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OTTAWA, Tuesday, May 26, 2020

The Standing Senate Committee on National Finance met by videoconference this day at 2:30 p.m. [ET] to study: a) certain elements of Bill C-13, An Act respecting certain measures in response to COVID-19; b) the provisions and operations of Bill C-14, A second Act respecting measures in response to COVID-19; and, c) the government’s response to the COVID-19 pandemic and its economic consequences.

Senator Percy Mockler (Chair) in the chair.


The Chair: To all the participants and viewers across Canada, honourable senators, we continue our order of reference from the Senate of Canada as one of the oversight committees to bring transparency, accountability, predictability and reliability. I declare the meeting in session.

Honourable senators, as chair, I will continue to ask for your constant support to make this an interesting meeting, as always.

Before we begin, I’d like to share several helpful suggestions that we feel will assist you in having an efficient and productive meeting.

Senators are asked to have their microphones muted at all times, unless recognized by name by the chair, and will be responsible for turning their microphones on and off during the meeting.


Before speaking, please wait to be recognized by name. Once you have been recognized, please pause for a few seconds before speaking to allow the audio signal to establish the connection.

Honourable senators, when you speak, please speak slowly and clearly and do not use speakerphone. I would also ask members of the committee to speak in the language they have chosen to listen to, meaning if you have chosen to listen to the English interpretation, please speak only in English. If you have chosen to listen to the French interpretation, speak only in French.

If you aren’t using the interpretation service, you can speak in either language, but please avoid switching from one language to the other in the same intervention.


Honourable senators, should any technical challenges arise, particularly in relation to interpretation, please signal this to the chair, and the technical team will work to resolve the issue. If you experience other technical challenges, please contact the committee clerk with the technical assistance number that was provided.

Please note, honourable senators, that we may need to suspend during these times as we need to ensure that all members are able to participate fully.

Finally, please note that if the committee decides to go in camera, the use of online platforms does not guarantee your privacy or that eavesdropping won’t be conducted. As such, all participants should be aware of such limitations and restrict the possible disclosure of sensitive, private and privileged information. Participants should know to do so in a private area and to be mindful of their surroundings so they do not inadvertently share any personal information or information that could be used to identify our location.

We will now begin with the official portion of our meeting.

My name is Percy Mockler. I am a senator from New Brunswick and chair of the committee. I would like to introduce the members of the committee who are participating in this meeting: Senator Forest, deputy chair; Senator Richards, steering committee member; Senator Boehm; Senator Dagenais; Senator M. Deacon; Senator Duncan; Senator Harder; Senator Galvez; Senator Klyne; Senator Loffreda; Senator Marshall; Senator Smith; Senator Gagné; and Senator Martin. I am also aware that other senators are participating.


Welcome to all of you, and to all Canadians from coast to coast to coast. As a reminder, committee hearings are available online at

Honourable senators and members of the public, the mandate of this committee is to examine the budget estimates in general and Canada’s public finances. Today, our committee continues its study of certain elements of Bill C-13, the provisions and operation of Bill C-14, and the government’s response to the COVID-19 pandemic and its economic effects, which was referred to it by order of the Senate of Canada on April 11, 2020.


Honourable senators, for our first panel today we welcome Yves Giroux, Parliamentary Budget Officer. He is accompanied by Sloane Mask, Director, Parliamentary Relations and Planning.


Good afternoon, Mr. Giroux. Welcome to both of you, and thank you for accepting our invitation. The floor is yours. After your remarks, the senators will ask you some questions.


Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for the invitation to appear before you today, our first virtual appearance before this committee. We are pleased to be here today to discuss our recent COVID-19 economic and fiscal analysis.

With me today I have Sloane Mask, Director, Parliamentary Relations and Planning.

Our pandemic-related work to date has included the publication of three scenario analysis reports on the impact of the COVID-19 pandemic and oil price shocks. Our scenario analysis reports are designed to help parliamentarians gauge the potential implications of the COVID-19 pandemic and oil price shocks on the Canadian economy and the government’s finances. This analysis provides a plausible illustrative scenario; it is not a forecast. The scenario analysis is regularly updated as more data and information become available.

Our latest Scenario Analysis Update report, which was published on April 30, 2020, incorporates new federal measures announced up to and including April 24. Our updated economic scenario assumes real GDP in Canada to decline by 12% in 2020, which would be the worst on record since the series started in 1961.

Under this scenario, the budget deficit would increase to $252.1 billion in 2020-21. Relative to the size of the Canadian economy, the deficit would be 12.7% of GDP, and the federal debt-to-GDP ratio would rise to 48.4% of GDP in 2020-21.

The latest fiscal results include $146 billion in federal budgetary measures that have been announced as of April 24 based on Finance Canada and PBO cost estimates. These numbers, however, do not take into consideration measures announced after April 24; their inclusion would increase the federal deficit by several billions of dollars.


My office has also produced independent cost estimates of a number of the components of the government’s COVID-19 economic response plan, including the Canada emergency response benefit, the Canada emergency wage subsidy, and the Canada emergency business account, among others. Based on our analysis, the estimated cost of the Canada emergency response benefit is $35 billion, while the Canada emergency wage subsidy is expected to cost $75 billion, and the Canada emergency business account, just over $9 billion.

To date, budgetary measures announced by the government are intended to be temporary. Once the budgetary measures expire and the economy recovers, the federal debt-to-GDP ratio should stabilize. However, if some of the measures are extended or made permanent, the federal debt ratio could keep rising. Sloane Mask and I would be pleased to respond to any questions you may have regarding our COVID-19 analysis or other PBO work.


The Chair: Thank you for your comments. We will now proceed to questions from senators. I would remind senators that the order for questions from members has been pre-set. The steering committee has agreed that each member will have a maximum of five minutes. Therefore, I will ask senators to ask their questions directly to the witness and the witness to respond concisely. The clerk will make a hand signal to show that the time is over.

If other senators wish to ask questions of the witnesses, I invite you to indicate that to the clerk using the raise-hand function of the application. There will be a 10-minute period at the end for senators who are not members of the committee, if there is time left to do so. The order of questions for that portion will be randomly drawn.

I have been informed that we also have Senator Massicotte, Senator Pate, Senator Lankin, and Senator Wallin will join us later. Thank you, senators, for being present in our Zoom meeting.

Senator Marshall: Thank you, Mr. Giroux and Ms. Mask, for being here today and for all the very informed reports that you have been providing to us, including the one this morning.

In your opening remarks, you referred to the $252 billion deficit that you mentioned a month ago. Do you have a more up‑to-date figure? You mentioned that new measures would have increased the deficit by several billion dollars since April, but do you have a more precise figure?

Mr. Giroux: Thank you, senator. We will update our scenario in June. I don’t have the exact date yet. We’re still working on that. Had we included the measures that have been announced since April 24, the deficit would be about $7.6 billion higher. That’s the cost of measures that have been announced since then. So by including these new figures, just a mechanical addition, the deficit would rise to $260 billion.

Senator Marshall: Thank you very much for that. You mentioned in the April report that the federal debt-to-GDP ratio was 48.4%. Have you revised that figure?

Mr. Giroux: Not yet, senator. We will be revising that figure when we publish our next report.

Senator Marshall: When you calculate the federal debt‑to‑GDP ratio, what debt do you use? Do you use the debt that is on the government’s balance sheet, or do you also take into consideration the debt of the Crown corporations?

Mr. Giroux: We use the debt that is net federal debt. It includes some Crown corporations, those that are consolidated Crowns. I don’t have the list off the top of my head, but some Crowns are consolidated. Others are outside the accounting parameter of the government. I can ask my office to get back to you on the list of Crowns that are consolidated with the federal government.

Senator Marshall: I’m thinking about the Canada Mortgage and Housing Corporation, which is not consolidated line by line. Why would that not be considered as debt of the government in calculating the debt-to-GDP ratio?

Mr. Giroux: It depends on the purpose of setting up a Crown. Some Crowns, for example, have been set up with an arm’s‑length relationship; that the government purportedly, at the time, wanted them to be created but not necessarily included in the government’s finances. There are experts in the machinery of government that can explain these issues much better than I can, but in the case of CMHC, I believe they are included in the government’s debt.

Senator Marshall: When people are speaking about the government debt, they keep talking about $700 billion. But the actual debt of the government, when you include the Crowns under the Crown Borrowing Program, is over a trillion dollars already. People are saying we’re approaching a trillion dollars, but that’s not correct. We’re already over a trillion dollars. In my opinion, it’s misleading and it’s giving people a false sense of exactly what the financial position is of the government.

Have you looked at CMHC? As you know, they’re heavily into mortgages, and there is some concern about the extent of the impairment of those mortgages. Of course, that will fall to the government to make good. Can you comment on that?

Mr. Giroux: We haven’t yet looked at CMHC specifically, but since COVID-19 started, I’ve asked some of my analysts to look at the issue of the risk of Crown borrowings and the potential impact this could have on the government’s accounts. We have a report that’s in the early stages of being prepared that will look at the potential impacts of all these additional borrowings from Crown corporations.

Senator Marshall: I have one final question. In your report, you indicated that given the temporary nature of the budgetary measures, the government could undertake additional borrowing if required. Do you still hold that opinion? How close are you to the edge?

Mr. Giroux: Yes, I believe that the government, if needed, could still borrow significant amounts because before the pandemic started, the debt-to-GDP ratio was relatively low by international standards, at about 30 to 31%. Even after this current fiscal year is over —


The Chair: Mr. Giroux, I’m going to ask you to complete your response to Senator Marshall in writing through the clerk because we’re running out of time.

Senator Forest: Thank you for your presentation, Mr. Giroux. My first question concerns tax havens. Many people, me included, would like government assistance not to benefit companies that use tax havens to avoid their obligations. However, the government refuses to commit to this and suggests that this problem is too complex to manage.

Do you think it’s possible to limit government assistance to companies that pay their dues in Canada and do not use unfair tax practices?

Mr. Giroux: Additional control measures can always be implemented. International tax evasion is a phenomenon that is unfortunately very complex, especially in an open economy like Canada’s, with a financial and banking system that is open to the world. It is a huge advantage, but there are individuals and companies that take undue advantage of it by trying to avoid paying their due. It’s possible to reduce international tax evasion, but that requires significant efforts to control or monitor the capital that leaves the country. The government has taken the opportunity to find out about financial transactions of $10,000 and more. This is a step in the right direction in terms of tracking these amounts, which is essential to curbing tax evasion, but it would require more information sharing with governments, which are often complicit in or facilitate international tax evasion.

To answer your question more briefly, it is possible to reduce international tax evasion, but this requires resources and a great deal of co-operation from international partners, as well as sustained attention from the Canada Revenue Agency’s tax authorities.

Senator Forest: Keeping with the international scene, has your office done any comparative studies on the extent of federal assistance in relation to what’s being done abroad, particularly in the G7 countries, to give us an idea of the effort that Canada is making to support Canadians? Just to give us an idea of the extent, what was the debt-to-GDP ratio before the pandemic, that is December 2019 and April 2020? That would allow us to see the impact of the measures that have been taken.

Mr. Giroux: Before the pandemic, the estimated debt-to-GDP ratio was about 30% to 31%. After the measures that have been announced, it is estimated that it will probably be around 48%. This takes into account both the growing debt and the drop in the nominal GDP.

Senator Forest: In the economy of a G7 country, what would be a safe debt-to-GDP ratio?

Mr. Giroux: There are no magic measures or magic ratios. If we have a debt that is zero in relation to GDP, that can also cause problems, because there is no real debt market and that hurts, for example, pension plans and banks, which like to have cash or government-guaranteed debt instruments. At the other end of the spectrum, too much debt can cause problems, as everyone knows, but there is no consensus on a reasonable rate for debt.

