THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, October 7, 2025
The Standing Senate Committee on National Finance met with videoconference this day at 9:02 a.m. [ET] to study, and report on, matters relating to federal estimates generally and other financial matters.
Senator Claude Carignan (Chair) in the chair.
[Translation]
The Chair: Good morning, honourable senators. Welcome senators and viewers across the country who are watching us on sencanada.ca.
My name is Claude Carignan, and I am a senator from Quebec and the chair of the Standing Senate Committee on National Finance.
I will now ask my fellow senators to introduce themselves.
Senator Forest: Good morning and welcome. I am Éric Forest, an independent senator, and I represent the Gulf senatorial division, in Quebec.
Senator Gignac: Good morning. I am Clément Gignac, a senator representing the division of Kennebec, in Quebec.
Senator Galvez: I am Rosa Galvez from Quebec.
Senator Miville-Dechêne: I am Julie Miville-Dechêne from Quebec.
[English]
Senator Loffreda: Good morning. Welcome. I am Senator Tony Loffreda, from Montreal, Quebec.
Senator Kingston: Joan Kingston, New Brunswick.
Senator Ross: Krista Ross, New Brunswick.
Senator MacAdam: Jane MacAdam, Prince Edward Island.
[Translation]
Senator Hébert: I am Martine Hébert from Quebec.
The Chair: As you can see, Quebec senators are especially passionate about finance.
Honourable senators, this is the first in a series of meetings to ascertain the general state of Canada’s financial and economic situation.
For our first panel, we are pleased to have with us today, from the Canadian Chamber of Commerce, Andrew DiCapua, Principal Economist, and Matthew Holmes, Senior Vice‑President, International, and Chief of Public Policy; and from the Canadian Federation of Independent Business, Jasmin Guénette, Vice-President, National Affairs, and Christina Santini, Director, National Affairs. Joining us by video conference, we have Theo Argitis, Senior Vice-President, Policy, from the Business Council of Canada.
Welcome everyone. Thank you for accepting the committee’s invitation to be here today. I’m sure you are all quite busy in your respective roles with everything that’s happening in the economy.
We will start with Mr. DiCapua and Mr. Holmes’s opening remarks. After that, we’ll hear from Mr. Guénette and Ms. Santini, and then Mr. Argitis.
Each group has five minutes for their presentation. We kindly ask that you stick to the allotted time. Presentations will be followed by questions from senators and a discussion.
Matthew Holmes, Executive Vice-President, International, and Chief of Public Policy, Canadian Chamber of Commerce: Thank you, Mr. Chair. Good morning, honourable senators.
[English]
Thank you for the opportunity to appear before you this morning on Canada’s current financial and economic standing. I am joined by my colleague Andrew DiCapua, our principal economist.
The Canadian Chamber of Commerce is Canada’s largest and most activated business network, representing roughly 400 chambers of commerce and boards of trade in communities across the country and more than 200,000 businesses of all sizes, sectors and regions.
Even before recent international trade shifts, Canada’s economic position was weak, which is why, in February, the Canadian chamber called for the government to come alongside businesses in what we call our All-In Canada Plan that would not only minimize tariff damage but chart a more prosperous path for the country. The plan addresses three critical challenges requiring immediate action.
First is economic growth. We’ve been relying on U.S. trade for years to cover up gaps in our own domestic economy. That has to stop. It’s time to dismantle our internal trade barriers to achieve free trade in Canada and claim the estimated 4% GDP gain that we’re leaving on the table. Going beyond our borders, we need to look at building on already-established trade deals and relationships in the Indo-Pacific, Mexico, European Union and the United Kingdom.
But as a trading nation, Canadian businesses need efficient channels to get goods to market and overseas. This requires urgently expanding our roads, rail, airports and port infrastructure. Further, we cannot allow the repeated shutdown of critical operations to prevent the flow of goods and services that damage Canada’s reputation as a reliable trade partner. When we jeopardize supply chains, they take a long time to return. While we commend the government on Bill C-5’s swift passage, we remain concerned that a two-track system could emerge that blesses some projects even as others remain stalled. Every project needs to face reasonable, transparent and predictable processes.
Second is global competitiveness. Canada’s appeal as a place to do business is declining. We need a regulatory and tax environment that attracts domestic and international investment, helps businesses grow and encourages new businesses to launch. While tariffs are today’s concern, it will be the structural changes to U.S. tax and regulatory regimes that will truly challenge Canada’s long-term competitiveness.
