Evidence of meeting #143 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 recording is available from Parliament.
11:55 a.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Davidson.
I have MP Lawrence, MP Morantz and then MP Hallan on the list.
MP Sorbara, did you want on the list? I can't remember.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
I'd love to hear you, Francesco. Come on. If you want to interrupt me at any time, it's all good. We'll give you a liberal interpretation and have—
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Yes, I'm going to start.
I apologize, Mr. Chair and Mr. Clerk. You can probably get to it quicker than I can, so could you get to the subamendment we're on today?
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Could you read it into the record for me?
11:55 a.m.
Liberal
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
I just want to head off any potential calls for relevance. I wouldn't mind if you read it into the record.
11:55 a.m.
Conservative
11:55 a.m.
Liberal
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
So you won't read it for me, Mr. Chair?
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
We've reached this level, have we? This is not very friendly, Mr. Chair.
11:55 a.m.
Liberal
The Chair Liberal Peter Fonseca
Clerk, if MP Lawrence doesn't have it, you can send it to him so that he has it.
MP Lawrence, I think the clerk has forwarded that subamendment to you.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Okay. Perfect. I will grab it and read it. I'm just trying to be a bit more efficient.
Thank you very much, Mr. Clerk. I see that we have it here. It says:
That the week of the 28th and future meetings be dedicated to hearing from witnesses for no fewer than 12 hours and the clerk invite Mr. Mark Carney as a witness to testify with respect to the Budget 2024, the economy and the environment for no fewer than two hours.
Just to head off any points of order on relevance, I will be discussing the economy at some length. Of course, that has direct relevance to budget 2024. Before we do points of order, maybe the members or the chair could read that over. From that, they'll quickly see that I am within relevance.
I will say to the interpreters that I will be reading from C.D. Howe. I believe they've been given a copy of it, at least electronically. If not, my staff will be happy to provide it to the clerk again. It's commentary number 625, “Decapitalization: Weak Business Investment Threatens Canadian Prosperity”. I hold it up not as a prop but just to show it to the interpreters, if they have any struggles.
I see a waving of hands. Perhaps my staff will kindly make sure they have it. You'll have it shortly. I will give a little preamble before so that—
11:55 a.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
To follow up on what my honourable colleague said, the interpreters haven't received the document with its preamble. I imagine that the interpreters will have time to receive the document for reading.
Noon
Liberal
The Chair Liberal Peter Fonseca
We're back.
MP Lawrence, go ahead, and thank you for assisting the interpreters so that they have that information.
Noon
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you very much.
I will start shortly into the text, and I'll give you the exact place that I will start. I also want to read the subamendment that we're currently on in French, once again just to avoid any rappel au Règlement.
Here it is:
That the week of the 28th and future meetings be dedicated to hearing from witnesses for no fewer than 12 hours and the clerk invite Mr. Mark Carney as a witness to testify with respect to the Budget 2024, the economy and the environment for no fewer than two hours.
Noon
Some hon. members
Hear, hear!
Noon
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you very much.
I'm trying hard.
I'm going to start at page two. I'll skip the bold text here, and the first word will be “Current-dollar”.
For the benefit of the folks at home, I'm reading from a report from the C.D. Howe Institute, “Decapitalization: Weak Business Investment Threatens Canadian Prosperity”. I'm reading excerpts of it as they pertain to the economy. These are things that, of course, we asked Mr. Carney to appear on and to potentially discuss with our committee.
Here we go:
Current-dollar GDP is approaching its historic growth rate in expansions. But real output has responded far less.
There's a figure in the report, which I won't go into, but it shows two-year growth rates of four-quarter averages and highlights the contrast.
Nominal spending, the blue line, has been growing at a rate similar to past periods of expansion since the early 1990s. By contrast, real activity, the orange line, is still in negative territory.
Prices are rising rapidly. Real incomes are not. Among the likely reasons for this disappointing performance, one highlighted by the Bank of Canada itself, is weak business investment and a consequent slow growth in Canada’s productive capacity.
That's really the nub of the issue when we talk about the Canadian economy. One challenge we face is poor productivity and, as I've talked about before—and John Manley, Bill Morneau, David Dodge, Tiff Macklem and Carolyn Rogers, among other experts, have talked about the same—Canada's slow growth and productivity continue to hurt our economy significantly.
