Finance Committee on May 4th, 2026

[Tiff Macklem]

You're talking about a red flag: would you like to stop something?

[Éric Lefebvre, Conservative, Richmond—Arthabaska, QC]

No, but do you have any concerns about artificial intelligence in relation to productivity?

[Tiff Macklem]

Artificial intelligence is a transformational technology that can have significant impacts, not just on one sector but on all sectors, businesses and individuals. It can boost economic productivity. More production means higher salaries and more money in the economy. However, this requires adjustments: some jobs will likely be lost, and some tasks may be taken over by artificial intelligence.

The challenge is to identify the benefits while managing costs. There are all kinds of assumptions. Some people think that the adjustment will not be very pronounced and that the benefits will be greater, while others think the opposite and feel that many tasks and jobs will be automated through artificial intelligence.

[Éric Lefebvre, Conservative, Richmond—Arthabaska, QC]

Do you think we need to speed things up in matters of artificial intelligence, particularly when it comes to regulations in order to set out clear guardrails around the technology? That's one of the concerns expressed by Yoshua Bengio, a leading global expert, who told us about the need to set out clear guardrails around artificial intelligence just over five years ago.

[Tiff Macklem]

Yes, there are risks, including cyber threats, as we are now seeing in the news. For example, the new Mythos technology is much more capable of finding and exploiting vulnerabilities. Furthermore, one need not be an expert, and anyone who can use the artificial intelligence can exploit the vulnerability.

Indeed, the technology should be put in place responsibly. We're probably lucky that folks at Anthropic were here to meet with the government.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Macklem. We have to pause there.

Thank you, Mr. Lefebvre.

We're going to continue now with Mr. MacDonald for five minutes.

[Kent MacDonald, Liberal, Cardigan, PE]

Thank you, Madam Chair, and thank you to the witnesses for appearing here today.

I want to speak a little bit about Atlantic Canada because that's the region I represent.

Our region is tightly tied to exports of seafood and agricultural products. With the recent pressures and global uncertainty, certainly the trade disruptions with the U.S., tariff pressures and different unrelated global pressures around the world, are there policies that governments—I'm thinking of provincial governments and the federal government overlapping with those policies—can implement in Atlantic Canada that will make our region more resilient?

We feel those pressures of high oil prices and we feel those pressures of global uncertainty, I think, sooner than other regions of the country.

[Carolyn Rogers, Senior Deputy Governor, Bank of Canada]

Your question is whether there are specific policies.

[Kent MacDonald, Liberal, Cardigan, PE]

Exactly, yes.

[Carolyn Rogers]

I think the one we've already talked a little bit about is diversifying sources of revenue. Atlantic Canada has, as you pointed out, a fairly large export sector. Businesses in Atlantic Canada right now are looking for other markets for the same products or adjusting their products so that they can avoid some of the tariffs, and that type of thing. Certainly that diversification approach would help.

The other thing that provinces are working on right now is reducing interprovincial trade barriers. Certainly we would encourage a continued focus on that. In that area, some federal policies affected interprovincial trade and those have largely been removed. Now the focus is really on barriers in between provinces. There, the focus has been primarily on goods trade. We think the next phase should really look at making sure that labour can also move freely across borders.

Really, you're looking for ways to reduce the costs for businesses to do business with each other across borders.

[Kent MacDonald, Liberal, Cardigan, PE]

Would you agree that government investing in large projects like Wind West off Nova Scotia will bring more stability to the Atlantic economy?

[Carolyn Rogers]

It's difficult for us to comment on any one project. I think we would say that in general, projects that are bringing those objectives forward—diversifying trade and revenues, reducing barriers to internal trade, increasing supply and adding productive supply to the economy—are good projects.

[Kent MacDonald, Liberal, Cardigan, PE]

I'd like to dig a little deeper into what you would use as criteria for slowing down inflation and increasing interest rates. Obviously, you're watching temporary oil price spikes and trying to make an informed decision. Higher interest rates cost small businesses a lot of money too. Is there a balance there? Obviously there is, but I would caution against increasing interest rates too quickly.

[Tiff Macklem]

As you mentioned, the increase in inflation that we're seeing now is not being driven by an overheating economy and shortages of labour. It's being driven very clearly by the war in Iran, which has sharply increased oil prices. That's showing up at the pump.

