Finance Committee on Sept. 21st, 2023

[Véronique Laflamme]

We agree with the previous witness. Market-based solutions have been favoured by the federal government for over 25 years, since it withdrew from direct funding of social housing. The housing and homelessness crises, felt from coast to coast in Canada, are partly due to the federal government's abandonment of the social housing sector.

As I mentioned earlier, when tenants who are undergoing a separation, women who are victims of domestic violence or people who can no longer make ends meet due to the high cost of housing have to leave their homes following an eviction, for example, they no longer have a social safety net. There's no housing for them. This is one of the reasons for the rise in visible and invisible homelessness. So we need to get back to structural solutions, for which we have an assurance of sustainability and an assurance that we're going to meet the most urgent needs.

As for market-based solutions, we don't believe flooding the market with new private housing is going to solve the affordability problem. We won't see a drop in prices. We need to intervene to flood the market with nonprofit housing, which will help reduce pressure and, at the very least, curb this inflationary trend.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Ms. Bruske, advocates for pharmacare certainly emphasize the benefits to human health and the health of Canadians and also some very real financial benefits. I wonder if you could speak about the importance of the single-payer model in realizing those financial benefits.

[Bea Bruske]

I'm sorry. Was that directed as me? I didn't hear the introductory part.

Certainly we believe very strongly that a single-payer pharmacare system is what is needed in Canada, and we hear from workers daily that they are falling through the cracks in not being able to access the medicines they need.

It is critical that we provide the same level of coverage right across this country, regardless of what sector or what geographical location people are in. This is because we know that a single-payer pharmacare system also means a decrease in the cost to provide that kind of service to all Canadians. We know, based on the Hoskins report, that tangible savings can be seen not just for individuals, but also for employers and businesses right across this country.

It is critical that every Canadian be able to access the medicines that they need so that they don't end up in doctors' offices and they don't end up in emergency rooms, and the only way to do that is to actually implement a full single-payer pharmacare system right across this country.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Apparently I'm out of time. Okay. It's for the next round.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie.

For the second round—that's what we're moving into—we are starting with the Conservatives. Timings are a little different in this round, just for the witnesses' knowledge. It will be five minutes for MP Morantz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Dr. Lee, thank you for being here. I wanted to ask you about the recent calling in of the grocery executives to Ottawa to dress them down for their so-called obscene, gross profiteering during the pandemic.

I would have loved to have been a fly in the wall for that meeting, but I'm pretty sure that when they showed up, they would have said something like, “Well, our margins are between 2% and 4%. Really, the problem has to do with the supply chain, and there are all kinds of reasons for that.”

One of the things that concern me, though, is that the Prime Minister has said over and over, as recently as yesterday in question period, that if they didn't lower their prices, he would hit them with a punitive tax of some sort. I'm wondering if I could get your thoughts on the idea of a tax. I'm not sure how a tax on grocers makes groceries more affordable for consumers.

Also, I'd like your thoughts on this idea that the government would publicly decide to use a tax as a punitive measure to punish a business because the business isn't doing exactly what the government wanted it to do, and what that says about our society.

[Dr. Ian Lee]

Thank you.

I'm sure you all know taxation has been studied by scholars and practitioners going back literally into the Middle Ages and going back to the government of England. It was the original instrument of government policies long before other, more sophisticated instruments came along.

Nobel prizes have been given in this subject. I'm going to summarize really quickly, and I think I'm fairly conveying the consensus of research in thousands of books and articles and so forth.

A tax increase is contractionary because, like interest rate increases, it takes money out of your pocket. A tax is defined as a “compulsory payment to government”. That's the OECD definition. Taxes raise costs. They don't reduce costs.

It doesn't matter what the motive is. We won't get into motive, whether it's because we're trying to reduce the use of carbon or we have some other alcohol taxes because we want to discourage alcohol. It doesn't matter what the reason is; when you put a tax increase through, it raises prices, and when you put a tax cut through, you cut prices.

In fact, I agree with Mr. Rabidoux about the tax cut for rental housing. That's going to be a game-changer for rental properties because it's going to reduce prices. It's not going to increase prices; it's going to reduce them, because they're reducing the tax. If such a tax was imposed on food prices in Canada, ceteris paribus, it would raise the price of food. The research, the literature and the empirical data on this are so crystal clear. I just can't explain it.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Could you touch on this idea of using it as a punitive measure, because that's sure what it sounds like? It sounds like a threat.

Is that appropriate for a government to be doing in Canada?

[Dr. Ian Lee]

Let me go more to a big picture, because I'm worried about this, as I've already mentioned in my opening comments. Nobody is talking about it in this country hardly at all, except David Dodge, I think, and a few other people like that.

We are seeing a decline in business capital expenditures. People's eyes glaze over and they say, “Capex, what's that?”

Philip Cross, a very senior distinguished economist for 35 years with StatsCan, came to my class just before the pandemic, and he put it really nicely. I've been using it in my class ever since: If you want to know what any economy in the world is going to look like in three, four or five years, look at total aggregate business investment today; if it's going down, your economy is going to look pretty shabby in three, four or five years.

