Government Operations Committee on May 4th, 2020

[Matthew Green, NDP, Hamilton Centre, ON]

Thank you, Mr. Chair.

According to the Department of Finance's third biweekly report on parts 3, 8 and 18 of Bill C-13, the estimated financial impact of direct measures for individuals, businesses, tax liquidity support, and other liquidity supports is around $586.5 billion.

How is the government financing all of these new benefits and measures, and are they financed through short-term or long-term financial instruments?

Maybe Mr. Marsland, a tax policy guy, or somebody from the Department of Finance could answer.

[Leah Anderson]

I can take that.

We work very closely with the Bank of Canada, which is our fiscal agent, to issue government debt to finance the spending that is occurring. The tenure of the debt falls across the different options that we have, including T-bills of two years, five years and 30 years. We have calibrated that program appropriate to the response.

We certainly are benefiting from the extraordinarily low interest rates that we're currently facing. Indeed, going into this crisis we were in the best fiscal position of all the G7 countries, so we are benefiting from that status as well.

[Matthew Green, NDP, Hamilton Centre, ON]

I'm certainly not an economist, but we're hearing new theories, things that might not be traditional, like modern monetary theories. Has there been any discussion around ways, subsequent to Mrs. Vignola's point, that, if we see this again, we certainly can, under the traditional framework, continue to borrow in the way that we do? Have new fiscal theories been bandied about or explored in your department?

[Leah Anderson]

Again, going back to how we went into this crisis, we had very sound fiscal capacity, and we do work very closely with the Bank of Canada to explore what the best opportunities are. In working with them and projecting out our financial requirements, we were able to develop a borrowing program that's appropriate for Canada.

[Matthew Green, NDP, Hamilton Centre, ON]

In one of the earlier comments, and I can't recall who to attribute it to, I heard about adding to the liquidity of financial institutions. How much liquidity have we added to financial institutions?

[Leah Anderson]

The Bank of Canada has launched a number of facilities that enable what we call “repos” or the exchange of securities for liquidity. All told, I think it was in the range of $550 billion.

[Matthew Green, NDP, Hamilton Centre, ON]

Just for the purpose of the viewers who are out there, what does that look like? Is that a transfer from the Bank of Canada to financial institutions to be able to provide them with financial stability?

[Leah Anderson]

It's not a transfer to the financial institutions; it's providing liquidity to the market. They have various securities in their books, and they exchange them to the Bank of Canada on a short-term basis, and they provide the liquidity.

Similarly, one of these measures is what we call the “domestic stability buffer”. OSFI provided some capital relief to financial institutions, and this freed up another $300 billion of liquidity for financial sector institutions to be able to provide credit to the economy for support at this time.

[Matthew Green, NDP, Hamilton Centre, ON]

At the risk of sounding really foolish, we heard about, in the States in 2007, the process of quantitative easing. Is that what you're doing, supporting the markets through this process?

[Leah Anderson]

I wouldn't necessarily call it quantitative easing. There are different strategies and approaches, but the facilities that we have do enable a greater liquidity.

An important thing was recently done with provincial governments. As they're also issuing debt and going to the market in unprecedented times, the Bank of Canada launched a facility to purchase, on a temporary basis, some of their debt to, again, help with the smooth functioning of the market. These are all very much well-functioning market measures so that the market remains liquid and available to provide credit to business at this time.

[Matthew Green, NDP, Hamilton Centre, ON]

I'm going to go back to a question I had in the first round, which is this really interesting thing about establishing a corporation or an entity for the purposes of promoting stability in the financial system. Can you comment on that? What is the purpose of the authority to establish a corporation?

[Leah Anderson]

This power, in fact, builds on a power that was provided in the financial crisis, and the Minister of Finance, during that time, was provided the authority to enter into a contract with an entity to provide a loan, a line of credit or a guarantee to an entity. In this very unprecedented time, and our being able to or needing to be able to respond as required, as circumstances warrant, it was deemed appropriate to not just make a guarantee, loan or purchase an entity, but to create one through the government as another tool for financial stability if it's warranted in this time.

[Matthew Green, NDP, Hamilton Centre, ON]

Do the corporation letters patent of Canada Post allow, through postal banking, for a similar process?

[Leah Anderson]

That's a different question. That's not related to this provision.

[Matthew Green, NDP, Hamilton Centre, ON]

Fair enough. Thank you very much. I'm watching with interest, and I appreciate the fullness of your answers.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

We'll now go to the five-minute round of questions starting with Mr. Aboultaif for five minutes, please.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Thank you very much.

My next question is on the CECRA program. The government will put 50%, the landlord will put 25% and the business owner will put 25%. It seems like the landlords are not participating or are refusing to participate in the program. There are a lot of businesses basically facing shutdown, and they cannot come up with the money. We've been receiving a lot of calls in that regard.

Was this program communicated to the real estate owners, the landlords, before it came out? Was there any understanding of this program coming to light so that at least we don't end up with a situation that we're in right now?

[Leah Anderson]

The program is expected to launch in mid-May. CMHC will be administering the program, and is working carefully on the program parameters. We are hearing a lot from both landlords and tenants about the operationalization of that program. We've heard from many landlords that they find it's a great opportunity. Otherwise they would have been faced, perhaps, with tenants being able to pay nothing, those who have been deemed non-essential forced to close or have significant revenue decline. They look at this as an opportunity to help weather this crisis.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

So when we're talking about the revenue decline, you pick the 70% decline in business. How did you come up with that figure? Why isn't it 60%? Why isn't it 65%, for example?

[Leah Anderson]

We wanted to make an amount that was material but not zero, because if a company is facing zero non-essential for us to close, they might not be able to bridge the period. So it's an assessment. If they face that amount of a drop they would have more difficulty paying for that time, and with access to CEBA, for example, would then also be able to pay their 25% of the rent and be relieved of 75%.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

So the 70% was not based on any economic or financial measures. It just may be a number that sounds good. Some businesses have lost more than 70%. Of course some of them shut down completely. Some of them are still having some activity.

How much money did you think you would need to spend on this program?

[Leah Anderson]

It will ultimately depend on take-up, but we're estimating it will be approximately $2 billion in loans.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Is that on a monthly basis?

[Leah Anderson]

No, this is for the full program.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

And that considers how many months?