Evidence of meeting #119 for Public Accounts in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was inflation.
A video is available from Parliament.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
The reason I ask is that there was a budget tabled just recently.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Would you give that same speech today? Would you warn people that it's still an emergency situation?
Senior Deputy Governor, Bank of Canada
As I said, we haven't fixed it in a month, so I think the speech stands.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
I want to talk a little bit about Canada mortgage bonds. I understand that the Government of Canada is now purchasing, I believe, up to $40 billion a year.
Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
It's up to a maximum of $30 billion.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Thanks for the correction. Do you see any impact on the money supply because of the Government of Canada's bond purchase program?
Senior Deputy Governor, Bank of Canada
I don't know if I could isolate that specific program, but Mr. Chambers asked us to give some additional data on what's affecting the money supply, and we'll be happy to do that.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
The Government of Canada will now own that mortgage debt under the bond purchase program. The Bank of Canada used to buy those bonds for a period of time. My understanding is that the Bank of Canada ended that program, but you do act as the financial agent for the Government of Canada to purchase these bonds. Will the Government of Canada will now own mortgage debt as a holding?
Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
What we're doing exactly is we're basically borrowing money in order to finance those Canada mortgage bonds. Basically we own some of that debt, yes.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
The Government of Canada borrows money to buy mortgages from banks who have lent money to Canadians. Is that right?
Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
Basically, the way it works is that CMHC borrows money in order to buy NHA MBS, mortgage-backed securities. Those are a pools of mortgages that are put together.
The way the market works is that when CMHC was issuing—and they're still issuing—there's a spread relative to the Government of Canada debt. The debt—the product they're issuing—is fully backed by the Government of Canada, so they should be issuing around the same rate. They're a AAA product.
Because of that spread, the government decided to issue its own debt in order to finance the CMBs, the Canada mortgage bonds. The debt that we are issuing is debt that basically CMHC doesn't have to issue on the market.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
It's guaranteed by the government itself. The government is both the backer of the debt and now the holder of the debt.
Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
That debt was already guaranteed prior to issuing debt in order to buy CMBs.
Conservative
The Chair Conservative John Williamson
Thank you very much, Mr. Scheer.
Next up, we have Ms. Yip.
You have the floor for five minutes, please.
Liberal
Jean Yip Liberal Scarborough—Agincourt, ON
Thank you for coming.
If you have to repeat some of the answers from your previous committee work, that's okay. It's always good to learn a little bit more.
Governor Macklem confirmed that eliminating a price on pollution would lead to a one-time decrease in inflation. Is that correct?
Senior Deputy Governor, Bank of Canada
Yes. A one-time change in a tax leads to a one-time change. If we were to eliminate the carbon tax outright, it would have a one-time impact. That's correct.
Liberal
Jean Yip Liberal Scarborough—Agincourt, ON
Can you expand on what that means in terms of inflation in the long term?
Senior Deputy Governor, Bank of Canada
The impact would last one year. The effect of the decrease in inflation would disappear one year later.
Liberal
Jean Yip Liberal Scarborough—Agincourt, ON
Thanks.
It was confirmed that the annual increases in carbon pricing raise the average economy-wide price level by 0.1 percentage points.
Is it correct to say that would have a small effect within StatsCan's CPI calculations, as compared to other determinants of inflation?
Senior Deputy Governor, Bank of Canada
I think you got the number right. I think the descriptor is relatively accurate.
Liberal
Jean Yip Liberal Scarborough—Agincourt, ON
Conservatives keep arguing that eliminating a price on pollution would bring inflation back within target and would lead you to cut rates in turn, which would ease the pain Canadians may be feeling. However, during the rate announcement last month, it was clear that the rates weren't going to be cut until progress was seen toward price stability on a longer period.
Is it correct that eliminating a price on pollution would not lead to price stability in the economy?
Senior Deputy Governor, Bank of Canada
I would come back to my first answer. Eliminating a tax measure—any tax measure—has a one-time impact.
Certainly we base our rate decisions on the long-term forecast and the long-term direction of inflation and of the economy.
Liberal
Jean Yip Liberal Scarborough—Agincourt, ON
As we look ahead and consider our future economic position, how much will benefits to the elderly increase in the medium term?