Finance Committee on Oct. 19th, 2023

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

Thank you, Mr. Chair.

Mr. Duceppe, at the end of your presentation, you talked about the difficulties the media are currently experiencing. It's essential to have access to quality information. Could you comment on that?

If you still have a bit of time after that, could you also comment on a possible minimal tax rate for multinationals of 25%, rather than 15%, that would be used to combat the use of tax havens?

[Yvan Duceppe]

Indeed, the country's media have experienced a major crisis, but they aren't the only ones. We know this, and we see it in the debates around certain laws that say digital giants should pay their fair share of taxes.

Not only do we want them to pay their fair share of taxes, we also want them to stop sucking—and those are my words—resources away from newsrooms. We applaud the efforts currently being made to achieve this in the context of this tug-of-war, which we also support.

In the meantime, our media are crying out—as we recently experienced back home—because there has been a major closure of local media in the Montreal region. If we don't support them and wait for agreements to be reached, there will be agreements, but the media will have closed their doors, which is not very positive.

So we want to be very proactive in this respect. We also need to think about media other than print media, because I think it's becoming urgent to take action to support newsrooms in radio and TV stations, too.

So it's still important.

I'll turn it over to Mr. Bélanger so he can add a few points.

[François Bélanger]

Under Pillar two of the OECD/G20 agreement, a minimum tax of 15% is recommended for multinationals. We recommend that this tax be set at 25%, because it would take into account the provincial tax that is added to the federal tax in most Canadian provinces.

In Quebec, the tax rate charged to large corporations is about 11.9%. Adding the federal tax would put other countries on a par with Canada. In this way, the tax burden on large multinationals would be fair for all countries. That's pillar two.

Pillar one of the OECD/G20 agreement focuses more on the federal tax on digital services. On this topic, we can commend the current government for refusing to extend the deadline for negotiating this tax with other countries. There have already been several postponements on this issue since 2021. The government should therefore stick to implementing this tax in early 2024.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

Now we'll go on to MP Mr. Blaikie.

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

Dr. Stanford, there's been a lot of talk, for a while now, about the state of the Canadian labour market. We know that, when it comes to skilled tradespeople, we have a shortage in Canada.

I'm wondering if you can speak to the role that significant, steady, predictable public investment in things like housing or the new energy economy could play—whether it's public investment directly or it's private investment incentivized by good public policy—in helping to create the conditions under which companies are comfortable recruiting and training a workforce to the size and capacity that we require to renew Canada's energy economy and create a lower-carbon energy economy, as well as to meet the demand that we need in the labour market to solve the housing crisis.

[Dr. Jim Stanford]

Thank you, Mr. Blaikie.

I have always been a bit cautious about accepting the idea that there is a labour shortage in Canada, even in high-skill occupations in particular. You mentioned skilled trades in the construction sector and elsewhere. I think that this focus on so-called labour shortages has been somewhat misplaced.

To be sure, the unemployment rate is relatively low by historical standards—it's 5.5% today—but that's still 1.2 million officially unemployed Canadians. That doesn't tell the whole story about underutilization in our labour market. If you include other groups of people who aren't working or aren't working to the fullest of their capacity but who would like to be, including involuntary part-time work, discouraged workers, marginally attached folks and so on, then underutilization is much higher than that.

To be sure, in some particular occupations and industries, companies have a hard time locating precisely the right skilled people at the exact time that they want. I will point out that the most severe labour shortages are actually reported in very low-wage, low-skill industries like the hospitality and retail trades, where employers complain they can't find workers, yet continue to offer well below-par wages, benefits and schedules.

In some specialized occupations, some construction trades and some health care-related fields, I would say more genuine skill shortages are an issue. This is where companies need to be pushed and encouraged with both a carrot and a stick, perhaps, to invest with more foresight and long-term commitment to a pipeline of trained and experienced workers who can fill the roles as they become available.

