Evidence of meeting #34 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was mortgage.
A video is available from Parliament.
Licensed Insolvency Trustee, Canadian Association of Insolvency and Restructuring Professionals
That's except if there's more supply. The price of housing should stabilize or come down as a result of that. If there's more opportunity for buyers, there'll be more competition in the market.
Conservative
Greg McLean Conservative Calgary Centre, AB
We often say that people don't buy houses; they buy payments, and those are mortgage payments. In a stabilized environment, as far as building housing and financing housing goes, how many houses per year should we be building in Canada, in your opinion?
Licensed Insolvency Trustee, Canadian Association of Insolvency and Restructuring Professionals
Sir, that is a question for an economist, which I am not. I wouldn't venture to go there.
Conservative
Greg McLean Conservative Calgary Centre, AB
All right. Then I shall move on to Mr. Bolduc, if I may.
Right now, Canada has the highest debt of all the countries in the G7. That's consumer debt as well. Consumer debt alone is at 103% of GDP, not counting all the government debt that would layer in at a significant level on top of that. Consumer debt is 177% of disposable income, yet our debt service ratio in Canada is significantly higher than it is in the United States. It's about 14.6% of disposable income in Canada versus about 11.3% in the U.S.
Can you tell me why we have that differential with the United States? Why are Canadians spending so much more on interest than our neighbours just across the border to the south of us?
Licensed Insolvency Trustee, Canadian Association of Insolvency and Restructuring Professionals
We're spending more on interest because we have a higher amount of debt, quite simply. We do follow the debt-to-income ratio quite closely, but the other ratio, not so much. It's simply that Canadians are carrying more debt.
I would also point out that our savings rate in Canada is lower than what it is in the U.S. as well. People have less of a pad to fall back onto.
Conservative
Greg McLean Conservative Calgary Centre, AB
At the same time, the Canadian bank rate is 150 basis points lower than the U.S.'s bank rate. Somehow we're missing something whereby consumers are suddenly more exposed in Canada versus the United States.
One of your predecessors in the last panel said this was a result of wage suppression in Canada over the last 10 years. Do you have any comment on that?
Licensed Insolvency Trustee, Canadian Association of Insolvency and Restructuring Professionals
I'm not sure I would phrase it exactly in that way, and I'm not an economist, but I think that in the U.S. they have more disposable income, and generally wages are higher comparative to Canada.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Bolduc.
Thank you, Mr. McLean.
We'll continue now with Mr. MacDonald for six minutes.
Liberal
Kent MacDonald Liberal Cardigan, PE
Thank you, Madam Chair. Thank you to the witnesses.
Mr. Hoyes, you were talking about the consumer insolvencies. I was noticing, when I was doing my research, that prior to, let's say, the pandemic, we saw a lot of consumers go through bankruptcy. Today, it's proposals, so that trend, obviously, is better. It probably gets better returns for everyone affected by an insolvency situation.
Is there one point in particular that drives these? I'm thinking in terms of, is it housing costs, is it food and everyday expenses, or is it debt accumulated gradually through credit cards and unsecured borrowing? Is there one of those factors that plays a bigger role in what you see?
Licensed Insolvency Trustee, Hoyes, Michalos and Associates Inc., As an Individual
Are you asking about why there are more consumer proposals than bankruptcies, or why there are more insolvencies in general?
Liberal
Kent MacDonald Liberal Cardigan, PE
Why are there more insolvencies in general? That was just something I noted, that now it's gone to proposals rather than bankruptcies.
Licensed Insolvency Trustee, Hoyes, Michalos and Associates Inc., As an Individual
Yes, there have always been life events that have caused insolvencies: losing your job, getting divorced, medical issues and that sort of thing. That has always been the case. What we are seeing increasing now is that people are coming to us who have not had a specific life event. “What happened? My expenses are much higher than what my income is, and I just can't keep up.”
That's why we're seeing an increasing level of debt over an increasing number of creditors. It's become more of a structural problem rather than a one-time event that is tipping a lot of people into insolvency.