Third is addressing Canada’s skills gaps. This year alone, the talent shortage cost our economy $2.6 billion, according to The Conference Board of Canada. We need both a national workforce strategy that invests in upskilling and reskilling workers, with a focus on those vulnerable to automation and AI, and a strategic immigration system that respects the needs and constraints of provinces, territories, communities, employers and employees.
Canada cannot achieve economic security without bold action on these three fronts. I will now turn things over to my colleague.
Andrew DiCapua, Principal Economist, Canadian Chamber of Commerce: Thank you, Matthew, and honourable senators, for the opportunity to appear today. I’ll offer some brief remarks on current economic conditions in Canada.
Canada’s economy is at a crossroads. We’ve navigated uncertainty before, but this moment presents another opportunity for us to shape our path for future prosperity.
Trade remains foundational to that prosperity. Our trade relationship with the United States alone supports nearly 3 million Canadian jobs. The recent U.S. tariffs on Canadian goods represent one of the largest external shocks to Canada since the 2008 financial crisis, excluding the pandemic.
The data reflects this pressure. Just this morning, export data for August was released showing a decline of 3%, the first monthly decline in exports since April. In Q2, export volumes fell 7.5%. Investment in machinery and equipment declined 9.4%, as uncertainty clouds business decision making. The labour market is also loosening. We’ve seen moderate job losses in recent months. The unemployment rate has risen to 7.1%, and trade-exposed sectors have shed nearly 80,000 jobs since January.
For 2025, we expect real GDP growth in Canada to be about 1%. The Bank of Canada’s Monetary Policy Report July 2025 anticipates similar growth for the rest of 2025, with private‑sector economist consensus even more pessimistic, expecting roughly 0.5% growth for the third and fourth quarters of this year. The Chamber’s own nowcast expects growth of about 1.5% for Q3, suggesting that the worst is behind us and that Canada is likely to avoid a recession.
On a positive note, inflation has been within the Bank’s target range for 20 consecutive months, allowing interest rates to move lower and provide some support to households, which have remained resilient through this time. However, early signs are suggesting that this momentum may fade.
Still, the trade shock has left a structural mark, putting the economy on a permanently lower trajectory. As my colleague outlined, strengthening competitiveness, accelerating productivity and accelerating diversity — in people and markets — will be crucial. Canada is vulnerable to these external shocks, but building resilience against them is essential.
Finally, the scarring effects from recent U.S. actions have yet to be fully realized. We must act with urgency and ambition to revive growth, bolster resilience and set an optimistic course for long-term prosperity.
Thank you.
Jasmin Guénette, Vice-President, National Affairs, Canadian Federation of Independent Business: Good morning. I will make my remarks in French, and my colleague will make her remarks in English.
[Translation]
My name is Jasmin Guénette, and I am the Vice-President of National Affairs at the Canadian Federation of Independent Business, CFIB for short. My colleague Christina Santini is the Director of National Affairs. We would like to thank the committee for this kind invitation.
To start, the CFIB represents 100,000 small- and medium‑sized enterprises, SMEs, across Canada. Our members are active in every sector of the economy and every region of the country. Businesses with nine employees or less make up 50% of our membership. We survey our members on a regular basis to get an overall sense of where things stand for SMEs. Our results show that the level of optimism among entrepreneurs is very low right now. There are a number of reasons for that.
First, SMEs’ operating costs have skyrocketed. Every single budget line is rising for small businesses. From wage costs, taxes and regulatory expenses to the cost of insurance, rent and inputs, everything has gone up. Second, the biggest barrier to sales and growth for SMEs is insufficient demand. In other words, they aren’t selling enough and consumers are spending less. That means that businesses aren’t selling enough to absorb all the cost increases, not to mention the impact of the tariff situation between Canada and the United States.
Our recommendations are aimed at helping SMEs in the context I just described.
I will now turn the floor over to my colleague Christina.
[English]
Christina Santini, Director, National Affairs, Canadian Federation of Independent Business: The strategic use of simple tax relief measures can provide fiscal relief and drive significant economic benefits for businesses, their employees and the economy. To encourage investment, the government should expand and make immediate expensing and the accelerated capital cost allowances permanent. Further, exempting an additional amount of capital gains earned if reinvested in Canada could also be a beneficial, investment-inducing policy measure.
