Finance Committee on May 18th, 2023

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Bachrach.

Now we're going to hear from the Conservatives.

MP Morantz, you have five minutes.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

Mr. Cross, you made a comment about Paul Wells, who said that, if you run a successful business, you feel like you've done something wrong. That really hit home for me. I come from a small business family, and since I've been elected to Parliament, all I hear from the government and opposition parties is that you just have to pay a little bit more, or we're going to tax you and put a luxury tax on your cars, your boats and your planes.

I think that small business people in this country should be lauded and applauded, so I want to thank you for that comment.

To your article on April 11, I also read Mr. Morneau's book and I think, from what you've written here, that your response is probably going to be self-evident, but I just want to get it on the record. Do you think that this government has behaved in a fiscally responsible way?

[Philip Cross]

Obviously not. It's something Mr. Morneau acknowledged extensively in his book. Repeatedly, for example, the Department of Finance would make proposals about support for people during the pandemic, and even with the highest estimate they put forward, the PMO would come back with something higher. There's a structural problem here.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

You quoted from his book. You said former finance minister Bill Morneau in his recent book “described how the absence of a fiscal target and constant meddling from the Prime Minister’s Office 'shattered any pretense of fiscal restraint.'” Obviously, you wrote that and you agree with that comment.

We had the finance minister here a couple of days ago, who insisted that she was fiscally responsible over and over again, but I don't see any evidence of that. Do you?

[Philip Cross]

None whatsoever.

What's discouraging is that groups like the Bank for International Settlements have warned about overreliance on short-term stimulus since 2014-15, yet that is one of the reasons we've gotten into this problem. We resort only to short-term monetary and fiscal stimulus to create growth. We don't look at creating the conditions for innovation, entrepreneurship or the growth of small businesses—what's called gazelles—into larger businesses. That's where real growth comes from in the longer term.

In fact, the BIS repeatedly noted that to the degree you rely on short-term fiscal and monetary stimulus, you actually subtract from growth in the long term. After 10 years of slow growth, guess what. We're living in the long term.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Exactly.

The 2022 budget acknowledged the growth problem. It had the chart in there, showing us last in the OECD. In the finance minister's speech, she said that this is Canada's Achilles heel. One would think that, in that budget and then again in this budget a year later, there would be substantive policies to create more growth.

Do you see any evidence of that in budget 2023?

[Philip Cross]

No, and like you and a lot of observers, I was surprised that there seemed to be recognition in the 2022 budget: “Houston, we have a long-term structural problem with productivity.” One would have thought that would be the beginning of a process, and that seems to have been forgotten.

We've gone back to the “same old same old” policies that got us into this fix in the first place.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

In that time, I want to get you on record about this. The nexus between fiscal and monetary policy, which you talk about in the article, as it relates to getting inflation under control....

We saw inflation tick up a bit this week. Notwithstanding that the government projects that the average inflation rate over the course of this year in the budget will be about 3.5%, and the bank governor said it's going to be down to 3% by the summer, it's actually gone up.

What you talk about here is that there needs to be a marriage between fiscal policy and monetary policy in order for our monetary policy to be effective. Would you agree that, at this point in time anyway, budget 2023 is at cross purposes with the efforts of the bank governor to wrestle inflation?

[Philip Cross]

Because of time limitations, I will point people to a paper I recently wrote, published by the Fraser Institute, on the need to coordinate fiscal and monetary policy.

Even people like Paul Volcker would say, fundamentally.... Everybody looks at Volcker and says, “Oh, it's monetarism that brought inflation under control.” He'd be the first to say that, no, it was working with fiscal policy during that period and deregulation that produced the success in bringing in inflation.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Cross and MP Morantz.

Now we go to MP Chatel, for five minutes.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much, Mr. Chair.

I had a lot of questions for Mr. Leblanc as well. I'm a little disappointed that he wasn't able to stay. Since we haven't really had a chance to talk to him, I'd like the committee to invite him back, if possible.

Mr. Cross, thank you for citing the data from the Organisation for Economic Co-operation and Development. I don't know if it comes from the report I have here, the 2023 Economic Survey of Canada. The survey recognizes that Canada has the lowest net debt-to-GDP ratio of all the G7 countries. It's one of the factors economists use to determine the financial health of a country. In that respect, we have a good rating.

As for the budget deficit, the survey recognizes that it is shrinking. Among other things, it says the following:

A general government deficit of 1.7% of GDP is expected for 2022, after 11.4% in 2020. Public debt still stands above the pre-pandemic level... but is expected to decline rapidly. Canada fares better than most countries in this regard.

Do you agree with the OECD on that, or do you have more of a selective approach?

[Philip Cross]

There are two problems with the OECD's...and I'm not sure I would criticize them for this. I think they would always note.... People who look at budget deficits always note that Canada has the most decentralized government structure of any of the major G7 nations.

[Sophie Chatel, Liberal, Pontiac, QC]

No, they're combined.

They combine.... It's provincial and federal.

[Philip Cross]

Okay.... Anyway, it's a much different situation. The 1.7% you cited, for example, if my memory serves correctly, was a federal—

[Sophie Chatel, Liberal, Pontiac, QC]

No, it's a general government—

[Philip Cross]

In any event, one has to look at, particularly when making international comparisons, the total government sector. You can't just look at the federal.

[Sophie Chatel, Liberal, Pontiac, QC]

Agreed.

[Philip Cross]

The other problem is that you have to look at gross debt, not net. You can't net out the savings in our pension plans, which are, obviously, set aside. You can play a lot of games with numbers—

[Sophie Chatel, Liberal, Pontiac, QC]

I'll just correct something very important, and thank you for raising that. The reason we have to use the net debt is because pension funds in Canada are fully capitalized. In Europe, they are not capitalized. If you do that, you make a huge mistake, and you compare apples with oranges.

I will go on, continuing with the OECD report.

Implementing the child care systems reform is one very important factor it brings to the fore. It will require additional funding. The survey says that the reform could “strengthen labour force participation, particularly among women, and boost living standards” for Canadians, increase productivity and partly solve Canada's labour problems.

Do you agree with the OECD on that?

[Philip Cross]

I have a question I would ask them. That's been the justification we've heard for a lot of government spending over the last 10 years: Child care will pay for itself. Infrastructure spending will pay for itself.

My question is this: If these government spending programs pay for themselves, why are we still running historically large deficits, and if they were supposed to enhance productivity, how come, when I look at the productivity numbers, they are awful?

[Sophie Chatel, Liberal, Pontiac, QC]

Someone explained something quite interesting to me.

Let's say I own a business. If I don't invest in the technology of the future, my business will go bankrupt, because I will no longer have a market. If I invest, I'm going to double my market share with the new technology.

So an entrepreneur might be told not to invest because it would increase their deficit or their debt. However, in a few years, their business will unfortunately no longer be competitive.

Is that your recommendation?

[Philip Cross]

I would never tell a business person how to run their business because it's their money. If they are willing to put their money at risk and they go bust, it's their money and they're not coming to me for reimbursement. The problem is that when it's government money I can't avoid that.

[Sophie Chatel, Liberal, Pontiac, QC]

So you recommend not investing in the future of Canadians so that they have good jobs and are competitive.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chatel. That is all the time you have. I know it was a good discussion.

We are going to Mr. Lobb.

MP Lobb, welcome to our committee.