Thanks, Mark.
I'll add my thanks to the chair and the committee as well for the invite here today. It's always an honour to be asked.
I'm going to touch on three topics very briefly and I'm happy to expand on any of them in the Q and A. I'll talk about inflation, the housing market, and the proposed bank and insurance tax.
On inflation, it was entirely appropriate for fiscal and monetary authorities to take an aggressive stance when the pandemic first hit. We saw much success in this regard. However, here and around the globe, these stimulative policies have continued long after the recession has ended, and the result, not surprisingly, is inflation well above comfortable levels for inflation-targeting central banks.
The seemingly coordinated hawkish response of late by developed world central banks might help in taming inflation here at home, but higher interest rates across the global board will slow aggregate global demand, which in turn will hurt domestic economic growth. This is one of the many problems with inflation. Once it takes hold, it is hard to break, and higher prices disproportionately hurt lower income folks.
The second topic is housing. One idea floated around has been lowering CMHC’s mortgage insurance premium to get people over the affordability threshold. I worry about the precedent that this kind of move has for the relationship between government and Crown corporations whose job, in the case of CMHC, is to set these insurance premiums to ensure stability in our financial system and compensate the public for the risk they bear. In the name of increased affordability, we're increasing financial stability risk and this is a difficult trade-off.
The crux of the affordability issue is, of course, supply, and here, unfortunately the federal government is limited in the tools in its tool box. What it can do is focus on what prods it can use to encourage lower levels of government to improve their approval processes, their rules around density, and the way they charge development fees.
Lastly, I'll just mention the discussion on the bank and insurance tax. Taxes should of course be progressive, which this one is meant to be, but in our environment in Canada, banks and insurance companies will pass down this cost to consumers, to employees and to investors in the form of higher fees and insurance premiums, lower deposit rates, and so on. Now, if the Canadian financial sector was more competitive, some other competitor would come along and offer a better deal to customers, upending the incumbents. However, in our highly regulated sector, despite good competition from credit unions, it's unlikely to come to pass, meaning that more needs to be done to continue to improve competitiveness in this sector, which is a better way to tax any excess profits.
Moving forward with open banking and implementing the recommendations that came out of the advisory committee on open banking should be at the top of the list, because this is a zero-cost way of improving productivity.
I will stop here and thank the members of the committee again for the invite. I look forward to the Q and A.