To reduce the cost of doing business and provide liquidity for businesses to pay off debt or invest in their business, the Canadian Federation of Independent Business, or CFIB recommends significantly reducing the federal small business tax rate, which is currently set at 9%, compared to 4% in Quebec or 3.2% in Ontario.
It should also be time to increase the maximum threshold of the small business deduction from $500,000 to $700,000 and indexing it going forward. This threshold has not changed since 2009 and has lost its value over time.
Further, the government should consider lowering the Employment Insurance, or EI, premium rate for smaller employers, for example, through a permanent, refundable EI credit like the one in place in 2015-16, named the Small Business Job Credit.
Government should also consider returning the money collected through countertarrifs to the businesses that paid them — businesses of all sectors and businesses of all sizes — not just through loans, but as direct benefit payments similar to the Canada Carbon Rebate for Small Businesses.
A recent CFIB study compared how much a micro-business and a small business would pay in taxes across 10 Canadian provinces and 20 U.S. states. It found that, on average, the fiscal burden was much higher in Canada than the U.S. The U.S. administration has adopted policies to create a fiscal environment that attracts businesses to the U.S. and that supports business investments in the U.S. Canada needs to do the same, or its tax base, upon which a higher tax rate applies, could erode as Canadian businesses will not be able to compete or grow.
Thank you very much for the opportunity to share our members’ views with you. We are pleased to answer any questions you may have.
[Translation]
The Chair: Thank you. Now we’ll go to Theo Argitis.
[English]
Theo Argitis, Senior Vice-President, Policy, Business Council of Canada: Mr. Chair, honourable senators, good morning from Calgary, and thank you for the invitation to appear before you today. It is an honour to contribute to your important work.
I am here today on behalf of the Business Council of Canada, which represents CEOs of over 170 leading Canadian enterprises across all sectors of the economy. Together, our members employ more than two million Canadians, and their companies are responsible for most of Canada’s exports, investments and corporate philanthropy that takes place in this country.
We meet today at a time of real consequence in our economic policy making. Last week, the business council released the results of our 2025 budget consultations. We surveyed business leaders, economists and investors, and the message that came through crystal clear is that Canada is in the midst of an investment crisis. Business investment has been falling behind our global competitors for years, productivity is stagnant, and our ability to attract and retain capital is under serious strain. Global uncertainty, compounded by shifting U.S. trade and industrial policies, has only sharpened these pressures.
Our consultations highlighted three key priorities.
First, growth must drive the agenda. I can tell you that top of mind for Canadian CEOs is growth. Canada’s economy has slowed significantly, and we have weak investment when we have declining per capita GDP. Without stronger economic growth, it will be increasingly difficult to fund essential public services and social programs.
Second, fiscal sustainability is critical. Business leaders want to see discipline, transparency and long-term planning to restore investment confidence. To that end, we would like to see the government commit to enforceable fiscal guardrails, a stable or declining debt-to-GDP ratio over the medium term, a stable or falling interest-to-revenue burden over the medium term and program spending growth that remains below the pace of the economy over the medium term. Without these disciplines, markets could lose confidence, and the cost of capital could rise across the economy.
The third key priority emerging from our consultations is that structural reform is urgent. Fiscal sustainability cannot be separated from Canada’s competitiveness challenge. Business leaders and experts are calling for the government to be laser‑focused on reviving investment in the economy. This should include comprehensive tax reform that lowers taxes on new investment. It should include a sweeping modernization of Canada’s regulatory system to cut red tape, shorten timelines and create certainty for investors. It should include a more ambitious program spending review grounded in first principles to ensure that government is focused on its core responsibilities rather than crowding out private enterprise.
Together, these priorities are about laying the groundwork for long-term growth and creating an economy that prioritizes competitiveness, rewards investment, boosts productivity and ensures we have the fiscal capacity to meet future challenges.
Just one final point that I would like to make is that we cannot borrow our way to prosperity. Canada needs to expand trade‑enabling infrastructure, modernize our defence and create an environment in which private investment can flow into growth‑enhancing projects. We actually do support public borrowing for initiatives that boost our productivity and competitiveness, but there is no support among business leaders for borrowing to fund ongoing consumption or political programs.
Senators, our recommendations are rooted in the conviction that a more competitive Canada is a stronger Canada. A growing, innovative economy will generate the revenues needed to sustain public services, reduce inequalities and increase opportunities for all Canadians. That is the challenge before us. If we get this right, Canada can once again be seen as one of the best places in the world to invest, grow and build prosperity.
