Finance Committee on May 30th, 2024

[Vivek Dehejia]

No, I don't. I think it's very clear that we've learned the lesson—or we should have learned the lesson—of what happened in the U.S. during the global financial crisis. Luckily at that time, Canada didn't go into QE very much, but we went all in during the pandemic and we've seen the result.

We have massive fiscal slippage. We have had ultraloose monetary policy that caused inflation to spike to a 40-year high, and now we're paying the price with high interest rates that are penalizing everyone. It's been very poor macroeconomic management.

The pandemic was a difficult crisis. It would have been hard for any government to deal with and solve when everyone else was also going down. However, it's pretty clear now—I think I was one of the few commentators calling this out, even in 2021—that when you have QE, or in other words, when you have the central bank monetizing government deficits, essentially printing more money and creating more balances for the chartered banks, the curve just takes off. You're storing up a major inflation crisis, and then you're going to have to raise interest rates. It's kind of a boom-and-bust cycle. It's been very poor macromanagement.

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

One of the other issues, among many, that the deputy governor of the Bank of Canada highlighted is that our low productivity is fuelling inflation because the fewer goods we produce, the more dollars are required, which increases inflation.

Do you believe, given that, that this is the time to be increasing taxes on one of the most important elements of productivity, which is capital?

[Vivek Dehejia]

Absolutely not, because that's taking us in the wrong direction. It's going to further retard capital formation. It's going to make our workers less productive, and that's really our Achilles heel in Canada. We simply don't have enough capital for the number of workers we have. Ultimately, Keynesian-style macroeconomic policy, whether fiscal or monetary, can give you a short-term boost, but it cannot solve deep-seated structural problems. It will really only make things worse.

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

Right. By continuing to spend an excessive amount and have an expansionary fiscal policy at this time, we will, in fact, increase the size of government, which will suffocate the private sector, reduce productivity and hurt all Canadians. In particular, and you can agree or disagree, I believe that it's the most vulnerable who often get hit hardest by low growth, low productivity and high inflation.

[Vivek Dehejia]

I couldn't agree more. I wrote an op-ed in the Financial Post back in the fall of 2021 saying that the left and a government that claims to be progressive should care about inflation, because it's the most vulnerable who are most hurt by it. The wealthy have all kinds of savvy financial techniques and tricks they can use to escape the burden of inflation, but the poor and the middle class simply cannot.

I find it honestly a little baffling that a progressive-minded government was so nonchalant about inflation, and so was the Bank of Canada. They also bear a large part of the blame. I think it was both the federal government and the Bank of Canada.

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

It's a day late and a dollar short, but it does appear as though the Prime Minister has finally gotten the message after not thinking about monetary policy that spending does lead to inflation. That's right from the Prime Minister.

[The Chair, Liberal, Peter Fonseca]

We have 20 seconds left, so thank you, MP Lawrence.

We'll now go to MP Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

I'll be sharing my time with my honourable colleague.

Thank you to the witnesses for their testimony.

First I'll go to Dow and its representative.

I've had a long-standing relationship with the Chemistry Industry Association of Canada and have advocated for many measures to ensure that we in Canada track the investment that other jurisdictions in the world, be it Argentina, the Caribbean area, the United States or other areas, have been making. It's great to see the announcement by Dow. I've had the pleasure to go to the Alberta industrial heartland and tour some of the facilities there in the last several years. I understand well the Alberta advantage when it comes to feedstock and so forth.

Scott, the ITCs for hydrogen—I think there are five or six ITCs we've introduced—will definitely drive investment and grow our economy and help us decarbonize. How important was that in the investment decision and in the thinking behind Dow's mission of walking towards a net-zero world in 2050, which we are gradually, incrementally doing?

[W. Scott Thurlow]

Thank you very much for the question. It is an important one.

The long and the short of it is that these investment tax credits are absolutely essential to securing these types of long-term investments.

The last time that I was here, when MP Thompson asked me about that, I said these investments were akin to fishing, in that you use really good bait. It's also akin to farming, in that you have to reap what you sow. You have to put a seed into the ground if you expect to have a long-term investment.

I've found many people have been looking at this debate a bit in the wrong way. They don't see it as a capital expense at time x. You have to look at it as an investment in the future tax base of the country. Quite frankly, this is a generational investment. By making these immediate investments in the short term, you're going to have a 60- to 70-year return.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

In your opening remarks, you talked about the circular economy. To the Chemistry Industry Association of Canada, that's very important.

You just referenced the generational investments. You can extend that not only to Dow's over $10-billion investment in Alberta, but also to what's happening within the auto sector. It's those generational investments. That's why it's so important to have your eye on the ball and provide leadership. That's what I believe our government is offering.

I want to move to Vivek. Welcome to the panel and our committee. I understand where you're coming from. I'm an economist by training as well. I love economics. I purport myself to be from the Hayek school, if I can say that.

I'm optimistic on Canada. I believe our country is one of the best, if not the best, for many reasons. However, there's always work to do. We don't inhabit this world alone. It's important to recognize that. I think there are millions if not hundreds of millions of people who would come here tomorrow morning if they could because we live in such a blessed country.

When I look at some of the economic metrics, I share your concern about productivity and ensuring that we have a good standard of living—that is, that my kids have a future just as bright as I had growing up. I believe they do. I can look at some of the quantitative metrics. Our deficit-to-GDP is at around 1% versus 7% in the United States, like some of the European countries. There's our debt-to-GDP, looking at that metric on the public side. There are our CPP assets and the way our pension system is funded versus how it's done in the United States. We could have a conversation on that.

