Proceedings of the Standing Senate Committee on
Issue 6 - Evidence - May 12, 2010
OTTAWA, Wednesday, May 12, 2010
The Standing Senate Committee on National Finance met this day at 6:45 p.m.
to study the estimates laid before Parliament for the fiscal year ending March
Senator Joseph A. Day (Chair) in the chair.
The Chair: Welcome, everyone. This evening, we will continue to study
the Main Estimates for the 2010-2011 fiscal year, which were referred to our
The committee has already had several meetings in relation to these Main
Estimates and will continue to examine them throughout the year. However, as
honourable senators know, we will be filing an interim report within the next
month to support the supply that the government will be asking Parliament to
support. We expect to receive that sometime in early June. The studies that we
are doing support that main supply when it comes.
This evening, we will be focusing our attention on CBC/Radio Canada, and our
witness is Mr. Hubert Lacroix, President and Chief Executive Officer.
I believe the last time we had an appearance by CBC/Radio Canada was via
videoconference in December 2009. We are pleased that we are all actually here
in the flesh this evening, although I know that a number of honourable senators
would like to be watching the CBC monitor this evening.
We are very pleased to welcome you here this evening, Mr. Lacroix. I would
ask you to make a few opening remarks, and then honourable senators, I am sure,
will engage you in discussion.
Hubert T. Lacroix, President and CEO, CBC/Radio-Canada: Mr. Chair, I
am happy to be here this evening. I understand that, in the context of your
consideration of the supplementary estimates, you have some questions about
Before we start, it might be useful if I could take a couple of minutes to
bring you up to date on our financial situation and how it evolved since I last
appeared before you. As the chair pointed out a few moments ago, it was via
videoconference in December.
At that time, you will remember, we were awaiting the passage of Bill C-51 to
give us the authority to sell ongoing receivables owed to us from the sale of
some land in Toronto a number of years ago, what we referred to as the "Ontrea" receivables.
You will also remember that we had to complete this transaction in order to
address a shortfall in our advertising revenue brought about by the financial
As soon as C-51 received royal assent, on December 15, we closed that sale
and netted approximately $133 million. These proceeds allowed us to balance our
budget, maintain our service levels, and complete the first year of our two-
year recovery plan.
While our job cuts are done and our severance costs have been paid, our
recovery remains fragile. Thankfully, we have had some stability in our
Last year, the government examined all of our operations in the context of
its strategic review initiative and then announced in March that our programs
were "in line with the priorities of Canadians and that reallocations from our
budget were not necessary." We are also grateful that the government renewed,
for one year, the $60 million in support of Canadian programming, which the
corporation has been receiving since 2001.
Through all of this, we remain very grateful for the support of our minister,
James Moore, who continues to be a strong advocate for public broadcasting.
The third piece of our financial picture, our advertising revenue, is a bit
more stable and is on target with our lowered projections. It is this
deterioration of the ad-driven revenue model for conventional television that
makes the value-for-signal issue so important to us, and why we were so upset by
the CRTC decision, which acknowledged the broken business model for conventional
broadcasters but kept CBC/Radio Canada out of the solution offered to our
We are also concerned about the Canada Media Fund and the removal of the
funding envelope for programs airing on CBC and Radio-Canada. This has resulted
in a loss of more than $12 million in funding support for this year, making it
even more challenging to continue making great Canadian programs that Canadians
want to watch. If you wish, I will be happy to talk more about the
value-for-signal issues and the CMF, but that gives you an overview of our
current financial situation.
After everything we have been through, I am extremely proud of what our
people at CBC/Radio-Canada have accomplished in spite of this environment. We
relaunched our English news service, and our coverage of events, like the
disaster in Haiti, demonstrates again and again what a public broadcaster can
do. We succeeded in offering quality Canadian programs that more and more
Canadians are actually watching right now.
We are presently firmly focused on looking ahead to the completion of our
recovery plan and positioning the public broadcaster for the future. We are
going to have to make some difficult choices.
Earlier this year, we launched a strategic study, Driving Toward 2015,
which will help us determine how to focus our mandate in an area of shrinking
resources. We will be sharing the results of that process with Canadians at the
end of this calendar year.
Senators, I would be pleased to take your questions.
The Chair: Mr. Lacroix, thank you for your presentation.
We only have one hour. So please ask quick questions and I hope the answers
will be equally quick.
Senator Finley: Thank you for your presentation, Mr. Lacroix. CBC is a
Crown corporation funded in large part with Canadian taxpayers' dollars. What is
the approximate total value of the corporation's assets?
Mr. Lacroix: On our books, about $2.6 billion of assets right now.
Senator Finley: I will take it for granted that protecting those
assets is important to you. As part of presumably honest, credible reporting,
one of the assets CBC relies and reports on is the data collected in various
polls on a wide range of topics and issues. I have some questions on this and a
brief yes or no answer would suffice.
One, can you assure us that any polling done for CBC is not used by other
entities that are not associated with CBC, for example, political parties?
Two, do you make polling companies sign a contract with you prior to any
polling being conducted?
Three, does it specify on the contract that polling information is prohibited
from being shared with outside parties?
Four, are such contracts made available to the public?
Five, could you show us a contract between CBC and EKOS Research Associates
Inc. and specifically the part of the contract that indicates no part of the
polling that is done with the CBC is shared with other entities such as the
Liberal Party of Canada?
Mr. Lacroix: Can we go through these questions one after the other? My
handwriting and steno work is not fast enough.
Senator Finley: It could also be my Scottish accent.
First, can you assure us that any polling done for CBC is not used by other
entities that are not associated with the CBC, for example, by political
Mr. Lacroix: We have a rigorous process by which we choose our
pollster. The information is not shared with anyone before it is made public.
When it is made public, it is for everyone's use.
Senator Finley: Does it specify on the contract that presumably you
sign with the pollster that polling information is prohibited from being shared
with outside parties?
Mr. Lacroix: Before it is public? I suppose.
Senator Finley: There is a lot of residual data which is not shown as
part of the poll.
Mr. Lacroix: I have never read a contract and I am not privy to the
details of them. That is what CBC News and the pollster and the process that our
people in CBC News do. With respect to the details of a particular contract, I
have no knowledge of its details.
Senator Finley: Do you work on the basis of RFPs, then?
Mr. Lacroix: Absolutely. That is easy for me to answer.
Senator Finley: Would an RFP determine whether these conditions
regarding a pollster would be there?
Mr. Lacroix: Here is how we do this, which was clearly explained in a
letter from Jennifer McGuire, our editor-in- chief, to Mr. Walsh, whom you know
well. We explained that we have a rigorous process. EKOS, because we are talking
about EKOS right now, was chosen after this process was responded to. There is a
question we always ask, because I think that is the interest of Senator Finley:
"Do you have any affiliation to any political party?" The answer was no. We do
not ask whether a person votes or does not vote, or for which party that person
votes or does not vote, and we do not ask whether this person has made any
personal political donations. We ask whether the contracting party has an
affiliation with a political party. The answer from EKOS was there was no
political affiliation, and that was one of the criteria. Based on its quality
and the work that it does, EKOS was then retained by us as one of the four
national polling firms that we use.
Senator Finley: We now know that Frank Graves did have a very direct
political affiliation with the Liberal Party of Canada through both donations
Mr. Lacroix: I think what you are referring to are comments he made to
The Globe and Mail, not to us, for which I understand he later apologized.
