Government Operations Committee on Dec. 2nd, 2020

[Yves Giroux]

Our monitoring tool has cost estimates that are independent of those of the government.

Based on discussions we have had with a number of people in the public service, because programs have often been announced quickly—and rightly so— the cost estimates have not been as rigorous as we might have expected under normal circumstances.

For our part, we have had the luxury of a little more time to estimate costs. Our monitoring tool provides cost estimates that are more rigorous and independent, since we have no bias on either side. We also take into account the net costs, which are the actual costs once the government collects the tax from the measures, or the tax on the amounts paid to individuals and corporations.

We update this tool on a regular basis, ensure that recently announced measures are included, and update our cost estimates whenever possible.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you.

We'll go to Mr. Green for two minutes.

[Matthew Green, NDP, Hamilton Centre, ON]

Mr. Chair, a Globe and Mail article reported that part 8 of Bill C-13 permits the finance minister to create a corporation or an entity to purchase assets from financial institutions or private companies, including material assets.

We've heard today about some of our Crown corporations. I understand that the Bank of Canada has brought on BlackRock to advise on buying up corporate debt under its new commercial paper purchase program.

Does the PBO have any purview over the commercial paper purchase program? How have they calculated that into the risks on a move forward?

[Yves Giroux]

We do. It's part of our mandate. Our mandate extends to all federal institutions, so it's quite broad in that sense. To the other part of your question, on how we would calculate that, I'd have to look specifically at the details of the transaction. It's a financial transaction. Usually for something that's commonly traded, we can estimate a cost or a benefit or a loss. If we were able to—

[Matthew Green, NDP, Hamilton Centre, ON]

Could you comment quickly on how Canada seemed to be an outlier, relative to the European market, in that it provided a significant bailout to banks without the requirement that they stop dividend payments?

[Yves Giroux]

I don't think there were that many restrictions imposed on corporations, banks or otherwise, when receiving financial assistance, loans or grants from the government. I'm not aware that there were that many restrictions, if any at all, compared to other jurisdictions that did impose some more stringent requirements. I'm not aware that there were any conditions or—

[Matthew Green, NDP, Hamilton Centre, ON]

It strikes me, Mr. Giroux, that if we're going to give out $750 billion in liquidity supports and regulatory loosening, we would at least make sure it doesn't flow through by way of dividends. You talked about inflation for the dollars by giving them directly to people and social programs. I wonder if you'd care to comment on the privatization of public dollars in corporate hands in this way.

[Yves Giroux]

There's not that much that I can provide in terms of comments without getting into the partisan aspect or being accused of—

[Matthew Green, NDP, Hamilton Centre, ON]

It's just straight economics. It doesn't even have to be.... I mean, I think any economist would look at it and say that, if you're taking taxpayer dollars and giving them to big banks and then allowing them to send them out in the way of dividends, that, too, is super-problematic economic theory. Can you answer that very quickly?

[Yves Giroux]

That certainly raises questions as to the need for government subsidies in the first place, if a corporation turns around and pays a dividend.

[Matthew Green, NDP, Hamilton Centre, ON]

Thank you very much for the candour in your answers.

[The Chair, Conservative, Robert Gordon Kitchen]

Mr. Paul-Hus, you have four minutes.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chair.

Mr. Giroux, you said that accountability has completely disappeared. This takes us back to a concern that all opposition parties have shared for several weeks, if not months, about contracts being awarded. As you know, various contracts have been awarded, including for protective equipment.

Does this justify our concerns?

[Yves Giroux]

Unfortunately, I can't be of much use to you on that, because my mandate is to look at the cost of the proposed measures, not at awarding contracts. I would like to be able to help you, but that unfortunately goes beyond my mandate.

However, the amounts are very significant, and I understand your concerns under the circumstances.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Okay, thank you.

You are currently dealing with the public service. This morning, we learned that Deputy Minister Rochon had resigned.

Do you feel that public servants feel they are caught in a no-win situation, given everything that is happening?

[Yves Giroux]

Based on discussions I have had with former colleagues and current public servants, morale in the public service is not very good. That's because of the workload, but it's especially noticeable among those closely involved in the response to COVID-19. Because of the pace of their work and the fact that most of them are isolated at home, morale is not very good.

However, I don't think it is very different among other groups or categories of workers who need to do their part.

That's basically what I can say about it.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Okay.

Let's talk about interest rates now.

Considering the expenditures to date, the debt is $1.1 trillion. When the government tells us that interest rates are low, it makes for a nice political speech, but in real life, we do not know whether, in a year or two, interest rates will increase by 1%.

Can you tell us what effect a 1% increase can have on the government's budget?

[Yves Giroux]

I would have to look through my many documents, because I don't know offhand. However, I can say that the repercussions would be in the billions of dollars.

It's risky to think that, because interest rates are low, we can spend and increase our debts without worrying about it. If interest rates ever go up, it would cost us a great deal collectively.

Forecasts don't point to a significant increase in interest rates in the medium term, but we can always have surprises. Given that interest rates are historically low, can they be much lower? They can go down a little, but not much. In short, there is much more room to go up than down.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

That's fairly clear.

I will come back to the economic update presented this week. It shows the projections for next year and for the next four or five years.

Do you think that what was presented makes sense or is the thinking somewhat of an illusion?

[Yves Giroux]

The economic forecasts are fairly close to the consensus among private sector economists.

As for the deficit forecasts, I think they are being fairly optimistic, especially since the government announced projects in the Speech from the Throne that could prove to be quite costly. If the government wants to implement the measures they announced, deficits might be slightly higher than what was presented in Monday's economic update.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

I'd like to clarify one thing. When you say “optimistic”—

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Paul-Hus.

We will now go to Mr. Drouin for four minutes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you very much, Mr. Chair.

Mr. Giroux, you had a little discussion with my colleague Mr. McCauley about bond management. You briefly explained why the government sometimes buys 30-year bonds, but does not always do so, because of the demand, which may be limited.

If the government were to increase the proportion of long-term bonds, for example from 22% to 40%, what would be the impact on public finances?

[Yves Giroux]

If the government decided to have a much higher proportion of long-term bonds than it currently does, the impact on public finances would be an increase in interest rates, since there may be no demand for them. It is also possible that demand may be strong. The people at the Bank of Canada and the Department of Finance would be in a good position to provide you with information on that.

Generally, people at the Bank of Canada and the Department of Finance see the numbers the same way we do. With such low interest rates, if there was a demand for more long-term bonds, the government would probably move in that direction. However, if the government decided to go beyond what the market can absorb, the interest rates would be higher for those 30-year bonds, to use that example, but probably also for other long-term bonds of less than 30 years.

In short, the interest rates would be higher, so the government would have to pay more for the financing.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Of course, credit rating agencies can influence interest rates if they indicate to the market that Canada may not have the capacity to repay its interest obligations.

We know that Moody's has once again given Canada a good credit rating. But what would be the incentive for a credit rating agency to once again give the government a good credit rating if, according to media reports, Canada's debt rates are at an all-time high? The numbers are high, but you have to compare apples with apples. A dollar was worth a lot more in 1940 than it is today.

Can you explain that?