Finance Committee on Feb. 3rd, 2022

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you, Chair.

Interestingly enough, when we're talking about Alberta, 98% of the federal COVID funding went to Albertans, so I think there are a lot of businesses and individuals in Alberta who are certainly appreciative of and thankful for what has taken place in the last two years related to COVID-19.

My question is for the Council of Canadian Innovators. I just want to ask Ms. O'Born about venture capital. It has become a very dominant force in the financing of innovative companies, especially in the U.S.A., and I'm wondering if she could elaborate a little bit on why there is such low venture capital investment in Canada?

[Dana O'Born]

Thank you so much for the question. Just to set the table, we are kind of arm's length from the venture capital community, although we do have a lot of interplay with them, and obviously they're helping start-ups grow and fuelling a lot of the talent issues and other pieces that I mentioned earlier. Look, I think everybody wants to get involved in the tech game, right? The transition we have seen happen in the last two years, during the pandemic, even just with us sitting here on a Zoom call is, I think, something we never envisioned happening for a parliamentary committee, and that means there are all these new ideas and new innovations being brought to the table, and people are interested in playing a part in those.

I think from the government perspective, there have been some interesting attempts to get involved in some of that venture capital activity, with VCCI and VCCI Stream 2. BDC has also been quite active in the tech space, but I think what you're going to see is a lot of the venture capital investment coming up from the U.S. still being a major factor at play in Canada's tech ecosystem. However, I would be remiss if I did not mention that our vice-chair is also leading one of the largest VC funds in Canada, and so he might argue otherwise.

The trend is starting to shift, which means that there is more capital available to companies that are getting a leg up in Canada. I think it's just something to monitor. It's very interesting, so thank you for the question.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you. You always hear about small start-ups. I worked closely with the DMZ out of Toronto and it was always very interesting to hear about, but sometimes when the companies get to a certain level, then they're gone and you know why they're gone. They're in New York City with a venture capital fund, and it's tough to see for small Canadian companies that grow and expand, but maybe they'll be like Shopify and come back.

CCI also responded to the fall economic statement, and while expressing understanding for the government's focus on the pandemic, you also mentioned steps to improve Canada's footing in the digital economy, specifically open banking and modernizing privacy regulations, etc.

Can you expand on what that would look like for the average Canadian small company or small business?

[Dana O'Born]

Yes, that's a very interesting question actually.

So on the fintech side, a fintech report was issued. Actually it was mentioned earlier today. I think what we're seeing is some fintech companies that are really growing quickly in Canada and wanting to offer different packages, products and portfolios to customers. We all use banks, I hope, and we're all transferring money and doing everything on our smart phones. So how can we modernize and effectively and efficiently allow some of these new start-ups and this new innovation into the banking sector, which has been pretty closed off for the last several decades?

To your question about privacy, there was a privacy bill introduced under former minister Navdeep Bains, and I think it came as a little bit of a surprise to the ecosystem in the sense that it was just not anticipated. There hadn't been any consultation. I know the government has taken that back and done some more thinking on it, but again, we're sitting here on Zoom, and there are privacy protocols we all had to endure as we set up for this conversation today, and we need to be thinking about that more broadly for Canadians. We all have the privilege of being on this call this evening, but there are a lot of Canadians who aren't aware of the privacy issues or what's at stake being online all the time.

For us it's really important that the government get this right for citizens but also for companies. Having several layers of regulation and compliance with Europe and the U.S., it's just going to be very difficult for companies to excel in Canada.

[Heath MacDonald, Liberal, Malpeque, PE]

How much time do I have, Chair, or am I done?

[The Chair, Liberal, Peter Fonseca]

You have about 15 seconds.

[Heath MacDonald, Liberal, Malpeque, PE]

Just quickly, our level of employment is almost back to what it was prepandemic. I just want to know how the IT sector was affected or whether it was affected at all relative to COVID-19.

[Dana O'Born]

It was affected badly in the beginning. The government responded, but we've seen all kinds of employment growth. I think in Alberta right now, for instance, there's a zero unemployment rate in the tech sector. It's the same in Ontario and Quebec. The space is booming.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. MacDonald.

We are moving to the third round, members. We have the Conservatives up first with Mr. Chambers for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

Thank you, witnesses, for being here. It's nice to see so many people. Of course, with so many of you, we don't have time to get to everybody.

I'd like to spend a few minutes with the C.D. Howe and Mr. Kronick. You talked about inflation. We've seen inflation continue to increase. The Bank of Canada holds interest rates. Some expect that inflation will continue to persist into the year, and the Bank of Canada says that they have absorbed all the slack in the system. What challenges and upward pressures are there on inflation with a government that's still going to spend money coming up in the next budget?

[Jeremy Kronick]

That is the problem. When slack's been fully absorbed in an economy, if you're adding additional pressures on it, you are going to get upward pressures on inflation. The Governor of the Bank of Canada was clear that, despite not increasing interest rates last week, interest rate hikes are coming. The more pressure you put on inflation, obviously, the more you're going to have to hike rates to get inflation back to target.

As my colleague Mark Zelmer mentioned, Canada's debt load is not just in government. There's a lot of focus here in this panel on government debt, but private debt—household and business debt—are also incredibly high in Canada and any upward pressures on interest rates that feed through from the bank increasing the overnight rate are going to put strain on Canadian households and Canadian businesses.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you. You might even say we're very addicted to debt in this country in the private and public sectors and households.