Mr. Graves clearly said he had no affiliation and did not work for the Liberals.
Actually, so far no one has questioned the quality of his polling and the
results. Additionally, as was shared in the papers the weekend after this broke
out, I think he has done work for the government and for other people whom I
assume trust his polling services because he has been retained to do that.
Senator Finley: Does the RFP indicate what kind of polling is to be
Mr. Lacroix: Senator Finley, I am not aware of the details of the RFPs
that are put out by our services. That is not what I am aware of. CBC News,
through Jennifer McGuire and her team, do this every day. The RPP processes are
Senator Finley: Would the news services team, then, be prepared to
give this committee a copy of an RFP for polling?
Mr. Lacroix: It is surely something that is available, that is, a
request for polling services. It is a public document.
Senator Ringuette: Do we need to go through the Access to Information
Act to do that?
Mr. Lacroix: I do not think you do that. We do not need the $5. Our
situation is tough, but we are not down to $5.
Senator Finley: With all polling research — and, in my past, I have
commissioned a number of polls — a lot of residual information is collected as a
consequence and not necessarily reported on. What happens to this information?
Mr. Lacroix: Senator Finley, I do not know.
Senator Murray: It becomes the property of the client, does it not?
Senator Finley: It becomes the property of the client, one would
think. I just want to make sure that it does.
Senator Murray: I think that is the legal reality.
Senator Finley: It may well be the legal reality. However, that is not
the question that I am asking. What happens in the case of the CBC?
Mr. Lacroix: The level of detail that Senator Finley is requesting is
not something that I am privy to on a daily basis. If I can help in some of the
answers that Senator Finley would like to throw at us, we would be happy to
share with him the answers that we can.
Senator Finley: Perhaps I have not been long in the Senate. However, I
have attended a number of these meetings. More often than not, when the
presenter cannot answer the questions but the data is available, he or she
undertakes to provide the answers in writing. Would you be prepared to do that?
Mr. Lacroix: To do what?
Senator Finley: To answer the questions that you cannot answer right
at the moment.
Mr. Lacroix: Sure.
Senator Finley: What assurances are in place to protect taxpayers'
money from residual information that is not reported on from being shared with
outside non-contracted parties?
Mr. Lacroix: The answer is that I do not know the answer to that
question. These are details that go with the people who work at CBC News on a
daily basis. They are professionals who are very happy with the processes that
we put in place.
I have to remind the senator that our job — and we take it very seriously —
is to ensure that the information that we put out is fair and unbiased in
everything that we do. That is the commitment that we have made and everything
we do is there to protect it. The data that comes from any one of our pollsters
is reviewed in-house by the research department to ensure accuracy. It is looked
at by our senior editorial leaders to ensure that it is fair and balanced. We
have processes in place that are very serious and of which we are proud.
The Chair: Mr. Lacroix, if there are any questions you cannot answer
but can easily obtain the answer for by talking to other people with whom you
work, you can send those to the clerk and we will distribute them later.
Mr. Lacroix: I would be happy to do that. That is what I think I
agreed to a few seconds ago.
Senator Poulin: Mr. Lacroix, thank you for being here, especially
since it is a historic evening as you are broadcasting the important hockey game
on your network. Everyone is using the services of our national broadcaster this
First, I would like you to know how surprised I am to see you alone before
us. Since I spent more than 20 years at CBC, especially at the executive and
managerial levels, I am very aware of the fact that your corporation provides a
large range of services, organized in more than 50 service divisions actually,
and the fact that you are not accompanied by anyone else is really impressive.
You talked about a five-year plan. Personally, I am interested in the future
and the way Parliament can support a service that is so important for all
Canadians across the country. I have always considered the corporation to be the
very heart of our country because it is the only active link that unites Canada
on a daily basis from coast to coast through its French- and English-language
radio and television.
Now, could you tell me who you consult with on a five-year plan? Have you
already identified the priorities? Could you tell us a little bit about this
Mr. Lacroix: Thank you for your kind words about CBC/Radio-Canada.
In terms of our five-year plan, the last 18 months were quite dramatic at
CBC/Radio-Canada since we had to manage our corporation through a difficult
financial situation. After finding balance again in our financial process, a
temporary balance that is, it became necessary for us to start looking towards
the future right away and to plan CBC/ Radio-Canada's next years. It is a great
challenge because we receive funding on a 12-month basis.
We have formulated the best plan possible. We now need to find out how our
employees would feel about losing their jobs if the financial resources were
ever not available, if there was a change in the government's priorities or if
our advertising revenue, which is a major source of funding, was affected as it
was last year.
So we are working very hard on this five-year plan. At the moment, we are
working with our board of directors, the strategy committee of our board, our
employees and the people who have most expertise on the level of BBC, French
television or other public broadcasters, to try to implement a plan that will be
approved by most of the corporation's executives, and then made public.
Senator Poulin: You mentioned BBC. As you know, BBC kept its regional
services a priority despite a very strong national service focused on
information and public affairs; regional services remained a priority for them.
Do you intend to keep or restore this priority that was lost a number of years
Mr. Lacroix: Senator, this is an important question. We have not
reached an agreement yet on the major strategic areas of this plan. But, if you
followed my statements, since my first day at CBC/Radio-Canada, I have been
constantly reiterating that we cannot be a national public broadcaster without
being deeply rooted in our regions. So rest assured that, for me, it is a major
priority and I hope to be able to influence my corporation to that effect.
Senator Poulin: But what I, too, saw as very difficult decisions, as
you said, was the major decrease in francophone services in Ontario, such as the
closure of the Windsor station, which was the only French-language service in a
border region, as you well know. There is also the fact that English-language
radio services were cut back in Sudbury, which had an impact all across northern
Ontario. I even heard them talk about it on Wednesday when I was there; the
anglophones still talk about it as a really huge loss for Northern Ontario.
Mr. Lacroix: Let me remind you of some of the issues. When we started
to prepare the budget for 2009-2010, we had a shortfall of $171 million. It was
impossible for us to make only some cosmetic adjustments at CBC/Radio-Canada. At
the end of the process, 800 jobs were cut at CBC/Radio-Canada. On top of the
shortfall, some $35 or $40 million were added in severance pay. The
corporation's costs came out to approximately $200 or $225 million. In an
environment like that, all the parts of the corporation had to contribute. We
were not happy to see 800 of our best employees go. It is not pleasant for
But the regions are very important. If you look at the number of cuts in
English-language services, between 85 and 87 per cent were at the national level
and only between 13 and 15 per cent in the regions. But 13 or 15 per cent is
still very significant and all the regions of Canada were affected. But in our
priorities, to show you the extent to which regions are important, the numbers
were abnormally changed, and the cuts were made at the national level, in order
to protect the regions.
Senator Dickson: Mr. Lacroix, for purposes of clarification, with
respect to the RFP process, you mentioned in your reply that four firms are used
by CBC for polling; is that right?
Mr. Lacroix: We have four national pollsters, as per the letter from
Jennifer McGuire to Mr. Walsh.
Senator Dickson: Who are the four pollsters?
Mr. Lacroix: Frankly, I cannot name them off the top of my head.
The Chair: Will you let us know?
Mr. Lacroix: Absolutely.
Senator Dickson: There is a standing offer; in other words, you can
select any one of those four, so it is not an individual RFP for a particular
Mr. Lacroix: Details of how Jennifer McGuire uses the pollsters is for
CBC's management to decide.