For example, Japan is well over 200%, and no one cares or sounds the alarm, while Greece, which had a much lower debt‑to-GDP ratio, was a country on the verge of bankruptcy.

I will make an analogy: It’s like walking in the dark and knowing that there is a precipice, but not knowing how far away it is. Right now in Canada, we’re pretty far from the precipice.

Senator Forest: Thank you.


Senator Richards: Thank you, Mr. Giroux, for being here today. I’m sure you have probably already done this but I can’t find it, so maybe you could enlighten me or send it to the committee. I’m referring to a report on all the government programs listed for COVID-19. Again, I don’t seem to be able to find it.

Hundreds of millions of dollars are being spent. Could you tell me what the lead departments are in this effort? Maybe you have already given that, but if not, maybe you could give it to the committee. Thank you for your response.

Mr. Giroux: I’ll ask Sloane Mask to provide the details on this.

Sloane Mask, Director, Parliamentary Relations and Planning, Office of the Parliamentary Budget Officer: Thank you for the question. Our office has worked to compile a table on our website, and I can happily provide the link to the committee. It includes all the COVID measures that were included in our scenario analysis, which we published on April 30. As you know, the government continues to make daily announcements, so we are keeping our table up-to-date, and we will be updating it as new measures are announced.

Senator Richards: Thank you. That’s refreshing to know. If you could get that to the committee, it would be great.

The Chair: Please ensure that you send additional information through the clerk.

Senator Harder: [Technical difficulties] — some of the questions that Senator Marshall asked about projected deficit results of all of this. Does the consolidated balance sheet that you have include the borrowings of the Bank of Canada?

Mr. Giroux: I have to get back to you, precisely. The bank has purchased a lot of assets recently, so I’m not 100% sure what it does include and what it does not include when it comes to the bank.

Senator Harder: Thank you for that. The objective I am trying to get in my mind is the following: What is the overall balance sheet of the Government of Canada? That’s a potential adjustment that would have a significant impact, given the recent actions of the bank.

In a similar line of questioning, have you done any work on the respective provincial and, in some respects, large municipal fiscal situations?

Mr. Giroux: [Technical difficulties] — Fiscal Sustainability Report, which we released pre-pandemic, it was the world we knew before COVID-19. The Fiscal Sustainability Report indicated the long-term fiscal sustainability of the federal government, as well as provincial and territorial governments as an aggregate. It showed that provincial governments — including their sectors, such as municipalities, hospitals, school boards and so on — in aggregate were not sustainable under current policies. That was before. However, there was a need for some adjustments. Some jurisdictions were sustainable over the long term, which was defined as 75 years.

We have to do the same exercise once the pandemic is over in order to have a more accurate picture of the fiscal sustainability of these various jurisdictions.

Senator Harder: Thank you for that. Might I encourage you to advance that work even earlier than when this is over, because we really don’t know when that will be. And we probably need to have a fiscal understanding of either a long “U” or a “W” return. It would be helpful to me and the committee to have a better understanding of the fiscal capacity of Canada overall as we contemplate the scenario of a “V,” “W” or a “U,” and include all of the actions of governments in Canada. Would that be possible?

Mr. Giroux: It’s possible, but it’s a matter of resources. The resources I would devote to updating the Fiscal Sustainability Report right now are resources that would not be available to respond to parliamentarians’ requests, to do an analysis of the various governments’ programs in response to COVID-19 or to provide you with an update of the fiscal situation.

It’s always possible, but it’s always a matter of trade-offs. It’s something that is in our work plan; we will get to it. I said “when COVID-19 is over,” but to your point, we don’t know when it will be over, so it will be over the next 12 to 18 months.

Senator Harder: I would encourage that work to be advanced as quickly as possible so that parliamentarians and decision makers at all levels of government have a better sense of our shared destiny, in terms of both taxpayers and beneficiaries to programs that need to be sustainable. Thank you.


The Chair: Mr. Giroux, could you go back to Senator Harder’s last comment, just to clarify the question that was asked before?


Senator Smith: Over the last few years, we have been talking about dealing with a balance sheet and the debt-to-GDP ratio. I’m just wondering, Mr. Giroux, if there are other tools that could be used. Historically, we used to really talk about government debt. Are there other tools than the GDP-to-debt ratio that should be used or studied to give us a more complete picture?

Mr. Giroux: Thank you, senator. There are many metrics by which to judge whether a government or country has too much debt on its hands. We could also look at the private sector level of debt, for example, such as the level of debt borne by households. We know it’s very high in Canada, and that poses a significant risk to the Canadian economy, especially when interest rates start to rise. It’s something the Bank of Canada, economists in the private sector and I have pointed out as a risk to the Canadian economy. That’s an important aspect to consider.

Senator Smith: You said it might be 18 to 24 months before you may do some review in terms of the implications of taxation to Canadian citizens, and I’m trying to follow up a bit on Senator Harder’s question. As you and your group look at this, what do you think the potential magnitude and level of taxation could be that will be headed our way as taxpayers? Most of the things that have been discussed — it’s great to hand out money and do all that is being done. We recognize the importance of supporting Canadians, but what is coming at us? It’s like we used to say in football, “Don’t get blindsided.” What is going to come at us in the future in terms of the political implications from a tax perspective?

Mr. Giroux: As to the 12 to 18 months, I was referring to Senator Harder’s question regarding an update to our long-term fiscal sustainability report. Of course, we’ll be providing parliamentarians with information on the impact of COVID-19 before that.

In terms of your question related to what we can expect, I don’t know. It depends on the policy choices the government will be making. For programs that are supposed to be temporary, the government could decide to let them expire and let the economic recovery reduce the deficit, which is feasible, and let the economy grow, which, with balanced budgets or close to balanced budgets, will reduce the weight of the debt in relation to the size of the economy. But the government could also decide to increase taxes to reduce that deficit if it wants to continue some of the programs.

Senator Smith: Right. But if we stay on the track we’re on right now — that’s the question I think worth $64 and more — what do you foresee as potential implications in terms of taxation? How do we get that debt down? Because we’re headed in one direction right now. What type of virage will have to take place for us to get ourselves stabilized so that our grandchildren will not be saddled with this for the long term?

Mr. Giroux: Senator, it’s quite clear that we cannot stay on the same path as we are right now. With a deficit of 12% of GDP, it’s not sustainable for more than a few years. And when I say “a few years,” I really mean just a few years. So there will need to be a sharp turn.

Temporary measures, as I said in my opening remarks, will have to be temporary, because if they become permanent at that level of deficit, it’s not sustainable for a decade; it’s not sustainable for more than a few years. So these measures have to be temporary, and they will have to be allowed to sunset. Otherwise we would be looking at a level of taxation that has not been seen for generations in this country. That’s why measures have to be temporary.

Senator Smith: Thank you.

The Chair: Before I proceed to Senator Dagenais, I would like to pose a question to you, Mr. Giroux. We are aware that your officials are preparing an analysis and report on the Canada Mortgage and Housing Corporation, CMHC. When can we expect that report to be tabled?

Mr. Giroux: I’m looking at my list, Mr. Chair, and I don’t have a date yet as to when the report could be tabled. It would be looking at Crown corporations’ fiscal risks, looking at the potential risks of Crown corporations’ borrowings. I think that would respond to Senator Marshall’s questions, at least in part. But I don’t have a date yet. I would have to get back to you with a timeline. I would expect by the fall, but I would be more comfortable responding to you in writing about that.


Senator Dagenais: Mr. Giroux, if I understood correctly, the $252 billion deficit is a calculation that goes back one month, specifically to April 24. What is the reason for the delay? Is it the lack of information or the difficulty in predicting the real impact of the measures announced almost daily by the government?

Mr. Giroux: It’s a combination of the two. To go back to the premise of your question, we collected the information on April 24 and then published it on April 30. So there was a six‑day gap between the end of the data collection to allow us to do our analysis, to conclude it, to have the document translated, to format it, and to publish it. I don’t think a six-day gap is very large. A lot has certainly happened since April 30. The Prime Minister announces new programs or extensions to programs that were recently announced on an almost daily basis. This makes it quite difficult to keep track of all of these measures. That’s why we’re providing updates on a fairly regular basis. We’ve done three in a few weeks, and we’ll be doing another one in June. Access to government data is not particularly difficult, but it isn’t something that has improved greatly since the beginning of the pandemic. Rather, the issue is the accessibility to the public servants who hold this information, because they work mostly from home and don’t always have quick access to the data.

Senator Dagenais: I’d like to come back to the debt because, obviously, there is going to be debt. Do you have a sense of what the per capita cost will be in the next budget, even though the interest isn’t very high right now? Do you know approximately what percentage of tax revenues the government collects from Canadians will have to go solely towards servicing the debt?

Mr. Giroux: Yes. We expect the interest payments on the debt to be about 8.2% of all federal revenue. Although that isn’t high, it is an increase over last year, which just ended in March. Interest rates are historically low right now, so that’s why interest will take up a relatively small share of federal revenues. Nevertheless, 8% amounts to $23.3 billion in interest payments, and that will go up as interest rates rise over time.

Senator Dagenais: That means raising Canadians’ taxes is almost unavoidable.

Mr. Giroux: It’s pretty clear that this level of deficit can’t be maintained and that, as soon as interest rates begin to rise, interest payments will really eat into federal revenues. Something else to consider is what the government will decide to do at that point: raise taxes or cut spending. It will be a political choice, but the government will have to do something, no doubt about it.

Senator Dagenais: Sooner or later, there’s going to be a gap between the deficit and the government’s numbers, which may seem incomplete. That’s not necessarily your office’s responsibility. I’m not trying to play politics, but do you think the government is choosing not to look at the column of figures we are eventually going to be dealing with?

Mr. Giroux: To that comment, I would say that our job is to come up with scenarios and to provide parliamentarians with information, and we are happy to do that. However, those scenarios don’t indicate what the government intends to do. That’s why I have strongly encouraged the government a number of times to provide a financial update, just to give parliamentarians and Canadians an idea of where public finances stand. It’s true that there’s a lot of uncertainty, but that doesn’t stop the Bank of Canada from putting out two economic scenarios, an optimistic one and a more pessimistic one. Nor does it stop the bank from telling us which scenario we are facing. The government could do the same by providing an economic or fiscal update, outlining a pessimistic scenario if things go really poorly and an optimistic scenario if things go better than expected. That would help put things into perspective, so I still encourage the government to do that, and sooner rather than later.

Senator Dagenais: Thank you very much, Mr. Giroux.


Senator Galvez: Thank you very much, Mr. Giroux, for the important work you do, but also for the transparency and neutrality with which your office produced this report of very high quality.

You know that the Canada Account is used by the federal government to support high-risk transactions that EDC wouldn’t normally support. The financial risk and payments are assumed by the Consolidated Revenue Fund of the federal government. In other words, it is Canadians’ money.

Bill C-13 has brought several important, major changes to EDC, including lending money to companies that do domestic work and don’t necessarily export, and also extending liability to $75 billion from $20 billion pre-COVID.

Has your office done pre-COVID reports on EDC or the Canada Account? Are you going to look into these accounts and ensure that we have transparency in what is done through these accounts?

Mr. Giroux: Thank you, senator. Since I’ve been appointed, we have not done work on the Canada Account or EDC, but if it’s the wish of the committee that we undertake such a study, we could certainly do that, given the amounts that are flowing through the Canada Account and the importance of EDC. I’m sure some of your colleagues on this committee could probably lend a hand; they probably know more than I do currently about EDC. I would be happy to do that work if the committee wishes me to do so.

Senator Galvez: Chair, I don’t know if we as a committee are going to request this, but I will prepare a letter to officially request a study on EDC and the Canada Account by the PBO.

