Finance Committee on Sept. 25th, 2023

Liberal

The Chair Liberal Peter Fonseca

Thank you.

Thank you, MP Blaikie and MP Bachrach.

Members and witnesses, we are moving into our second round. Timing is a little bit different in this round. I just wanted you to know that I am adding 10 minutes onto our meeting today. We started a little late and, also, we suspended for a few minutes.

Now, in this round we have the Conservatives up. I believe it's MP Morantz, for five minutes.

Conservative

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

Thank you, Mr. Chair.

Governor Dodge, I have a few questions that I wanted to get your opinion on. One of them has to do with this issue of whether or not, in our current circumstances, government fiscal policy and the bank's monetary policy are working together.

I want to bring you back to something you said in 2002 at the Donald Gow lecture. You talked about policy coordination and co-operation. You said that inflation targets are joint targets of the bank and of the government and that “when the government changes fiscal policy, it needs to think of how these changes will affect inflation and, consequently, interest rates.”

Those were your words back then.

We know recently that Mr. Manley talked about his quote, which became known in the media, about pressing the gas and the brake at the same time. I wonder if you think, under the present circumstances, that the federal government's fiscal policy is working at cross-purposes to the bank's attempts with regard to quantitative tightening—to try to get rid of some of the bonds that they had to acquire—and the increasing of interest rates?

Senior Adviser, Bennett Jones LLP

I'm not sure I'd use the word “cross-purposes”. All I would say is that it's not providing additional disinflationary pressure at the moment. I think that is correct. Although, in very strict measurement terms, because the deficit actually has been coming down, this year is less bad than last year, if you will.

Conservative

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

I suppose that's something.

The reality is that we saw new spending announced in the spring of about $60 billion at the same time that the bank is trying to get inflation under control. You, yourself, said recently that unless inflation gets under control within the next 18 months, then we're going to be in for a return to a—and you used the words—“pretty awful era” like that between the1970s and 1980s, characterized by a lack of pricing predictability and social upheaval. I know you just said that a couple of months ago.

Are you concerned that, in your words, the federal government has not provided any disinflationary incentive because of its spending, so we're not going to get there and we will be in for a “pretty awful era”?

Senior Adviser, Bennett Jones LLP

Once you lose control, and once people feel that inflation is not in control, then it actually requires much more effort to keep it down or get it back than when people have confidence. I think it's absolutely true that at the moment the level of confidence—certainly the level of confidence in financial markets that we have things fully under control—is not there. Therefore, there's a term premium on interest rates, because there's a worry that we will not be at 2% again.

The bank is pursuing a policy to try to provide a degree of restraint. As I said—

An hon. member

I'm listening to David Dodge at committee, here.

Liberal

The Chair Liberal Peter Fonseca

Could you mute please? Thanks.

We'll add a few seconds. You have about 45 seconds or so.

Conservative

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

Thank you.

Governor, I have one other quick thing. You said in your opening remarks that budgets will need to be roughly balanced. Do you have any confidence that this government is in any position to do that?

They promised to balance the budget by 2019. You know that in the fall economic statement they had promised a surplus in 2027 and 2028 of $4.5 billion. Then, in the spring budget they completely reversed that and forecasted a $14-billion deficit in 2027 and 2028.

How can anyone have any confidence that they're going to be able to take your advice?

Senior Adviser, Bennett Jones LLP

September 25th, 2023 / 4:45 p.m.

I don't think any government has an easy time in balancing the budget. It doesn't matter what government it is. It doesn't matter when it is. That is always true.

This is particularly difficult at the moment, as I tried to point out in my opening remarks, because governments need to make very large investments and they need to provide room for the private sector to make very large investments. That's very difficult to do when they have to continue to strike a balance. It means that other important items have to get less.

The terrible job—I use those words advisedly—of governing is that you have to make the choices of how you strike that balance. It's not easy.

Liberal

The Chair Liberal Peter Fonseca

Thank you, Mr. Dodge and MP Morantz.

Now we'll go over to the Liberals with MP Dzerowicz.

Liberal

Julie Dzerowicz Liberal Davenport, ON

Thank you so much, Mr. Chair.

I want to thank all of our excellent witnesses today. Honestly, I, too, have hours of questions but only five minutes.

I just want to mention very quickly to Mr. Freedman that I read your recommendations and fully agree with all of them. Thank you. Local media is critical. I think we need to do far more. I think we're all struggling with what that is. I appreciate your recommendations.

Questrade, you've made some very thoughtful recommendations. I'm particularly partial to open banking. I know there are countries like Australia that are at version two, three and four. I know that we are trying hard to get to version one. I think it's critical for us to do so.

I'll direct my first question to Mr. Dodge and then I'll ask Ms. McLellan to follow on it.

Mr. Dodge, you did a great job of talking about a lot of the global shifts that are happening right now and about the very unique situation that we're in right now. I'm a very big supporter of finding ways to make our internal economy stronger and more resilient. Do you agree that we should be moving on eliminating interprovincial trade barriers? If so, how do we do that?

There are many who say that we've studied this for a long time. We're not able to move. If we take away wine and beer, there are thousands of other things we can be moving on. How do we get started on it? Do you think it's important for us to do so?

Senior Adviser, Bennett Jones LLP

Everywhere and always, trade barriers are bad in the sense that they raise the real cost of producing goods and services, they reduce competition and they encourage monopoly, all of which are bad for the consumer, for productivity and for the economy. Yes, everywhere and always, pulling those barriers down is critical.