Why? It's because business capital investment is the plant and equipment and the machinery that produces the growth, the revenues and the sales of every business in the economy. It is not just another investment; it is absolutely crucial to the prosperity and the standard of living of any country, anywhere—and our business capital investment is going down.

Now, to your question, if we start threatening companies, it doesn't matter what the motive or the reason is. We can have the best motives of all, but the road to hell is paved with good intentions. My point is that all we're doing is putting a target on us by saying, “Foreign capital or FDI, whether it's foreign direct investment around the world or domestic capital, we're not very friendly to you.” We're putting a target on us and saying: “Don't invest here. The United States is much more friendly and Europe is more friendly. Go there. Don't come here.” That's the last message on earth that we want to send to investment, because investment is mobile. We cannot compel investors with money to invest in Canada. They have choices.

That's my reaction to that.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Is that it, Mr. Chair? I have so many more questions. Just two more minutes...?

[Voices]

Oh, oh!

[The Chair, Liberal, Peter Fonseca]

You'll have more time, MP Morantz.

We'll go to MP Baker for five minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks so much.

I'd like to come back to Mr. Brosseau.

Mr. Brosseau, did you want to add anything at all to that discussion that was just happening? If not, I have some questions for Mr. Lee to follow up on your testimony.

[Daniel Brosseau]

I agree that investment is fundamental to the vibrancy of the country. Canadian pension funds leaving Canada is not a good sign. It's bad.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Okay.

[Peter Letko, Senior Vice-President, Letko, Brosseau & Associates Inc.]

Could I add something to this?

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Sure.

[Peter Letko]

It's really important to understand what pool of capital is available here in Canada and who controls it. You have banks that have about 36% of financial savings, pension funds with about the same amount and insurance companies with about 27%. They each have different strategies that reflect the nature of their liabilities.

For banks, if you got your salary last week, you go to the bank and you go to the automatic teller and take your money out almost immediately. Banks have a very short investment horizon, so they tend to invest in short-term loans.

In the insurance industry, it's a longer-term liability, but it can be calculated out and it's quite structured. What insurance companies do is buy bonds of various durations over time.

Pension funds have capital available for the very long term: It's very stable capital and it can withstand lots of volatility. It's perfect for investing in equity, ownership in businesses and taking risks.

What we try to illustrate here is that the money is not staying in Canada. We've had a huge shift away from Canada, whether it's in the public markets or even in private equities. It's not good. This is a serious issue.

You have a pension fund like the Ontario Teachers' plan, which has 0.1% invested in Canadian stocks. Now, think about this for a second. They represent the people. The beneficiaries there are the folks who are training the next generation of Canadians for productive employment, and they're not investing in this country.

That is a big problem. It has to be addressed. We have some ideas on how we can do that. It may involve a bit of detail, but perhaps I could just stop there.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

That's very helpful.

I have a minute and a half left with the two of you. I'll go with Mr. Brosseau, and Mr. Letko, if you'd like to answer, it's up to you.

You were talking to my colleague Ms. Dzerowicz about how you would go about ensuring that pension funds were invested here. You were talking about a reserve system. In 60 seconds, could you describe to us what that would look like?

[Daniel Brosseau]

Probably not.

[Voices]

Oh, oh!

[The Chair, Liberal, Peter Fonseca]

Do your best.

[Daniel Brosseau]

Okay.

If you have $100 to invest, do you invest it in Canada? You're not looking at your liabilities. You're either in solvency or a going concern. They are what they are. You look at your assets. With $100 invested in a Canadian company, your assets are valued at $100. For $100 invested in an Indonesian bank, you cut it to $80. The other $20 is a reserve. You still make the money on the $20, but you're only credited for $80.

The sponsor will say, “Do I really want to put up an extra $20 when I could get the same credit if I invested it in Canada?” The tendency would be to say, “No, I don't want to put up extra dollars.” That's basically the reserve system. For things that you want to discourage, you ask them to set aside reserves, and when you calculate the assets, you discount these reserves. That's all. It's very simple. You can do that by regulation.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

That was excellent and it was very helpful. That was 60 seconds, so it can be done. Thank you.

If I may, colleagues—I apologize to the witnesses here—I would like to briefly take my last minute, Mr. Chair, to give a notice of motion. I don't plan to move it today and I can't, but I would like to give colleagues advance notice. I will read it now into the record, and we will email this to the clerk as well so that all members have a copy.

The motion is:

That the committee undertake a study of the current state of Canadian pension funds and the plans' investments of Canadians' retirement savings abroad; that as part of this study, the committee study the drivers of greater investment allocations outside of Canada, assess the associated economic impacts to Canada's economy, and consider the merits of increasing Canadian domestic allocation; that the list of witnesses include executives of Canada's federally regulated pension plans, experts and academics to testify; that the committee hold no fewer than two meetings on this subject.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker. That is the time.

Now we will go over to MP Ste-Marie for two and a half minutes, please.