I have another question. Thank you very much for the report on the petroleum shock prices and how they will affect the markets. I saw that you updated that report. You are saying that prices won’t come back; they will remain below their pre-crisis level. Can you please expand on why this is important in the Canadian economy? I know you’re saying it’s not a forecast; it’s a scenario. But it is so important because, as you were mentioning, we can increase taxes, we can reduce expenses, but we can also increase revenues. What is happening with the oil sector is very important. Could you expand on that, please?

Mr. Giroux: Certainly, senator. When COVID-19 happened, at about the same time, oil prices started going down. People working with me have suggested that it would be a very good idea to call the report Scenario Analysis Update: COVID-19 Pandemic and Oil Price Shocks, because it has a very important impact on the Canadian economy. It not only affects Alberta and Saskatchewan and Newfoundland, but it affects Canada as a country as a net exporter of oil. When the price of oil goes down, as it has, billions of revenue dollars are lost for the governments, provincial and federal, through corporate income taxes, royalties and personal income taxes. If the prices of oil stay low, as they have been for some time now, thousands and thousands of employees no longer have jobs. That sector is crucially important for Canada. That’s why we have included these impacts in our COVID-19 report. We have called it COVID-19 Pandemic and Oil Price Shocks because of the importance of the energy sector to Canada.

Senator Galvez: Because of your reasoning, shouldn’t we also study the sectors that will produce revenue if we help them? I know we shouldn’t be choosing sectors, but this is what we have been doing anyway. Will you be doing analysis on other sectors such as renewable energy, cleaner recovery?


The Chair: Senator Galvez, I’m going to ask Mr. Giroux to send his answer in writing to the clerk, since we have a limited amount of time.


Senator M. Deacon: Thank you both for being here this afternoon. As we listen to this, who knew three months ago that we would be having the kinds of conversations that we must be having this afternoon.

As you’re well aware, there has been a great deal of talk in various leadership circles of transitioning from CERB into a basic income for Canadians. Just over two years ago, your office actually calculated what a basic income, based on the Ontario model at the time, might cost in Canada. You also costed CERB and other relief measures passed in response to the COVID crisis.

So given that unique perspective, I’m wondering if you might have any insight into whether an existing basic income might have lessened the cost of the relief packages we have had to pass. I understand this is not exactly an easy, back-of-napkin, quick calculation, but perhaps, in looking at CERB and other programs, there was something to show that an existing basic income would have had a kind of momentum going into this. It would have had an administration already in place, for instance, lessening the effort and cost of implementing these emergency measures. I ask because I wonder if a guaranteed income could better prepare us for the next unexpected shock, disruption or significant pivot. Thank you.

Mr. Giroux: Thank you, senator. In 2018, we released a report that was titled Costing a National Guaranteed Basic Income Using the Ontario Basic Income Model, as you pointed out. In our report at that time — which was before my time, by the way — the estimated cost of the GBI, or guaranteed basic income, would range between $76 billion and almost $80 billion a year for the period from 2018 to 2023.

Those are important costs but had such a program been in place, I’m not sure there would have been the same need to have a CERB, for example. Maybe the wage subsidy for employers would still be necessary, but the CERB would not have needed to be as extensive as it has been now. It would have alleviated certain elements of the current CERB.

That being said, we’re planning to provide an updated analysis on the cost of implementing a guaranteed basic income or a universal basic income program in the near future, probably in the next four or five weeks, to inform the debate on this subject, because your question, senator, has been raised in a couple of forums. We believe it’s important enough to have an update to that report.

Senator M. Deacon: Thank you. I’m talking about numbers. I also can’t help but to try to quantify some of the other pieces that may not involve numbers but may actually help us in these kinds of unpredictable times.

Senator Klyne: Welcome to our panel from the Parliamentary Budget Office. Thank you for all the work your office has been conducting to ensure parliamentarians and Canadians are kept up to date on the fiscal policies of the government in response to COVID-19.

In your April 30Scenario Analysis Update: COVID-19 Pandemic and Oil Price Shocks, your office noted:

. . . additional fiscal measures may be required to support the economy in the coming months. Moreover, after support measures are provided, fiscal stimulus measures may be required to ensure that the economy reaches lift-off speed, especially if consumer and business behaviour does not quickly revert back to “normal” conditions.

I know you’ve been working on an illustrated-outcome basis and scenario, but given what is known today, what economic indicators are you watching? And how close do you think we are to making a decision on whether additional support measures are required to support the economy?

Mr. Giroux: That’s an interesting question and one that I did not expect, senator. Indicators that we are looking at include the employment ratio, the proportion of adults or people 15 and over in a job. That has decreased significantly as a result of COVID-19. It’s currently in the 50s, and it used to be in the low 60s. That’s an indicator we are closely watching, as well as oil prices, of course, real GDP growth and inflation.

To the other part of your question regarding when will we know if we need stimulus, I think it’s quite clear right now that we will need stimulus measures because of the number of businesses that have already said they will not be able to make it to the other end COVID-19. That’s before we know how long confinement and isolation measures will be with us.

It’s quite clear right now that there will be some need for stimulus measures; we just don’t know their magnitude and scope. We know which sectors are affected, but not which ones will need more particular assistance.

Senator Klyne: Mr. Chair, I have a couple of quick questions.

The Chair: Absolutely.

Senator Klyne: If business and consumer behaviours do not trend in the right direction at the right speed, what fiscal policies could still be available to the government that are not already being employed?

Mr. Giroux: A couple of tax measures could probably be implemented and targeted, depending on the type of response that consumers and businesses are demonstrating.

With respect to monetary policy, you can ask the governor when he appears after us, but I don’t think there is that much firepower left for the banks, so it’s mostly fiscal measures, as you pointed out. So it’s very targeted spending measures because with a deficit that’s slated for $260 billion or even more, there is not that much firepower left without incurring significant structural deficits. The measures will have to be targeted, that’s for sure.

Senator Klyne: Thank you for that. I do plan on asking the Bank of Canada something similar but more on a package basis.

Senator Boehm: I apologize; I had to leave the meeting. I had defective headphones. I hope everyone can hear me now. Mr. Giroux and Ms. Mask, welcome to this meeting and thank you for the good work you’re doing.

As part of the amendments through the FAA —

Ms. Fortin: Senator Boehm, sorry, but the audio quality is not good enough.

Senator Boehm: Well, as long as it’s only the audio quality and nothing else. So I guess I will decline to ask my questions. I have technicians coming and going. We’ll try to resolve it.

The Chair: Senator Boehm, on this matter, if you don’t have the time to ask your question to the PBO, can you send them in writing so we can benefit from the answers as well?

Senator Boehm: I will do that. Thank you.

The Chair: Thank you.

Senator Duncan: Thank you. I’m trusting that the sound quality is good. I’d like to express my thanks to the Parliamentary Budget Officers who are with us today and our staff for making this meeting possible.

I’d also like to express my thanks to the Library of Parliament, who provide us with some excellent research prior to our meetings. My thanks to them for that.

There has been discussion this morning of the current debt‑to‑GDP ratio, and I had the opportunity to listen to Canadian economist Jim Stanford on CBC Sunday morning this past weekend. He also talked about the debt and deficit, and the government’s previous response to dealing with our debt. The Library of Parliament suggested this question in their research. They asked how the government reduced the debt-to-GDP and how they engaged in deficit fighting. Many people in the meeting will recall the cuts to the Canada Health Transfer and the Canada Social Transfer in a previous time.

The current Canadian government, and particularly the public servants’ response to the COVID pandemic has been referred to as creative, nimble and quick, making policy on the fly. We’ve seen programs like CERB come into being. CERB has been referred to as the seeds of a basic income guarantee. I was really enlightened and pleased to hear in response to Senator Deacon’s question that you indicated the Office of the Parliamentary Budget Officer is looking at the basic income guarantee and looking at giving us a report.

In the context of a basic income guarantee, does your report include not only the cost associated but also the potential source of that funding across government? CERB or a basic income guarantee includes many programs and departments, including, of course, the Crown-Indigenous Relations for off-reserve First Nations and non-self-governing First Nations.

Are you looking across government? Are you identifying potential cost savings and sources of funding?

Mr. Giroux: Thank you, senator. Yes, we will be looking at potential sources of funding. For example, would a guaranteed annual basic income replace existing programs? If that’s the case, there could be savings. Or if these were to offset — just giving an example — Employment Insurance, then there would be net savings from that. So we will be looking at potential sources of funds from existing programs that could be subsumed into a guaranteed annual income.

But of course, when it’s broad-based, it tends to be more expensive than targeted programs, so there will inevitably be savings because these other programs would no longer be necessary. But overall, we expect there will be a net cost in the billions of dollars. Yes, we will be looking at that.

Senator Duncan: Could I follow up on that, Mr. Chair?

The Chair: Please do.

Senator Duncan: Thank you. First of all, there is also an impact on the public service, so does your “look” examine the personnel resources required?

Of course, there is a link with the provinces, so will you include provincial programming as part of the Canada Health Transfer and Canada Social Transfer umbrella? Does it include the public service in the cost, and the provinces?

Mr. Giroux: It will include the cost of administering the program because it can be a significant cost. In terms of percentages, it’s not that high, but given the amounts we’re talking about, it can represent hundreds of millions of dollars. So yes, it will include the cost of administration, public servants, notably. It will include some provincial programs but not all of them because there is a plethora of programs across the various jurisdictions.


The Chair: Thank you, Mr. Giroux. Again, if you have anything to add in response to Senator Duncan’s follow-up question, please do so in writing.


Senator Loffreda: Thank you to the panel and to the key Parliamentary Budget Officers for being here today. Thank you very much for the work that you have done for all Canadians. It is much appreciated.

You have discussed what you are monitoring and watching closely going forward. You mentioned a few ratios and a few economic indicators. One that you did not mention is household debt to disposable income, which is of concern to me and many Canadians. If I look at that ratio and take many of the reports from the chartered Canadian banks that I’ve reviewed over the past weeks, it’s close to 176%. It is of concern, and there has been discussion on this panel today on what the remedies would be to decrease our debt. If I could put it nicely, I would be concerned if an increase in taxes would be the solution for that, especially individual taxes. And why? What would be the impact?

Have you analyzed the impact of any increase in individual taxes on the household debt? I would be concerned with that impact, the reason being that as I’ve often said — and as we all know — the consumer is the vehicle and the motor of our economy, our economic recovery, based on many of the reports I’ve seen from the chartered banks. The consumer in the United States goes as high as 70% of their GDP and in Canada it’s close to 66%, and the impact on our consumer would be very high if that were the case.

That’s one question. I would like to have your impressions on that.

Mr. Giroux: Thank you, senator. I didn’t mention that specific ratio, the debt to household disposable income, as one we will be closely watching. However, it’s one that we will be watching, for sure. We’ve mentioned that in many economic and fiscal outlook reports. It’s something that we are obviously watching.

As I mentioned before in response to a question from one of your colleagues, it’s something that worries me and worries many stakeholders because the level of debt is very high, even though the debt servicing costs — i.e., the proportion of income that goes to paying the interest on that debt — is not very high. With a high level of debt like that, when interest rates start to go up, individuals, households will have to use more of their disposable income just to pay the interest on that debt. It will reduce the amount of income available for other consumer expenditures.

It’s something that has been flagged as a risk by us and many other stakeholders. We continue to flag that as a risk and we will continue to mention it as a downside risk to the Canadian economy.

We have not, however, modelled the impact of increased individual taxes, personal income taxes or self-taxes on that ratio, at least not recently, but it’s obviously something that would have a negative impact. More taxes on individuals who are experiencing a high level of debt is not something that improves things for households.