As I said, and I go back to the text now:
Prices are rising rapidly. Real incomes are not. Among the likely reasons for this disappointing performance, one highlighted by the Bank of Canada itself, is weak business investment and a consequent slow growth in Canada's productive capacity.
Weak business investment is not just a short-term concern. A country’s stock of non-residential buildings, engineering infrastructure, machinery and equipment (M&E), and intellectual-property products (IPP) is critical to...generate output and incomes.... But Canada’s capital stock is barely growing, and not keeping pace with its workforce.
New business investment per worker is declining.
I pause there again. In the best analogy I have heard on that, we use an example, as is often useful, that pushes the bounds of reasonableness to the extremes: Imagine a world in which a Canadian worker, even if they're the best worker in the world, would be challenged if he were competing against a worker from somewhere else in the world.
To make it really simple, if there were a competition to dig a hole, and the Canadian worker was given a shovel and the foreign worker was given a backhoe, no matter how diligent that individual is in digging a foundation or a hole in Canada—how capable, how well-trained and how hard they are working—they simply will not be able to compete against the individual who has a backhoe.
That, of course, is at the extreme, but I think it pretty well exemplifies the problem of a lack of investment in capital stock, in Canadian machinery and equipment.
We'll continue on:
Not only have areas of traditional strength in Canadian business investment—non-residential and engineering structures—fallen in recent years, but the categories most associated with innovation and future productivity—[machinery and equipment and intellectual property]—are weaker yet.
We've heard some very compelling evidence and comments from important institutions like the Council of Canadian Innovators, among others, about the critical importance of investing in intellectual property. I tend to agree with a lot of the commentary and experts who say that those who own the intellectual property will own the future. As the 20th century was about owning machinery, equipment and factories, the 21st century will be about owning the rights to designs, to software, to microchips and to innovation in intellectual property as the pace of change continues to grow exponentially.
It's really challenging. The issue is not just the current day impact; the issue will be what we will see in 10, 15, 20, 40, 50 or even 100 years from now. Our inability to capture what I believe are the greatest ideas in the world, produced by the greatest workers and the greatest minds in the world, here in Canada, and turn those ideas from just that—ideas or dreams—into a marketable product or service....
The Canadian economy has struggled and, quite frankly, there is very little in the budget, if anything, that will be there to resolve this significant, glaring problem. This is something that folks from the left, right and centre have all commented on. They're all in near-unanimous agreement that this government has not done enough to protect our intellectual property, which, as I said, is being generated by the greatest minds in Canada.
We need to do two things. One, we need to allow the individuals and the companies to feel at home, feel comfortable here in Canada, to build their business. Second, we need to capture the IP right here in Canada and make sure it stays here in Canada, because although we are producing some of the greatest ideas in the world here, unfortunately those ideas—before Canadians are able to benefit from them—are exported around the world, most notably to Silicon Valley in California and the United States, where those ideas are then turned into marketable products and services and sold back to Canadians at a premium.
We'll continue reading on from the paragraph on the second half of the same page:
High or low levels of capital and productivity tend to go together. Businesses invest more when productivity grows, because rising productivity creates opportunities for profit as well as competitive threats. More business investment boosts productivity, because it gives workers newer, better tools with which to work. The links between investment and capital on the one side and productivity on the other make recent figures on Canada’s stock of capital and new investment worrying.
Just to clarify—once again, I'm breaking from the text—what the author is pointing to here is that you can have a positive spiral or a negative spiral. If you are investing in equipment, what will happen is your profit will increase, which will then embolden the business owner to make more investments into their equipment, and that virtuous circle continues. As more profit is generated, more investment happens, and so on and so forth. It becomes very productive.
It's relatively small changes at the beginning that get what Good to Great refers to as “the flywheel”. Particularly when you're starting a business or you're starting to get to scale in a business, it's tiny little pushes over and over again. That means even a small rub—for example, the carbon tax, which I've referred to in the past as the sand in the gears of the Canadian economy— even if its impact isn't huge, can be enough to stop a business from being successful or expanding to that scope.
