Finance Committee on Oct. 29th, 2024

[Adam Chambers, Conservative, Simcoe North, ON]

I guess I would say that you have political cover to push it much further, because it's been 10 years since the Bank of Canada has admitted that modernization of retail payments has a significant economic upside. If we're worried about productivity, I would think you could lean on this organization and Payments Canada, which, by the way, gave a sole-source contract to an entity that's completely rife with conflicts of interest, and which is owned by the banks so it has an incentive to not modernize to protect that profit pool.

However, they're in non-compliance, so I'm very glad to hear you're working with them.

[Carolyn Rogers]

Yes. What would say is that we are working closely with Payments Canada. Having a fast payment system in Canada is an important step for productivity. It's an important step for our economy, and it's an objective we support.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much.

I'll switch back.

Would it be safe to say from your testimony that the fight against inflation is not over and that there is a risk that it could reaccelerate? Is that a fair assessment?

[Tiff Macklem]

I think we've reached a very important milestone. Inflation is low again. We need to maintain it.

[Adam Chambers, Conservative, Simcoe North, ON]

Is the fight over?

[Tiff Macklem]

No.

[Adam Chambers, Conservative, Simcoe North, ON]

There are provincial elections all across the country. There's a federal election coming up at least within the next year. You have provinces promising to send people cheques. You have the PBO saying that the government is blowing through its deficit target. It sounds to me like a lot of fiscal stimulus.

What recommendations would you have for governments that are considering a lot of fiscal stimulus, when the fight against inflation is not over? Do you support additional fiscal stimulus?

[Tiff Macklem]

Normally, we don't comment at all on fiscal policy. When inflation was high and we were working very hard to get inflation down, we did express concern that, if there was a lot more spending and in particular if fiscal spending was well above potential growth, that could make it more difficult to get inflation back down. We now have inflation back down.

I'm really not feeling the need to comment on fiscal policy. Fiscal policy is your job; monetary policy is ours.

[Adam Chambers, Conservative, Simcoe North, ON]

Fair enough.

Would you say to tread carefully? Would that be a fair recommendation that you would provide politicians who can't help themselves but to spend, spend, spend, including provincial governments. They are equal offenders here.

[Tiff Macklem]

Tread carefully, but I'm not here to give you fiscal policy advice. We are here to talk about monetary policy.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Governor.

[The Chair, Liberal, Peter Fonseca]

Thank you MP Chambers.

We go now to MP Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you, Governor and Deputy Governor, for being here today and for this important discussion.

I am spending an exorbitant amount of time visiting small businesses in my riding of Davenport. They're struggling, because since the pandemic, input prices, some of them, have not gone down. They continue to remain very high. Consumers have changed. The economy has changed. The world has changed. Many of them are pivoting.

The question I have for you is this: How does the recent interest rate cut impact Canadian businesses?

[Tiff Macklem]

Certainly, when I run into businesses, they often express considerable pleasure and are quite happy to see the interest rate coming down. It lowers their cost of borrowing. Whether that's investing in new capital or paying for their working capital to buy their inventories, it takes down one cost for them.

The other thing that is going on, though, is that, with low inflation, they're facing less uncertainty about fluctuations in their input costs. It doesn't mean they've all come back to where they were, but the rate of change has come back.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you. That's helpful.

There's another question I have, and Mr. Chambers touched a little bit on it. We, at the federal level, made it a point to ensure that we kept government spending to a new goalpost of 1% of GDP. Do you believe that our keeping our spending to 1% of GDP has contributed to inflation falling, or at least to keeping it under control?

[Tiff Macklem]

I've said in the past that I think the fiscal guideposts are helpful. I think they give more predictability, more certainty.

[Julie Dzerowicz, Liberal, Davenport, ON]

I do a lot of canvassing, and I would say to you that, when I talk to my constituents, some of them will say, “Julie, I'm worried that the carbon tax—our carbon pricing—is making everything expensive.”

Governor, some of the misinformation, or disinformation, that's out there is that, if we eliminate the carbon pricing or carbon tax, all the prices will go down. If we eliminate our carbon pricing, will all prices go down?

[Tiff Macklem]

If the tax is not applied to it, there's no direct effect. There could be an indirect effect, but there's no direct effect.

[Julie Dzerowicz, Liberal, Davenport, ON]

I'm sorry. There's no direct effect on what?

[Tiff Macklem]

I've talked many times about our estimates. When we do them, what we do is we look at the incidence on the fuel categories that the carbon tax affects. If you take the carbon tax off, yes, the prices of those fuel categories will come down. That's going to be the direct incidence of getting rid of the carbon tax on prices.

[Julie Dzerowicz, Liberal, Davenport, ON]

It won't be that everything, all prices, go down—food prices go down; transportation prices go down—beyond the fuel price.

There's this expectation and belief out there that it is the carbon pricing that somehow has caused everything to be expensive, so if you eliminate the carbon tax, everything will then go back to normal and the prices will be back to normal. That is honestly the belief that is out there.

For my constituents, if we eliminate the carbon pricing or carbon tax, would all the prices go down?

[Tiff Macklem]

No.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

We talked about productivity. Everybody on this committee knows how much I've been trying to tackle interprovincial trade barriers. It does take a while to tackle, but we have to get started.

I was reading the Draghi report. Europe is also having some productivity issues. What are the similarities in our productivity issues, and where is it that we are different and specifically need to focus on?

[Tiff Macklem]

That is a very big topic.

There are some similarities, but there are also a lot of differences. Canada, unlike the European Union, is a country. We have a unified banking system. We have large national banks that span the country. We have a unified capital market system. We have a federal tax system that spans the whole country. We have equalization payments between different parts of the country. We have a fiscal union, whereas Europe has a monetary union but it doesn't have those other things. There are some very important differences.

As I highlighted in response to Mr. Morantz's question, we still have.... There are small differences between provinces that get in the way of doing business, which I think we could agree to have some mutual recognition on to the benefit of all the provinces. We have some unnecessary barriers, but we're starting from a pretty different place than Europe is.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Dzerowicz.

Members, we are now moving into our third round of questions.

MP Kelly will start off the top.