Senator Loffreda: Yes, especially if the consumer, as I said, is a large portion of our GDP. I’d like you to consider that, and influence and bring out those numbers when you are looking at increasing taxes because I personally believe that Canadians at this point in time are fairly taxed or even overtaxed to a certain degree. That is very important.

To that, we have to look for alternative solutions. If we look back to 1995-96, where the debt to GDP was at a record high of 66%, and we look to pre-pandemic, where we were at 30%, what were some of the solutions that you applied from 1995-96 to go from the 66% to the 30% pre-pandemic, and which of those solutions could we apply aside from increasing taxes? That would be a nice discussion for many Canadians.

Mr. Giroux: From 1995-96 to recently, what worked in good part to bring down the level of debt to GDP were constraints on expenditures at the federal level. Those of us who remember, in 1995 or around that time, transfers to provinces and territories were restrained or reduced, but overall the general tone was restraint of the expenditures at the federal level.

Senator Loffreda: Thank you for your time.


Senator Gagné: Thank you, Mr. Giroux and Ms. Mask, for being with us today.

Mr. Giroux, you mentioned earlier that a cliff lies ahead, but that Canada hadn’t reached the cliff’s edge yet. Do you think that Canada’s economy will be resilient and that the country’s fiscal health can withstand the global downturn?

Mr. Giroux: I firmly believe in the resilience of Canada’s economy given the range of the country’s natural resources and sectors of employment available to Canadians, not to mention the innovation Canadians are capable of. Canadian businesses have proven that they can rise to the challenge. With the right support measures from the government, I think the Canadian economy will get moving again once the crisis is behind us. As far as the cliff of public debt is concerned, I wouldn’t say that we are near the edge of the cliff. I don’t think we need to be concerned in the short term, provided that governments make the right decisions and let temporary measures come to an end as planned.

That said, it’s important to remain vigilant and ensure the measures put in place during the crisis provide businesses and individual Canadians with support. Once the crisis is over, those measures will help the economy get moving again without unduly hindering robust sectors that will come back with a vengeance once physical distancing restrictions are no longer in effect.

Senator Gagné: The financial crisis of 2008 is similar to the crisis we are in now. Do you think the recovery will be as slow as it was back then, or do you think the drop in GDP growth and the employment rate will be temporary, turning around fairly quickly once the pandemic is over? After all, you did say the economy was resilient.

Mr. Giroux: It was a drastic drop. Governments around the country ordered many sectors of the economy to come to a halt. Overnight, entire segments of the economy came to a standstill. I don’t think the economy will pick up as quickly as it came to a stop. I think what we’ll see is a gradual recovery, especially in comparison with the abrupt way in which economic activity came to a halt. It’s like the economy hit a brick wall all of a sudden. It won’t rebound as quickly as it stopped, unfortunately.

Consumers collectively are going to be hesitant. Even when it’s allowed, people won’t attend large gatherings. They won’t go out to eat to celebrate important occasions. Some sectors will experience a prolonged slowdown. That will mean fewer job prospects for people we know personally. We will feel the impact of this crisis for months before the economy rebuilds the momentum it had prior to mid-March.

We anticipate that the recovery will be gradual, as opposed to swift, unfortunately.


Senator Boehm: I will skip my preambular welcome, which I gave before.

The legislation amends the Financial Administration Act to allow the Minister of Finance to enter into contracts without the Governor-in-Council’s authorization, which was previously always required, so we are in a brand new situation here. These contracts are, of course, for the purpose of promoting the stability or maintaining the efficiency of the financial system. In other words, the minister has the ultimate authority, for a limited period, to establish the amount of money borrowed without set limits and to which entity that money will then be allocated, which now can include trusts.

Mr. Giroux, it’s on the trusts that I want to ask you the question. While a trust adds flexibility to manage assets, it removes a certain level of transparency from the process as well as liability from the manager of the trust. Of course, this goes to your mandate to support Parliament in providing analysis for greater transparency and accountability.

I’m interested to know whether this was really the only way to go, whether it was necessary or desirable. And during a period when the minister is exempted from borrowing limitations and able to establish contracts without the Governor-in-Council’s authorization, I’m concerned about its ability to use trusts to allocate those funds, given the fact that trusts have the effect of removing responsibility and traceability of assets. I would be grateful for a comment from you on that. Thank you.

Mr. Giroux: Thank you, senator. You say you are concerned about this. I’d say I’m very, very concerned about this because even though we are in a crisis situation, providing that amount of power together with all the other powers that you mentioned — borrowing almost without any limit, without any immediate oversight — in one person, it’s something that, in my opinion, is unprecedented in the current regime and in Canadian history. Even though speed is at a premium right now, it doesn’t mean that the minister should be allowed to act by himself or alone to create trusts by corporations and borrow billions of dollars, which is what Bill C-13 has given in terms of powers to either one minister or cabinet without oversight from Parliament.

I’ve said that privately, as well as publicly in briefings to parliamentarians before; I am very concerned with these unprecedented powers granted to ministers, for example, the Minister of Employment and Social Development having the capacity to amend by herself the Employment Insurance Act, even retroactively, or the Minister of Finance to set up Crown corporations, to set up entities to transfer money to provinces and territories, create new entities and borrow almost unlimited amounts of money. It is thankfully limited in time, but it is unprecedented and worries me a lot.

Senator Boehm: Thank you. Do you have any thoughts about tracing back the assets, whether there are any mechanisms that could be used?

Mr. Giroux: I’m not sure trust would be something I would recommend doing. If the government were ever to use these instruments — maybe it has; I don’t know yet — it should certainly err on the side of transparency and use as many disclosure mechanisms as possible because of the very reasons you mentioned: disclosure of assets, tracing of assets, ensuring that we as Canadians and you as parliamentarians can follow the money, and that I can do my job properly.

Senator Boehm: Thank you very much.

Senator Martin: I had other questions but just following up on what Senator Boehm was asking, I have more questions, so perhaps I will stay on this course.

Thank you very much for being here and for your responses. In your response to Senator Boehm with regard to these unprecedented powers of the minister because of the passage of the bill, you said maybe he has used these powers, you don’t know yet and that we need to make sure we have very good disclosure mechanisms.

If we wanted to understand what is actually going on and in what ways the powers have been potentially used or exercised, what would you be doing? Could you do that at the request of this committee going forward? What sorts of disclosure mechanisms would you recommend?

I have many questions as a result of the questions that Senator Boehm asked you. I think all of us rightfully should understand, going forward, how we can know clearly and make it as accountable and transparent as possible.

I’m in British Columbia, and recently we had a situation where WorkSafeBC had quite a surplus, in the billions. When the minister was asked if that surplus could be used to support employers with bringing employees back to the workplace, the purchasing of PPE, the minister’s response was that this surplus is gone, that it was lost in the stock market. We’re going to be investigating further, but these are very unprecedented times. This is what we’re listening to in B.C. For me, to all those who are watching and all Canadians, disclosure is absolutely critical. Would you answer further to what I said, and in response to the original question from Senator Boehm, and talk about the disclosure mechanisms we have at our disposal or your disposal as well?

Mr. Giroux: Thank you, senator. We can place or send information requests to the minister to see if and when these powers have been used. We’re also in contact with Finance officials on a regular basis. These are two mechanisms by which we could know whether these powers have been used.

The government would probably — I haven’t looked at that legislation in a little while now — need to publish in the Canada Gazette whether it has used any of these powers. For example, if the government was to purchase or create a new entity, Crown corporation or trust, it would have to be disclosed but probably only after the fact.

I’m not sure exactly what the disclosure mechanisms are in Bill C-13. As I said, I don’t know it by heart and I looked at it two months ago. Since then, I have looked at it but I don’t remember all the provisions. Overall I would say that Bill C-13 is really concerning to me, and I know it’s concerning to several parliamentarians because of the sweeping powers it gives to the executive branch — cabinet — and in some instances to individual ministers, without them even needing to check in or get the consent of the Prime Minister or their colleagues. There are sweeping, broad powers in Bill C-13.

As I’ve said, I have expressed my concerns in briefings with parliamentarians before, and I’m expressing these concerns again today. My expectation is that the government will be very transparent if and when it uses these powers.

Senator Martin: Chair, may I ask one more question or do we need to move on?

The Chair: Because of time, Senator Martin, we need to move on.

Senator Martin: I will put it in writing then.

The Chair: I was going to suggest that. Put it in writing and we’ll have the PBO answer through the clerk because those questions are certainly important.

Senator Martin: Thank you.

Senator Pate: Thank you to all the PBO officials for your ongoing work. I have a question that I’ll put in writing, if that’s okay, Mr. Chair, as well as one question.

Following up on the questions of Senator M. Deacon and Senator Duncan, I’m curious as to whether you’re looking at a universal basic income or a universally accessible basic income that would be income tested as opposed to going out to every single Canadian?

Second, when you are looking at those who are and are not covered by the Canada Emergency Response Benefit now, are you taking into account those who could be covered by a basic income and the shortfall that we see between your numbers and those put out by the Canadian Centre for Policy Alternatives. The shortfall suggests there is a significant group not being accessed.

Finally, are you looking at the downstream savings when you’re looking at the costing of a basic income initiative? Significant mention has been made in other jurisdictions as well as the two Canadian pilots on the potential cost savings to other areas such as the health care system, the criminal legal system and so on. Thank you.


The Chair: Mr. Giroux, could you please answer in writing? We are out of time. Could you please answer Senator Pate’s three questions in writing as well? Thank you to you and your team for your leadership. Whenever we have asked you to appear before the committee, you made yourself available. Something else that’s true is that we all share the same objectives.


It’s all about transparency, accountability, predictability and reliability of facts.


That’s all the time we have.


Honourable senators, we are continuing our study and for the second panel today, we have two witnesses. We have the Governor of the Bank of Canada, Mr. Stephen S. Poloz, accompanied by Senior Deputy Governor Carolyn A. Wilkins.

Witnesses, thank you very much for accepting our invitation. You and your team have always accepted our invitation.

Mr. Poloz, the floor is yours, and then we will proceed with questions from the senators.

Stephen S. Poloz, Governor, Bank of Canada: Good afternoon, Mr. Chair and committee members. Senior Deputy Governor Wilkins and I welcome the opportunity to appear before you to discuss the Bank of Canada’s actions in response to the coronavirus pandemic.


Since the pandemic began, the Bank of Canada has had two goals in mind. In the short term, we have been working to help Canadian households and businesses bridge the crisis period. Our longer-term goal is to provide a strong foundation for economic recovery. Both of these goals require a well-functioning financial system to ensure the success of the extraordinary fiscal response that has been put in place. Let me talk about our actions that are aimed at financial-market functioning. Then I will discuss our monetary policy response.


The bank acted rapidly and forcefully over the past couple of months to implement several programs and facilities aimed at supplying needed liquidity and supporting core financial markets. This effort was crucial to keep credit flowing to households and businesses so they could continue to meet their basic needs. These programs include our ongoing weekly purchases of at least $5 billion worth of Government of Canada bonds to support the liquidity and efficiency of this foundational market.

We have increased our participation in the federal government’s Treasury bill auctions. We’re also helping ensure the proper functioning of provincial debt markets by buying new provincial money market securities and provincial bonds in the secondary market.

We have taken a number of steps to ensure financial institutions have reliable access to ample liquidity. These steps include enhanced repo facilities. These allow banks and other primary dealers to borrow cash from us by using their assets as collateral. This helps financial institutions better manage their liquidity risks. We have expanded the list of institutions that can access our lending as well as the types of collateral that they can pledge. These facilities can now provide funding for a period up to 24 months.

