Evidence of meeting #77 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was spending.
A video is available from Parliament.
11:50 a.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Blaikie.
Now we'll go to the Conservatives with MP Lawrence, for five minutes.
11:50 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you for appearing today.
I want to go over your models a little bit. You had mentioned that inflation has been driven, as it usually is, by the fact that demand has outstripped supply.
You had said that you built in the government spending. I assume that you do it based on the government's projection.
In the fall economic statement, they projected 2% in growth. If, in this budget—which is coming up in a couple of weeks—it was more like what this Liberal government has done traditionally, which is a spending increase of 7% to 8%, would that affect your ability to take a pause?
Would that affect inflation? Would that affect your models?
11:50 a.m.
Governor, Bank of Canada
Just to be clear on what we build in, we do our own forecasts and we build in whatever agreed spending profile the federal and provincial governments have.
We don't use the government's forecast. We do our own forecast.
Their forecasts are more based on—
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
I'm sorry, Mr. Macklem, my time is short.
What have you projected for their growth in spending in 2023?
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Would you please be able to provide that?
11:55 a.m.
Governor, Bank of Canada
To get to your question, if the provincial and federal governments spend more than we built in, and particularly if that spending is stimulating aggregate demand at the same time we're trying to cool it, we would likely have more work—
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Mr. Governor, I apologize for breaking in, but my time is limited.
Could you provide us with what you are projecting—what your models are—for spending for the federal government in the next two years?
11:55 a.m.
Governor, Bank of Canada
I can certainly follow up with the clerk and get you some more precise numbers.
If you look in the monetary policy report, we have a forecast for government spending.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
If you could provide it to me, that would be great.
If, in fact, the projected growth is less than what the growth comes in at, meaning that the growth is higher—sorry, it's less than eloquent—would that affect your models? Would that cause inflation to increase?
11:55 a.m.
Governor, Bank of Canada
Are you asking if the growth of government spending is higher?
11:55 a.m.
Governor, Bank of Canada
Yes.
That is something we'll build in. If it's materially higher and it's focused on things that particularly stimulate aggregate demand, yes, that could have an effect on our projection.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you, Mr. Governor. That's very helpful.
In your last appearance, I believe you gave some numbers with respect to the impact that inflation was having on Canadians and perhaps that's in the model. Could you share that with me?
For example, when inflation's at 6% as opposed to 2%, how much is that costing each Canadian? If you don't have the answer right off the top of your head, I'd be pleased to take it in writing.
11:55 a.m.
Governor, Bank of Canada
I can certainly follow up with the clerk and send you some representative calculations.
I don't have those in front of me, but I can tell you they haven't changed a great deal. Inflation has come down a little bit since we were here last time—
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
If you could table that, Governor, that would be greatly appreciated.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
There's one last thing I want to clarify—and I know my time is probably getting short here, Mr. Chair.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you.
You did mention in the last exchange, I assume inadvertently, as you did last time.... You sort of miscommunicated a little bit on the carbon tax. The last time you said it was 0.1%—which you talked about—which is the carbon tax increase, whereas if we were to eliminate the carbon tax, the impact is more like a half a point on inflation as opposed to 0.1%. That's significant.
If you were able to bring inflation down, that's a big number. Just by taking the carbon tax off, based on your previous correspondence, that would be half a per cent. Would you agree with me that if we were able to get inflation down by half a point that would have a substantial impact? That would be more Canadians employed. That would be more Canadians who could afford groceries. That would be more Canadians who could afford rent.
11:55 a.m.
Governor, Bank of Canada
Yes. I will just draw a distinction. As you said, the increases that are agreed with regard to the carbon tax add 0.1% to inflation each year. If the carbon tax were eliminated, inflation, as you said, would be about half a per cent lower for one year. That would only be a one-year effect. You can only eliminate it once. It falls out once, and then the next year it has no effect.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
To reduce inflation by half a point even for one year.... That's a massive impact, right? I think you would be very pleased if we were able to do that.
11:55 a.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Governor.
Thank you, MP Lawrence.
Now we go over to the Liberals.
MP Chatel, please.
February 16th, 2023 / 11:55 a.m.
Liberal
Sophie Chatel Liberal Pontiac, QC
Thank you, Mr. Chair.
Thank you for being here today, Mr. Macklem and Ms. Rogers. Welcome to the committee.
As I listen to your comments, I'm really glad to see how sympathetic you are to what Canadians are going through. You want to keep this period as short as possible, you are taking measures and you are commending Canadians for the patience and resilience they have shown. That really struck me, so thank you very much.
I pay a lot of attention to the net debt-to-GDP ratio and how we rank against other countries. Canada has to make massive investments in order to be competitive in the global economy. I'd like you to talk about the U.S. Inflation Reduction Act. The Americans are in the process of making choices to best position their economy for the 21st century.
When a government like the U.S. government makes massive investments to ensure its sectors are well-positioned to compete in the economy of tomorrow, what impact does it have on inflation?
That spending won't drive consumer demand up immediately or directly.
What are your thoughts on that?