Senator Dickson: What is the annual cost of the polling done by the
CBC? What would be the overall cost?
Mr. Lacroix: I do not know the answer to that question. I would happy
to provide it to you.
Senator Dickson: I have a couple of questions relating to ratings. I
have heard that more people on a minute-by- minute average are watching CNN in
Canada than are watching the CBC News Network. Is that true?
Mr. Lacroix: No, that is incorrect. What is interesting, though, is
that the main competitor for our news network is CNN. It is pretty fascinating
that Canadians would prefer to watch an American news network over any other
network that provides 24-hour news.
Our main competitor is CNN. The latest results show that we have eliminated,
or just about, the difference between them and us and we are within a few
numbers either way of CNN right now.
Senator Dickson: Down in the Maritimes, my inclination would be that
more people watch the six o'clock news on CTV than on CBC. I know that I watch
CTV. Would you agree or disagree?
Mr. Lacroix: I would be happy to provide you with the details of those
Senator Dickson: I understand that your coverage is greater and more
people watch in those areas of the Maritimes where you are the sole provider;
for example, in Prince Edward Island.
Mr. Lacroix: Yes, we have about a 62 share.
Senator Dickson: What would your share be in Halifax?
Mr. Lacroix: I do not know the answer to that question off the top of
my head. Again, that is information that I would be happy to have someone from
Senator Dickson: How much is budgeted to carry out CBC Newsworld?
Mr. Lacroix: The details of our budgets and how we divide them by
platform is something that is confidential to CBC/Radio-Canada because there are
competitive advantages if people know how we break down the budget. That is
something I would not like to provide to Senator Dickson, not because it is not
available to us, obviously, but because I think that would confer a competitive
Senator Dickson: What are the rating goals as a result of the
reprogramming? Are you going to be up 10 or 15 per cent?
Mr. Lacroix: We have just revamped our news. If the question is — and
I think this is what you are alluding to — how are we doing, the trending across
the country is better. We have more people watching CBC News across all
platforms, and we think it is really important for the national public
broadcaster — to go back to the senator's question — to be deeply rooted in the
The answer is that it is on an uptrend. It is very early to call. We are not
even six months into the new formats. Remember that the new formats were about
our six o'clock news, The National, CBC News Network — all the regions. More
than a thousand people in this news renewal were affected in terms of what their
jobs were and what they are now. We changed the way we collect information and
share it across the company. This is very important and we are very proud of
what we have done on the news renewal.
Senator Ringuette: I must say that I was one of the negative thinkers
when you changed the English news. I was wrong. I think that it is providing
multi-dimensional information. It was a good move, and the ratings that you have
just indicated prove that I was wrong.
Last December, you participated in a teleconference with us.
Mr. Lacroix: In Vancouver.
Senator Ringuette: Yes. I was shocked to hear that you had to sell
receivables in order to meet your budget. At the same time, the government was
buying over $75 billion-worth of mortgages. As a Crown corporation owned by all
Canadians, you had to go on the market to sell your receivables. Earlier you
mentioned the figure of $130 million. Was that the amount of your receivables or
was that what you acquired by selling them?
Mr. Lacroix: The net proceeds to us were about $133 million. The value
of the receivables over time was about $11 million over until 2027, so obviously
much more than that. The gross amount was about $136 million, so you can figure
out the cost of us going to the market and the fees — the banking and legal fees
and everything. The important number for us is that we were able to net $133
million of cash.
Senator Ringuette: In order to meet the deficit that you had in the
Mr. Lacroix: Absolutely.
Senator Ringuette: It is sad that 800 jobs were lost. You indicate to
us that you have undertaken a strategic study called Driving Toward 2015.
Who is doing this strategic study?
Mr. Lacroix: The strategic committee of our board, obviously fuelled
and moved by CBC/Radio-Canada, with the help of some outside advisers. It is our
Senator Ringuette: You indicate that you have a consulting process
within that review.
Mr. Lacroix: Within our corporation, absolutely.
Senator Ringuette: Will you be going to outside consultation?
Mr. Lacroix: No, we will not be at this particular point in time
because obviously we need to land this. We need to talk to Canadian Heritage and
our minister and make sure that the normal information processes are respected
as there is an arm's-length relationship between the government and
CBC/Radio-Canada. We are doing this in that context.
Senator Ringuette: I am looking at the Main Estimates for last year
and for this year. There is an increase of $38 million, yet a few minutes ago
you indicated that you had received $60 million. I would like to understand the
Mr. Lacroix: I am not sure whether I understand your question, but the
$60 million that I am referring to is a "one- off" — meaning a $60 million
amount — given to CBC/Radio-Canada since 2001. The object of this $60 million is
for us to invest in Canadian programming. We were able to get it for one more
year, for the year which ends March 31, 2011.
Senator Ringuette: It does not show in the Main Estimates that I have
in front of me.
The Chair: It normally appears in Supplementary Estimates (A), (B),
Mr. Lacroix: That is correct. I am just checking with the people who
are familiar with these details.
We hope to get it in the Supplementary Estimates (B) at the end of the year.
You will see the $60 million, which is a commitment that the minister made
publicly to us and allowed us to use as public information.
Senator Ringuette: Do you think it will be enough for you to have a
balanced operating budget?
Mr. Lacroix: Based on the appropriation that we have right now and the
$60 million of Canadian programming that we have, unless something in the world
happens to our sources of revenues, we are targeting a balanced budget for March
31, 2011, absolutely. That is our objective.
If the question is whether this is enough money for the public broadcaster,
this is where I will come back to you and talk about strategic planning and
long-term funding. This is where the CRTC decision was such a big disappointment
and so upsetting to me. If you want to go there, I would be happy to have a
conversation about the CRTC decision.
Senator Ringuette: I think we share your disappointment.
How does your forecast for advertising revenue this year compare to the
revenue from last year, which was a dip because of the recession? Regardless of
last year, how does it look in relation to the last five years?
Mr. Lacroix: It is difficult because of the rebound that people are
hoping for from the dip that came with the collapse of the advertising revenues.
Depending on who the expert is, you will get anywhere between five to seven
years as being the time that it will take to go back to the numbers before 2008.
In our budget right now, we obviously lowered our expectation in advertising
revenue. We are in line with those lower projections. We have been very
conservative in the budgets going forward.
It is important for the Senate National Finance Committee to realize that we
took $133 million of cost out of our corporation through our actions over the
last 12 months. We have reduced the cost base by $133 million. That is why lower
advertising revenues allow us to continue and to expect to balance our budget.
Senator Murray: Mr. Lacroix, in your opening statement you offered to
elaborate on your frustrations, if that is the word, with the CRTC decision. I
would like to invite you to do that now and to do it in the larger context of
your financial position going forward.
Correct me if I am wrong, but I think over the next three to five years you
can count on approximately a billion dollars from Parliament, give or take a few
dollars. The indications are that advertising revenues were at $356 million in
2008-09, specialty services somewhere in the vicinity of $150 million.
If you like, please discuss the CRTC decision in the overall context of the
financial pressures you face going forward.
Mr. Lacroix: In a nutshell, the issue is that evidence was presented
and I think accepted by the CRTC that conventional broadcasters like ourselves,
CTV, CanWest, TVA all face a difficult situation because we have, basically, one
source of revenue. People will say that we have two because we have a government
appropriation, but the government appropriation allows us, through the mandate
we have in the law, to do things that no other private broadcaster does. I am
talking about the $350 million of ad revenues we need to balance our budget.