Further, we have established a program to buy Canada Mortgage Bonds, up to $500 million worth per week. This is to support the healthy functioning of an important market for mortgage lending to Canadians. Together, all these facilities should improve liquidity and funding conditions for lenders, which will help businesses and households access the credit that they need. It will also help Canadians benefit more from our monetary stimulus during the recovery period.

To ease strains in key funding markets for Canadian companies, we started programs to buy bankers’ acceptances and commercial paper. We have just begun a program to buy $10 billion worth of high-quality corporate bonds also in the secondary market.

We reported on the early results from these programs in our Financial System Review, which we published earlier this month. To summarize, we have succeeded in restoring good functioning to many key financial markets that had been showing signs of significant stress. We can see that bid-ask spreads and yield spreads in many markets have narrowed significantly. Access to liquidity for financial institutions has greatly improved. Many of our programs to support financial markets are being used less and less as conditions stabilize.

In terms of monetary policy, the bank has reduced its policy interest rate by a total of 150 basis points to 0.25%, which we consider to be the effective lower bound. We took these actions based on our analysis of the factors we could see right away — the impact of measures to contain the spread of COVID-19 and the collapse in oil prices. It’s worth noting that even if Canada had not seen a single case of COVID-19, the economy would have required increased monetary stimulus because of the fallout from lower oil prices.

The reduction in our policy rate is entirely consistent with the inflation-targeting agreement under which we operate. We know that to bring inflation back to target, it is necessary to stabilize the economy and then return economic output and employment to their potential. Lowering our policy rate to the effective lower bound is the best contribution that we can make at this time to complement the government’s fiscal efforts and lay the groundwork for the eventual recovery.


We know that monetary policy will have less ability to deliver stimulus right now, given that much of the economy is either shut down or activity is significantly reduced. However, the combination of aggressive fiscal action by governments and monetary stimulus by the Bank of Canada, supported by our actions to ensure well-functioning financial markets, will create the best possible foundation for the recovery period.


In closing, let me emphasize that there is considerable uncertainty about the future course of the pandemic. If needed, the bank is prepared to augment the scale of any of its programs to support market functioning. If further monetary stimulus is required to meet our inflation targets, the bank has tools available to deliver that stimulus.

With that, Senior Deputy Governor Wilkins and I would be happy to answer your questions.

The Chair: Thank you, governor.

Senator Marshall: Thank you, Mr. Poloz and Ms. Wilkins, for being here this evening.

In your opening remarks, you mentioned mortgage lending and the Canada Mortgage Bonds, and I notice on your weekly balance sheet that the numbers are increasing.

When Mr. Siddall from the Canada Mortgage and Housing Corporation testified last week before the Finance Committee of the House of Commons, he said, “The resulting combination of higher mortgage debt, declining house prices and increased unemployment is cause for concern for Canada’s longer-term financial stability.”

There is a lot happening right now that would affect mortgages. A lot of people are availing of the mortgage deferral program, there is high unemployment, high indebtedness of Canadians, increasing solvency rates, a decline of 18% in housing prices and an estimated 20% of mortgages could be in arrears. Given all these issues, do you share Mr. Siddall’s concern that this could have an impact on Canada’s financial stability? I’m looking for some reassurance.

Mr. Poloz: The bank has been on record for several years — I think the entire time that I’ve been governor — and have emphasized that growing household indebtedness was the most important financial vulnerability that we face.

Over the years, those risks have diminished because of the implementation of a number of macroprudential tools, which were meant to mitigate those risks. We know in the background that interest rates have been low for many years and that tends to encourage borrowing. That is why we use interest rates as a monetary policy tool. When we cut interest rates in order to stabilize the economy, they only have an effect if they encourage people to borrow.

Most of the additional borrowing that has happened in the last few years has not been by people who are already indebted but by people who were incurring debt for the first time: buying their first home, having their first mortgage. You can tell, of course, that if there are so many people in Canada with a mortgage, every time we add one more, Canada’s debt-to-GDP ratio rises even though every individual mortgage is just as sustainable as it was before.

I share Mr. Siddall’s concern about the financial vulnerabilities that the household sector is carrying. We have said so many times in the past, and did so in our FSR just a couple of weeks ago. However, the premises that you lay out are more a scenario that Mr. Siddall has sketched, which appears to be mostly framed by what I would call the most dire scenario that we can create.

In our Monetary Policy Report in April, we laid out two scenarios because we didn’t feel it would be honest to put actual point estimates and what I would call a not-too-bad scenario — it’s more or less a best-case scenario at this stage — and a dire scenario. As I have said publicly, given the rate at which we are beginning to start up our economies, I believe that the best case scenario that we laid out in the Monetary Policy Report in April remains a relevant scenario. It’s one that we can still achieve. However, the more dire scenario would be produced, perhaps, by a second wave or a much more prolonged lockdown of our economies.

Inferences such as you mentioned, that house prices are falling by 18%, is only a scenario that CMHC has laid out as one possible outcome of a very dire situation, which no one carries as their base case projection.

I’ll leave it there. I’m sure there may be other questions in this area.

Senator Marshall: Thank you. When you look at your weekly balance sheet and it shows for the Government of Canada plus the Treasury bills, are you buying all of the debentures now from the Government of Canada or are they going to other markets? Are they getting all the money from you?

Mr. Poloz: No. We have stepped up our engagement. We buy a percentage of every issue from the government just to control our balance sheet.

Senator Marshall: What would be the percentage, Mr. Poloz? I know it’s 40% for the provinces.

Mr. Poloz: We have moved it up to 40% during this period. Previously it was 25%. I’m sorry; I might be off by 5% there.

We do that because we have a balance sheet which consists mostly of government debt on one side and currency or bank notes on the other side. Those are our liabilities. The balance sheet always has maturing government bonds on it, so we’re always replacing them.

We’re always engaged in each auction of the Government of Canada. We increased that engagement because markets were not functioning very well, during March especially. By being present in a bigger way in the market, we can assure that there is enough liquidity for all our active participants to get their business done and then our balance sheet rises. Why? Because people are demanding more cash. It’s a safer place for investors to be. Whether they are selling bonds or stocks, it doesn’t really matter. Financial institutions needed more cash. Companies were drawing their credit lines from their financial institutions, and so they are trying to have more cash. The banks need to provide that and fund it in the marketplace, and the marketplace was jammed up.

That’s the situation. The balance sheet of the Bank of Canada rises during that situation, then it will go back down again as those transactions unwind.

The Chair: Thank you, governor.


Senator Forest: Thank you, Mr. Poloz and Ms. Wilkins, for helping us to understand this highly complex fiscal landscape.

Mr. Poloz, yesterday afternoon, you gave a speech in which you said that the Bank of Canada’s dominant concern was the risk that, without equally dynamic actions, deflation could emerge to combine with existing debt, thereby fuelling a depression. Could you clarify your remarks with respect to that risk or threat, which you and the Bank of Canada seem to perceive as being quite significant? Could you explain it for us in simpler terms?

Mr. Poloz: My speech was about risk management and monetary policy. When an event like the pandemic occurs, we see very asymmetrical risks, or a risk of a very deep and lasting recession with the potential to become a recession coupled with deflation. The combination of existing debt and deflation clearly translates into debt that increases automatically in that situation. Things become a whole lot more difficult, so that’s why it’s the biggest risk in that situation.

Naturally, there are upside risks as well. The economy could show signs of a very robust recovery. That would be preferable, of course, and would not pose a threat.

That’s why I positioned the situation in relation to a concern around the risk of deflation combined with existing debt. Those are the two main ingredients of deflation.

Senator Forest: Thank you for your answer.

My second question relates to a guaranteed basic income. Injecting liquidity into the system often isn’t enough to support the economy. You rightly applauded the introduction of the Canada Emergency Response Benefit, which is remarkably effective and much better tailored to the changing economic landscape than other programs, including employment insurance.

You said the government would do well to keep such a measure in its arsenal for future recessions. Does that mean you support the principle behind a guaranteed basic income?

Mr. Poloz: I’ll let Ms. Wilkins answer that.

Carolyn A. Wilkins, Senior Deputy Governor, Bank of Canada: It is clear that everything the government is doing right now links to the question you asked, which is whether certain parts of the programs that have been put in place should become permanent in some form or another.

As you probably know, the central bank’s role is not to advise the government on that sort of thing. I can tell you, however, that we conducted an analysis and that, taken together, the programs go a long way towards bridging the gap between the crisis and an economic recovery, whether it be wage subsidies or funding supports or loans for businesses.

We completed a rather fascinating analysis as part of our report on financial stability, which came out a few days ago. We talk about the threats to financial stability, which are not nearly as serious thanks to these assistance programs.

Although we talked previously about the indebtedness of households and businesses, anything we can do now to give people access to more liquidity and bridge the crisis period is extremely helpful. That bridging support will be necessary to get through the current situation so that businesses can reopen and start hiring workers again. All of that will contribute to a stronger economic recovery and a more stable financial system.

Senator Forest: Thank you, Ms. Wilkins.


Senator Richards: I heard that the interest rates on mortgages would be relaxed for the next six or seven months because of the pandemic. This is what I heard a couple of weeks ago. I don’t know if it’s true. I would like to ask Mr. Poloz if it is true. If so, will these mortgage payments be doubled after that six- or seven‑month period?

Mr. Poloz: Thank you for the question. There are possibly two different ways to interpret your question.

First of all, the banks themselves stepped up and allowed people to ask for a deferral of their mortgage payments for a number of months, up to six months. In most cases, I understand what happens is that you don’t make a mortgage payment, probably because you have lost your job or your income has declined. What happens then is that over that period the deferral incurs a bit of an interest cost, which is then added into the mortgage at a later time.

The other side of your question is about the rates on mortgages. We have cut our interest rate by 150 basis points. Some mortgage rates, especially the variable rates, have fallen quite a lot. Fixed rates on mortgages have fallen by less, the reason being that banks, in order to lend money for a new mortgage, need to obtain the money in the market. Those markets were jammed up, as I said, and that was one of the reasons why we went in and did the buying of Canada Mortgage Bonds and other debt instruments in order to relax the tensions in that market, so that the banks could fund themselves at a reasonable rate and then pass on some of those savings through to the new borrowers.

Rates are as low as they have ever been right now. The path of rates is not something for us to speculate about at this stage. However, you can be assured that for us to be operating in a manner that is consistent with our inflation target, what we’re doing with these interest rates is keeping the economy turning over and building a platform for robust recovery. As that recovery unfolds, we’ll have to reach our judgments about what interest rates are appropriate at that time. For now, they are as low as they can go. We’re at what we call the effective lower bound.

Senator Richards: Thank you very much. For thousands of families, it’s going to put them up against a wall after a certain time, when they have to pay this back at a certain rate over the next year or two. Certain families will be up against a wall because of this; at least, that’s what I think. Could you tell me whether or not that’s true?

Mr. Poloz: To the best of my knowledge, these deferrals mean you’re paying for that at the end of the mortgage, but the indebtedness is rising a little bit because you’re owing interest in that period of deferral. This is not a very significant increase in a person’s indebtedness on their mortgage; it’s something that has been postponed. I’m not really seeing a wall there for someone to hit.

There are lots of other places that are more concerning, like in companies, for instance, that don’t have those kinds of arrangements, where they have debts to service. That is where I’m more concerned that the longer this shutdown lasts, the more a liquidity problem can develop into an insolvency problem, and that would have financial sector implications, of course.

Senator Richards: Thank you.

Senator Harder: First, let me thank the governor for his service as the Governor of the Bank of Canada. I suspect this is one of the last parliamentary engagements you’ll be enjoying.

Let me say, first of all, that I think the conduct of central banks in the major industrial countries has been very impressive, certainly coordinated, timely and agile. My questions are with regard to the emerging markets.

