Evidence of meeting #14 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was inflation.
A video is available from Parliament.
Conservative
Adam Chambers Conservative Simcoe North, ON
Right. Thank you. You're saying that when inflation expectations take hold, it's almost a self-fufilling prophesy, if you will.
Government revenues are also impacted by inflation. Can you walk me through how that would work for, say, the federal government?
Senior Vice-President and Chief Economist, Scotiabank
Yes. Quite simply, for all levels of government, revenue is collected on the basis of nominal income. Nominal income is basically real economic activity, plus a measure of inflation. In the case of the national economy, it's the GDP deflator. When nominal GDP rises more rapidly, government revenues, as a result, rise significantly more rapidly as well, so there is in some sense a beneficial impact, if you want to call it that, on public finances from higher inflation. As long as interest rates don't go up in consequence, then as inflation picks up, money pours in. We saw that effect in almost every province last year.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you very much.
Very simply, then, inflation can increase government revenues. I won't put words in your mouth, but perhaps I'll make it a point to say that the government has been slow to recognize inflation as a problem. Perhaps it's because it's been increasing their revenues over the last year and potentially going forward.
This is my final question for now. Given where we are now, you also mentioned in your opening about this interesting situation in which we had high unemployment, but rates of transfers to persons increased. Given where we're at with inflation and deficits, is it possible that the government overshot a little bit on the stimulus side?
Senior Vice-President and Chief Economist, Scotiabank
I think it's pretty clear now that governments around the world, including our own, overshot. Now, it was a game-time decision. I understand that. It was staring at the abyss and didn't know what to do, so the easy thing was to err on the side of doing more.
With hindsight, I think it's pretty easy to say that we did too much. Part of the fact that we are in the situation now with inflation reflects that—again, collectively—governments around the world just all erred on the side of caution, and all probably did more than what was required.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you.
Do I have time for a final question, Mr. Chair?
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you. That's wonderful.
Mr. Haider, we've spent a lot of the time today talking about a lack of supply. Governments, including the current one, have made a few proposals to deal with demand. They have the first-time home buyer incentive that the government's proposing to double. They have a new tax-free savings account proposal for homebuyers. We have an incentivized structure whereby the government becomes a part equity owner in a home.
All of these things affect the ability of people to purchase homes and provide more funds to do so, but are they wise ideas?
Professor, Ryerson University and Columnist, Haider-Moranis Bulletin
In the absence of a significant increase in housing supply, such measures would contribute to the inflationary pressure on housing prices, as they either encourage borrowers to borrow more or facilitate their borrowing. They would have an inflationary pressure.
Conservative
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Chambers.
We are moving to the Liberals and Mr. MacDonald for five minutes.
Liberal
Heath MacDonald Liberal Malpeque, PE
Thank you, Chair.
I want to go back. Mr. Moranis made a comment relevant to land. Presently, there is $202 million through the national housing strategy initiative to transfer surplus federal lands and buildings. I wanted to make sure we have that on the record. There's also $118 million going to co-op housing rental costs. With all the efficacy we're hearing today, we're moving in the right direction.
The other thing is that one size does not fit all housing remedies. We have seen it from comments made by the Alberta member. I want to ask Mr. Moranis if he has any specific proposals he could suggest relative to how we entwine municipal and provincial governments to ensure we're maximizing their co-operation and collaboration.
Real Estate Strategist and Columnist, Haider-Moranis Bulletin
That's a very difficult question to answer. Unless there's some way to force the three levels of government to work together on housing.... I'm not a politician or a lawyer. Because you have different parties that are controlling different provinces, it has to be non-partisan. There has to be some effort made in a non-partisan way to deal with housing, affordable housing and social housing, the supply problems and the trading problems so that everyone is forced to come together.
I don't have to answer for how that is done, but that's the only direction and result that will solve this problem.
Liberal
Heath MacDonald Liberal Malpeque, PE
Thank you.
I'm a former MLA of Prince Edward Island. Housing has been an issue for a number of years with the growth of immigration and our population density. It is tough.
As a former government, we bought an apartment building that was going to be converted into a hotel and turned it over to the Canadian Mental Health Association. I feel that if there's a will, with co-operation and collaboration a lot can get done.
I want to go to Mrs. Raza now. How much responsibility relative to housing should be placed on the municipalities and provincial governments? In your advocacy, what barriers or impediments have you seen through your province of Quebec that we could learn from?
