Finance Committee on Oct. 26th, 2023

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order. Welcome to meeting number 111 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 83(1) and the motion adopted by the committee on Thursday, June 8, 2023, the committee is meeting to discuss the pre-budget consultations in advance of the 2024 budget.

Today’s meeting is taking place in a hybrid format pursuant to the Standing Orders. Members are attending in person in the room and remotely using the Zoom application.

I would like to make a few comments for the benefit of the witnesses and members:

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This is a reminder that all comments should be addressed through the chair.

For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

Members, before we move on to our witnesses, just for some more clarity based on discussions that are ongoing, I can confirm with members that we're currently scheduled for two and a half hours on Monday with the Governor of the Bank of Canada. We are already checking to possibly extend that. We believe that we have three hours, but that will be dependent on the governor and on committee resources. We are still checking on that. That is for members for our meeting on October 30.

Now I would like to welcome our witnesses.

With us today, we have, as an individual, Mark Purdon, professor, chair in decarbonization, University of Quebec in Montréal. From the Assembly of First Nations, we have interim national chief Joanna Bernard and also Julie Pellerin, senior director, economic development and infrastructure branch. From the Business Council of Canada, we have senior vice-president of policy, Robert Asselin. From the Cannabis Council of Canada, we have the president and chief executive officer, George Smitherman. From Fintechs Canada, we have executive director Alex Vronces. From Oxfam-Québec, we have Diana Sarosi, director, policy and campaigns, joined by policy analyst Léa Pelletier-Marcotte.

We are going to get right into the witnesses' opening statements.

We'll start with Mr. Mark Purdon as an individual, please, for five minutes.

[Mark Purdon, Professor, Chair in Decarbonization, University of Quebec in Montréal, As an Individual]

Hello. Thank you very much for allowing me to speak.

I'll introduce myself briefly. I'm a professor at UQAM in Montreal. I'm a political scientist by training, but now I'm at the business school, where there is an interdisciplinary department focusing on environmental and social responsibility. I also hold the chair in decarbonization, and I do a lot of work on climate policy, Quebec and Canadian climate policy, and a lot of work on the Quebec carbon market, which is linked with California, as well as its relationship with transportation decarbonization. There are a lot of other regulatory instruments in the transportation sector, which is the second-largest source of emissions in Canada. I also do a lot of research on international climate finance, which could also be of interest to the committee.

I could speak to some opportunities to address decarbonization in the Canadian transportation sector. One issue is to continue with the clean technology credits. I think that this year's federal budget was an excellent start to the Inflation Reduction Act in the United States, which has really been a global game-changer in terms of clean energy production and incentives.

We need to be, perhaps, willing to do more on the production of clean fuels and clean vehicles. Some research that I've done suggests that when those incentives are available to individuals, they have positive political effects and people are ready to pay, to absorb a higher carbon price, effectively because they have those clean technology options as an off-ramp.

Other research in the transportation sector might consider efforts to address transportation demand management. That's how major metropolitan regions, other regions of Canada, manage emissions from transportation, getting people from using their private vehicles into public transportation. There's a lot we could do there with transportation system planning in major metropolitan regions.

There's some research we've done looking at California. California has a very rigorous transportation planning process using very sophisticated models to estimate the impacts on greenhouse gas emissions of their transportation planning in major metropolitan regions like Los Angeles, San Francisco, etc. That is tied to federal and state funding for transportation infrastructure. That's something you could revise or improve in the investing in Canada infrastructure program to have some more sophisticated requirements, maybe using some of these modelling tools seen in California.

The other issue I thought I would briefly address is emissions trading. Quebec has the emissions trading system with California, which is quite different from the federal carbon pricing system, and arguably it has, in my view, allowed Quebec to be more ambitious with its climate efforts than it would have otherwise been. Quebec reduced its emissions by 11% below 1990 levels without that emissions trading system, but, including the emission reduction allowances purchased by Quebec firms in California, it doubled that emission reduction and reduced Quebec's emissions by 26%. You can compare that with other jurisdictions in Canada. By way of comparison, if you want—it may be unfair—British Columbia has a carbon tax comparable to the $65 of the federal carbon backstop right now. British Columbia's emissions have increased by about 10 % or 11% since 1990, which is a 1% reduction since 2007.