Even the most profitable businesses, like Metro grocery store, which of course is lobbied for by the leader of the NDP, has a profit range of 4.6%, which is more than Loblaws but is still a relatively small amount. When you push on the carbon tax, there are some industries, such as Metro, that have an oligopoly that can push that over, but many businesses, especially small businesses, can't do that. They don't have the benefit of having a lobbyist who's the brother of the leader of the NDP.
What happens to them is that they never get to that expansion. They never get to that level. What happens, on the other hand, is that you actually get the opposite. You get a negative spiral or a death spiral, as one might refer to it, for a business. If in fact the business is obstructed by red tape, by taxation, by the carbon tax—this is the critical part here—even a relatively small markup.... Most small businesses are not overly profitable. A successful business may have a profit margin of 10% or 15%.
If we have a carbon tax that's adding a third of inflation, or a carbon tax that's adding tens of thousands of dollars to a farmer's operation, that can be more than enough to stop a business from being able to invest in productivity, to generate the profits they need, to invest more capital stock into their business.
What happens is that businesses we'll never know about have been killed by this carbon tax, and that is impacting our productivity every day. The carbon tax is the sand in the gears of the economy that is driving us to lower and lower productivity.
As I've said numerous times, who gets hurt the most? It's not the Trudeaus of the world, who have trust funds, who can move their monies offshore. They'll find a way to avoid paying taxes. It's the small business owner struggling to get by, the one who's working 20 hours a day, 100 hours a week, just trying to get their business off the ground. They just need that little bit of lift, and when you put that sand that is the carbon tax into the gears, you cause people to give up, lose hope and go to food banks, which we've seen.
We'll continue on reading there for the interpreters. I'm going to go down to the next paragraph.
Whatever is depressing business investment in Canada seems unusually severe. The United States and other countries in the Organisation for Economic Co-operation and Development (OECD) are investing at higher rates. Business investment per available Canadian worker was approaching comparable US and OECD measures from the early 2000s to the mid-2010s.
I'm now switching pages to page three.
But it sagged after mid-decade and plummeted during the pandemic.
To the extent that Canada’s weak performance reflects perceptions of limited opportunities or little need for higher investment by business leaders, public policy can and should help. First and foremost it can do so by addressing policies that are hurting investment. Government consumption and transfers are crowding out private saving and non-residential investment. Concerns about unsustainable debt and rising taxes undermine confidence.
I'm just going to reread that line because I think it's important.
Concerns about unsustainable debt and rising taxes undermine confidence.
Regulations currently in place, and expansive but uncertain plans for more—notably affecting energy production and use—are making Canada appear hostile to private investment. Canada’s workers need changes of direction, particularly at the federal level, to get more of the tools they need to thrive and compete.
What the author refers to there are the two different levels of that—the actual policy and the technical impact on the economy.
Every day, there are rational calculations and decisions made by business owners and workers alike. “If I do this, this will be the consequence. Should I do that or not?” When we put in more costs, whether in the form of taxes, regulations or otherwise—or even just uncertainty in the market—there's a calculation that goes on. They'll say, “You know what? If I'm only going to make 1% or I'm going to make a negative return on this investment, I'm not going to do it.”
That's what rational actors do, and that's how Adam Smith's "invisible hand" works. The fact is that we have millions of Canadian consumers and business owners making these innumerable calculations every day, which aid in the efficiency of the market.
We've seen over the last nine years that everything has become more expensive and less efficient. The result is that business owners don't see the return that they did nine years ago, so they are less likely to make that investment.
As I said, it's not just that short-term investment. These things have momentum. They spiral one way or the other. You can have a positive spiral or a negative spiral. One negative decision multiplies across the economy. One positive decision multiplies across the economy.
On top of that, though—and this is what Philip Cross talked about at some length at this committee and other places—there's also an attitudinal direction. When the government is openly critical of business owners and calling small business owners tax cheats, for example, it has an attitudinal impact on Canadians and Canadian business owners.
When you are looking at embarking in business, especially if you're starting a new venture, you're not just looking at today's dollars and cents; you're looking at whether this is something you want to do. Anyone who's ever operated or owned a business knows it can be absolutely all-consuming. It pushes people beyond their very limits. They're working 20 hours a day sometimes, just to get the venture moving. They keep pushing on that flywheel to eventually get it to its own momentum so that it can start running on its own.
