Evidence of meeting #15 for Public Accounts in the 42nd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was billion.
A video is available from Parliament.
Liberal
Chandra Arya Liberal Nepean, ON
You mentioned the U.S. housing crisis. Have you done the same thing for the Canadian housing market?
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
Yes, exactly. It imposes the equivalent of a U.S.-style housing crisis in Canada—sorry, I wasn't clear in my first answer. Unemployment would go from 7% to about 11% or 12%. Housing prices would decline by about 20% to 30%, harmonized across the country. It shows the effect on the CMHC income statement. You can see, based on that shock, what that would do to the ultimate federal budgetary position, as the Auditor General said.
The bottom line, whether or not it gets you to read it, is that the CMHC has these enormous buffers to protect the federal income statement, the federal balance sheet against a housing shock like that.
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
Mr. Leswick, like everybody else in this room—albeit maybe I shouldn't speak for everyone else—I have a house mortgage. I've never been ashamed to break that house mortgage. Neither have I ever been ashamed to break any long-term mortgage for corporate debt. I've always been a firm believer that you should borrow over the long term.
As long as the benefits outweigh the penalty, you would break a mortgage in order to strengthen your own long-term position, and you would always finance over the long term. Over time, you would refinance and pull that debt back out, provided you could invest that money at a higher rate of return than you are paying in interest on your mortgage.
Do you see what I mean?
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
I did right up until the last statement, in the sense that—
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
If you had a $300,000 mortgage that was financed over 30 years, of which there 10 years left, and all of a sudden borrowing rates were at 2.39%, then instead of refinancing your home at 2.39% for the 10 year period that was left, you would pull your money back out and refinance your home for the full 30 years again, provided you could reinvest that money at a higher rate of return than what you would be paying in interest. You would still come out ahead every day, right?
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
I can't argue with that, Mr. Chair—
Liberal
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
The government doesn't invest the money, that's the only—
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
I understand that. What I wanted to ask was whether it would be possible for you to provide us with a one or two-page overview of the borrowing or debt strategy for this year, in terms of the length of time and the way it's composed on both ends of the spectrum and in the middle? Could you also provide us with that information for the previous 10 years?
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
Mr. Chair, absolutely.
We do provide this as part of our debt management strategy. It is a very condensed document. The member to the chair's left was referencing this document. It does discuss exactly this kind of cost-risk dynamic and whether the government has it right. That's effectively its proposal. That's how it communicates its debt strategies. We can definitely reference that and give that to the clerk.
Conservative
The Chair Conservative Kevin Sorenson
Mr. Poilievre, you had another question.
We are going to break here and suspend in about five minutes. We have some committee business to take care of. We want to take questions if you have them.
Mr. Poilievre.
Conservative
Pierre Poilievre Conservative Carleton, ON
To build on Mr. Harvey's point, if it were possible to indicate the rationale for the heavy focus on short-term debt issuance, that would be much appreciated by this committee.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
It's very clear the committee is asking for more detail with respect to, as you say, the short end of the curve.
Conservative
Pierre Poilievre Conservative Carleton, ON
I don't know if I'm wrong, but I'm not aware of any insured party throughout our entire economy that pays no premium and no deductible with respect to CMHC, except for the Canadian banks. The home buyer pays the insurance premium, and in the event of a mortgage default loss, the Canadian taxpayer insures that loss through CMHC, at no deductable to the bank. When I buy a home and I pay that CMHC premium, it doesn't insure me at all. It doesn't give me anything. In fact, if I lose my house because I default on my mortgage and there's a loss on the liquidation of my home, the insurance is there for the bank. The effect of this is that 100% of the profit of each mortgage issued in Canada goes to the bank or the lender, and 100% of the risk for CMHC-backed mortgages goes to the taxpayer.
Do you consider that it is possibly a perverse incentive for lending that the lender gets all the profit and the taxpayer gets all the risk?
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
I won't argue with the question or the logic that the member presents. I think it's something that we are looking at in the department, in terms of lender risk sharing, so that there's an appropriate distribution of the benefits and the costs across the spectrum of that agreement. That's only to say that things like the mortgage-backed securities program allow a securitization of these mortgages so that the benefits or the exposures are spread not just to banks, but are held in mutual funds and pension funds. It's not just the lender that gets any sort of exposure benefit to that. However, it's definitely something we're looking at.
Conservative
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
Absolutely.
Conservative
Pierre Poilievre Conservative Carleton, ON
So we're not actually spreading the risk to others. We're bringing it back on to our book when we stamp them, right?
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
CMHC is stamping them, yes. They're wholly backed by CMHC, and in effect the government, so the risk is on us.
It's just that the exposure, I guess, to some extent, or the benefits.... The exposure to the housing market is not just held wholly within the lending institution.
Conservative
Pierre Poilievre Conservative Carleton, ON
No, it's not held at all within the lending institution. It's held on the backs of the taxpayers.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
Mr. Chair, I understand what the member is saying. In terms of lender risk sharing and the CMHC products, both insurance and the securitization program, we're looking at those.
Conservative
The Chair Conservative Kevin Sorenson
Mr. Leswick, on that point, the government in the past has put in measures to secure the housing industry, or to secure even the mortgages and CMHC, by lowering amortization periods of time and a number of other things.
What were those...?