There are some advantages. The reason that has worked in this case for Quebec is that it's cheaper to reduce greenhouse gas emissions in California because it's a dirtier economy than Quebec's, so to speak. There are some questions about that, whether the market is working. I'm happy to discuss it in more detail, but the prices on the Quebec carbon market linkage with California have been rising. They're about $47 a tonne right now versus $65 on the Canadian federal carbon tax. There is maybe something to revisit there.

I'd also emphasize that article 6.2 of the Paris Agreement was agreed to in 2021 in Glasgow, and that recognized legitimate usage of these emission trading systems at the UN level.

I'll conclude with that. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you very much, Professor Purdon.

Now, to hear from the Assembly of First Nations, we have interim national chief Joanna Bernard, please.

[Joanna Bernard, Interim National Chief, Assembly of First Nations]

Kwe kwe.

Thank you for the invite. I do want to acknowledge that we are on the unceded and unsurrendered territories of the Algonquin people here in Ottawa. Again, thank you for inviting me.

First nations contribute to the Canadian economy when provided with an even playing field. Research consistently demonstrates that closing social, economic and infrastructure gaps benefits the Canadian economy.

Sorry, I'm a little nervous.

[The Chair, Liberal, Peter Fonseca]

Take it easy. Meegwetch.

[Joanna Bernard]

Thank you.

From a purely economic standpoint, investing in Canada's youngest and fastest-growing demographic just makes sense. Each year, we see new research data estimating the benefits to be realized by the Canadian economy and by all Canadians if we close the socio-economic outcome gaps for first nations.

In recent years, the National Indigenous Economic Development Board estimated benefits to the GDP to be $27.7 billion per year, or 1.5% of GDP. While progress has been made on first nations priorities, significant gaps remain. Without sustainable and adequate investments, these gaps will continue to grow.

The committee took delivery of the AFN's 2024 pre-budget submission that provides a road map for Canada to make meaningful investments that align with its obligations to uphold first nations' unique and inherent rights. While the economic initiatives are compelling, let's be clear on the term of the day, which is economic reconciliation.

Each of these investments allows detailed long-term investments towards first nation priorities to eliminate socio-economic gaps. They also meet the objectives set out by the United Nations Declaration on the Right of Indigenous Peoples.

First nations have always demonstrated good governance and are skilled negotiators. I remind all of you that first nations agreed to share their lands only to the depth of a plow. Canada must abandon its long-standing disputes and pay its debts.

In a single year, Canada's natural resource exports exceeded $330 billion—in 2021. Each year that Canada does not share the proceeds of these resources and fails to pay its debts to first nations results in increasing socio-economic and infrastructure gaps. Canada must acknowledge its obligation to provide adequate, predictable and sustainable funding to close these gaps and to ensure they remain closed. This includes resources for capacity-building and support first nations-led sustainable development and institutions.

Economic reconciliation occurs once we are no longer managing poverty but managing wealth. It is also about understanding that health, healing, resiliency and self-determination are the foundation of prosperity and wealth building. Economic reconciliation requires substantial efforts to overcome the impacts on first nations that have been dispossessed of their lands, economies, customs and cultures. Canada must take the “necessary steps” and “effective measures” to meet the obligations of the United Nations Declaration on the Rights of Indigenous Peoples Act.

An essential element of Canada's fiduciary responsibility is to ensure that first nations enjoy the same standard of living as non-indigenous Canadians and achieve equity and equality for all.

Economic reconciliation goes beyond equitable access to capital, participation in government procurement and resource revenue-sharing. Ultimately, it requires a new government-to-government fiscal relationship between Canada and first nations.

By the way, the AFN represents over 1.5 million first nations citizens, so it's a very large organization. We do deliver results for our people according to their unique priorities and needs.

For Canada to achieve economic reconciliation, a new distinct approach for budget-setting must align with inherent rights, international treaties signed by the Crown, and respect for nation-to-nation relationships. The current process for funding first nations priorities is outdated and ineffective.