Before I continue to answer your question, I remind you that our model is a
mixed financing model. Government and CRTC for years now have said that if we
want to continue providing services to Canadians, we need to go out and raise
dollars by ourselves. That is why we compete with the CTVs, the CanWests and all
the broadcasters in the world, including the specialty channels, for the ad
revenues that make up our budget.
Senator Murray: You said in an annual report that your business model
Mr. Lacroix: Absolutely. Here is where the business model gets broken.
Specialty channels get subscription revenue. If you want to watch the other
hockey game tonight, you will have to pay to get TSN in your home. If you are
watching Discovery Channel or any other specialty channel, you actually pay a
fee, and the broadcaster also gets ad revenues from that channel. We do not have
the benefit of that subscription fee.
On your cable bill, not a cent goes to us for la Première Chaîne de
Radio-Canada, for the CBC network or for our main television channel. That is
what is broken.
The CRTC recognized that. With ad revenues going south and a broken business
model, the CRTC offered the private broadcasters a solution and said, "You,
CBC/Radio-Canada, cannot be part of this solution." The justification for that
was in this negotiation for the value of the signal, they will allow a private
broadcaster to pull its signal, like they do in the United States, if the
private broadcaster and the cable company, let us say, do not agree on how much
that particular channel is worth. They said that we are the public broadcaster
and we cannot pull our signal if Vidéotron or Rogers or Shaw does not agree with
the value of the signal. We said that was obvious. I actually offered that up as
an explanation. We do not want to pull our signal.
There are all sorts of other mechanisms that the CRTC could have put in place
to ensure that there would be a fair negotiation with the cable company or the
satellite company. If we did not agree, the CRTC could have stepped in. Even the
threat of stepping in would have probably facilitated negotiations between the
I was extremely disappointed that the CRTC used that particular excuse to not
want to deal with CBC/Radio- Canada at this particular time. That, in a quick
three-minute summary, is the issue I raised and why I was so upset after I read
Senator Tkachuk: On the standing offers you talked about with Senator
Dickson, you mentioned four firms. When you supply the information on how much
CBC spends on polling, could you also break down the amount that each polling
Mr. Lacroix: We will do our best to answer the questions that you have
Senator Tkachuk: If they are standing offers, you could choose one
firm all the time.
Mr. Lacroix: I just want to make sure. Again, you are asking the
President of CBC/Radio-Canada to go into details that I am not involved in every
Senator Tkachuk: I understand that.
Mr. Lacroix: If that information is broken down that way and if it is
available, we will make it available. If it is not, it will not be.
Senator Tkachuk: Thank you.
I have just a few follow-up questions before I get on to another topic. You
were having a discussion with Senator Finley about Mr. Graves. When Mr. Graves
made his application and said that he was not affiliated with any political
party, if you had known, as he has admitted, that he was a private adviser to
the Liberal Party of Canada and also a large donor — some $10,000 over the last
number of years — would you have seen him as a neutral party and would he have
been given an opportunity to bid on the contract?
Mr. Lacroix: Let us go back to how the questions are asked. The
question was asked of everyone who wanted to apply and wanted to apply as a
pollster in this RFP process: "Are you affiliated with a political party?" If
the answer to that question was yes, this person was disqualified.
Senator Tkachuk: What is the definition of "affiliated"? Membership?
Mr. Lacroix: Not at all. The question is asked in the same way, sir,
that we do not ask people whether they vote or do not vote and the same way that
we do not ask for whom they voted for and we do not ask whether they made
political donations. The question is not about Mr. Graves. The question is about
the pollster, the company gathering the data and furnishing it to
CBC/Radio-Canada. Does that company have links to and does it work for other
political parties? If the answer is yes, it is disqualified. If the answer is
no, the person is not disqualified.
Senator Tkachuk: Mr. Lacroix, this is not about Frank Graves and this
is not about the quality of the work of EKOS. This is about a public company, a
Crown corporation, spending public money. You are putting this person up as a
neutral observer of the political scene, which he is not. I am asking you this:
If you would have known this information when he made the application, would you
have seen him as not being affiliated and allowed him to proceed with the
contract, even if CBC knew that information?
Mr. Lacroix: Senator, we ask every person who replies to the RFP the
same question. The question is: "Are you affiliated to a political party?" The
answer is no. What is interesting, as I remind you, is that that weekend,
information was made public that the same pollster — which seemingly is an issue
around this table and is attracting so much attention and about which I am being
asked all sorts of questions — actually polled for government departments.
Senator Tkachuk: Of course he did.
Mr. Lacroix: I suppose that this means that he has credibility in his
company's ability to provide good polls and good data. That is why EKOS and Mr.
Graves' company was retained by CBC/Radio-Canada in accordance with a very
rigorous RFP process.
Senator Tkachuk: I am going to let the answer speak for itself, Mr.
Lacroix. I asked you a question very specifically, and you keep telling me — of
course they are a good pollster. The Government of Canada does not ask people
what their political affiliation is, but you do. You ask, and then when you know
what his political affiliation is, he continues to be a neutral observer of the
political scene for the public broadcaster, of which taxpayers' money is spent
on your network. I am asking you this: If you had known this information
previous to the contract being issued, would it have disqualified him from
bidding on the contract?
Mr. Lacroix: If Mr. Graves had answered yes, he would have been
disqualified. If we had information in our hands showing us that he lied, that
his company was affiliated or was doing work for a political party and we knew
he lied on the form, it would have been pretty easy for us to disqualify Mr.
Graves and EKOS. The question is the same to all persons, to all pollsters, to
all companies that want to do polling for CBC/Radio-Canada: "Are you affiliated
with a political party?" The answer from Mr. Graves was no. I think he publicly
then went to everyone and was actually quoted as saying that he did no work for
the Liberal Party. In the comments he made to CTV and to The Globe and Mail,
which are the object of this controversy, he later apologized. However, that is
for him; that is not for us. We then provided a platform and a forum for
everyone to discuss whether or not it was correct. Kory Teneycke was one of the
people who expressed his views on this matter.
Once this information was made public, our objective was to provide a forum
for people to talk about this issue. That is what we do and we do it well.
Senator Tkachuk: I will follow up with a question that may have been
partially answered. In the 1970s, I remember reading a Time magazine
article entitled, "What is wrong with the CBC?" I remember an old CBC guy, the
late Mr. Fry, who said, "If only we had a billion dollars." Mordecai Richler
had written a satirical piece on the CBC. It was quite the thing. When you read
that, it is like today. It is like nothing has changed in 35 years. I would
advise everyone at CBC to get a copy of that and find out why no headway has
When we talked about the news, on the BBM ratings from April 26 to May 2, the
only top 30 show was the NHL playoffs, not CBC News. CTV national news made it;
CTV evening news made it, but not one CBC show.
Mr. Lacroix: I am happy that you bring this up. Thank you for giving
me the opportunity to have this conversation.
Senator Tkachuk: That is good.