Relative to the last financial crisis, we know that emerging markets are an important element of future global growth. We also know that the level of indebtedness in foreign markets is much higher than it was at the time of the financial crisis. I’m told that over 100 countries have approached the IMF with respect to some form of relief.

Could you inform us as to what you and your colleagues, particularly in the G7 and G20 relationships, are contemplating with regard to how the demands of the emerging markets can be better responded to and more agilely dealt with?

Mr. Poloz: I certainly agree that this is a significant factor. This is a global shock. It’s happening almost in a sequence as it goes around the world, and the financial stresses are severe. So this is bringing into play the international financial institutions and, of course, coordinated across the IMF and G20.

I’ll ask Ms. Wilkins to talk a little bit about the state of play there, but this is truly a question that applies mainly to the IMF or the Minister of Finance. Carolyn, can you give a bit of a sketch there?

Ms. Wilkins: Sure. Clearly, the buildup of debt in emerging markets prior to the COVID event was already a vulnerability that we had been highlighting, primarily for the reasons you said. The debt is high. It tends to be, in many of the jurisdictions, not only high but in U.S. dollars, which means that exchange rate movements not in their favour can be highly costly for these emerging markets. Of course, the pandemic, aside from being a human tragedy, was a perfect storm, in a sense, for some of these economies. We have seen capital outflows from some of these countries that are as big or bigger than we saw at the time of the financial crisis in 2008 and 2009.

The global efforts issue — the governor is perfectly right — is in the purview of the Minister of Finance. As well, other ministers related to health are focused on finding ways to get, first of all, the health situation under control and stabilized in some of these countries, but also thinking about how to structure lending in a way that would be helpful, or the liquidity they need.

Certainly for Canada, it’s essential that this is managed very well. We know for many of these countries — a lot of the ones under stress are in Latin America; Asia seems to be doing okay — they have made important structural reforms over the last couple of decades, which should help them. Nonetheless, if there were to be disruptions in emerging markets, it could spill over to the Canadian economy, through financial markets primarily, but also through commodity markets. So it’s in all our interests to work very hard with these international institutions to help where we can.

Senator Harder: Thank you.

Senator Smith: Welcome, governor and deputy governor.

The collapse of global and, indeed, the Canadian benchmarks for oil led some political leaders — which is unfortunate — to claim that Canadian oil is dead. However, the bank’s $10 billion corporate bond purchase program, which allows it to purchase corporate debt on the secondary market through its agent, identifies many energy companies as eligible issuers, including Husky, Suncor and Canadian Natural Resources as examples. How will the $10 billion be allocated? What percentage of that $10 billion will be allocated to the Canadian energy sector? As a more generic question, what role will Canada’s oil and gas play in our recovery?

Mr. Poloz: The most important point I’ll underscore is that those purchases are across the market, as it exists today, in the secondary market, so not as a direct loan to any specific companies. Ms. Wilkins was responsible for designing the program, so I will let her talk to you about the details of how that was created.

Ms. Wilkins: Thank you. That’s an excellent question. In the design of the program, we were very focused on responding to what we saw in the markets at the time — it has subsided a bit, especially when we announced we were going to do this program. It was a market dysfunction that not only affected energy companies but the full range of companies incorporated in Canada that raise funds in this market.

Of course, we all know that it’s very important for firms, big and small, to have a diverse set of options in terms of raising funds. And for corporations in Canada, the Canadian dollar corporate bond market is one of them. The design of the program is set to target very high-quality issuers, so mid-triple B and above, which means there could be one downgrade and you’d still be an investment grade. It’s across the spectrum, so the universe of eligible bonds is just shy of $100 billion. It’s spread across a number of industries, such as communications, energy, financial, industrial, infrastructure and real estate. The numbers that I have indicate that just a little bit above 20% is in the energy sector, so our reference portfolio that we would be targeting would try to distribute our purchases across that full range.

You’re going to see how we do. Our first operation was actually today. We’re buying these assets via an asset manager at market prices. We’re not trying to give anybody a deal. It’s to provide price points so that the market functions better. You will see our transparency will be weekly. On our balance sheet, you will see the total amount we’ve purchased and with the lag of a month, you will see a sectoral breakdown of the purchases in our portfolio.

Senator Smith: Have you been able to anticipate or get any feedback? I know it’s very early in the process, but what’s it looking like?

Ms. Wilkins: Our operation was just today, and my understanding is it was completed at 4 p.m., so I haven’t got a lot of feedback yet on that. What’s going to be interesting for us to see is that it’s done as a reverse option. That means portfolio managers will offer to sell bonds to us at a certain price, and the asset manager will determine whether it’s worth it to buy them. We have a target amount we’ll buy every week.

It will be interesting to see the range of these bonds that are offered to us. We can have a target for what we want to buy, but they have to be offered to us before we can actually purchase them.

What I do know from early feedback — not just from market participants, but the actual data — is that if you look at credit risky spreads, you can see they’ve come down. Part of it is because the market has just calmed down in general, but another part is because they know the Bank of Canada will be there to provide some liquidity to the market in a way that makes people more confident that they themselves can participate. So we should be seeing more of a two-sided market.

Senator Smith: Thank you, Ms. Wilkins.

The Chair: To the governor, if you want to add to that response in writing, please feel free and send it to our clerk, Ms. Fortin.


Senator Dagenais: Thank you, Mr. Poloz and Ms. Wilkins.

Mr. Poloz, providing supports to help the economy weather this crisis is not without risk, and we can’t keep handing out millions of dollars for too much longer.

I’m sure there are scenarios or perhaps lines not to be crossed. What is the biggest risk we face, and is the government aware of that risk?

Mr. Poloz: As I mentioned before, the greatest risk, in my view, is that the disruption to the economy will be prolonged and ultimately affect consumer and business confidence. I think the fiscal policies that have been put forward are well targeted to stabilize confidence if the disruption lasts two or three months at most. I think it’s possible to have a fairly stable level of confidence, and it’s income that stabilizes, not GDP. Of course, the level of economic activity will drop and by a lot, but income-related measures for households and businesses will be less affected thanks to targeted policies. In that regard, I think the program is very well designed, but for the time being, we have to wait until the economy gets going again, so that after a few weeks, we have data showing a recovery in the very short term. If we look at other economies, such as South Korea’s, Japan’s or China’s, we see a fairly elastic recovery, and that’s encouraging. It’s the phenomenon of pent-up demand among consumers, not a situation where they are exercising extreme caution. The difference depends on how long the disruption lasts. That’s an excellent question.

Senator Dagenais: What do you make of how favourably stock markets have fared in the current situation, even though major companies have been unable to fulfill their obligations without government assistance?

Mr. Poloz: That’s an intriguing question. I would say most investors see all this as a temporary disruption, not something that will last. Business profitability will probably rebound over the next few months, and it will be tough. I admit that it won’t be easy. At the same time, it’s important not to underestimate the ingenuity of entrepreneurs.

I see it as a temporary situation, with consumers and businesses behaving in the same way. As I said, it depends on how long the disruption lasts. Right now, I think we can consider the most favourable scenario outlined in our monetary policy report. We think that scenario is still possible.

Senator Dagenais: You brought up businesses. Some businesses and individuals will declare bankruptcy, to be sure, regardless of the relatively low interest rates — which, for that matter, can’t drop much lower than they are today.

In light of that, do you believe the banks have done everything necessary to adjust interest rates given the tax breaks they received?

Mr. Poloz: Interest rates were fairly low prior to this and are even lower now, but that’s not the most important thing from a business’s standpoint. What’s imperative to a business right now is stabilizing demand for its products and services. That’s why the government’s efforts have specifically targeted personal income — the idea being to stabilize things on that front. The economy will experience a major decline, a very deep decline, but that won’t be the case for household income. Personal income is more stable because the government support program is so targeted.

Senator Dagenais: Thank you.

The Chair: Governor, if you have anything to add to your answers, please feel free to send it to us in writing.


Senator Galvez: Thank you very much, Governor Poloz and Ms. Wilkins, for being with us today. It’s always good to learn, know and rely on the strength of the Bank of Canada as it’s seen all over the world.

I have two questions. One is very general and the other is specific to quantitative measures. Maybe you can answer the first one in written form; I’ll let you decide. It’s concerning the use of GDP as an indicator of economic growth.

I can understand that real GDP measures economic performance, but it is not continuous; it is like a picture. It’s less of an indicator when we talk about social progress. Certainly, GDP didn’t warn us about the 2008 crisis. It doesn’t reflect health or safety degradation, environmental degradation or resource degradation, which are very important in the global financial portrait.

What does GDP measure and what does GDP not measure? Do you reflect in other ways? The OECD, the World Economic Forum and the IMF are talking about many other indicators.

Mr. Poloz: You’re absolutely right. GDP is a very old and traditional measure of the economy. It misses a lot of things that matter a lot to people. You’ve mentioned some important ones.

I’ll give you one example that I carry around a lot. People live longer today than they did 20 years ago. If you were to value the extra years of life for people at the average wage and just added that extra into GDP, it would swamp all of the productivity statistics that we collect. It would be so much bigger and obviously so much more important to people than whether or not they are 1% more productive this year than last year. That seems like a trivial thing compared to living an extra 10 years or whatever the medical system provides us.

We know about these shortcomings. You’re right; people are talking about them. There is economic research on wellness indexes or happiness indexes, which are proxies trying to capture things like environmental implications or health. They are experimental things. We really can’t even measure investment very well in this economy because everything is being digitalized; it’s a much harder thing to measure.

Everything we use is just an indicator of the truth. I suspect that even if we got it all perfectly in the way you have described, it would still end up being correlated with GDP. When GDP goes down, chances are that the best measure of all the things you are concerned about would also go down. They would be correlated. Think of it as an indicator that doesn’t do too bad a job measuring how things are going out there, but it doesn’t add up to the right amount.

I don’t have an answer for you, really. I’m just trying to help you appreciate the complexity of what you’re asking.

Senator Galvez: I appreciate it. Thank you very much. My second question is regarding quantitative easing. This is new for Canada; this is the first time it has been tried. You are now purchasing government and corporate bonds. Senator Smith asked some of these questions as well. Why are you choosing the secondary markets instead of the primary ones? There can be some regressive impacts in further concentrating wealth with limited stimulus of employment, whereas primary purchases of federal and provincial bonds can directly contribute to government funding without going through the markets.

For transparency reasons, I would like to know if at some point you will reveal the criteria in determining the market, the amounts, the offers and the conditions for these purchases.

Mr. Poloz: I’ll take one part of that question and then turn it over to Ms. Wilkins.

Why do we do these things in the secondary market? First, let me back up a little bit. You called it quantitative easing. That’s literally true, but we call them large-scale asset purchases at this stage because their purpose is ensuring that the markets function, that there is a buyer and a seller for each trade, and that the market is not gapping or being jammed up.

When our objective is market function, we focus almost exclusively on the secondary market because we’re putting liquidity into the market so people can trade. Of course, we also do primary purchases, as we were talking about earlier.

When it becomes, in our minds, quantitative easing, that’s when it has a monetary policy objective. That is, of course, at a later stage when the economy is in recovery; then we may describe it differently. For now, we are almost totally focused on market function. Ms. Wilkins can speak on the design.

The Chair: Ms. Wilkins, it will be difficult for me to permit you to answer the other part of that question because of time constraints. Could you please, governor and deputy governor, send your portion in writing to our clerk?

Senator M. Deacon: Thank you very much for being here this afternoon. It’s hard to think back to the parliamentarians you spoke to in January about the financial health and news of this country. Who would have known, when we were sitting with you at the Bank of Canada, we would be having these conferences under pandemic conditions? Thank you, and more pivot, I am sure.