Every year, the AFN condenses the budget priorities for over 630 first nations rights-holders into a 2,000 word brief.

The AFN and the first nations are then subject to the scrutiny of an external bureaucracy and the Department of Finance while hoping to secure incremental funding that remains far below the level of need. Canada has fiduciary obligations, and the first nations have rights, which do not change from one year to another and neither should the funding commitments required to uphold them.

The AFN pre-budget brief consists of critical elements to meet first nations' diverse and significant needs, including investments detailed in the comprehensive analysis that supports the Minister of Indigenous Services' mandate to close the infrastructure gap by 2030.

Roads, utilities, digital connectivity, facilities and housing are fundamental for economic opportunity and growth. The AFN and Indigenous Services Canada worked with industry leading experts to codevelop a comprehensive costing report, “Closing the Infrastructure Gap by 2030”, which covers several of these items, such as the $135 billion identified to meet critical and outstanding housing needs. That's just in housing.

Our submission also details investments required to meet first nations' needs in education programming and to immediately build, replace, repair and expand first nations schools to eliminate overcrowding. It includes investments and other means to properly fund infrastructure retrofitting to ensure first nations can meet the requirements to accommodate modern accessibility standards and to address inequalities faced by persons with disabilities.

It includes investments to bridge the digital divide for first nations by meeting the minimum broadband standards outlined in Canada's federal connectivity strategy: high-speed access for all. It details investments towards first nations leadership in climate, conservation and food security, which are the most effective means to combat climate and biodiversity loss crisis.

I think I'm running out of time.

[The Chair, Liberal, Peter Fonseca]

We do want to thank you, Interim National Chief Bernard, for your opening statement. Thank you for being here with us.

[Joanna Bernard]

Did I use my five minutes? I was going to my closing and skipping all that.

[The Chair, Liberal, Peter Fonseca]

You'll have a lot of opportunity during members' questions to expand on many of the points you've made, but we thank you.

Now we're going to hear from the Business Council of Canada.

Mr. Robert Asselin, go ahead, please.

[Robert Asselin, Senior Vice-President, Policy, Business Council of Canada]

Thank you, Mr. Chair.

The state of the world today reminds us of the inherent fragility of our international order and of the global economy. For a country such as Canada, geopolitical shocks such as these have a deep impact. The global environment is only further compounding the challenges we were already experiencing domestically.

Here at home, Canadians are feeling the weight of high interest rates, low productivity and persistent inflation. Canada's GDP per capita has been trending down for several quarters, and without our natural resources, Canada's trade deficit would be structural and significant.

Our population is also aging fast. Going forward, private sector economists' forecasts point to no growth in 2024 and subdued growth thereafter. Whether there's a technical recession will be of little comfort to Canadians as interest rates are expected to remain high for the foreseeable future.

For the federal government, debt service and costs will continue to be much more prohibitive than previously forecasted in budget 2023. Growth rates that are lower than interest rates will have a dramatic impact on fiscal policy. Governments can no longer run permanent large deficits without fear.

This fiscal year, the federal government will use almost as much of its revenues to service the debt as providing health care transfers to provinces and territories. That is why we continue to urge the government to adopt a new and credible fiscal anchor, one that would limit debt service and costs to a maximum of 10% of revenue going forward.

By doing that, we think it will preserve the government's capacity to fund programs Canadians rely on and will not put an excessive and unfair fiscal burden on future generations. The more the federal government spends on servicing the debt the less it has to fund anything else.

More deficit-financed spending at higher interest rates will eventually and inevitably lead to levels of indebtedness that will force future governments to cut spending and raise taxes. It will lead to a weakened economy with considerable uncertainty for businesses looking to invest, hire and grow in Canada. It will also put in jeopardy the social programs Canadians value. This is precisely what we must avoid.

We are not of the view new spending is required in the next budget. Over the last few budgets, the federal government has introduced many measures, especially for the energy transition, that have yet to be implemented.

We also urge the government to move ahead with a real, comprehensive program review as well as implementing measures announced in Budget 2023, such as the commitment to outlining a concrete plan on permitting reform by the end of this year.