There's always work to do. As I referenced earlier, $2 billion of investments were just announced on the west coast in B.C., with a $1.35-billion energy facility, plus the port of Prince Rupert expansion. Some really good things are happening here for the economy, and we can't just gloss over them, because they are great things. Canada is definitely not broken. We're definitely a work in progress, like any other country and any other person would be.

If you could substantively say, “Francesco, these are two or three things that I think you need to take a look at”, I'd love to hear from you on that. I read all the economists on the street. Many of them are my friends in academia and non-academia. I debate with some of them. I agree with some of them. I don't consider myself an ideologue, but I would love to hear what constructively you would have to say.

[Vivek Dehejia]

I would say two things. One is that, yes, some of our macroeconomic statistics look good, like debt-to-GDP, relative to those of our peers. The U.S., of course, can run much larger deficits because the U.S. dollar is the de facto global currency. It has what's sometimes called this exorbitant privilege. That's what Charles De Gaulle called it.

Having said that, I would point out that at the beginning of the 20th century, we had the same per capita income as the United States. Now we're at three-quarters. I have to check the exact date, but in the early nineties or mid-eighties, we were at around 90%, and we've been going down. I would ask a question in return. If we're doing so well, why are we falling so far behind the Americans?

Again, I'm not a fan of QE. I think we were storing up major trouble. I said this in the fall of 2021, when most of the commentators were saying, “Hooray. The Bank of Canada is doing the right thing.” I said that if you monetize massive fiscal deficits through QE and have forward guidance and all of the rest of the unconventional policies, you're going to store up an inflation crisis when things get back to normal, and that crisis occurred.

Now we're in another crisis because interest rates are so high and they're going to stay high. My sense is that the bank woke up too late. That's my opinion. That's not the government's fault; I think the bank should have begun tightening policy sooner than it did.

Tell someone who has to refinance their mortgage and maybe sell their home that we're doing well. I'm not saying Canada is broken, but certainly if we compare ourselves to the U.S.—throughout history, our comparison has been to the U.S.—why are we faring so poorly compared to our friends to the south? By the way, this is even when they haven't had the best policy, in my opinion, but productivity growth in the U.S. has been strong.

As you said, you're a follower of Hayek. In the end, it comes down to the supply side. Tinkering with monetary and fiscal policy, regulation and targeted subsidies and picking winners are, in the long run, the wrong way to go. Have sensible, tight and sound money, bring down the deficit, run surpluses to build a stock for the future and pare down excessive regulation. This is standard, textbook Milton Friedman and Hayek stuff.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

On the supply side, things like putting in place a national day care program are, for me, supply side measures. I agree with you on removing excess regulation and so forth, but when monetary policy needs to change and what inflection points are there, I'll leave it to the Bank of Canada and the professionals there to make those calls.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Sorbara. That's our time.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

We are definitely not—

[The Chair, Liberal, Peter Fonseca]

That's our time, MP Sorbara. Thank you very much.

Now we're going to MP Ste-Marie.

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

Thank you, Mr. Chair.

I would like to welcome all the witnesses.

I am going to start with a comment. I was quite surprised to hear that the Liberal member, Mr. Sorbara, identifies with the Friedrich August von Hayek school of thought. I find it hard to understand how a person can align themselves with that vision of the economy and stand with the Liberal government and its $83 billion for transitioning the economy and all its social programs, from subsidized child care to prescription drug insurance, but that is a topic for another time.

My first questions are for Mr. Thurlow from Dow Canada.

Thank you for being here and for your presentation, Mr. Thurlow. I would like to understand in more detail how you plan to use the hydrogen credit in your economic activities.

[W. Scott Thurlow]

That tax credit is part of a larger hydrogen clean energy tax credit. It will be based on the carbon reductions that accrue as a result of a material investment in our facility. After the investment is made, we will be able to use it in an accelerated capital cost reduction way to reclaim the expenditure, whether it's made by Dow or by one of our partners on site.

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

Thank you.

So, if I understand correctly, you use natural gas in your operations before the investment is made. With this credit, you are going to use gas to produce hydrogen and reduce the carbon footprint of your operations. Have I understood correctly?

[W. Scott Thurlow]

That's almost correct. We will be using natural gas as a feedstock. When we crack natural gas, there are what I'll call extra products left over. We will recapture those extra products and use the hydrogen, which was abundant after the cracking process, as the clean fuel for the heat and steam that are required for the process.

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

Thank you. That is very interesting and very much welcome. I also want to thank you for adding to my limited understanding of what your business does.

Based on your estimates, by how much, as a percentage, will this investment mean you can reduce your carbon footprint?

[W. Scott Thurlow]

It's 100%. We will be operating a net-zero facility by 2030.

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

Okay. Thank you. That is very encouraging.

My next questions are for the representatives of the BC Diabetes Foundation.

Ultimately, what you are asking for is to have semaglutides, like Ozempic, be covered by the insurance plan. Is that correct?

[Dr. Tom Elliott]

Yes, indeed.

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

The drugs to treat diabetes that are covered by the government plan in its present form are less effective than these new drugs. So this would be partial coverage that would not do a good job of meeting the needs of people who have diabetes. Is that correct?

[Dr. Tom Elliott]

Yes, that's right. The media has talked a lot about the off-label use of Ozempic for people who don't have diabetes and who just want to lose weight. Ozempic was designed for people living with diabetes. It not only brings about weight loss, which is beneficial to the diabetic state, but also helps improve insulin release. The underlying diabetes is improved from two angles in a kind of virtuous cycle. That's what makes it such a miraculous drug. Weight loss begets better diabetes control, and the drug begets better insulin supply. That's why it's such a wonderful drug.