I look forward to discussing these recommendations in greater depth and sharing the full insights from our consultations, as well as answering any questions the committee may wish to raise.
[Translation]
The Chair: Thank you very much. We will now begin the question-and-answer portion. Since it’s 10 o’clock and we have 10 senators wanting to ask questions, I’m going to give each senator four minutes. Senators, let’s try to stick to that as closely as possible.
Senator Forest: Last month, the government launched public consultations on the Canada-United States-Mexico Agreement, or CUSMA. What are your main recommendations on that front? Let’s start with Mr. Holmes or Mr. DiCapua from the Canadian Chamber of Commerce.
[English]
Mr. Holmes: Thank you for the question.
Looking at the broader competitiveness issue that we raised in our opening remarks, a comparative analysis of the U.S. tax system and regulatory system versus Canada’s would be advisable. It may even be something, if I’m so bold, that the Senate committee here would consider a subgroup to study. That would include analyzing the U.S. reforms in detail, benchmarking against Canada’s tax system, identifying competitive advantages created by the U.S. reforms and providing a roadmap for harmonization or strategic alignment that maintains Canadian competitiveness. That would be a longer-term view to that piece.
In terms of the short term, we agree with our colleagues at the CFIB that looking at business taxes and the tax regime here in the immediate short term is advisable, including making the accelerated investment incentive program permanent. Both of those would have real and immediate results for business.
[Translation]
Senator Forest: Thank you. Mr. Argitis, do you have any other recommendations as far as the public consultations on CUSMA go?
[English]
Mr. Argitis: I think we’re going to stay away from specific recommendations. We want to see a budget that is focused on investment. We’re open for the government to use all the tools in the toolkit. In the last 10 years, a lot of people have brought forward a lot of recommendations to boost investment and productivity. I think the one thing that is lacking is political courage. We want to see a budget that illustrates some political courage to make some tough decisions and that is focused on investment.
[Translation]
Senator Forest: Thank you. My second question is for Mr. Guénette. One of the key measures the government announced to help SMEs affected by the U.S. and Chinese tariffs is the Regional Tariff Response Initiative. It’s administered by the regional development agencies, so it varies. For example, Canada Economic Development for Quebec Regions administers the program in eastern Quebec. I know you stay in close contact with your membership. Do you have any feedback to share? How has the program been received? Is it truly timely and helpful for small- and medium-sized businesses?
Mr. Guénette: Thank you for your question. Currently, we have concerns about the fact that the money flows through the regional economic development agencies. There are a number of reasons for that. First, the eligibility criteria vary from one agency to the next, creating a lot of confusion among SMEs. Second, the agencies generally require applications that involve a lot of red tape, which means more paperwork for SMEs just to be able to access the money. It tends to take the agencies a while to hand over the money. It’s a tedious and lengthy process.
Consider the criteria that the agency for British Columbia uses. To be eligible for the funding, businesses have to have at least 10 employees, so that rules out a large number of SMEs. We think the eligibility criteria should be reviewed so that all SMEs affected by Canada’s counter tariffs can benefit from the money the government has collected. However, the fact that the regional economic development agencies administer the program is something we are very concerned about.
[English]
Senator Ross: My question is for the Canadian Chamber of Commerce. In your comments, you mentioned Bill C-5 and the related Major Projects Office. The MPO is of great interest to the business community from coast to coast, and the first five projects approved were mainly under way, but as Prime Minister Carney mentioned, this designation will help get them over the finish line.
I’m interested in your perspective on the MPO and what types of projects should be approved or identified in the November tranche of projects. What projects or types of projects do you believe are in the national interest and would have the greatest overall impact on the economy?
Mr. Holmes: Thank you for the question, senator.
Bill C-5 included two parts, and I will speak to the second part in a moment. The first part that is often overlooked is the internal trade. When we stand back and look at Bill C-5, we’re generally supportive of the entire piece of legislation because it is addressing critical issues within our economy, the first being barriers to internal trade in Canada that are long standing.
The second part of Bill C-5 is what leads us to the Major Projects Office and to your question. The importance of trade infrastructure is critical here, so when we stand back and look at the first tranche of projects and the others that have been identified for a longer review, those are generally oriented towards rail, energy, ports, infrastructure and the sorts of critical infrastructure components that we were calling for in our opening remarks. We think that is a priority for the country, not only because it spurs growth in the near term but because it fundamentally adds to our GDP and to our economic abilities in the long term. You just need to look at the recent LNG developments on the West Coast to see what that is doing for our economy and the 50,000 jobs that it created in the short time frame, from about 2018 to 2025, to have this up and running. The benefit to the domestic economy but also to our trade around the world and with new trading partners is profound.
