Finance Committee on March 24th, 2022

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I second that.

[The Chair, Liberal, Peter Fonseca]

Okay.

[Ed Fast, Conservative, Abbotsford, BC]

Mr. Punswasi, really what I'm getting at is that I'm concerned about the independence of our central bank to make decisions in the best interests of Canadians, including those who are buying houses and taking out mortgages.

I think you've suggested that the decisions by the federal government to borrow and spend have created fiscal dominance, which in a way has interfered in the decisions the central bank has made. Am I correct in that?

[Stephen Punwasi]

Yes, definitely.

Sorry, did we miss that explanation of supply and demand with credit?

[Ed Fast, Conservative, Abbotsford, BC]

Please....

[Stephen Punwasi]

Basically, the more demand there is for credit the higher interest rates will go. The central bank needs to inject liquidity into the market to stabilize those interest rates to keep credit growing at a rate that they feel comfortable with. They need to abandon inflation and just stabilize the market. The more the government needs to borrow and the longer it does at non-market interest rates, the more distortions, and that becomes the general market.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Punwasi.

Thank you, MP Fast.

We're moving to the Liberals with MP Dzerowicz for six minutes, please.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank all of the presenters for their presentations.

I'm going to start off with Mr. Macdonald from the Canadian Centre for Policy Alternatives. If I have time I'd love to squeeze in a question at the end to Mr. Desjardins at Brigil.

Mr. Macdonald, you've talked quite a bit about inflation. You've also talked about housing.

All of the reports I'm reading say that inflation has risen around the world. The key drivers behind inflation globally—this includes in Canada—are global oil prices, pandemic supply chain problems and the way the virus has changed spending habits, among other things. Would you agree with that?

[David Macdonald]

Yes, those are three of the four drivers that I highlighted.

[Julie Dzerowicz, Liberal, Davenport, ON]

I appreciate that.

You've also mentioned that the conflict in Ukraine will increase inflation. I think the OECD actually estimated that over the next year it could go up an additional 2.5%. Do you also agree that might be the case?

[David Macdonald]

Certainly the impact was pretty immediate on oil and gasoline prices. It may well have an impact on food prices, although that's potentially longer term, via wheat and fertilizer markets in particular. It's not entirely clear what the impact of that will be.

[Julie Dzerowicz, Liberal, Davenport, ON]

In terms of Ukraine and the impact of inflation there, do you think there's anything Canada can specifically do about that?

[David Macdonald]

The federal government doesn't control the price of oil or gasoline. Those are controlled by international markets.

That's not to say we can't control, to some degree, our own supply chain and personal transportation reliance on gasoline. That's not something that changes overnight. It's certainly part of a long-term strategy towards carbon neutrality. We can't change the prices, but we can change how much we use it.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay. I appreciate it.

One thing I was happy to note was the fact that a number of our government benefits are indexed to inflation. CPP, OAS, GIS, GST and CCB, I believe, are just the ones that come to mind. Would you say that this is a positive thing that will help some of the most vulnerable in our country be able to at least partially weather the storm that is currently under way and ahead?

[David Macdonald]

Yes. All the major federal income transfer programs are indexed. That's not necessarily true provincially.

I think the only area where federal benefits are not indexed is on reserve, where the on-reserve social assistance matches what the provinces are providing, which is sometimes not indexed, and the federal government doesn't then index its own social assistance on reserve.

But across the major transfers, it's positive to see that all of those are already indexed to inflation.

[Julie Dzerowicz, Liberal, Davenport, ON]

I appreciate your saying that. You know, we're all worried about our most vulnerable. We're all worried about the impact on them. It was already difficult during the pandemic, and I do think that this is a benefit, this is a positive, and it's important to highlight.

There are always gaps in our supports. I think it tends to be single males who don't have a job. I don't know if you have any recommendations on how we can help the particular group that might not have access to the other benefits I might have talked about in order to support them through this anticipated inflationary period.

[David Macdonald]

Federally, we have a basic income system for seniors via the old age security and guaranteed income supplement. We have a system for families with children via the Canada child benefit. But we really have no institutional supports for adults who don't fit either of those two categories. It is one of the big shortfalls in Canadian income security. A portion of those people are going to have disabilities, so some sort of Canadian disability program would be an important part of covering that group.