In addition to all the dollars and cents and those calculations that will take place, there's also the question, “Is this something I want to do? Is this something that society says, culturally, people appreciate?” A business owner is really an individual. They're a woman, a man or a newcomer who has something. They have an incredible gift they want to bring into the world. They want to know that this incredible gift will be recognized, celebrated and supported. When you hear our leaders demonizing business owners and those who dare to be successful and prosperous, it has an impact on folks. It can't not have an impact on people.
Certainly whenever I have the opportunity to talk to business owners, the first thing I say is “thank you”, because it's their actions and their gifts.... Sometimes, they've given up decades of their lives in order to bring this gift to the world and to make sure that it is successful and improves the world.
It doesn't stop with whatever their service is. In my little town of Orono, all our hockey teams, our soccer teams and our charitable services would not exist without the incredible efforts of our business owners, who, in addition to working their 10, 15 or more hours a day, then give back to the community on weekends through fundraisers and efforts like that.
This is just a quick shout-out to one of those industries. Cameco has a facility in Port Hope and is headquartered out of Saskatchewan. It is producing clean nuclear energy through its production of uranium pucks and other products related to the nuclear industry. It donated $500,000—wrote a cheque for half a million dollars—for youth hubs in coordination with the provincial government and our MPP, David Piccini.
That's half a million dollars in addition to providing clean carbon-free energy for all Canadians and around the world. This is an example of great business owners providing jobs and opportunity and then going above and beyond and donating $500,000 to make sure the youth in Port Hope have a place to go, and in addition, if they're having any type of mental health issues. This is just a private initiative of a great citizen, Cameco.
I'll return to our text.
For the interpreters' benefit, we're once again on page 3. I'm going to continue under the subtitle, “The Numbers”, and will read from there:
The capital they use on the job is critical to workers' ability to produce goods and services, earn incomes and compete internationally. Human capital and natural capital like land and water are intuitively important, but we do not yet have good measures of either and very little that we can compare internationally. Capital created and owned by governments also matters, but the services it yields are harder to relate to production and income, and also hard to compare internationally.
We do have...robust measures of built capital in the business sector: non-residential buildings and engineering structures, M&E, and IPP [or intellectual property]. These complement human and natural capital, and government infrastructure, in producing goods and services and generating incomes. For a snapshot of the correlations between capital stock on one hand and incomes and output on the other, consider figure 2—
It then talks about figure 2. I apologize that you guys can't see this, but I believe all these reports are publicly available.
—which compares 2022 OECD estimates for both, divided by the labour force in each country.
Figure 2 shows the link between per-worker measures of productive capital stock and output for Canada and other OECD countries with comparable data. The stock of productive capital consists of physical assets like structures and machinery to be used as an input in production. To get this measure, the cumulative sum of past investment volumes are adjusted for the age and efficiency loss—that is [the] older [the ] asset is [it is] likely less productive than a newer one due to wear and tear. A high stock of productive capital means that the capital stock is more efficient—a better complement to labour inputs—and embodies more recent technology. It is not a surprise that Figure 2 shows that countries with high productive capital stocks also have high levels of output.
This is otherwise known as productivity.
It continues:
Figure 2 highlights per-worker measures—labour productivity rather than total, or multifactor, productivity—and capital stock rather than output per unit...and labor [are] considered together. Ideally, we would attribute output quantities and qualities of labor and capital, as well as other factors, such as organization of firms, and be able to explain changes in output with reference to changes in various inputs. Such definitive attributions are not possible at present, however, especially for international comparisons. What is clear is that countries with high labor productivity also have high total productivity. That makes sense: capital stock and incomes are correlated for complementary reasons.
The next page is page 5.
Higher productivity creates opportunities and competitive threats for businesses. Those incent investment, which increases the quantity and quality of the capital stock. A larger, newer capital stock raises productivity, a virtuous circle for workers who enjoy higher incomes as a result.
When we talk about productivity, I think it's incredibly important that we connect it back to how it affects real people. When we enhance productivity per worker, we increase real wages per worker. The correlation is almost perfect.