Mr. Lacroix: Let us talk about programs and what Canadians watch. If
you made a list of the 10 programs that we Canadians choose to watch, do you
know what you would find, senator? You would find 10 American shows. If you
extended that list to 20, do you know what you would watch? Twenty American
shows. This is the biggest challenge that we face every day. What CTV, CanWest
and Global bring in prime time, from 7 to 11, are primarily American shows. We
serve Canadians by providing them with great Canadian programs that Canadians
want to watch. If you look at the top 20 Canadian shows — and that is a
different question from the first 20 shows that Canadians actually watch — we
have 16 or 17 of the top 20, meaning that we serve an important purpose in
providing Canadians an opportunity to watch great Canadian shows.
Let me just finish, senator, on the question of bias and what you think is no
change at CBC over 30 years.
A number of people are interested — and we are the first — in ensuring that
we deliver to Canadians unbiased information in our news and that we give, and
this is our role, Canadians a chance to form their own opinion based on what we
give them instead of feeding them an opinion. That is our job. Our job is to
give you a diversity of voices and a diversity of points of view so that you can
actually make up your mind by yourself and then be a better citizen.
We commissioned a panel of external experts on the French side and on the
English side to do an independent review of the way we do news. Those studies,
what we call the bias studies, will be made public, we hope, at the beginning of
the fall. We engaged outside experts, a really top-notch panel. They have looked
at hours and hours of our stuff. They are all outsiders from CBC/Radio-Canada.
We did the same thing on the French side. The Centre d'études sur les médias de
l'université de Laval was called in. We will deliver these studies and we will
make them very public. Through the eyes of these people, others will be able to
judge how we conduct ourselves in news gathering and news delivery.
The Chair: Mr. Lacroix, I get the sense that you could go on with this
for some time. The committee would appreciate it if you could provide us with
anything in writing that helps embellish the points you made. I have three other
senators who have not had a chance to ask questions.
Mr. Lacroix: Absolutely.
Senator Marshall: I will change direction a bit. I want to talk about
the financial position. You have already addressed some of the issues. You
talked about the $60 million. There was reference to pension funding in one of
your annual report documents. The way it read was that you had taken a holiday
because of the good financial position of your pension fund. What is the status
of the pension fund as of today? Has the health of the pension fund sustained
itself over the last couple of years?
Mr. Lacroix: I think the pension funds across the country were
severely hit by the markets in 2008-09. I am happy to report that our pension
fund did well in the first quartile; we are actually in the first 10 per cent.
We are in the process right now of assessing what the numbers are.
Yes, in the markets, we suffered like everyone else, but we are happy with
the performance of our pension fund. When the numbers are made public, we would
be happy to make this report available to you.
Senator Marshall: For the numbers that are publicly available, would
you be able to indicate whether there is an unfunded liability there or not?
Mr. Lacroix: We have an evaluation which is public; this is probably
what you are quoting from. Between now and the next time, we have information.
We are working right now to ensure that those numbers are audited. Our tax year
is March 31. We go to the board in the third week of June with our audited
financial statements. The Auditor General will be signing off on those, and we
will make available whatever information we have at that time.
Senator Marshall: I was aware that the Auditor General does audit your
financial statements. She also has to carry out, not a performance audit, but
there is a special term.
Mr. Lacroix: It is a strategic review, a special examination.
Senator Marshall: I think that has to be carried out every five years.
Mr. Lacroix: Yes.
Senator Marshall: The last one was carried out in 2004 and was quite
critical of the corporation.
Mr. Lacroix: I do not think that is a correct statement. I think that
there were some comments made by our Auditor General. The Auditor General was
supposed to come back this year. However, when the Auditor General saw that we
were doing the strategic review for the federal government at the same time, the
Auditor General chose to delay this until two years, probably.
Senator Marshall: I do have a summary of a statement that she made
before the Standing Committee on Canadian Heritage. This is from her 2005
review. She stated that weaknesses in these areas — and then listed a number of
areas — led to the conclusion that there was "a significant deficiency" in the
systems and practices that were examined related to external and internal
I wanted to raise a couple of areas with you to inquire as to what follow-up
action you had taken. One of the areas she identified was the development and
use of targets to set performance expectations. She said that "some had clear
and measurable targets, while others did not. The lack of such targets makes it
difficult to assess how well the corporation is fulfilling its mandate."
Mr. Lacroix: I am sure you have read our annual report. If you have
read it, you would see that the first four pages are now filled with targets,
and we disclose whether we meet those targets or not. The Auditor General
obviously audits our books every year, and this is an improvement we have made.
Senator Marshall: She has conducted a follow-up, has she, to look at
the corrective action that you have taken and is satisfied with that corrective
Mr. Lacroix: The comments from the Auditor General in the context of
the special exam are not the work that the Auditor General does auditing our
books every year. I assume that when the Auditor General comes back and looks at
the issues she raised in 2005, that will be one area she will review. As you
know, that started before me and it has continued through me and with me. Every
single issue that was raised by the Auditor General is being followed up by us
and addressed. The Auditor General will be happy with us when that special exam
Senator Marshall: I ask the question because on occasion, instead of
waiting for the five years to pass, she will come back mid-stream and look at
what action you have taken. That was the point of my question.
Mr. Lacroix: I will ask Michael Mooney from the corporate finance
department whether the Auditor General made comments to that effect.
Michael Mooney, Senior Director, Corporate Finance and Administration,
CBC/Radio-Canada: The Auditor General does the special examination and has
since extended the term for each special exam to 10 years from 5 years. That is
why we have not had a new one.
We listed all the recommendations from the previous special exam. We are
finished now, but we went back to our audit committee where the OAG sits and
observes, and we report back on all of our action items and the progress we have
made. We proved to our audit committee that we had made the improvements, and
the OAG observed that.
Senator Marshall: There was also a comment that there were significant
improvements required in external reporting practices, including reporting to
Parliament. Do you have any comment on that? That reference was to the fact that
there was a need to meet public accountability expectations.
Mr. Mooney: I do not remember that one exactly; I am sorry. I do not
know what the remediation was for that recommendation.
Senator Marshall: She is not specific about the remediation. She is
throwing it out as a problem area, and I think she is leaving it up to the
corporation to rectify the problem. I was wondering what improvements you have
made in your reporting to Parliament.
Mr. Mooney: I can say where we are as part of the new quarterly
reporting that is coming in the next couple of years. Once we transfer our
accounting to IFRS, we will be reporting on a quarterly basis along with all the
other Crown corporations. We follow all of the formats required in reporting, so
I am not quite sure what the reference is. We file public accounts. We do our
corporate plan summary, Main Estimates, supplementary estimates, and there are a
couple more I missed.
Mr. Lacroix: You do not have the vice-president of finance, and Mr.
Mooney is not privy to the details of RFPs that come through CBC news.
Senator Runciman: I have a question about the Ekos matter as well.
When that story broke in The Globe and Mail, I am assuming that you had
concerns with respect to the content of the interview where Mr. Graves suggested
a culture war. Could you indicate if you conducted an investigation with respect
to his claims, as you suggest in the contractual arrangements, that he has no
linkages with the Liberal Party of Canada? Could you indicate to us, based on
the nature of those kinds of remarks, if you intend to continue the relationship
Mr. Lacroix: The remarks that Mr. Graves made are his. They were made
to The Globe and Mail. He later apologized for them.
Mr. Graves' company, EKOS, was chosen through a RFP process that we are very
convinced and strong in our feelings is absolutely rigorous. We will defend our
processes by which Mr. Graves' polling firm was retained by CBC/ Radio-Canada in
the same way that when a person attacks a political commentator like Kory
Teneycke and says that this person should not be on our airwaves for whatever
reason — we have principles. We have strong beliefs and journalistic policies
that apply or do not. We think he is —
Senator Tkachuk: He is not a political observer. He is a Conservative.