In the aftermath of last week’s Supreme Court ruling on the Environmental Impact Assessment Act, it is essential that the government move quickly to provide clarity, certainty, and predictability on the rules for major projects. We must not lose out on once-in-a generation business investments that are necessary to reduce our emissions and foster economic growth for the benefit of all Canadians.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Asselin.

We'll now go to the Cannabis Council of Canada and Mr. George Smitherman.

[George Smitherman, President and Chief Executive Officer, Cannabis Council of Canada]

Thank you.

Good day, Chair, vice-chairs and members of the committee.

In the spirit of reconciliation, I wish to acknowledge the great privilege I have of being on these Algonquin lands and wherever I am in Canada celebrating my good fortune.

Members of the committee, it's such a great privilege to be here today, because all politics is local.

I want to say that I started my day in Simcoe North, where the leaves are hanging on, and I know in some parts of the country winter is fully in the grips.

I'm very privileged to be here today with the chair of the board of the Cannabis Council, Rick Savone, who previously served Canada with distinction as our ambassador to Brazil.

Our association is the leading voice for regulated producers and processors of cannabis in Canada, and we very much appreciate the opportunity to draw urgent attention to the state of the regulated cannabis sector, as October 17 marked the fifth anniversary of adult use legalization. That historic action undertaken by Parliament enjoys continued strong support among Canadians. Various reports issued after five years support the idea that the worst predicted outcomes of legalization have not occurred, while social and health impact studies have indicated areas where ongoing research about the potential of cannabis is warranted.

More challenging are the economic conditions facing the regulated cannabis sector. In a recent study involving more than 120 licensed producers and processors of cannabis in Canada, results indicated that profitability has been elusive, achieved by only 17% of the cannabis companies surveyed. These results are presented against a backdrop of massive investment and then dramatic subsequent disinvestment.

In a study completed by Deloitte on behalf of the Ontario Cannabis Store, data showed that during the first three years of adult use or recreational legalization alone, the industry invested $45 billion, building out 3,500 stores and operations among up to 900 production licences issued by Health Canada. The GDP impact of that buildout supported up to 150,000 jobs and impacts on par with powerhouse sectors like automotive manufacturing and dairy, albeit more broadly distributed, especially in rural Canadian communities.

I might add that the cannabis sector was powering forward with investment and expansion under Covid conditions while many other sectors were sidelined.

The conditions that contribute to challenges that we are facing certainly include those having to do with building an industry literally without a road map from anywhere on the globe. Difficult decisions to address surplus capacity are taking place, as in any business, and as the list of CCAA filings shows, the cannabis sector has been leading all sectors, sadly I say, with 40% of filers since 2022 coming from the cannabis sector.

Members of the committee know very well that such numbers have a personal implication for families and communities. Instead of having a world-leading, first-mover advantage, we're dealing with challenges in our own country that are dragging us down. Bluntly put, our sector is having its full potential to compete with the illicit market due to a suffocating government middle of taxes and fees, frequently representing well over 60% of the final price of any product paid by a consumer. This formula inadequately distributes the consumer dollar in a way that creates prospects for the unregulated and illegal players, and it also puts up barriers for those patients who find relief in medical cannabis that they can't find elsewhere.

In the meantime a considerable lack of interest in enforcement means that the illicit market flourishes without headwinds. Hard as this may be to hear after five years, the illicit cannabis world enjoys numerous commercial advantages even beyond the lack of taxes, fees and regulation. They are everywhere online. They use Interac. They use Canada Post. In contrast, many cannabis producers and retailers cannot access basic financial services, and when they do, they are usually subjected to usurious service rates.

It has frequently been described to me that it feels that if you put up your hand and say you are willing to be regulated, then government, frequently from different levels, has every tax, fee and rule for you, but if you set up an illegal shop on the other side of the line, almost nobody will take notice or care.

Last week our sector was in Ottawa, where we celebrated five years of adult use legalization. We drilled down on areas where we're asking for change. We need adjustments to the excise tax formula and to costly matters about how the formula operates. We need the elimination of a special tax of 2.3% in the name of a regulatory fee charged by Health Canada that neither alcohol nor tobacco pay. This is about $75 million off the bottom line of companies.