Your basic point on a steady flow of work in construction, including public infrastructure and, I would say, affordable non-market housing projects, would establish a baseline of work that would make that labour force planning dimension of construction more reasonable. It would also support Canada's economy through the next year or two when we expect Canada to experience at least a shallow recession.

Having an inflow of public capital spending would have important macroeconomic benefits as well.

[The Chair, Liberal, Peter Fonseca]

Thank you, and thank you, MP Blaikie.

Now we go to MP Lawrence.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you.

I'm going to take some of my own advice, which I've often given to people. That's to get out of the echo chambers and ask questions of people with different perspectives.

Mr. Stanford, I'm going to put this question to you. I realize you're far smarter than I am, but I think we may even have a little bit of an agreement here. I can perhaps accept your conclusion that increasing productivity doesn't necessarily increase wages because sometimes those funds could go the other way or labour conditions could lead to those monies going to places other than labour.

My question, though, is this: Is an increase in productivity not a necessary condition for increasing wages—not sufficient but necessary—such that if we don't have increasing productivity we can't have wages increasing?

[Dr. Jim Stanford]

Thank you, Mr. Lawrence, for the question and for your commitment to getting out of the echo chamber, which I heartily endorse.

I would not say productivity is a necessary condition for wage increases. It is possible, even with zero productivity growth, to have real wages increase. That would imply that the labour share of GDP would have to increase. That means some other factor of production in the economy would have to get a smaller slice of the pie at the end of the day.

In the current moment, that's not a hypothetical question because we have seen a significant shift in the composition of income distribution across factors in Canada away from labour, compensation, wages, salaries and supplementary benefits towards corporate profits. The corporate profit share of GDP reached an all-time high in Canada in 2022. This reflected the fact that companies in many industries—not all—were able to take advantage of the pandemic, the disruptions, the shortages and the consumer desperation to increase prices above their own costs. This is a significant reason why inflation spiked and it is exactly why corporate profits grew.

For a while, it is possible to have wages increase without productivity changing at all, as long as that corporate profit share reverts to some more normal ratio of overall output.

I will point out that central bankers around the world, such as Ms. Lagarde at the European Central Bank and President Biden south of the border have indicated the importance of the normalization of corporate profit shares as part of the disinflation process that we have to go through to get inflation back to target.

For a while, anyway, it is possible for wages to grow without productivity growth.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

[Dr. Jim Stanford]

In the long run, we would need productivity growth to pick up in order to underwrite sustained prosperity.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I'm glad I didn't interrupt you there. That was what I was looking for from the last five seconds of it.

Thank you very much, Dr. Stanford.

[Dr. Jim Stanford]

Thank you.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I really do appreciate your answer there and your frankness and candidness.

I'll go back to Mr. Dachis.

I have the same question for you. If we want to help the most vulnerable, if we want to help the workers of Canada, does it not make sense to increase productivity, to grow the pie otherwise so that everyone has a larger slice?

[Benjamin Dachis]

Since Jim agreed with some of what I said in the opening statements, and that was written in Hansard, which we should make sure to take a look at, I am going to say that I agree with something that Jim said, which we should take a look at it. It's the questions around labour shortages. Labour shortages should result in higher wages. That's what we want.

One thing we should really be looking at as part of supporting Canadian workers is our immigration programs, where we need to have a real think about whether our focus on bringing in lots of workers with not a lot of regard to their skills is the right approach to improving Canadian prosperity. Is that potentially leaving companies off the hook? What we should be really focused on is getting them to invest in capital, to be able to work, do their jobs and produce their products with fewer workers, and then the workers are even more productive—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I'm sorry, Mr. Dachis; I'll just jump in there. I just want to agree with Mr. Blaikie on something here, and I want to get your comment on it quickly. We do have too much capital locked up in Canadian corporations, and we need more capital put to productivity. Where I may disagree with Mr. Blaikie—I don't know—is that I think one of the keys to that is competition. We need more competition in our economy to push our companies to use that capital to compete to buy new equipment to be more productive.