Ms. Dzerowicz, my colleague, quite rightly pointed to competition. It's nice to see others thinking the same way within the banking sector, but the truth is that increased competition across more than the banking sector, such as telcos and other federally regulated industries, including airlines and financial services, can help keep inflation low.

Would you agree with that?

[Jeremy Kronick]

Yes. There are two parts to it: increased competition and increased productivity. In both senses, what you're trying to do, in the case of competition, is to force the incumbents to offer lower prices, but in the case of productivity, you're improving your ability to produce things more efficiently, and therefore you can charge lower prices. Obviously, in a world where we do have this much debt, anything that keeps inflation in check and lowers prices prevents us from having to increase interest rates.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you. It also has the benefit of being a very low-cost measure the government can implement.

I'd like to turn to your colleague Mr. Zelmer.

Mr. Zelmer, you've written a little bit about MMT. You spoke about it at the beginning. I posed this question to other economists on the panel: What would have happened to interest rates had the Bank of Canada not purchased government debt?

[Mark Zelmer]

I think, given that at the time the credit and financial markets generally were seizing up, at the beginning of the pandemic, getting out there and expanding the balance sheet, along with a lot of other central banks around the world, helped keep financial markets functioning. In the acute phase, if you like, of the pandemic, when there was a great deal of uncertainty, that was a fairly reasonable and rational response that worked in the financial crisis back in 2008-09 and certainly helped to unlock the financial markets when the pandemic first set in.

The question going forward is really one of.... We're through the worst of it. There is more certainty as to how the world is unfolding, so the question is how you taper down and return the balance sheet to a more normal level. I think that going forward as they're dealing with the inflation pressures, yes, there will be interest rate hikes to come, as the governor has highlighted, but the other key of the equation is at what pace they will return some of those securities back into the marketplace and how they can do that in a way that doesn't unduly disrupt the marketplace.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

Perhaps we can get to this in a future round, but I'll mention with my last 10 seconds that the first thing every economic student learns is there's no free lunch. In regard to some of this MMT activity, I think we will be paying for it, and we're seeing it in higher inflation.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Chambers.

We are moving to the Liberals and Mr. Baker for five minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Chair, and thanks to all the witnesses for being here today.

Ms. O'Born, it's great to see you again. I might not be able to direct my questions to you. If I have time remaining, I will.

I want to begin with Mr. Macdonald.

I was very interested in your opening testimony during which you spoke about the importance of national standards for long-term care. Can you explain why, in your view, national standards for long-term care are important?

[David Macdonald]

Quite a variety of care standards exist at the provincial level. What's needed is to start setting some national standards, not only national standards without money but national standards with money from the federal government so that it's quite clear what the federal government expects the provinces to obtain in terms of hours of care per recipient or per client. This is the thing that we need to go into more detail on.

Certainly there's a staffing problem, which is that PSWs, particularly within long-term care, are poorly paid—or enough of them. Something like the essential worker wage top-up that happened in the depths of the pandemic sets potentially a precedent to continue to increase wages, particularly at the low end. However, this isn't purely about staffing. We also need to provide some sorts of standards that all the provinces attain, such that it doesn't matter whether you're in Ontario or Prince Edward Island, you get the same level of care; or whether you move from Ontario to Prince Edward Island, you would still receive the same level of care because such benefits would be transportable between provinces.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

To the point you're talking about, moving between provinces, but even within each individual province, presumably by setting that standard we would be disciplining ourselves to ensuring that seniors receive the quality of care that we believe they deserve.

Am I right about that?

[David Macdonald]

Yes, that's quite right.

This will certainly involve staffing. It might also involve capital. This might have to do with large build-outs of long-term care such that we don't have four people in a room, we have one or two people in a room. Even if you don't have the means to pay for a private room, because you have lived in Canada and contributed to this country, we believe you deserve a certain level of dignity if you're in a long-term care home.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I don't want to put words in your mouth, so please clarify if I'm not getting this right, but one of the things I heard in your opening testimony is that you recommended that the federal government provide funding to help realize the delivery against those national standards for long-term care. However, you suggested that funding be tied to results or outcomes.

Am I right about that? If so, why is that important?

[David Macdonald]

It's more that the funding be tied to the national standards so that we're evaluating on a regular basis whether the standards are being obtained and whether the funding is commensurate with that.

Obviously this would be in negotiation with the provinces. You'd expect the provinces to also bring money to the table, but the federal government is in a position here, and I think it has shown it, where the massive fiscal strength of the federal government can do great things in a time of crisis.

This is one of the lessons learned from COVID-19. Hopefully the federal government will take that up in the next budget and proceeding budgets really to ensure that this system is not overrun in future waves of this pandemic or in other emergencies.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

When you talk about tying the federal funding to national standards, what does that look like? What does that mean? Why not just provide funding to the provinces for them to allocate?

[David Macdonald]

It's important that the federal government in essence know what it's buying. The federal government is coming to the table with a certain amount of money and it's buying something. It's working with the provinces on something that's measurable. There's a new investment being made, but there's something that comes from that investment.

Unfortunately, as everybody knows who works with budgets, money is fungible, and money can come in one way and then leave a different way, unless there are some sorts of standards that you're attempting to attain through new investments in particular areas.

Like other areas of health care, in long-term care, it's often far too easy to put money in and then have money taken out someplace else such that you don't actually see an improvement for the people for whom you want to see that improvement, which is people living in long-term care.