We need regulated formats that align with the cannabis consumer, especially in edibles, where the regulatory prohibition pushes people to consume untested products from the illicit market, which are a risk to them and their children because the products look like candy, chips and cookies.

We have presented these proposals for incremental change that can create the conditions for companies to be successful and fulfill the promise of legalization, including attracting more cannabis consumers to the protections afforded by a regulated environment.

Thank you. I look forward to any questions that might arise.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Smitherman. I'm sure there will be many questions.

We're going now to Fintechs Canada and Mr. Alex Vronces, please.

[Alex Vronces, Executive Director, Fintechs Canada]

Thank you, Mr. Chair, and members of the committee, for inviting us to participate in this pre-budget consultation.

My name is Alex Vronces. I'm the executive director of Fintechs Canada, which is an industry association of Canada's most innovative financial technology companies.

Collectively, our members serve millions of Canadians on a daily basis, which means that our members help your constituents manage their finances and pay for things every day. This is why the premise of our pre-budget submission isn't an easy thing for me to say out loud. We represent a growing chunk of the financial sector, yet here I am to tell you that the financial sector is letting Canadian consumers and businesses down.

Over the course of their lives, consumers pay thousands of dollars in banking fees. For many of them, you can imagine that what they're paying exceeds what their savings are able to generate in interest. The Canadian Federation of Independent Business surveys its members and puts out report cards on Canada's banks. They consistently get low scores for their customer service, access to capital, and fees. According to research from Payments Canada and Ernst & Young, Canadian businesses pay $14 billion to $32 billion every five years just to receive and send money.

The fees and customer dissatisfaction in Canada aren't unique. What's unique in Canada is that we get to do something about it. Other advanced economies, including much of Europe, the United Kingdom, Australia and the United States, have had the same issues, but they've been making their financial sectors work harder for their citizens. They've been doing it by modernizing their financial sector laws and infrastructure.

In other countries, citizens have been put in control of their financial information. This protects their financial security while giving them a way to access the tools they need to meet their financial goals, but that's not yet in Canada. Millions of Canadians choose to share their financial information in exchange for better services. A great example of this is a program that lets Canadians use proof of rent payments to build their credit score, so that one day they can qualify for a mortgage.

The way Canadians are forced by their banks to share that financial information today is unreliable and risky. Businesses in other countries have been given lower-cost and faster ways to send and receive money, but that's not yet in Canada.

Our members are finding that small businesses aren't being paid on time, according to their own research. That is forcing businesses to take out loans to make ends meet, whether that's to make payroll or fulfill a new order. According to the World Bank, Canada is one of the few countries in the world to not have a real-time payment system. When the United Kingdom built theirs, one of our members was able to slash costs for its customers by 20% immediately after gaining access to it.

This is why we encourage the government to double down on its recent commitments to make the financial sector more affordable for Canadians.

We ask this committee to recommend that the government, one, gives Canadians a way to shop around for the best services. It can do this by implementing an open banking framework that puts Canadians in control of their financial formation.

Two, we ask this committee to recommend that the government protect Canadians' sensitive financial information. It can do this by establishing an independent oversight body that's going to be the referee of the framework, making sure that everyone is following the rules.

Three, we ask this committee to recommend that the government uphold the integrity of our financial sector. It can do this by supporting Payments Canada's efforts to build a real-time payment system.

Four, we ask this committee to recommend that the government give Canadians lower-cost, safer and faster ways to send and receive money. It can do this by amending the Canadian Payments Act to include credit unions and payment service providers in Canada's supervised payment system.

Other countries have done this and more. While other countries are making their financial sectors work harder for their citizens and small businesses, Canadians continue to wait for a financial sector that works harder for them.

On behalf of Fintechs Canada and all of our members, thank you again for the opportunity to participate in this consultation. We and our members are keen to keep working with all of you to make the financial sector more affordable for Canadians.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Vronces.

Now we go to Oxfam-Québec. I understand the time is being shared by Ms. Pelletier-Marcotte and Ms. Sarosi.

You have five minutes, please.

[Léa Pelletier-Marcotte, Policy Analyst, Oxfam-Québec]

Thank you, Mr. Chair.