We've indicated that we will look through the immediate impacts of higher oil prices on inflation. There's nothing we can do about that directly. The only way that gets resolved is if the source of the problem gets resolved, and that's certainly beyond our control. We will look through the initial impacts. As I said, we've held our policy rate unchanged in the last two decisions, even as the war had started. What we're focused on, though, and what we don't want to see, particularly if the price goes higher and stays high, is that there's a risk that those higher energy prices start to feed into other goods and services, and those feed into yet more goods and services. Pretty soon, a one-off increase in the price level starts to become ongoing increases in the price level, or generalized inflation.

Yes, I understand that higher interest rates are not going to be great for most Canadians, certainly if you have a mortgage or if you're renewing your mortgage, or if you're a small business or big business and you're borrowing, but the alternative is to let inflation get out of control and become entrenched. That hurts everybody even more. The interest rates are the instrument we have to control inflation.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Macklem. We have to pause there.

Thank you, Mr. MacDonald.

We're going to continue with Mr. Garon for two and a half minutes.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Madam Chair.

Mr. Macklem, your report illustrates the fact that when it comes to growth, we were somewhat saved by the growth in domestic demand, which was very strong. I'm referring specifically to consumer and government spending, and to investment to a lesser extent. We therefore had the equivalent of stimulus measures in the last budget.

We know that government spending is high, but clearly, we have issues with investment, which is weaker than we would like it to be.

As such, all is well in the short term, because we have growth. However, I'd like you tell us about projections for potential gross domestic product over a longer horizon. I'd like to know how we compare with other countries, and whether you expect a possible investment lag could hurt Canada's economy and ultimately, our standard of living in the medium-term.

[Tiff Macklem]

The short answer is that investment spending is headed in the right direction to increase potential, but, as you said, it will take time. Investment is projected to increase with the influx of new capital, but that will take several years.

As I mentioned at the beginning, we revised our projections for the future. Three major factors have affected the potential in this revision

First, the population growth rate is slowing down, meaning fewer new workers and consumers are joining the economy. That lowers the growth outlook.

Second, the economy is adapting to a fundamental change in our trade relations with the United States. Businesses are adjusting. In the short term, finding new markets is costly, but in the long term, it's good for productivity and resilience. As such, in the short term, finding new markets lowers productivity, but productivity goes up in the long term.

The third factor is the increase in the number of businesses using artificial intelligence, which is expected to boost productivity. Productivity is likely to be stronger—

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Macklem.

That was a short round of questions. I'm sorry.

We're going to continue now with Ms. Cobena for five minutes.

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

Mr. Macklem, you stated in your opening remarks that you're working to make sure that increased energy prices don't lead to persistent inflation. On that basis, would you agree that the increase in the cost of fuel does lead to inflation?

[Tiff Macklem]

I'll ask Ms. Rogers to respond.

[Carolyn Rogers]

It has an immediate effect on prices, which has an immediate effect on inflation.

The distinction we would draw is that in the short term, it's going to raise the price of fuel, and fuel is one of the items that feeds into the CPI. What the governor was talking about, which we are going to watch for, is whether over time, if fuel stays high.... As we talked about earlier, fuel is an input to other products, so if that increase in fuel price starts to feed into the price of other products, which then feeds into the price of other products and starts to feed into inflation expectations, that's what we mean by persistent inflation.

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

On that train of thought then, the layers of taxes we put on fuel would also then impact the cost of fuel and therefore increase inflation.

[Carolyn Rogers]

We've had a number of examples recently of what a change in tax does to inflation. It has a one-time sort of step increase in the price. It doesn't affect that ongoing, persistent inflation that we're describing. It changes the price once. After a year, that price change would fall out of the rate of inflation.

It does have the one-time effect, but just like a one-time effect caused by a shock in the price, it's something that we would look through when we think about generalized or persistent inflation.

[Sandra Cobena, Conservative, Newmarket—Aurora, ON]

Yes, I can understand that, but once the price or the cost of everything goes up, then that cost base will continue to stay up, even if the calculation of inflation is adjusted going forward.

Of course, I'm asking because of the current times that we're living in. I think approximately 43% of Canadians are just $200 away from not being able to meet their financial obligations. When the cost of fuel is so high, when there are layers of taxes that add to that cost and when the government is seeing this windfall of revenue, would you say then that removing those taxes and reducing the cost of fuel would actually help?

[Carolyn Rogers]

It would help. From the perspective of inflation, it would have a one-time adjustment downward. If you think of the GST holiday, for example, it adjusts the price level down temporarily. That effect falls out of the CPI after one year.