Public Accounts Committee on May 7th, 2024

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Would the senior deputy governor agree that Canada's inflation problem, national debt problem and endless annual deficits under the Liberal government are closely related in damaging Canada's overall fiscal position?

[Carolyn Rogers]

I'm happy to give you the bank's view on what is causing inflation, what has caused inflation, and what is still causing inflation.

Inflation started in Canada, as it started in many countries around the world, as a result of the conditions I described earlier. As a result of the pandemic, we had a number of supply chain problems. We had a global shock to the economy with the invasion of Ukraine that—

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Excuse me, but I have to cut you off there.

With all due respect, number one, that's not the question I asked. Number two, when you print money, that also drives up inflation. We could go there and just stay there, and talk about how, even though there might have been slight inflation, the current government made inflation much higher by printing money, which drove up the cost of goods and made fewer goods. I think that's an important point.

If you're not comfortable answering that question, then I'll move on to the next one.

Last week, the Governor of the Bank of Canada “confirmed that [the Liberal government's] $61 billion in new spending is 'not helpful' in bringing inflation down and lowering interest rates.” As I've just said, the Liberal government contributed heavily to inflation by printing money.

The latest wacko spending budget brought in by Finance Minister Freeland did not stop the inflationary deficits that are driving interest rates up sky-high. It will not stop endangering our social programs and jobs by adding more debt.

Over the past nine years, the Liberal government has doubled rent, mortgage payments and down payments. While life has gotten worse for all Canadians, the Liberal government is spending more than ever before, including $61 billion in reckless new inflationary spending. This is costing the average Canadian family an extra $3,687 per year.

Former Bank of Canada Governor David Dodge said that this is “the worst budget...since...1982”.

Does the senior deputy governor agree that struggling families cannot afford higher taxes and more inflationary spending that drives up the cost of everything and keeps interest rates so high?

[Carolyn Rogers]

I would agree it's been a very difficult time for Canadian households over the last few years. The combination of high inflation and the response to high inflation, an increase in interest rates, has been very difficult for Canadian families, absolutely.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Despite a record of nine years of failure, the Liberal government has doubled down on the same spending that has caused so much misery in the first place, pouring even more fuel on the inflationary fire and driving up interest rates.

Does the senior deputy governor agree that instead of giving more money to bankers and bondholders, we should be investing in our doctors and nurses?

[Carolyn Rogers]

The senior deputy governor doesn't make those decisions.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

That's fair. Do you agree with the statement, though?

[Carolyn Rogers]

I don't make those decisions, so I don't weigh those choices. It's not my job.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

You don't have an opinion on it. Okay.

Last week, the Bank of Canada governor also warned Canadians that unaffordable housing will continue into the future. This follows a recent report from the Canadian Mortgage and Housing Corporation that confirmed that housing construction is plummeting as houses get more expensive.

Under this current government, housing starts will be lower in 2025-26 than they were in 2020-21. On top of this, CMHC forecasted that rents will rise and vacancy rates will fall as more people compete for less housing.

Does the senior deputy governor agree that the Liberal government is simply not building enough homes for Canadians to live in?

[Carolyn Rogers]

The senior deputy governor of the Bank of Canada would agree that we have a housing supply shortage in this country and that it is driving up the price of housing. It's one of the things that's adding to the difficulty for many households.

That supply problem in housing has been with us for a long time, and it's not something that can be fixed quickly. The supply of houses is something that's going to take a long time, a concerted effort and a lot of co-operation from different levels of government to fix. We're pleased to see that the co-operation is accelerating.

[The Chair, Conservative, John Williamson]

Thank you very much. That is the time.

Ms. Bradford, you have the floor for five minutes, please.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Thank you, Mr. Chair.

Conservatives often scoff at the fact that we have a AAA credit rating, and I believe we're one of the only countries that managed to maintain that coming out of the financial situation imposed on us by COVID.

I was wondering if you could please explain, in simple terms, what this means to Canadians, how important a AAA credit rating is and why it shouldn't be casually dismissed.

[Nicolas Moreau]

Yes, I can. Thank you.

Basically, AAA is the highest rating that you can get in the market. It means that the debt we are showing in the market is the safest instrument that you can find, which, at the end of the day, basically makes our product priced higher than any other one. When the price is higher, the rates are lower, and it puts us in a better place to finance our debt at a much lower rate than any other country.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Then that's a big advantage to Canada, to all of our companies and even consumer interest rates, because it's all relative. Am I correct?

[Nicolas Moreau]

Exactly. The Government of Canada's debt is the benchmark for all the other debt instruments in the country.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Because we had a AAA credit rating going into COVID and we were in such good financial shape, the government was able to take on a lot of debt to help support Canadian families and businesses at a lower cost by taking advantage of that AAA credit rating. Is that correct?

[Nicolas Moreau]

That's correct.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Thank you.

We also saw that the PBO reported how higher-than-projected spending by provincial governments has posed an upside risk. It's not just the federal government that spends public funds; the provinces do as well, and their debt ratio, I believe, is considerably higher in most cases than that of the federal government, so their borrowing costs are higher.

If provincial governments were to step up and help Canadians the way that we have at the federal level, how could that positively impact federal finances?

[Nicolas Moreau]

I think we kind of answered that question already. It depends on what exactly they will spend on, but at the end of the day, if they are helping customers in Canada, that should benefit Canadians in the aggregate and be a positive outcome.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

I wanted to turn now to look at the impact on the economy of climate change. The Bank of Canada has done substantial work on the potential financial stability implications of climate change, alongside other central banks.

Ms. Rogers, can you speak about this work and describe some of the key climate risks to the financial stability of Canada?

[Carolyn Rogers]

We really think of climate-related financial stability risk in two categories. The easiest and most obvious one is what we call physical risk. This is the actual damage to the economy from climate events and the knock-on damage that it causes to the financial system. We've done some work in this area, modelling things like flood risk to financial institutions. We looked at the impact on insurers, the impact on banks and the connection between those two things. We've done a number of studies. We co-operate with the financial institutions themselves and with the Office of the Superintendent of Financial Institutions. There are a number of reports on our website that look at this risk.

I would characterize that the conclusion is that we've not yet seen these risks on a scale that would destabilize the financial system as a whole, but the scale of the impact very much depends on the size of the shock and the transmission across different participants in the financial sector.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

There's a lot of concern that there are some places that won't be able to get insurance because of adverse weather conditions in the pattern. For example, in Florida, certain areas have uninsurable mortgages as a result of high climate risk. If we're looking at home insurance, if insurance becomes less available or prohibitively expensive, this could get in the way of home ownership. If you can't get home insurance, you can't get a mortgage at a lending institution. They aren't going to give you a mortgage if you can't get insurance. Is that correct?

[Carolyn Rogers]

You've described one of the risks, for sure.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

That's a bit of a concern, right?

[Carolyn Rogers]

Yes.

The other risk that we think of is what we call transition risk, which is the risk that the price or the value of assets will change as a result of climate risks themselves or policies to address climate risks. You could see sharp repricing of assets or repricing of risks in the economy that could be destabilizing. That's what we characterize—