Having said that, our constitution is set up to give powers of regulation, in many of the important areas, to the provinces. To the extent that those provinces individually want to exercise those powers in a way that creates barriers, it is very difficult.

Historically, I have to say, ever since Justice Haldane and the JCPC back in the 1890s, the federal power to regulate trade and maintain that balance has been eroded over time. The trade and commerce power, which initially the fathers of Confederation viewed as being a very powerful, transcendental power, has been eroded by our courts.

We have ourselves to blame for it, but it's not something the federal government alone can deal with because the regulatory powers that create the barriers are provincial powers.

Liberal

Julie Dzerowicz Liberal Davenport, ON

Ms. McLellan, how would we go about eliminating interprovincial trade barriers, given the challenges that Mr. Dodge just talked about?

Co-Chair, Coalition for a Better Future

Anne McLellan

First, let me say that Mr. Dodge should be teaching constitutional law somewhere, as I did for many years.

You did a good job, David.

On trade and commerce power, I think it's fair to say that, wherever Lisa and I go and when we talk to our members, one thing we hear is the importance of reducing interprovincial trade barriers. David may have a better estimate than I do, but it's at least $3 billion annually, if not more, that we're just leaving on the table in relation to interprovincial trade barriers.

David is right that these trade barriers emanate from the provinces, and I do think that you've seen some progress. I am sitting here in my home province in Edmonton, Alberta, and certainly Alberta, along with Saskatchewan and Manitoba, has made some small progress in terms of reducing interprovincial trade barriers.

I think it requires the collaboration of the provinces, the territories and the Government of Canada, everybody working together, in fact, identifying...and we have done this. We have done this, as you know, for decades, quite truthfully, but it's continuing to identify the barriers and having honest conversations about who the winners and the losers will be—because there will be some of both—and how we mitigate the losses for those who are identified as losers and move forward.

We hear over and over again that Canadians, let alone our members, do not understand why, as a federation, we continue to have these non-tariff barriers that get in the way of the free movement of goods and people. Yes, small steps have been made in this regard, but we have a long way to go.

Liberal

Julie Dzerowicz Liberal Davenport, ON

Can I ask one more question?

Liberal

The Chair Liberal Peter Fonseca

No, we don't have time for a question. Do you want to make a quick comment before we move on?

Liberal

Julie Dzerowicz Liberal Davenport, ON

No. I have a whole other question.

Liberal

The Chair Liberal Peter Fonseca

We're off to the Bloc and MP Ste-Marie, please, for two and a half minutes.

Bloc

Gabriel Ste-Marie Bloc Joliette, QC

Thank you, Mr. Chair.

I'd like to thank Ms. Dzerowicz for giving me her remaining time.

Mr. Poirier‑Monette, Canada is one of the worst countries in terms of replacement rates. I would like to ask you to explain to us again what the replacement rate is.

In connection with that, you say that the government must review its indexing method. It's currently based on the consumer price index, but it should instead take into account changes in average wages.

Can you explain that again and remind us of your request?

Special Advisor, Government Relations, Réseau FADOQ

Philippe Poirier-Monette

Thank you very much for your question, Mr. Ste‑Marie.

It's often said that, in retirement, to have a standard of living equivalent to the pre‑retirement standard of living, you have to have a replacement rate of 70% of your pre‑retirement income. Let me give you an example in round figures. If someone earned $100,000 a year before retiring, the goal is to have an income of $70,000 a year at the time of retirement. That is what will allow them to maintain the same standard of living.

In Canada, we have various types of retirement support. First and foremost is the old age security program. These are the foundations, the base. Then, in Quebec, there is the Quebec pension plan; in Canada, there is the Canada pension plan. Then there are private pension plans, as well as individual savings.

With the public plans in Quebec and Canada, we arrive at an income replacement rate of about 40%. We can see how high the stride is to achieve the 70% income replacement rate. Of that 40%, 25% comes from the Canada pension plan or the Quebec pension plan, while about 15% comes from the old age security program. So it represents a fairly low replacement rate for the average wage.

In terms of the method of indexing the old age security program, the problem does not concern those who are currently retired, because indexing to the consumer price index, the CPI, means that they do not lose purchasing power. Indexation is done on a quarterly basis. The problem has more to do with future retirees.

As I was saying, the old age security pension currently replaces about 15% of the average salary. However, since the CPI changes less quickly than wage growth—about 1%—people who earn an average wage and who will retire in 20, 30 or 40 years will have a lower income replacement rate from old age security.

We're just saying you have to look at the CPI, but you also have to look at wage growth. Otherwise, year after year, the old age security pension will play a less important role in the replacement rate of future retirees' retirement income.

Bloc

Gabriel Ste-Marie Bloc Joliette, QC

That's very clear.

Thank you very much.

Liberal

The Chair Liberal Peter Fonseca

Thank you, Mr. Ste‑Marie.

Now we go to MP Blaikie, please, for two and a half minutes.

NDP

Daniel Blaikie NDP Elmwood—Transcona, MB

Thank you very much.

To the Green Budget Coalition, I know in your budget submission you talk about youth employment programs to build a more equitable and inclusive future for conservation. I just wonder if you could expand a little bit on what you think some useful employment programs for youth would be in terms of both mitigation and adaptation.