Another important part would be really changing the way the Canada workers benefit functions. It is a support for relatively low-income households, but it's fairly minor, and you need to have employment earnings. If you don't have employment earnings, then you can't receive the Canada workers benefit. One of the reasons that people live in low income is because they don't have employment earnings. Changing the way the Canada workers benefit functions such that it does apply to people with no or particularly low incomes would really cover off that gap in Canada's income security system.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you, Mr. Macdonald. I will say to you that this was one of the recommendations we put into our pre-budget submission by this committee.

Finally, we were talking about housing, and you mentioned that investors are buying half of all the new homes. Is that something that's happening across the country? I really appreciated your recommendation about a higher down payment in addition to an additional 10%.

Could you confirm whether half of all new homes being bought by investors is across the country? Do you have any other recommendations on how we could deal with this issue?

[David Macdonald]

That was actually an estimate that Mr. Rabidoux made. I was referring to the Bank of Canada study that came out three or four months ago that looked at the percentage of CMHC mortgages that were for investment properties. That's in the neighbourhood of 20% to 25% in Canada's big markets.

I think this is one of the parts where the federal government can play a very active role in moderating prices on the housing file. Part of that is to increase the down payment that is required for investment properties from 20% to 30% for the first property, and then, as additional properties are purchased, the down payment requirements go up by 10% each time. This would send a very strong signal to investors that the profit margins are going to need to be much higher, and you're going to need to have a lot more money to get into this market in the first place. That would be, I think, a more productive way, a more predictable way, of trying to restrain prices rather than providing people with additional options for leverage, like—

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Macdonald.

Thank you, MP Dzerowicz. That's the time.

Members and witnesses, you may or may not have noticed that we are having some technical and connectivity issues. It's not just this committee. It's happening right across the Hill with other committees. I'm sure the technical staff are doing all they can to make sure we stay up and running, but if something does happen, it is out of our control at this time.

We are now moving to the Bloc for six minutes.

Monsieur Ste-Marie, go ahead, please.

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

Thank you, Mr. Chair.

I want to thank all the witnesses for their participation and presentations.

My questions are for the Option consommateurs representatives, Mr. De Bellefeuille and Ms. Plourde.

Thank you for all the work Option consommateurs does for people in Quebec. You're really making a difference.

I briefly want to go back over the points you raised.

In inflationary times, we try to make the economy more resilient, but that's a lengthy process. To support the most vulnerable people in the short term, you suggest that we target the most disadvantaged with measures such as a permanent GST/HST credit rather than send checks or grant tax credits to more than 90% of the population.

Would you please tell us a little about that program? How does what you're proposing differ from the current situation? In concrete terms, how many people would be affected by what you're proposing?

Thank you.

[Alexandre Plourde]

Good afternoon.

Thank you for asking that question.

Option consommateurs is proposing measures that will actually help support the most vulnerable individuals. We aren't necessarily advocating measures that will help everyone. Inflation obviously affects everyone right now. Everyone is affected by inflation, but low-income individuals have the least financial flexibility. The choice available to a low-income person is which necessity to cut, whereas people with slightly higher incomes can cut luxuries or non-essentials, even though they also still feel the unpleasant consequences of inflation.

As you say, we're proposing that the government support the most vulnerable individuals, in particular by increasing the GST/HST credit. I don't know the exact number of people that might help, but we prefer the most progressive measures possible, ones that will help the most vulnerable by giving them more money.

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

Thank you, that's very interesting.

One of my colleagues, Jean-Denis Garon, the member for Mirabel, discussed assistance measures for the most vulnerable and suggested that tax credits might be an option. As everyone knows, those kinds of credits are issued on a quarterly basis. In many instances, low-income households have cash flow problems. Mr. Garon suggested that the credit be issued every month, if that's not too complicated. People would thus receive a payment every month instead of waiting three months for the credit. It would obviously add up to the same total amount, but it would arrive more frequently.

Would that kind of measure make a difference for the people you support and advise?

[Sylvie De Bellefeuille, Lawyer, Budget and Legal Advisor, Option consommateurs]

Yes, that would help them manage their finances. When people receive money in a lump sum, they have to manage it on an ad hoc basis, but they have to meet basic needs over shorter periods of time. They buy groceries every week and have to pay their rent. Getting the credit every month would make their lives easier.

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

I see. Thank you very much.

I liked your comment on the importance of making markets competitive. Our committee can now see that access to an affordable, high-quality Internet connection is still a challenge. That's true for northern towns like Matawinie, in my riding, and for the parliament of a G7 country, where that still seems to be a problem. At any event, we'll take note of your suggestions.

I'd like you to tell us about "reduflation", which is a really interesting term. Without directly naming any companies, do you have any specific examples, just to give us an idea of what "reduflation" means?