemic have returned.

How is Canada doing economically, as we're moving through this pandemic, compared with other G7 nations?

[Tiff Macklem]

The short answer is that all of the G7 countries have been hugely impacted by this pandemic. It has spared no country around the world.

Canada and the G7 countries in general are fortunate to be pretty rich countries and have the fiscal capacity to respond to help the most vulnerable. They have a history of credible, low, stable inflation and therefore have the ability to implement extraordinary monetary policies.

Sadly, many other countries around the world are not so fortunate, and their outcomes are considerably worse.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

You have spent quite a bit of time today talking about how this pandemic has widened the divide in our country and saying that it could worsen further if we don't have the right response. You also indicated, a little earlier in your testimony, that our income supports have been very helpful.

We are known, I believe, to be very generous with our emergency supports. We've created a very flexible EI system, we have the Canada recovery benefit, we've put in a tremendous amount into training and retraining, and I believe that it's anticipated that we will be providing—I don't know when this will be happening—sector supports to those sectors that have been disproportionately impacted.

What more could we be doing? I think this government, from the very beginning when we were elected in 2015—when we increased taxes on the top 1% or reduced them on the middle class and then introduced the Canada child benefit—has been extraordinarily concerned about income inequality. All of our measures are very much concerned about this as well. Is there something we're not doing that we should be doing?

[Tiff Macklem]

I'm going to leave these questions for parliamentarians to debate and come to conclusions on. Let me just highlight a few things, though, that I think you want to make sure are top of mind.

One thing that is important to keep in mind is that what we really have to avoid is longer-term unemployment, because that is really where you will have ongoing costs to society. Just to give you a simple statistic, somebody who is permanently laid off takes twice as long to get their job back as somebody who is temporarily laid off.

[Julie Dzerowicz, Liberal, Davenport, ON]

Mr. Macklem, I'm sorry, but I have one more question for you. I apologize, but I want to get to this one more question, if that's okay.

[Tiff Macklem]

Okay.

[Julie Dzerowicz, Liberal, Davenport, ON]

Then maybe, if you have time at the end, you can finish off what you were mentioning, if that's okay.

It's that so much misinformation is proffered and comes out during this committee's meetings. I believe that my colleague, Mr. Fragiskatos, tried to address this. It's the belief that there's a secret movement afoot whereby the wealthy and elite of our society are trying to use this pandemic to enrich themselves to the detriment of the middle and the working classes.

I want to ask you two very specific questions

Are the Bank of Canada's measures and actions—the bond market purchase and the quantitative easing—specifically designed to negatively impact lower- and middle-class Canadians?

[Tiff Macklem]

Obviously not.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay.

Is the Bank of Canada devising its measures and actions to positively impact the wealthy in Canada?

[Tiff Macklem]

No.

Let me just say that any policy that anybody takes is going to have different distributional effects. We're certainly doing everything we can to minimize those.

We're very focused on using our tools to support the economy, get people back to work and get inflation back to target. We change interest rates. Obviously that's bad for savers: they are getting a lower return; borrowers are getting a better borrowing rate.

There are inevitable distributional effects, but the goal really is to get Canadians back to work and get inflation back to target, and that is a broad-based benefit for society.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both.

I want all of our members to be able to ask a question, so Mr. McLeod, you will have to wrap it up. If you can go to one question and a supplementary, that would be great.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair, I'll be quick.