Mr. Lacroix: Senator, I would greatly appreciate —
The Chair: This committee has worked very nicely all year. Please,
Senator Tkachuk. Thank you.
Mr. Lacroix: My comment was that we make decisions every day. We
validate those decisions and look at how we made them. If those decisions are as
efficiently and as rigorously made as the choice of Mr. Graves from EKOS in the
context of a polling mandate, we will stand by our processes once we have
checked whether we were right and whether the right processes were applied. We
then make the same rigorous analysis of the choices that we take when other
people that are on our airwaves attack us for bias or for improper commentators.
That is what we do. We strongly believe — and I repeat — that what we do is
deliver to Canadians unbiased information so that they can make choices by
Senator Runciman: I appreciate that one part of that question was not
responded to. Going forward, based on the content of Mr. Graves' remark —
Mr. Lacroix: I forgot the second part of the question. It was not that
I did not want to answer. The answer is no, we have no intention of not using
Mr. Graves' polling firm going forward.
Senator Runciman: Of not using?
Mr. Lacroix: We have no intention of stopping to use — we will
continue using Mr. Graves' —
Senator Runciman: This is a man who publicly suggested and indicated
clearly that he was providing this advice to a major federal political party in
order to bring on a culture war in this country — region against region, urban
against rural, women against men, race against race — and you think it is
appropriate to continue to utilize the services of that kind of firm?
Mr. Lacroix: I repeat: Mr. Graves was chosen through a very rigorous
RFP process. The question was asked, "Are you affiliated with a political
party?" The answer was no. Based on that, Mr. Graves' firm, EKOS, was retained.
We have no reason to believe that the quality of the data that we get from
his activities is wrong or tainted. On the contrary, I have yet to see one
comment about his methodology or results being wrong. Based on that, we have no
intention of ceasing to use Mr. Graves' firm, EKOS. The only reason I did not
answer that question was that there were two questions and I simply forgot to
answer the first part.
The Chair: Senator De Bané has been waiting. He has shown me an
extensive list of questions that we clearly will not be able to get to in the
short time I would allow him. They are in writing.
Senator De Bané, would you agree that the questions be circulated to all of
our colleagues? Many undertakings are being given. Mr. Lacroix could determine
which of those he can answer and he could provide us with answers to those
questions at the same time.
Mr. Lacroix: I would be happy to help you in any way I can.
The Chair: With your permission, Senator De Bané, that is what we will
Senator De Bané: Absolutely. I will distribute, in both official
languages, my questions. I am very happy that Mr. Lacroix, President and CEO of
CBC/Radio Canada, will answer those through the clerk. May I at least ask one
The Chair: Go ahead, please.
Senator De Bané: Mr. Lacroix, I respectfully beg to differ with you
about the quality of your news, particularly on the French network. A few months
ago, a PhD from the University of Moncton published a very in-depth study of the
coverage by CBC and Radio-Canada. The title of her report of 240 pages is, Un
pays, deux bulletins nationaux: le Québec en français — le Canada en anglais.
I listen to the CBC News every night at nine o'clock and I watch Radio-Canada
at ten o'clock. They are totally different. I will give you just one example
because we are short of time.
The federal government has just announced a national securities commission.
We have heard from Quebec, and rightly so, all the opposition to the
establishment of a national securities commission. However, from all those
within Canada, in the most learned circles, who have studied that issue and
written reports, not a word. No allusion was made to what goes on in the
European Union where there is one securities commission for 27 countries. What
happens in our neighbour to the south — which is 10 times bigger — with one
security commission? Not a word about it. You are telling me your coverage is
With all due respect, sir, I am a keen observer of what is said in Quebec.
When I read three statements in your annual report of how you are a unifying
force in Canada, I respectfully beg to differ. Your job is to reflect reality,
but in Quebec we have only one of them. In my humble opinion, you should be
called Radio Québec, not Radio-Canada.
The Chair: Mr. Lacroix, do you have a comment or response to make?
Mr. Lacroix: No, there was no question there. I respect the senator's
The Chair: We would like to thank you very much for being here.
Unfortunately, we have six senators waiting two ask questions on round two.
Senator Tkachuk: Can we have him back?
The Chair: You have given us quite a number of undertakings. The
deputy chair and I propose giving you some time — as quickly as you can — to
answer those undertakings, and then we will be in touch with you to arrange for
another session. Maybe we could hear from those people who you believe would
best be able to answer the questions that have been asked and you have not been
able to answer.
Mr. Lacroix: Absolutely. The questions that I assume I committed to
will be addressed and we will get the answers.
The Chair: Thank you. We will be in touch through the clerk to try to
arrange for a further session with CBC/Radio- Canada. I know you are living a
busy life, so you may not be able to be here individually, but perhaps you could
send your team of people to help us. You have heard the line of questioning.
On behalf of the Standing Senate Committee on National Finance, I would like
to thank you very much for making the time to be here with us.
Honourable senators, in April of this year, Philip Cross, Chief Economic
Analyst with Statistics Canada, published a paper entitled Year-end review of
2009. We are very pleased to welcome Mr. Cross here tonight to discuss this
In addition, we would like to welcome Finn Poschmann. Mr. Poschmann is Vice
President of Research with the C.D. Howe Institute, and he will also share his
Honourable senators have been studying the government's reaction to the
economic downturn and the stimulus package, extraordinary financing. We hope to
get some insight from our two witnesses this evening with respect to that
Philip Cross, Chief Economic Analyst, Statistics Canada: We circulated
a package highlighting six graphs from our year- end review which was published
three weeks ago, so I will just do a quick run-through to remind people of the
major findings of the study.
First, I would remind senators that the study was designed to provide a first
small step in presenting the basic facts about the recession and recovery of
2008-09, which is something that economists will be studying literally for
The first graph before you shows the recession in GDP this time around
compared to previous recessions. The most striking thing about the most recent
recession was the speed of its descent. The economy contracted much faster than
in previous recessions, which raised many concerns about it being quite a severe
recession if this was prolonged, but it was not. It bottomed out in the summer
of last year and has since then turned up.
Turning to the next graph on employment, this is where we compare Canada and
the U.S. A number of things become evident. First, there is a much milder
recession in relation to employment in Canada than in the U.S. In the U.S., many
people called this "The Great Recession," and if you look at employment in the
U.S., that 6 per cent drop, it was the great recession. However, if you look at
other variables, notably real GDP, it was comparable to other very severe
recessions in the U.S. in 1981-82 and 1974-75. It was unusual the way firms cut
employment and raised productivity at an unprecedented rate in the U.S.
Conversely, in Canada we saw a slight decline for the first time ever in
productivity during the recession.
In the next graph, which compares output in jobs in Canada, you can see more
closely that GDP — that is, output — falls more rapidly than employment in this
country; hence, the downward pressure on productivity. Also, you see more
clearly the recovery, starting with the stabilization of the economy over the
summer and then the recovery over the last five or six months that has been led
especially by household demand, notably housing.