My question concerns the approach towards economic recovery that might be taken when COVID is behind us somewhat, whatever it may be. Just this week, in a recent publication put out by the Bank of Canada, the authors looked at the effects of climate change on the goals of the central bank, although not in the context of the present COVID crisis. They concluded that while measures like a carbon tax would cause some short-term pain on our overall economic picture, the long‑term effects of simply doing nothing would be much worse. This is both because of the unpredictable physical disruption a warming climate brings but also the competitive risks, such as being left behind as the world moves to more sustainable, greener sources of energy in the short term. No doubt we’re going to need a lot of fiscal stimulus to jump-start the economy when we are ready, and such stimulus will likely have policy-weighted goals around it.

Do you think it would be beneficial to use our recovery to steer our traditional carbon-based energy sector onto a greener path? In the context of recovery, what risks do you see in continued support, traditional carbon-intensive energy, on the one hand, and working towards a greener shift on the other in the near and long term based on the times we have now?

Mr. Poloz: I’m going to turn that question over to Ms. Wilkins in its entirety.

Ms. Wilkins: I’m very pleased, and my colleagues will be very pleased to know that you noticed the report we put out earlier this week. I’m going to motivate my answer quickly to talk about why it is we’re doing work on climate, because it’s important to the answer.

Clearly, as a central bank, our work on climate is related to our mandate, which is to look ahead and see emerging trends that could change the structure of the economy in Canada and globally in a way that changes how well the economy functions, changes the vulnerabilities of financial system risks that we will face. We do that because we think it’s very helpful for us in assessing the risks as we see them, but also to informing the discussion about how to invest and mitigate these risks.

To go further and to say, “Okay, well now we’re going to give advice to governments on how to do that” is, in our minds, a bridge too far. Our role really is to do the analysis. We’re not the overseer of financial institutions like OSFI is, for example, but we certainly do participate in some of the discussions.

So that neutral research party has to anchor that. What that research study was saying is there is a trade-off between the physical risks. They’re bigger if you do nothing, according to the model that was used. We know that all models have issues, but at the same time, the transition risks get a little bit trickier if you try to move too quickly. That’s basically what it’s trying to say. It’s quite intuitive. I would say that research was at the global level and we’re planning on doing more that’s focused specifically on different scenarios for Canada, which I think will be very important for policy makers to use to help inform those discussions that you’re talking about.

For our part, it doesn’t mean we’re not doing anything in terms of our own operations with respect to climate. You can see on our website we have plans that are well under way to not only green our own operations but to apply ESG policy to our pension fund, as well as other activities on the research side that we hope will contribute to this important agenda.

Senator M. Deacon: Thank you very much for that. Great articles; there are a couple of them.

In moving towards the specific areas around how far we’ve gone into the COVID crisis, we probably have a chance — no doubt impulse — or perhaps time to reflect on how prepared we were for this kind of unpredictable economic shock. Are there any lessons that we or you can learn that are becoming clearer at this moment? Are there any tools you wish you had as your disposal that may not have been available to you in hindsight?

Mr. Poloz: I’ll take that question. Actually, I think we were reasonably prepared, not for this type of shock, being a medical one, but on the economic front, we’ve been talking for some time about scenario planning, about what the next downturn in the economy might look like and how policy would work with it, knowing the starting point was a difficult or challenging one for monetary policy because interest rates were already quite low and there was only a modest amount of reaction room there.

We had done a lot of work on what we call the unconventional tools of monetary policy, many of which we’re discussing today. The lessons from 2008 applied very well. We went fast and large because we felt that the uncertain situation demanded that. We also all understood globally that the next big shock would be primarily a fiscal responsibility and that is exactly how, as it turned out, that monetary policy is playing a secondary role, complementing the efforts of fiscal authorities, as that’s definitely the case here in Canada. If there is a lesson to be learned, it is that some of the elasticity of those fiscal policies is very attractive, like an automatic fiscal stabilizer that could be relied upon in future episodes. That would be worth developing more deeply.

Senator M. Deacon: Thank you.

Senator Klyne: I would like to begin by thanking our panel from the Bank of Canada for being here with us today. Thank you to the bank for its dedicated work and valued contributions to Canada.

I also want to extend my congratulations and thanks to the governor for his seven years of service as the steward of the economic well-being of the Canadian monetary system. I wish you all the best in your future endeavours. I’ve always appreciated your steady hand on the rudder, and your confident and capable approach to taking care of business. Thank you for that.

In mid-March, following a cut to the key interest rate, taking it down to 0.75%, The Globe and Mail reported that you felt cuts to the interest rate were not the only tool in the tool kit to help the economy weather the COVID-19 storm. We have seen further cuts to the key interest rate, the most recent cut taking the key rate to 0.25%, matching the all-time low set in the 2009 financial crisis. On this last cut, the Financial Post reported that, from the Bank of Canada’s perspective, interest rates were probably going to stay low and the economic damage done by the COVID-19 outbreak might not be as bad as some feared, explaining further that economic growth has plunged because of the measures required to confront the pandemic, not because of business or consumer behaviour factors.

Now that the country is beginning to methodically ease back into business while respecting the prudent restrictions of physical distancing and the like, in addition to low interest rates and the PMMP program, what other measures might be required to ensure the economy returns to 2019 Q4 pre-pandemic levels sooner than later?

Mr. Poloz: At this stage, the honest answer is that we don’t know. We’re dealing with something we’ve never dealt with before. What is important, I think, is that all of the tools that we have deployed can be magnified several times if necessary. We believe interest rates are at their effective lower bound. You could make an argument for negative interest rates, but I don’t find it very appealing. What I think is better is that our other policies, which are aimed at enhancing the transmission of monetary policy through financial markets, are the best way to add more oomph if it’s needed. The most important thing is that the fiscal stabilization tools that have been used have managed to put a floor under the economy, under economic income, which is the most important thing.

If we look at the middle pages of the FSR we published a couple of weeks ago, there is an analysis of the most vulnerable in the economy and how the CERB in particular impacts them directly and, in fact, is doing a really good job of replacing the income that was lost. It’s a highly targeted policy that kicks in automatically and stays there as long as it’s needed. That’s, like I said, an automatic stabilizer.

Provided that keeps people feeling like they’re protected, their consumer confidence should rise again just as we re-engage the economy.

I don’t know what it’s like in your town, but it’s pretty hard to get into Canadian Tire or the hardware store right about now, because people are all out there getting stuff for their homes and so on. I think the pent-up demand will play into this robust recovery and certain things will be more difficult, such as restaurants and travel.

We understand these things, so it won’t be everywhere, but we have to ask ourselves if someone doesn’t take a trip on an airplane this year, will they just save the money or will they spend the money on something else? After 9/11, everybody thought there would be a big global recession because no one would travel. And it’s true; people really did cut back on travel but they spent the number on other things and the economy actually accelerated after 9/11.

There’s an important lesson to understand underlying consumer sentiment and their behaviour.

Senator Klyne: Thank you. Do I have time for one more question?

The Chair: We have to move on, Senator Klyne. Ask the question, and I’ll ask the governor to send the answer in writing, please.

Senator Klyne: The Bank of Canada has laid out a scenario of 15% losses for the second quarter and in the face of a second wave scenario, the outcome could be as much as 30% lost to GDP for the end of the second quarter.

If we’re unable to avoid a second wave, are there any tools left in the monetary toolbox besides putting the pedal to the metal? And more importantly, is there any combination of fiscal and monetary policy where the two combined leverage that should be called upon for a restart of the economy?

The Chair: Governor, this will be a written answer, please.

Senator Boehm: Governor and Ms. Wilkins, thank you very much for joining us today. And Stephen, congratulations to you on an incredible tour de force performance as Governor of the Bank of Canada. I am going to bunch my questions together in the interest of time.

I know that you and your colleagues around the world, particularly within the G7 and more recently in the G20, coordinate well. The $5-trillion infusion for liquidity into the global market was well-timed, and the work continues in terms of perhaps comparing how liquidity facilities are being applied in different countries.

Are you at a point where you can already draw some lessons learned or best practices, recognizing that the economies are all very different?

Following up on Senator Harder’s question, there is a very good chance that the economic collapse could be a more sustained picture in emerging markets when the developed markets are already back up and hoping to grow into what some have said could be more of a U-shaped recovery than a V.

Will the IMF require extra help in terms of handling this or is it something that you think will just take more of a natural course? And in this, are there innovative approaches being contemplated and does cybercurrency fit into any thinking at all at this point? Thanks.

Mr. Poloz: Senator, thank you very much for your questions.

First, on the lessons we have learned, I think the central banks are all pleased with how the liquidity operations have gone. We really only had a couple of weeks of true stress in the markets, distress even, and it was cured pretty quickly because of the force and rapidity with which we got these programs in place. It was almost as though people who are casual observers would ask what all the fuss is about. It really did get fixed up quite quickly.

As I said, that’s only a contributing factor. The main thing is that the response has been fiscal in almost all countries, and the lesson there is that we all ended up converging on something pretty similar, and that was collaboration, cooperation. It was a sequential shock so we got to learn from others as it went along.

In terms of the global recovery, it will be gradual, if only because it will be sequential in nature. One country begins to recover, then another one and then another one, so when you add it all up, it definitely will have a prolonged U-shape from an external or an international perspective. It can’t be truly V‑shaped, even if ours is quite V-shaped in the first go when perhaps 80% of the recovery will happen quickly. And then the rest, the other 10 or 20%, will take a longer time. Through this piece, I suspect the IMF will be very busy. It’s true that stresses are growing in vulnerable countries, and the G20 and the Paris Club are discussing various relief measures.

That’s a long answer, but it’s just to say that there is a great deal of awareness and collaboration at the international level and we’re basically engaged in that. It’s really a question for the Finance Minister when you have him in front of your committee.

Ms. Wilkins: The cybercurrency or crypto-currency was a really big issue for central banks and governments prior to COVID. It has only increased in interest since then. Part of the reason is because this whole situation has accelerated the move to digital — online shopping, remote working situations — and many are planning for this to become a more permanent feature of our economies. We were on our way there anyway.

With respect to cash, people are still holding it but they’re not using it. So again, with some private sector alternatives popping up, central banks are quite keen to work globally on central bank digital currencies. We’re part of a coalition of central banks that are doing just that right now.

The Chair: Thank you very much.

Senator Duncan: Thank you very much, I appreciate your attendance today and would echo the congratulations of my colleagues to the Governor of the Bank of Canada.

My question has to do with the provinces and territories and the Bank of Canada’s role in managing public debt programs. The Provincial Bond Purchase Program — [Technical difficulties] — are not included in that for a variety of reasons. The territories have an alternative way to borrow money and that’s with the CPP and issuing debentures to the Canada pension — [Technical difficulties] —

Does the Bank of — [Technical difficulties] — sorry; my follow-up to that is that we are all very aware of the difficulty of municipalities in the current financial situation. Municipalities don’t have the same ability to borrow that the provinces and territories do.

Do you envision that the Provincial Bond Purchase Program and the CPP borrowing will be sufficient in your learned opinion, or will the municipalities and the provinces be looking to the federal government for additional programs to assist municipalities? Thank you.

Ms. Wilkins: You’re quite right; the Provincial Bond Purchase Program and our shorter-term bill purchase program are open to provinces because that’s the market that is functioning. The purpose of that program and the sizing of that program, again, is not to provide direct funding to provinces per se but rather to help the functioning of the markets in which they raise their funding. And that is why we’re in the bond purchase program operating in the secondary market.

When it comes to municipalities and those who issue commercial paper, that program is functioning right now, and municipalities and others who issue commercial paper had been making use of it. That market has improved, it’s functioning very well. Your question was whether it’s enough. When it comes to funding up to one year, it must be, because, for the last few weeks, this program hasn’t been used because the pricing is such that it’s just better for municipalities and others to issue in the private market, which is a really good thing; it’s actually a lesson. One of the previous questions was a lesson. Pricing is really important, because you want to be there so it’s useful, but we don’t want to replace a private market.