Members of the committee, I'm fortunate to have with me my colleague Ms. Diana Sarosi, from Oxfam Canada. We thank you for inviting Oxfam-Québec and Oxfam Canada to present some of our recommendations today.

As we speak today, the world finds grappling with a multitude of crises: climate crisis, humanitarian crises, inequality crisis, all exacerbated by the COVID‑19 pandemic, armed conflict and inflation. This context is conducive to weakening the foundations of democracy and the erosion of rights, especially those of women and girls worldwide. This is why Canada's next budget can and must be an opportunity to ensure our shared prosperity by fighting against inequality and climate change, but also for women's rights and gender justice.

In terms of development aid, given the current context, we need to increase the international aid envelope by at least $1.2 billion in additional funds over the 2021‑22 level. Only such an investment will enable us to truly reduce global inequalities and promote a more stable, prosperous and greener global economy. In this regard, Canada must do its part and increase climate change funding in low-income countries, including more grants for climate change adaptation and for loss and damage, while prioritizing projects designed by and for women and girls and ensuring that they are involved in decision-making.

The climate crisis threatens the present and future of people everywhere. To build a sustainable future and meet its climate commitments, Canada must not only stop financing polluting projects, but also equip itself with the regulatory framework needed for sustainable finance.

A recent report by Oxfam-Québec on the carbon footprint of Canadian banks concluded that, if the eight largest Canadian banks formed a sovereign country, they would be the fifth largest emitter of greenhouse gases in the world, notably due to emissions financed by their investments, behind China, the United States, India and Russia. We therefore recommend that legislation be passed to ensure that Canadian banks have plans, targets and practices consistent with Canada's climate commitments and the objectives of the Paris Agreement that include measures to reduce financed emissions.

[Diana Sarosi, Director, Policy and Campaigns, Oxfam-Québec]

The soaring cost of living is now a predominant conversation topic among Canadians. Low-income Canadians in particular struggle with a cost-of-living crisis and a housing crisis, yet Canada’s biggest corporations are reaping record level profits and not paying their fair share of taxes. In 2021, corporations enjoyed their lowest ever recorded income tax rate, despite having their third-highest recorded profit rate, thanks, in part, to over $100 billion in federal pandemic support. Canadian corporations pay so little tax that less than one week of revenues covered all their income taxes for the entire year in 2022.

Meanwhile, public services that benefit all Canadians, such as health care, disability care, long-term care, education and public transport, remain dramatically underfunded. Also, a lot of the public services, especially in the care sector, are disproportionately done by women. In Canada, care workers make up nearly one-fifth of the total employed labour force, yet the care sector is characterized by low wages, low status and poor working conditions, especially for racialized women. The sector is left with a recruitment and retention crisis due to high levels of burnout.

Budget 2024 should respond to our current economic crisis by investing in the people who keep our society strong and resilient. Expanding the care economy and the public and emergency services on which Canadians depend should be a core priority.

Establishing a national care economy commission can identify current gaps, recommend solutions and best practices, and direct federal investments in a strategic manner.

To pay for the essential services on which we all depend, the federal government should raise new public revenues by implementing a wealth tax on the super rich and windfall taxes on large corporations that are reaping super profits.

The government should coordinate its investments in the care economy with its sustainable jobs agenda. A just energy transition presents a unique opportunity and avenue to promote gender equality and inclusiveness in the world of work. The sustainable jobs act, Bill C-50, mentions “the creation of employment opportunities for groups under-represented in the labour market, including women, persons with disabilities, Indigenous peoples, Black and other racialized individuals, 2SLGBTQI+ and other equity-seeking groups”.

This will require significant investments and a workforce strategy that explicitly recognizes care infrastructure as part of Canada's climate resilience. Canada's care strategy and climate action must come together in the sustainable jobs agenda.

To conclude, Canada's next budget should make clear that a more green, stable and fair world would benefit all Canadians.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you to Oxfam-Québec and to all our witnesses for their opening statements.

We're going to get right into members' questions. In the first round of questions, each party is going to have up to six minutes to ask questions.

We're starting with MP Morantz, please, for six minutes.

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

Thank you very much, Mr. Chair.