Project Manager, National Right to Housing Network
I'm not from Quebec, but I can speak to the interjurisdictional element, because that's something we bump up against often when we're talking about human rights. Canada has made this commitment, but every level of government has the same human rights commitments, so we need all levels to come to the table.
There is an opportunity to use the bilateral agreements, for example, between different levels of governments to enforce certain criteria for the types of housing they build and so on. There are also these housing action plans that each province and territory is to develop. We could use our national leadership to encourage better use of those to build the kind of housing we need and invest in the way we need.
To me, the barriers are a failure to come to the table together and a lack of national leadership in terms of ensuring that every level of government is upholding those same human rights commitments that the federal government has made.
You may have wanted to pass this on to Véronique to speak about Quebec, so I can pass it to her now.
Liberal
Organizer and Spokesperson, Front d'action populaire en réaménagement urbain
If I understood correctly, the question was about the role and responsibilities of the cities.
That is an important question because the cities are now recognized as local governments. But they do not have the financial means of the higher levels of governments, the provincial and federal governments. In Quebec, a debate is currently going on about taxation for cities, which depend largely on property taxes. That brings us back to the problem of speculation that we are discussing today.
Cities have a role to play. As I was saying earlier, when higher levels of government do not play their part, cities can establish their own programs. We have actually seen that in the past in cities like Montreal. However, we cannot rely primarily on the cities to establish programs, because they have fewer means. That is why we are discussing the role of the federal government today. In the past, it played a major role in financing thousands of social housing units.
In Quebec, in some years, 8,000 social housing units were built whereas, at the moment, we are building fewer than 1,500 per year. This lack of social housing is primarily because the federal government withdrew. The cities are taking the lead in asking for more resources to meet those needs because they have front-row seats to the housing crisis. They see a part of their population living in dreadful housing conditions and being in poverty as soon as they pay the rent. They have to be helped.
Provinces have a role to play, but Ottawa must provide the financial resources and ensure that those financial resources are sent first and foremost to where the needs are the most urgent, and that they are used to establish productive programs. If the programs are not productive and self-sustaining, at the end of the day, the cities may very well end up with problems in the medium term. That is why we need to think about the programs we are funding to make sure that they are productive. They must meet the needs but they must be viable on an ongoing basis.
Liberal
Liberal
The Chair Liberal Peter Fonseca
Members, we are moving into our fifth round. I am looking at the time. We won't have enough time to do a regular fifth round, so as I've done in previous sessions, I have divvied up the minutes among the different parties. I have seven minutes for the Conservatives, then seven for the Liberals, three and a half for the Bloc, and three and a half for the NDP.
We're going to start with the Conservatives. We have Mr. Stewart for the seven minutes.
Conservative
Pierre Poilievre Conservative Carleton, ON
Okay. I'll be taking Mr. Stewart's position. He had to step out of the meeting. Thank you very much, Mr. Chair.
Conservative
Pierre Poilievre Conservative Carleton, ON
Yes.
Mr. Baker said he was going to take issue with some of my facts, but then he didn't contradict any of them. He simply brought in different facts.
The Liberal member brought to my attention the UBS global real estate report and pointed to it as an example of high housing inflation in Switzerland. I want to know what they said, in the same report that Mr. Baker cites with such authority, about Canada. I have it right here from October 2021: “In 2019, another housing frenzy developed as buyers took advantage of declining mortgage rates. Imbalances and index scores have increased accordingly. Toronto ranks second”—that's in the world—“among all analyzed cities, and Vancouver has returned to bubble risk territory.”
He also said that I shouldn't have mentioned that Singapore has lower inflation than Canada. Well, it turns out that it does. By Mr. Baker's own admission, inflation in Singapore is 4%, whereas in Canada it's 4.8%. If this supply chain explanation for high inflation made any sense, you would think that Singapore, which is the most supply chain-dependent nation on earth, would have higher inflation than we do. It has a trade-to-GDP ratio about two to three times higher than ours. Singapore has to import basically everything, including fresh drinking water, yet somehow it's kept its inflation lower than Canada's.
There is actually a fairly close correlation in the G20 between inflation rates and money supply increases. It was close to a one-to-one correlation in November. The more money countries print, the higher their inflation is.
I'd like to turn to Mr. Perrault.
You mentioned that in retrospect, the government spent too much during the pandemic, so let's look forward, then. If the government pursues a policy of persistently high deficits, all other things being equal, would that put upward pressure on inflation versus the inflation we would have absent those persistently high deficits?