When it comes to longer-term funding sources and we get out of the market-functioning lens, then it looks more like an issue for elected officials than it does for a central bank, whose job is really about liquidity.

Senator Duncan: I wasn’t sure that I heard the CPP question addressed, but I can ask that in writing. Thank you.

Senator Loffreda: Thank you, Governor Poloz and Deputy Governor Wilkins, for being here with us. We have covered a lot of great ground and there have been a lot of great questions. I am glad to end this session.

First, I wanted to congratulate Governor Poloz on a fine tenure and work well done. Congratulations. Time does fly. It seems like yesterday we were in Montreal, and Governor Carney was presenting you as his successor. We had an intense discussion on the concern of the Canadian real estate market at the time, so time does fly.

Deputy Governor Wilkins was in Montreal lately. She expressed the fact — and this is an important point — that in Canada, we had the strongest banking system in the world, or one of the strongest banking systems in the world, and we have to keep our Canadian banks as part of the solution. I think they want to be part of the solution.

Given that, one of my questions was the following: Have all of Canada’s six largest banks accessed Bank of Canada’s standard-term liquidity facility, because they needed the liquidity? Also, do you still believe we have the strongest banking system in the world? Has there been any analysis done on the banking system, based on loss projections, and all we have discussed and heard? How do you see our banking system? That’s important.

Regarding my other questions, maybe you submit answers in writing. In a pandemic and crisis, history has shown us that you have to act on a timely basis, you have to do it with force and you have to do it together. You have done just that, so congratulations, and thank you on behalf of all Canadians.

You said that you had additional tools. I, like most economists, I believe that at this point, this is more of a fiscal-policy recession and not a monetary-policy recession, that you have done the maximum you could on a monetary-policy side. There is evidence that negative interest rates they don’t work, but you did say at one point — and I caught that — that you do have more or additional tools to deliver during this crisis in case we do need more stimulus. If there is one tool you would share with us at this point — the most important tool you deliver — what would that be?

Thank you very much.

Mr. Poloz: In the early going, we launched the STLF. The STLF had actually been under development for a couple of years and was on the shelf, ready to go. It was deployed almost as soon as things got stressed. Everybody tapped it at that time, but as Ms. Wilkins aptly summarized, the various tools we deployed did calm markets pretty quickly, which is a great thing. It meant, then, that we could focus on the actual economy and less on market function. That has worked very well.

In the FSR that we published two weeks ago, we analyze in some detail the implications of a dire scenario for the economy on the financial system. In there, you will see a chart. If I remember correctly, is chart 14 or 13; it is toward the end. It describes what the loan-loss provisions would look like under the dire scenario versus what they actually are modelled to look like because of the various income support measures the government has put in place.

This is a really important point. When the rating agencies came to decide whether they should downgrade our banks, they chose not to downgrade the banks. Why? The government support measures are helping the banks’ clients weather the storm. That’s a really important mitigant that was not normally anticipated in our FSR scenarios in the past. Regarding the stress scenarios we do, we don’t have a whole bunch of fiscal tools entering the picture and enabling everybody able to ride the storm better. That’s an important offset to those things.

Last, on additional tools, there are always other tools in the cabinet, but those tools are usually negative interest rates and credit for lending. These are tools that central banks have but are usually used only in pretty extreme conditions. One of the extreme conditions is when the fiscal authority is not delivering stimulus, or is unwilling or unable to. You’ve seen examples of this in the past. Fortunately, it is not our case that we have a really strong fiscal response to the crisis, and monetary policy is playing a supporting role, primarily focused on market functioning and building a platform so that recovery can be as robust as possible.

The Chair: The chair will now recognize ex-officio senators.


Senator Gagné: I, too, would like to congratulate the governor and thank him for his seven years of service to Canadians at the helm of an institution as illustrious as the Bank of Canada. I wish you much success in whatever you take on next.

Senator Loffreda asked the question I had, but there’s something else that’s been bothering me, so I’ll ask about that. It has to do with supply chains. Clearly, China’s share of the global economy is much larger today. China accounts for nearly 17% of the world’s economic activity. During the SARS pandemic in 2003, China accounted for approximately 4% of global GDP. Today, it’s 17%. The global economy is highly integrated and is built around just-in-time production. We now know how the pandemic impacted what I consider to be the world’s factory, China. I think the pandemic highlighted our supply chain vulnerabilities, so I wonder how Canada should adapt in response. Should we go back to our old ways, or should we redesign our supply chains? If we do that, how will it affect our economic recovery, if the goal is to better protect ourselves and make sure we have access to the materials we need to serve Canadians?

Mr. Poloz: Thank you for your kind words and your question. It’s incredibly complex, so I’ll say a few things, but my answer might not be thorough. The balance underlying supply chains has always been relatively fragile. Businesses tried to maximize profits by dividing the supply chain for their products and services into smaller components. They performed a matching, if you will, between each component and the productivity and wages in each country. That’s why China acquired so many supply chains: It had very low wages.

If, however, wages in China go up — companies there also use robotic systems and other types of equipment to replace workers — the supply chain will change again to achieve optimal functioning. It’s like an organization. It will always change. This pandemic will no doubt change what that optimal supply chain is and result in even more automation. Supply chains will probably be duplicated. For example, to offset a vulnerability in one country, two companies in two different countries could share the same part of the production process to mitigate the risks. That’s what BlackBerry did; it was dealing with seven countries. Manufacturing a BlackBerry device involves many pieces so the idea was to mitigate the risks in each country. I don’t want to make any predictions, but I’m sure all of that will change. Our domestic supply chains will probably have fewer of those parts, but we won’t go back to some of our old ways. I’m sure of that. It will be another balance.


Senator Martin: I will begin by associating myself with the comments that were made by my colleagues to you, governor, and the seven years that you have served. I’m sure whatever you may be doing next, whether it’s on the international stage, your experience will serve others well, but thank you so much for what you have done in Canada.

I have one request and a concern, which leads to my question. The request is regarding the Provincial Bond Purchase Program, and whether we would be able to get a list of which provinces and what has been purchased in each province, if that’s available somewhere or if it’s something the committee could get in writing, at this time or in the near future.

With regard to the question that I have, as you leave your post, we’re looking at this COVID-19 period and we don’t know when this will end, what your outlook for the economy is. However, my concern comes from the fact that, as Senator Dagenais pointed out, the big businesses are going to face incredible challenges, potentially leading to insolvency or other sorts of challenges. But the micro-enterprises, which really make up the majority of small businesses — I live in Vancouver, and I see the businesses boarded up, row on row. They had a very difficult time getting any sort of access to interest-free loans because they didn’t fall into the category of even having payroll. Many of them do not have additional staff; they have the family run the businesses.

I’m quite concerned about what lies ahead. So looking at bankruptcy, insolvency levels rising as a result of this, would you speak either specifically or generally about your outlook for our economy?

Mr. Poloz: Yes, thank you for the question. With regard to the provincial Bond Purchase Program, we can provide all the details that are available. We’re publishing them regularly on our website. It’s straightforward for us to give you a summary of that.

In terms of the situation in, let’s say, the company sector, I certainly share your concerns. As I said before, when this began, as central bankers we think of it as a liquidity problem first because markets seize up, and we can’t do anything if markets don’t begin to function again. Banks can’t lend money. If you are a company with a credit line at a bank, your automatic reaction to this situation was to go and pull the money out of that credit line so that you had the cash available. Well, what is the bank to do if the bank can’t get that money to provide to you because the markets where they go to borrow that money — that’s what banks are, essentially intermediaries — are jammed up?

So making those things function made a huge difference compared to 2008. In 2008, we had a bona fide credit crunch. Credit lines were restricted. They were reduced during that.

In this case, credit has expanded a lot. Our banks have truly played a role in making it happen and coming forward with the deferrals for mortgage holders and delivering the small business loans. It is great to have a robust sector, as we said, the best banking sector in the world. All the reforms that have happened over the last 10 years are serving everybody very well.

What happens with the companies? Yes, there will be casualties. The longer this takes, the more casualties there will be because a liquidity problem becomes a solvency problem. I understand that. We think most of the damage is being felt in sectors that almost always have a lot of turnover: retail, restaurants, pubs, travel, those kinds of activities that are generally low-margin activities. They are vulnerable. And their staff have the lowest attachment rates to those companies. They move around a lot.

Of course, I don’t wish this on anybody, but the other side of it is they are a very elastic, fluid sector. A restaurant goes out of business. You walk by a month later, there is a restaurant there. It’s a different name. There is a rebirth that happens. We shouldn’t underestimate the entrepreneurial spirit that is so Canadian. I am expecting that there will be casualties, but there will be a surge of small company creation as people think of new ways of doing business, new ways of doing things that didn’t work or, if you like, necessity is the mother of invention.

We are already seeing all kinds of ideas happening out there. It’s amazing to me how people are adapting. We will see much more of that. I always have a positive outlook for this; we should not underestimate how well the economy can respond all by itself. With the help that we are giving it, we’re making the platform as strong as it can be for that recovery phase.

The Chair: Thank you, governor. Before I ask you to give your final comments, I see that we have a senator who has not asked any questions, and there is a rule had adopted that a non‑member senator of the Finance Committee — and I see Senator Dasko. Senator, if you have one question, we’ll ask the governor to send it in writing, and then we’ll ask the governor to close the meeting.

Senator Dasko: Congratulations, governor, for your tremendous work. We have some very important topics today. These are the most important topics, I believe. This is a follow‑up to what Senator Martin was asking you.

You were quoted in The Globe and Mail in the last couple of days with, I would say, a very optimistic outlook for the Canadian economy. Yet today we talked about the risk of recession adding to that deflation and debt, and then there is the possibility of a depression. I wanted to summarize, perhaps follow up and drill a little deeper into your answer to Senator Martin. What scenario is the more plausible one in your point of view? What should we be looking for, which sectors in terms of opening up? What should we be looking for, in terms of telling us about what’s going to happen? Should we be looking to certain sectors opening up again or are there some other factors, elements that we should be looking at? That’s my question. I had others, but I’m happy to ask this one.

The Chair: Governor, if you could answer that in writing, please.

As chair of the Finance Committee, I thank you very much for always taking the time when we have made an invitation. You and your team have always been present. On behalf of the Finance Committee, thank you and thumbs up.

In closing, do you have any comments to give all Canadians?

Mr. Poloz: Thank you very much, senators, for your kind words today.

I will give a 10-second response to this last question, which is a good way to leave you.

I do think the best case scenario in the April Monetary Policy Report is still the most likely, given the timing in which people are starting to re-engage the economy.

We need to be prepared for the dire scenario, but I think we can still hope for the better scenario. All the ingredients are there, so we need to wait and see.

I appreciate your comments today. This has been my dream job. I have enjoyed it immensely. I do regret leaving with the situation as it is today, but that’s a statutory thing. My seven years are up. Seven years ago, when I was named governor, I wore this tie on that day. So I wore it today. It still looks okay after seven years.

It has actually been a short but great ride. I wish you all well. I can assure you that the economy was in great shape when this started, and just like a healthy individual can shake off COVID-19 more readily than someone who is not healthy, the economy can shake it off in the coming months. Thank you for your time today.

The Chair: Thank you.

Honourable senators, our next meeting will be on Tuesday, June 2, at 2:30 p.m. EST.

I would ask Senator Forest and Senator Richards to please stay on the line so we can have a short meeting with the steering committee.

Governor, thank you very much. Senators, staff and the team, thank you very much.

(The committee continued in camera.)