[Benjamin Dachis]

Yes, we need to create investment opportunities for them. For example, I think about the regulatory approval process, where companies are looking to invest in Canadian electricity, the oil and gas sector and mining. When there's an overly cumbersome approvals process that's uncertain, especially now that we are uncertain as to what the Impact Assessment Act is going to look like, we need to improve certainty, and that's going to lead to more investment.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

We'll go over to our last questioner for this session. It's PS Bendayan, please.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you very much, Mr. Chair.

I'd like to welcome all the witnesses, in particular Professor Pineau from the HEC business school in Outremont, which is very dear to our hearts. I'll have some questions for him in a few minutes.

I will begin with Professor Stanford.

Professor Stanford, you mentioned in your opening statement the claims from the Conservatives—and I've certainly heard these claims—that the federal deficit has been a significant cause of Canada's recent inflation. These are simply not true. As an economist, as someone who is completely independent and an expert in the topic, can you provide our finance committee with your view? Can you help Canadians unpack that?

[Dr. Jim Stanford]

The government ran a very large deficit during the worse days of the pandemic and rightly so, and so did governments around the world. Those deficits resulted from the emergency programs that were put in place, including the CERB, the various versions of the CERB and the wage subsidies intended to try to retain employment relationships between workers and employers at a time when there was no work that could be done for health reasons. Those deficits occurred at a time of weak inflation and, in fact, for a short period of time during the pandemic, disinflation. Consumer prices were falling in Canada, and moreover, those deficits—

[Rachel Bendayan, Liberal, Outremont, QC]

I apologize for interrupting, but if I understand your earlier testimony correctly, those deficits have largely if not entirely disappeared. Is that right?

[Dr. Jim Stanford]

Yes, exactly. That was going to be the next part of my sentence. Those deficits quickly disappeared when the CERB and the other emergency programs were eliminated. We've seen a historic restoration of fiscal balance faster than was expected at the time, in part because of the faster economic recovery that those emergency programs facilitated.

Now we have a situation where the budget in national accounts terms is effectively balanced and cannot be playing any role. There's an argument that has been made that the fiscal stimulus overdid it and that Canadians piled away billions and billions of dollars of extra savings that are now being used to pump up the prices of scarce commodities, and that's not consistent with the evidence. In fact, savings rates among Canadians are still higher than usual, so Canadians are still saving, not dissaving. They're not spending that pile of cash. One of the reasons they're saving is that they're worried about a recession coming around the corner. Ironically, the fear of a recession can make the risk of recession greater, because consumers stop spending and start saving.

Neither at the time of a deficit nor afterwards is there a convincing macroeconomic case that those temporary deficits caused the inflation. Inflation has been a global phenomenon. There's no relationship in countries between the deficit size and the inflation that they've experienced.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you for that explanation.

You also mentioned the government is likely to outperform its official projections, for both revenue and other benchmarks, in the coming years.

What are you basing that on, Professor?

[Dr. Jim Stanford]

That comes from my experience as a macroeconomics policy analyst over the last decades. I have, many times, seen finance ministers practice and perfect the art of under-promising and over-delivering, in terms of setting forecasts that are deliberately pessimistic so that, at the end of the day, they can stand up and say, “Look, prudent fiscal management has allowed us to get to this happy point.”

That was obviously about to happen last year. If you look at the fiscal monetary reports, the federal government actually ran a surplus over the first 11 of 12 months in the last fiscal year, equal to $3 billion. Then, suddenly, in the last month of the year, the government made some announcements, many of which were very important. These were prefunding health care transfers to the provinces—and so on—that got the budget back into deficit in the last month of the year.

Clearly, there's some theatre, if you like, baked into budgets. This has been true of governments of any political stripe over the last quarter-century.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you very much, Mr. Stanford.

I have time for Mr. Pineau.

Dr. Pineau, thank you for being with us.

Could you tell us about the key measures in our energy transition? We often hear, mainly from the Conservatives, of course, that carbon pricing is responsible for the increase in the cost of living.

Is that true, Dr. Pineau?