Liberal
Kent MacDonald Liberal Cardigan, PE
People don't talk about a bankruptcy or an insolvency situation. When they acquire the services of a company like yours to put a proposal forward, and they're successful, is there an average cost to that? I'm just asking out of my own curiosity.
Licensed Insolvency Trustee, Hoyes, Michalos and Associates Inc., As an Individual
Yes. If you want me to pick a number out of the air, I would say it is roughly a third of their total debt. There's a significant range. It could be 10%, or it could be up to 100%, but that's the area where creditors are generally willing to accept it, provided that return is greater than what they would receive in a bankruptcy.
Liberal
Kent MacDonald Liberal Cardigan, PE
You pointed out that the Canada Revenue Agency has maybe not been a willing negotiator on these proposals. Are you recommending that government change the regulations to try to...?
Licensed Insolvency Trustee, Hoyes, Michalos and Associates Inc., As an Individual
No. What I'm recommending is that we create a coffee club, where licensed insolvency trustees, representatives of CRA and the Office of the Superintendent of Bankruptcy can get together every three months, have a coffee and talk about these issues, because I think it's just a disconnect between what one party thinks they want and the other party thinks they can get. If we could talk this out, it would not be very complicated. I think the laws are fine. It's just that the representatives from CRA are thinking they have to recover more money. Yes, but if it isn't there, you can't recover it.
I think a bit of communication would solve 80% of this problem.
Liberal
Kent MacDonald Liberal Cardigan, PE
In these proposals, then, if the bank is accepting 50 cents on the dollar, then CRA has to be in that same category: 50 cents on the dollar.
Licensed Insolvency Trustee, Hoyes, Michalos and Associates Inc., As an Individual
Debtors can afford only so much. Asking someone for this much when they can afford only this much means they don't do it, and it tips into a bankruptcy. That's not a good solution for anybody.
Liberal
Kent MacDonald Liberal Cardigan, PE
Okay, I'm going to move on to Mr. Cowan.
Mr. Cowan, I met recently with a lot of university and college students across Atlantic Canada, and one of the things I took from that meeting was they spoke about the amount of debt they started life with after school. In lots of instances, it's a lot more than $25,000, and particularly in Atlantic Canada, a lot of these students have to be mobile, in that they have to go and find work in their careers where the work is available, which increases their need either to find rental properties or—down the road, when they're established—to buy homes.
In your experience, are you seeing more young Canadians, particularly in regions like Atlantic Canada, entering insolvency? Are they hitting a brick wall?
Licensed Insolvency Trustee, Canadian Association of Insolvency and Restructuring Professionals
Definitely, in my own practice, I've noticed that there is a growing number of younger Canadians who are running into financial difficulty and sometimes having to seek assistance and possibly insolvency services.
I think a lot of that has to do with just what we touched on in our introductory remarks. The nature of work, particularly for younger people, tends to be more short-term, the gig economy kind of thing, and that inconsistency in their income is what contributes to that problem.
To your point about the idea of student loans, fortunately the student loan bodies in Canada, for the most part, are very co-operative and try to help students as much as they can with payment deferrals and things like that. That's a great help to those students, those young people, but you know, it is a challenge right now to try to maintain a level of income that will allow them that mobility and those opportunities.
Liberal
Liberal
Liberal
Bloc
Jean-Denis Garon Bloc Mirabel, QC
Thank you.
As it happens, my colleague Mr. McDonald almost saved me because I was going to ask Professor Pugliese some questions and apologize for perhaps mispronouncing her name. So I thank him, that's some very good cross-partisan work.
Professor Pugliese, you talked about the distinction between debt and excessive debt. I imagine that, somewhere, there must be a dynamic there. A person who has a lot of debt can, through a combination of circumstances, develop excessive debt. After that, they become subject to all the problems associated with that.
I'd like to know what factors in an economic environment can make someone go from being in debt to being in excessive debt. For example, I'm thinking of rising interest rates or rising commodity prices, but also of the fact that we have an employment insurance program. You talked about the social safety net, which, according to the latest figures I've seen, doesn't adequately cover nearly 45% of workers in Canada.
What factors take people from debt to excessive debt, with all the attendant ills?