Certainly, there are debates that can be had in the House of Commons, in boardrooms, in living rooms and on Main Street as to how we divide up the spoils of ever-increasing productivity. Those are virtuous arguments to have. However, the reality is that if we are in a death spiral as opposed to a virtuous circle, there are simply no spoils to divide. Those who will end up taking the worst of the brunt of this are, of course, our most vulnerable—workers and individuals who don't have the control the ultra-wealthy have. When we don't invest in productivity, give freedom to the market to work or allow for an efficient marketplace, it is the most vulnerable who hurt.
This is what happens, time after time, when socialist policies are put in place. I mentioned yesterday the examples of India, Israel and the U.K. Of course, there are always a myriad of factors. It's very difficult to get a perfect correlation in anything in the economy, because there are so many variables. However, what jumps off the page is the connection between socialist policies and a decline in productivity and competitiveness, which all relates to a decline in workers. The irony can't be lost on how often socialist parties like the NDP-Liberal government swing into power, saying they are going to help the middle class and those aspiring to join the middle class. They have done nothing through their poor economic mismanagement but crush those very people.
The inequality in Canada has been growing considerably over the last nine years. We have record food bank usage. Our workers have never, in the last 50 years, been in a worse economic position, facing GDP per capita and living standards that continue to decline relative to many of our peer nations, including, most notably, the United States of America.
I'll continue on. I'll start with this:
Figure 3 which shows real stocks of each type of capital per member of Canada's labour force. The fact that capital formation is both the result of productivity growth and a driver of it makes recent trends in those stocks troubling.
The stock of non-residential capital relative to the labour force peaked in the last quarter of 2015. By the first quarter of 2022, every type of capital was below that peak.
Wow.
Only engineering construction did not begin to decline shortly after 2015. It continued to grow through 2021, and its stock per available worker was down a comparatively small 1 percent by the first quarter of 2022.
That speaks to a couple of things. I earnestly try to be an advocate for the truth. It's not as if in 2015 Liberal policies could have immediately kicked in. These things take a while to get into place. While some policies are quicker than others, tax policies may, as is potentially happening with this budget.... You make it a fire sale because of some of the policies. However, generally, the economic policies of a government are big-ship economies, so they take a little while to turn.
It's not as if immediately after Prime Minister Trudeau and this NDP-Liberal government came to power, their policies had this impact of slowing the economy, but what they did do is signal to business that Canada was no longer a place where people wanted to do business. That would be my thesis.
It's rare that you see a dramatic reduction or improvement almost immediately upon a government becoming elected, but that's really what we see. Whether we look at GDP per capita, productivity, investment—you name the economic measure—in any line graph, you can see it. We were going smoothly along under Stephen Harper. We were on a trend line, I might say, even with Chrétien and Martin, that was not that far off, but Harper really gears it up, and then, unfortunately, in 2015, it drops.
Rarely do you see that. I know Mr. Sorbara is well schooled with respect to economics, so he would understand that you don't really see that tight a correlation, because there are so many variables in the economy, so when you see that, it really jumps off the page.
It would be my supposition that it's not only the economic policies of this government that have been woefully negligent and devastating for the economy, but it's also the attitudinal direction, particularly with respect to Canadian energy. To give you an idea, GDP per hour is is how we measure the productivity, how most economists measure the economy. In Canada, we're floating somewhere around $50 per hour contributed to GDP. In Canadian energy, it's about $500.
I've actually asked this question of a number of witnesses, mostly of either environmentalists or left-wing NDP-Liberal witnesses. As the chair knows, I make it a policy to ask questions not just of Conservative witnesses, but of all witnesses. What I've asked them for is—and if anyone out there is watching this and they know the number, please forward it on to the finance committee or to my email at philip.lawrence@parl.gc.ca—what the GDP per capita in the green industry is. I have a sincere interest in knowing what that number is, and no one's been able to find that number for me.
There's certainly lots of talk that green energy and green business will be able to replace other sectors of the economy, but I have not seen that. I'm open to the argument that government should start a new industry and subsidize it. I don't think that those are necessarily bad things, but I'd love for someone to show me the actual economic case behind some of these investments.