In the next graph we go into more detail in looking at auto and housing sales
and why they did not decline as sharply in Canada and help prevent a severe
recession here. Most notable is that we had a very sharp drop in both house and
auto sales late in 2008, but that only lasted for two months, which strongly
suggested consumer confidence. Many people were traumatized by what was
happening in global financial markets and in our own markets — the dollar and
the stock market — and literally stopped spending for a couple months. However,
very quickly, spending stabilized over the winter. Since then, notably in the
housing market, spending has risen quite rapidly in this country.
This is symptomatic that confidence played a major role, that our financial
institutions continue to keep lending through this period, unlike in the U.S.,
where there was severe disruption of financial markets.
The next page shows this more clearly. You can see that household credit
continued to expand steadily in this country through most of the recession. This
compares with a very sharp downturn in the U.S., where you see the impact of
both very sharp job losses and the disappearance of a number of financial
institutions and disruption of a number of markets.
In the final graph, we look at industry distribution of the recession. Again,
what comes out is how comparable it was to previous recessions. There was
nothing particularly exceptional about this recession in terms of its industry
distribution in this country. Manufacturing, as usual, bore the brunt of the
recession. Construction accounted for about 20 per cent of the losses. The
goods-handling industries, because there were fewer goods circulating in the
economy, posted declines, but other sectors continued to grow through the
The Chair: Can you draw any conclusions from all of this for us, in
particular with respect to the government stimulus? That kind of thing would
Mr. Cross: We do not evaluate policies. We were not researching
policies. As I say, our interest was looking at how this recession compared to
The Chair: We will get to Mr. Poschmann in a minute, but we would like
you to set him up. We had hoped you might be able to tell us if we are out of
the woods now. Are we moving along nicely? Is there nothing further to worry
about, or are you analyzing until it is all over?
Mr. Cross: There is always something to worry about in economics, an
endless list of things. The problems in Europe these days are obviously one
example of that.
We indicated it is likely over, and since we published this report, a strong
jobs report was released on Friday that showed a record gain in employment in
April. The recovery in this country seems to be proceeding quite well, in fact
much better than in most other nations.
The Chair: Mr. Poschmann, welcome back to our committee.
Finn Poschmann, Vice-President, Research, C.D. Howe Institute: It is
terrific to be back. I think last time I was here, one Hubert Lacroix was the
witness before me, so it is just like old times.
I must open with a disclaimer, which is of course that I speak for myself and
not my institute or board of directors or members, all of whom are very capable
of speaking for themselves. You are getting me.
The second item, I will be very brief. Time is more profitably spent on
question and answer and discussion.
I will touch on three things: one, characterizing the length of the recent
recession; two, making some observations on the extent to which the industrial
restructuring that we are seeing is a continuation of pre-existing trends; and
three, some comments on the longer-term risks to the economic outlook for
Canada. These are primarily, but not only, external threats.
First, referring to the recent recession, I want to compliment Mr. Cross on a
very concise and broad-reaching report. He touches on a lot of ground there in a
very matter-of-fact way and is quite helpful for getting a sense of what
happened in the Canadian economy as compared with other countries.
Philippe Bergevin of my office prepared this slide before you. It is a very
simple and clear slide, not unlike something that Mr. Cross put before you. It
shows an index of employment and index of output looking back from the beginning
of 2007 through to the most recent data.
Interestingly, as Mr. Cross pointed out, we had a very sharp drop in output
beginning in mid-2008. Probably the simplest measure of what a recession is,
when you get to assess it retrospectively, is when did output start to decline
and when did it stop declining and turn up again? In this particular
illustration, we have used monthly real GDP. On that basis, you make the simple
observation that the real turndown in output began, as measured here, in July
2008 and ended May 2009. That is perfectly consistent with the characterization
provided by Mr. Cross of a recession running from the third quarter of 2008 to
the second quarter of 2009.
The other observation, and Mr. Cross touched on this as well, is that
employers were apparently relatively reluctant in Canada to lay off staff as the
economy turned down. Therefore, you see a much shallower dip in employment than
in overall output. The implication of that is that, over the course of the
recession, productivity, say as measured by output per employee, went down. That
is something you do not always see commonly. You tend to see a very quick pace
of layoffs, as in the U.S., and on the way out you see productivity increasing
rapidly. We have not and we will not see that in Canada.
The good news overall is that employment is back where it was at the
beginning of 2008. That is not exactly shining, glowing, happy news, but at
least we are back at the 2008 level. That is good news.
More generally, the Canadian economy has been on a positive growth path since
late spring 2009. That has a few implications if you think about how governments
will be responding in the next couple of years in the context of fiscal
The other thing I wanted to mention is sectoral change. Mr. Cross touched on
this, but what have we been seeing? We have seen hard knocks for forestry,
restructuring in the auto sector and generally a loss of employment in
manufacturing. This is all true. It was a brutal phase for these sectors, but —
and this is a big "but" — these declines are hardly limited to the recent
recession. If you look at manufacturing employment generally, and forestry
employment in particular, going back to the 1970s, you see industries that have
been in sectoral decline for almost three decades. Manufacturing and auto did
well in the past decade, but that is off again.
The point here is that the declines in these sectors are not unique to the
recent recession and are not unique to Ontario and Quebec, which is more or less
our industrial heartland; we have seen this in the U.S. and in pretty much every
Western economy in the past few decades. There has been a decline in
manufacturing's share of employment, or in its share of economic output. That is
something that all Western economies have had to deal with and will have to
continue to deal with.
We are seeing continuing necessary changes in the economic structure. Its
connection to the recent recession is there, but it is limited.
The third thing I wanted to mention is threats to the outlook. These are
predominantly fiscal threats; in other words, many of them are in fact
government driven. In ascending order of threat or risk, I remark on the
Canadian federal situation. Heading into the beginning of 2009, we changed from
a surplus to a massive deficit position. That is a significant shock or a
significant change of path for Canadian federal fiscal policy. It seems there is
a more or less believable path that will take us federally out of the deficit
position, looking to 2014-15. That is good. We will need to deliver on it
because we have a lot of demographic and spending pressures that will be hitting
us in a big way later in this decade.
Some of the provinces are even bigger risks. There is no question that
Ontario is currently running a massive structural deficit. That will have to be
dealt with, and we have not to this point.
The U.S. outlook is an absolute train wreck. There are significant fiscal
issues facing the U.S., and that is just on the basic measure of current and
planned spending versus revenue. Obviously, spending is massively outrunning
revenue at a huge pace and debt is piling up. That leaves aside unfunded
liabilities — health insurance and social security in the U.S. — and the
difficulties in relation to the U.S. states, which are absolutely massive
themselves. There is a fiscal train wreck unravelling, and not even slowly, in
Mr. Cross mentioned other risks; we are seeing them unfold right now in
Europe. We have governments that have put themselves in very difficult fiscal
situations in the U.K., Italy, Ireland, Portugal and Spain, and then there is
Let us contemplate Greece. William Gale of the Brookings Institute was at our
office earlier today and made this point over lunch, and it is very telling.
Greece has a massive deficit. The government of Greece spends, on a continuing
basis, massively more than it collects in revenue. As its debt has come to
exceed or will exceed 100 per cent of GDP, if it is to stabilize debt relative
to GDP, it has to run a primary surplus that covers debt interest payments. Let
us say the interest rate is 6 per cent for Greek debt. At a steady state, at 100
per cent of GDP, 6 per cent of GDP is needed just to pay the interest on the
debt to stabilize it relative to GDP. Of course, Greece is nowhere near a
surplus of GDP of 6 per cent; it is way on the other side.
