Finance Committee on Nov. 5th, 2025

[The Chair, Liberal, Karina Gould]

Thank you, Governor. I'm going to have to end it here.

Thank you, Mr. Kelly.

We'll go to Mr. Turnbull for five minutes, please.

[Ryan Turnbull, Liberal, Whitby, ON]

Great. Thanks to both of you for being here. It's a great conversation. It's always good when you attend this committee, so I appreciate your time, your thoughtful answers and your expertise.

Obviously, Governor, your outlook that was recently done doesn't take into account the federal budget or all the fiscal measures that are contained within the 495 pages. I understand you might not have had a chance to fully absorb that yet, but can you just confirm that it couldn't possibly have taken those things into consideration?

[Tiff Macklem]

No, it does not take into consideration the new information in the budget.

It does take into consideration things that were announced, both at the federal and provincial levels, before the budget. Some measures were already announced, but no, it doesn't take those new things into account.

We will be reading the budget very carefully. We will build those fiscal plans into our next forecast, which will come out in January.

[Ryan Turnbull, Liberal, Whitby, ON]

Wonderful. That's great.

In terms of the causes of low productivity...so perhaps this is for Ms. Rogers, who has done quite a lot of work on this. Both of you have, and you've rung the alarm bell, as we've heard, and we took note of that. What are the causes of low productivity, Senior Deputy Governor?

[Carolyn Rogers]

There's a range. There's more than one. I think I started the list in answer to Mr. Kelly's previous question, but the governor talked about low levels of investment. When businesses don't invest in equipment, in training or in intellectual property, that affects productivity.

Skills matching the labour market is one, making sure that we're turning out the skills that we need from our secondary institutions. When we bring labour into the country through immigration programs, making sure that's a match to the jobs we need, that's one thing. There's also using technology to help improve productivity. Companies right now are quite focused on investments in artificial intelligence; most of that is because they see the opportunity to improve productivity. Commercializing our own technology.... There's a long list.

[Ryan Turnbull, Liberal, Whitby, ON]

Great. Thank you.

There's a quote from the budget I'd like to read. It says, “The most immediate way to jumpstart productivity growth is to address structural impediments and increase investment—in machinery, equipment, innovation, and infrastructure”.

Would you generally agree with that diagnosis?

[Carolyn Rogers]

Yes.

[Ryan Turnbull, Liberal, Whitby, ON]

Great.

Governor, you had said earlier that obviously tax measures can help incentivize investment. There are a number of those in the budget. There's a whole section on what's called the productivity superdeduction, which is an interesting term. It contains a number of measures, for example, for immediate expensing of accelerated capital cost allowance, accelerated depreciation, machinery and equipment, and the SR and ED program, which is our tax credit for offsetting the cost of R and D. Again, it's supporting innovation.

Do you think those things would help to increase investment and encourage businesses to take risks?

[Tiff Macklem]

We're not going to comment on specific tax provisions, but generally yes, if you lower the cost of investment, you would expect to see more investment. As I said, we have a pretty similar diagnosis. I think the specific measures are really in the hands of elected governments, as they should be.

[Ryan Turnbull, Liberal, Whitby, ON]

I think the budget is very specific about trying to address the productivity lags that you've diagnosed in the previous comments that have been made. I'm just trying to demonstrate here that there are specific measures that target each one of the causes, I think, that you've outlined in your previous remarks. It will be interesting to see, in your next outlook, how these measures are reflected, but I think there's an effort here on behalf of the current government to address productivity gaps, which I think we can all agree is a good thing.

[Tiff Macklem]

It's a good thing.

[Ryan Turnbull, Liberal, Whitby, ON]

On internal trade barriers as well, I suppose you mentioned some of those and that friction, whether it's in the labour market or whether it's just in terms of regulations not matching up, Would those efforts obviously improve productivity as well?

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Turnbull. That's time.

We're going to turn for five minutes to Mr. Chambers, who is joining us at the committee today.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Madam Chair. It's a pleasure to be back here.

Governor, Senior Deputy Governor, thank you.

You've made a number of warnings over the last few years that I think about. You warned about immigration. You warned about productivity—a very keynote speech. You also made a warning in the spring about financial speculators purchasing government debt—about 40%, if I recall correctly.

I guess the question I have is this. In a world where we are very interconnected and the possibility exists of a sovereign debt issue somewhere else in the world, maybe not in Canada, are we not more exposed than we would be, because we have 40% of I'll call them hedge funds purchasing our debt, which rely on this kind of liquidity and repo market to make the system work. I think that was the conclusion of the report—that's a rising risk. Is that fair?

[Tiff Macklem]

Yes, it is a vulnerability that we've highlighted. It's certainly not unique to Canada.

One thing you have seen actually in most major economies is that there's generally a rise in sovereign debts globally. There's also been a shift in the investor base. As you mentioned, hedge funds have come into the government debt market in a bigger way. To some extent, that's welcome. Governments need investors. They've been an important new investor class, but what is concerning about it is that they invest with a lot of leverage. What they do, effectively, is that they use these arbitrage strategies that have fairly low returns. Then to juice those returns, they borrow a lot to increase the return—

[Adam Chambers, Conservative, Simcoe North, ON]

I want to jump in right there, because I have very limited time.

If something happens and those investors leave the market, what would happen to government bond deals in Canada?

[Tiff Macklem]

As you suggest, if that funding was disturbed—a lot of it is very short term—and they pulled back sharply, yes, that would cause a disruption in government bond markets. That is very core to the financial system. That could certainly spill over to broader issues.

[Adam Chambers, Conservative, Simcoe North, ON]

Right. That would be increased bond yields potentially—is that correct?

[Tiff Macklem]

Yes.

[Adam Chambers, Conservative, Simcoe North, ON]

Is it prudent for a government, knowing this risk exists, to borrow record amounts of debt and to go to the bond markets year after year, knowing this risk is rising?

[Tiff Macklem]

As I said, this shift in the investor base is something you're seeing in all countries. I'll let you decide how to—

[Adam Chambers, Conservative, Simcoe North, ON]

I'll just ask another question. Put a different way, if a government borrowed less money in the bond markets, would that be less risk to the government?

[Tiff Macklem]

Yes.

[Adam Chambers, Conservative, Simcoe North, ON]

Okay.

I also want to ask about term structure.

We're told the government is making generational long-term investments. The term structure of government debt is some of the lowest in the G7. Let's set aside the U.S. Mexico is an 18-year average. Heck, the Government of Ontario is 12. The federal government is 6.9 years. Shouldn't they be actually matching borrowing with their investments, if that's actually what they're doing?

[Tiff Macklem]

Now you're really getting into some pretty complicated debt strategy.

There are a few different things. Obviously, on average, at the shorter end, it's less costly, so you want some at the shorter end. The longer end is more stable, so you want some at the longer end. The other thing is that—