Government Operations Committee on March 18th, 2024

[Yves Giroux]

It's an interesting question and one we've been asked quite often.

We released our economic and fiscal outlook a couple of weeks ago. Based on what we see on the economic front with economic data, notably with the decrease in global commodity prices, we expect the inflation rate should return to its 2% target level by the of the current calendar year, which would allow the Bank of Canada to start reducing its interest rate.

We believe that economic conditions would be sufficient to allow the bank to start decreasing its rate in April. It may choose to wait a bit to be on the safe side to ensure that all inflationary pressures have subsided before it starts reducing it, but based on our economic model, economic conditions suggest the interest rate of the bank could start decreasing in April. In our model, we anticipate inflation to return to 2% by the end of the current calendar year.

[Jenica Atwin, Liberal, Fredericton, NB]

Great. My next question was about those interest rates, because everyone's very much paying attention to those rates as well.

Maybe perhaps I'll pick up where Ms. Vignola left off around carbon pricing.

If we were to pause that 23% increase on April 1, would we see a dramatic decline in food prices across the country?

[Yves Giroux]

I don't think that we can see prices decreasing. That would mean deflation, which is also very bad. What we could see is probably a slightly slower increase in prices, slower than what is anticipated.

[Jenica Atwin, Liberal, Fredericton, NB]

Great.

How about housing costs across the country? If on April 1 that increase was paused, would you see a dramatic change in the affordability measures for housing across the country?

[Yves Giroux]

I'm not sure the carbon tax and the price on carbon has a significant impact on housing prices. It's mostly related to supply and demand for housing, so I don't see that pausing an increase in the carbon tax would have a significant impact, certainly not a measurable impact, on housing prices.

[The Chair, Conservative, Kelly McCauley]

Thank you very much.

[Jenica Atwin, Liberal, Fredericton, NB]

Thank you very much. I just wanted to clarify some things for Canadians.

Thank you.

[The Chair, Conservative, Kelly McCauley]

Thanks, Ms. Atwin.

Mrs. Kusie, go ahead, please.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you very much, Chair.

I'm going to go back, Monsieur Giroux, to the line of questioning my colleague had around the deficit spending.

This year's spending has increased to $493.7 billion, which is an increase of $50.4 billion. You state in your economic outlook that the deficit is projected to resume its downward trajectory if there are no new measures and if existing measures sunset, but, as I indicated in my first round, this is not consistent with the government's spending patterns.

Based on this government's record, and the fact that new measures are already being introduced, do you expect this to be accurate? My colleague asked you what area of spending is most concerning to you. Do you believe the projected resumption of the deficit's downward trajectory is possible, is accurate, based upon your comments?

[Yves Giroux]

When we release our economic and fiscal outlook and we project the deficit going forward, it's assuming no new fiscal measures, because it would be very difficult to include potential measures. What would we include and how much new spending or tax measures would we assume to be introduced? That's why these figures are status quo, based on what we know at the time we put this economic and fiscal outlook to bed.

However, what we have seen in the past is that whenever the government tables a budget or a fall statement, the track for spending tends to go upwards, which is a policy choice.

Am I certain the fiscal track we released in the fiscal outlook will be the one that materializes? I don't think it will happen, because the government will introduce new measures, which is why governments get elected, but—

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Historically, we'll change that, as the Conservative government, but pardon me; continue.

[Yves Giroux]

The Minister of Finance indicated she wants the deficit in 2026-27 to be, at most, 1% of GDP. By our estimate, the status quo would suggest it will be at 0.8% of GDP. That suggests there's not that much room for manoeuvring in that fiscal year if the government wants to maintain the deficit at 1% of GDP in 2026-27 without increasing taxes.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Of course, we're looking at the implementation of lofty programs, such as the dental program, the proposed pharmacare program on which the current government's power hinges, and the failed child care system they tried to implement.