Thank you for your presentations. They've been very interesting.

Mr. Asselin, I want to start with you. I found your opening statement very insightful.

For the last couple of years, my colleagues and I have been arguing that the central bank's program of money printing—essentially, what they call “quantitative easing”—and the expansion in government spending is inflationary in nature. We made that argument in this committee several times. There's been very little buy-in, although Tiff Macklem did confirm, when I was questioning him about a year ago, that he thought that if government spending had been less, inflation would have been less.

We've never had Governor Macklem come out and say how inflationary the fiscal policy of the government could be until yesterday. During the monetary policy report press conference, he said that we “expect government spending to grow at two and a half percent. So, what that means is if all those spending plans are realized, government spending will be adding to demand more than [to supply]. And in an environment where we are trying to moderate spending and get inflation down, that's not helpful.”

Those are very strong words from a bank governor. Basically, he's saying that this spending is causing inflation and making his job harder.

Will you agree with that sentiment?

[Robert Asselin]

Thank you for the question, Mr. Chair.

I would agree that for the last few years, fiscal policy has not been aligned with monetary policy in that one has been working against the other. It is harder for the bank to do its job to bring inflation back to 2% if the government keeps spending over 2%, which is the price stability target for the bank over time. That's just simple math.

By the way, this includes provincial governments as well because they do spend quite a bit of money.

I think it's really important that, at the end of the day, fiscal policy is aligned with monetary policy. That's because we do want the cost of living to come down for Canadians, and we do want Canadians to have the purchasing power that enables them to live and to be able to afford things. If we don't do that, we're just making the lives of Canadians harder. I think that's just simple math.

Without going into the specifics, I would say that I very much agree with Governor Macklem's comments yesterday.

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

Thank you.

You have written on this subject recently. This is in the context of a government that likes to say it wants to help the middle class and those working hard to join it. You wrote, “One fact is a government doubling down on an expansionary fiscal policy in a time of monetary tightening and high interest rates will work against the best interests of the middle class.”

Given your point—which I completely agree with—that fiscal policy and monetary policy have not been working together, do you have any confidence that this government is going to get spending under control and try to bring them into line?

[Robert Asselin]

I think the finance ministerhas been saying that she understands this.

I'm hoping the government will understand the importance of bringing back spending to a reasonable level. Again, what's the finality here? The finality is to work for the benefit of Canadians. The benefit to Canadians, with fiscal policy, is to bring inflation back to 2% as fast as we can because the more time it takes, the more painful it is in terms of the cost of living. It's as simple as that.

It's not a question of having a small government or a big government. The question right now is just cyclical. We need to bring spending back to a level that won't make Canadians' lives harder.

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

Thank you for that.

On the question of the Minister of Finance, she did say, for example, in budget 2022, that the debt ratio was a line she wouldn't cross. Now she's saying she recognizes the problem.

I do have some concerns about whether or not she might actually follow through with the advice she's now getting from not only people like you, but from the Governor of the Bank of Canada as well.

In fact, I noted that in the paper you wrote with Governor Dodge, you said that you have very little confidence that the interest cost ratio and debt ratio will be able to be maintained over the rest of the decade, even though the finance minister has also promised that this was a line she would not cross and that it would continue to decline.

What is the concern if the debt-to-GDP ratio continues to rise over the rest of the decade?

[Robert Asselin]

The basic math is that the more you spend on debt servicing, the less you have to spend on anything else, as I said in my remarks. That includes health care, education and all the things that I think Canadians cherish and want more of, including international aid and more spending on defence. As we did in the 1990s, the more we spend on interest rates rising and servicing our debt, the less we spend on these core missions of the state, the core part.

I think it's important to say, Mr. Chair, that the fiscal anchor is not an end in itself. What the fiscal anchor is trying to protect is the ability of the government to preserve its capacity to give services and programs to Canadians without hiking taxes and without cutting programs. That was so difficult to go through in the 1990s when we had to do it.

The whole idea is to preserve that capacity so that we don't have to go back to a situation where governments, any governments, have to do difficult things and then, unfortunately, hurt Canadians with program cuts or higher taxes.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Morantz.

Now we go to MP Thompson, please.