This continuing risk is something that has not been dealt with, and it is a
risk to the European financial system broadly and, hence, to us. The Greek debt
is accepted as collateral in repos with the member banks of the European Union.
That means the implications of Greece's fiscal position ricochet through the
central banking system and destabilize financial markets. This is something that
matters and will have to be dealt with. The costs of dealing with it will be
shared more broadly.
There are big threats. They are mostly external and government driven. The
good news for Canada is that we are in a relatively strong position fiscally and
economically. That is a good story, but obviously the global economy and the
financial markets are nowhere near out of the woods.
The Chair: The best minds that we could be put together — or some of
them, anyway — between late 2008 and late January 2009 determined the amount of
the stimulus package and that it should run for a period of two years. Much of
the infrastructure stimulus that was in the stimulus package did not get out. If
there was $6 billion per year, the first $1.4 billion did not get out and was
re-profiled into the next year. We have been made aware of all of that here. We
are into the second year of the stimulus package with a big chunk more of what
was supposed to be in the first year of the stimulus package.
Given what you now see here, is it wise to continue with the second year of
the package? Not to get into policy, but if you were just doing this from an
economic point of view, is it wise to continue with the stimulus package into a
second year and add that deficit to the accumulated debt?
Mr. Poschmann: That is a good question, Mr. Chair. Before we get to
the end of the question, let us start with the beginning in order to contemplate
the state of the world, state of the economy and the state of the knowledge at
the end of 2008 and early 2009.
There was a lot of novel territory that we had to confront from a policy
perspective. We were looking at a major global financial sector disruption with
massive implications for Western economies. We were looking at significant real
sector economic downturns. The way in which governments responded obviously is a
judgment call. Whether they were correct or incorrect, retrospectively, is
something the jury will be out on for some time.
That being said, thinking about infrastructure, transport — this sort of
long-term investment — commercial and residential construction, many people told
us over the course of 2009 that, absent the infrastructure package and the
stimulus program that was rolled out, even if the spending was not rolling out
the door, this enabled them to engage in bids and projects. It enabled them to
keep design staff on and working when otherwise the market signals were telling
them to pull back, lay off folks and shut down; the market was not calling for
That is the story. It rings true in that context. All of us probably heard
from the construction and many infrastructure sectors — there is a certain
reality there about managing expectations, so there is an entirely plausible
argument that the fiscal stance conditioned expectations in a way that improved
the functioning of the markets.
From an arithmetic perspective, it becomes a little more difficult to show
that the infrastructure spending or that the stimulus package has had a dramatic
or will have a dramatic impact on economic growth. By way of evidence, I point
to the fact that we saw growth significantly trending upward in mid-2009. We are
still talking about spending packages that will be rolling out in early 2011, so
there is a credibility gap there in linking the stimulus package to the growth
that we have seen to this date.
The Chair: Mr. Cross, do you want to venture into that?
Mr. Cross: No.
The Chair: I did not think so.
Senator Ringuette: Mr. Cross, I have a question for you; actually, it
might turn out to be many.
When I look at your last slide, which to me is probably the most revealing in
regards to comparing the last three recessions, in comparison to the 1990 and
the 1981 recessions, the primary sector in this recession had the biggest drop
when compared to all the other sectors that you are showing. I understand that
the forestry sector has slowly been declining and that there is less demand from
the U.S. housing market. On the other hand, I look at the growth in oil
exploration in Canada, whether it is offshore oil or the oil sands, and I feel
that I am missing the picture between forestry and oil. Could you fill in that
picture for me, please?
Mr. Cross: It was very good of you to pick up on that. I did not go
into that when I was talking about that graph, but the one sector that behaved
differently compared to previous recessions is the primary sector. The main
thing driving that down this time around is the contraction of oil and gas were
extremely rapid because of the collapse in the price of oil on world markets.
Interestingly, we saw a much faster response this time around in the metals and
mining sector. We have looked at previous recessions, and often that industry
will not start cutting back until the rest of the economy has emerged into
recovery. It is an industry that lags behind what is happening in the rest of
the economy by a considerable degree. This time it was quite immediate.
We are unsure as to all of the reasons for that. Large mining enterprises
require a great deal of capital. With the seizure in the U.S. capital markets,
they were cut off right away and had to shut down unprofitable mines
Yes, we did see quite a different and a much faster response in the mining
sector this time around.
Senator Ringuette: I found that it was drastic, something similar to
business services but to a lesser extent. However, I still find it remarkable.
With respect to data, it is hard for you to estimate the trend in this
particular industry and its affect on GDP growth in Canada.
Mr. Cross: We do not forecast, but we have noticed, particularly in
metal mining, we have seen a fairly quick turnaround. As I say, in past
recoveries, often this sector is just beginning to cut back as the rest of the
economy is recovering. This time around they went into recession at the same
time as the rest of the economy and they seem to be coming out quite rapidly,
With the pickup, we have seen quite a strong response in prices for metals
like copper and nickel. More recently, the market for potash has come back
strongly. The oil and gas sector has been a little slower to recover,
particularly because natural gas prices remain weak. In fact, that is probably
the one sector within the primary sector where we really have not seen a
recovery. Prices remain quite weak in the natural gas sector.
Senator Ringuette: You may not have the answer to my next question,
but I would ask you to send it to the committee clerk.
We are looking at the stimulus package. A major stimulus package was
introduced for two years, but one item in it was only for one year, and that was
the Home Renovation Tax Credit. Do you have data in regard to the impact that
that had up until the end of January, which I think was the cut-off.
Mr. Cross: We can certainly send you data on retail sales of building
materials and things like that, but it is impossible for us to sort out the
marginal impact of this program as opposed to the general recovery of consumer
spending or consumer confidence.
Maybe brave people like Todd are better at sorting out these marginal effects
than we are. We will put this data in the public domain, but it is up to
analysts to sort out the various factors that contributed to this. That is not
something we try to do.
Senator Ringuette: Whatever data you can provide would be helpful,
hopefully before we approve these estimates and Supplementary Estimates (A) and
(B) that will be coming along. I hope the revenue agency will be able to come
before us to explain the impact of that program and whether it was a good
decision not to renew it, like all the other items, for a second year. That
decision has been felt in rural and small communities across the country, some
of which are not even incorporated. I would like to research that area.
Mr. Cross: We can provide basic data on consumer spending, but it is
just too complicated to disentangle the different factors. We do not try to do
that. I am sure many other organizations or departments in this town can do
Senator Ringuette: I would be grateful for any information that you
Senator Runciman: Ontario always used to be considered the economic
engine of the country. You talked about threats and you talked about fiscal
policy at the federal level, but you are concerned, I think — maybe I am
misquoting you — about the fact that there did not seem to be a plan for coping
with the very significant deficit facing the province.
Recently I was watching a television news story about the great concern in
California, where I think they are facing something like a $20 billion deficit.
Ontario's deficit is higher than that, with a population one-fifth or one-sixth
of California's. If Ontario cannot get its financial house in order, what kind
of threat does this pose not just to the province but to all of us as Canadians?
Mr. Poschmann: We are looking down the road a little. It is hard to be
specific numerically other than to observe there are risks when large
governments manage fiscal policy in a way that is unsustainable. By
"unsustainable," I mean deficits that make total debt grow at such a pace that
ultimately it becomes difficult to finance debt and we risk