Going back to my colleague Mr. Genuis's comments about the IT middlemen, I note there's been a reduction of 49 full-time equivalents in the procurement department at a time when we are trying to eliminate the middlemen due to the incredibly bloated costs we saw with the arrive scam scandal. This is a result of those 49 positions not being filled when they became vacant.

Is this a trend you're seeing occur in other departments and agencies as well?

[Yves Giroux]

No, I'm not aware of that particular instance of a reduction in FTEs. What we've seen over time is that the number of FTEs has in fact increased. Personnel spending has also increased.

There are obviously isolated cases of reductions in FTEs in specific programs or sectors. However, overall, the size of the public service has consistently increased over time.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

To that point, spending on public service personnel has increased to $67.4 billion, which is up from the $63.3 billion spent last year.

Are you aware of whether that increase is due to staffing levels or salary increases?

[Yves Giroux]

It's a combination of increases in both the number of FTEs and salary or remuneration costs per FTE. In the last numbers I saw, there was an increase of, I think, 18,000 FTEs in the public service, up to 438,000, and the last number I saw was $125,000 and a few hundred dollars in personnel costs per employee per full-time equivalent.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Thank you very much.

[The Chair, Conservative, Kelly McCauley]

Thanks very much.

Mr. Kusmierczyk, please go ahead, sir.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Thank you so much, Mr. Chair.

Thank you so much, Mr. Giroux, for being here with us. It's always a pleasure to get your insights and to spark what is always an enlightening discussion.

In 2022, at the height of the global inflation crisis that was rocking countries around the world, Canada had about an 8% inflation rate. I was heartened to hear that you believe the inflation rate in Canada will go down this year.

Can you repeat when you expect the number to reach 2%, which is our target rate?

[Yves Giroux]

We expect inflation in Canada will go down to 2% by the end of the calendar year—by the end of 2024—and that over the entire year, it will average 2.4%. We expect the inflation rate for calendar year 2025 to be 1.9%.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

This is an incredible drop, 8% to 2%, and will be much welcomed by Canadians.

Help me understand that drop.

You know, a year ago, I was listening to the Conservatives intently. The Conservatives were screaming at the top of their lungs that we need to cut federal spending for programs like child care. They were saying, “Cut child care.” The Conservatives were saying, “Cut spending for dental care.” They were saying, “Cut spending on major investments like the battery plant in Windsor”, which provided two and a half thousand jobs for my community. They were saying, “Cut public spending on investment in things like the Canada child benefit.” They were saying all of these things—“Cut all these programs”—yet the inflation rate dropped from 8% to 2% without our government cutting spending on things like child care, dental care, the Canada child benefit and investments in job creation like the battery plant in Windsor.

Help me understand the decrease in inflation. Were the Conservatives wrong?

[Yves Giroux]

The Governor of the Bank of Canada probably explained it better than I can when he indicated that government spending—not just federal government spending, but also public spending at large—was not helping the Bank of Canada's fight against inflation. I won't put words in his mouth, but that's what he indicated.

I think what will be successful in achieving a 2% inflation rate is mostly the Bank of Canada's monetary policy. It's the bank increasing its interest rate to 5% through successive increases, which I think will allow it to attain its 2% inflation target and start decreasing interest rates in the current calendar year.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Is it a fact that the inflation rate has gone down while the government still maintained significant, strong investment in Canadians? Is it fair to say that the inflation rate went down from 8% to 2% while the federal government still maintained strong investment in Canadians?

[Yves Giroux]

You're absolutely right to say that. We have not yet reached 2%, but based on our forecast, it should be that by the end of the calendar year. You are right.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Let me ask you about military spending, because you talked about the fact that a big chunk of these supplementary estimates is for defence.

When Stephen Harper was prime minister in 2011, the Conservative government introduced three years of painful austerity cuts to the military. It was $1 billion in 2012, $2 billion in 2013, and $1 billion in 2014. That's how the Conservatives brought military spending to below 1%. It was absolutely woeful.

What impacts did those Conservative cuts in our military have on the military?