Looking at MPO projects in the future, we’d certainly continue to look at trade corridors and trade infrastructure, but also other corridors. We need better and faster telecommunications — fibre optics — in this country, hitting remote and northern communities, but also to allow our advanced manufacturing sector to really prosper here.
[Translation]
Senator Miville-Dechêne: Listening to all of you, I am struck by the praise you are heaping on the U.S. economy, or at least the way businesses in the U.S. are treated. The fact is we live in a different country, where we tax businesses more in order to help fund free public services — health care and others — services that are usually better than the ones in the U.S. Therefore, we can’t draw such a close comparison with the U.S. economy on the grounds that everything should be equal.
Is it just the red tape you’re critical of, or is it the very heart of our country, which is based on the principles of a somewhat fairer society?
My second question is for the Business Council of Canada representative. You seem to be relying heavily on energy from fossil fuels for maximum energy security in the Americas. That’s at odds with everything that’s being done to counter global warming. Do you think it’s the right time to make that a priority? My first question is more of a philosophical one.
[English]
Mr. Holmes: Thank you for the question.
I think, first, given the provincial jurisdiction for health care, I would defer to the decisions made by provincial governments. Obviously, the federal government has a strong role to play in supporting citizens across the country, but I think it’s also important to recognize that business decisions are made by businesses, and they will make strategic global decisions based on where it is most conducive for them to do business. We’ve seen that repeatedly in this country. If we cannot make an economy that is competitive and attracts investment into this country, then we will not have businesses that are well resourced and able to support the communities within which they reside.
We at the Canadian Chamber of Commerce believe profoundly that a strong economy and strong businesses are at the foundation of strong communities and the social services that we all rely on. If we do not make our economy conducive to that business, then our communities will suffer.
[Translation]
Senator Miville-Dechêne: Mr. Guénette, both of you also talked about how great the American economy is because of how businesses are treated in the U.S. Don’t you see a contradiction there?
Mr. Guénette: Thank you for your question, senator.
I’d be delighted to have a long conversation with you about just how free and effective our health system is. Clearly, our health system is not free; we pay for it with our taxes.
I want to follow up on something Mr. Holmes just said. Recently, I was talking to an MP who represents a southern riding, very close to the American border. She was telling me how often — almost daily — she hears from business owners who say that, if things don’t change, they’re thinking about moving their operations to the U.S. Some Canadian companies already operate in the U.S. If we don’t confront that issue, we are burying our heads in the sand. We have to face the facts.
The Big Beautiful Bill, as it’s known in the U.S., has widened the gap between Canada’s taxation system and the U.S.’s.
I think it’s important for Canada to have policies that stimulate investment and entrepreneurship, and the main vehicle to encourage business growth is taxation.
Obviously, Canada is a different country with different programs, but that shouldn’t prevent us from lowering business taxes and transforming our economy in order to be more competitive.
[English]
Senator Loffreda: Welcome to our committee once again.
My question is for the Canadian Federation of Independent Business. I would like to turn to the results of your July 2025 Your Voice report. For those who may not be familiar, Your Voice is a monthly survey through which you poll your members on a range of current issues. In the July edition, your members expressed strong support for meaningful tax relief, which you just mentioned in your precedent testimony, and unsurprisingly, perhaps, linked it both to immediate cost relief and long-term economic growth.
Now, according to your findings, 55% of respondents said they would use a tax cut to stabilize operations or manage rising costs, while only one third indicated they would use the savings to invest, grow or expand their business. I would wish, and many Canadians would wish, that was reversed, that it would be expansion and that more entrepreneurs felt in a position to use the tax relief to grow their operations. We see similar findings when it comes to surveying entrepreneurs as to whether they would grow their business or sell their business. A fair amount would sell rather than grow.
Would it be fair to interpret these results as a reflection of the current high costs of doing business, or are operating expenses so elevated now that many businesses simply don’t have the flexibility to invest or expand, even when given some fiscal room? More broadly, what factors are limiting further investment among small- and medium-sized businesses at this time?
Ms. Santini: Cost and productivity are the key factors that are limiting investments within businesses at this time. The key thing to note as well is that we’ve had a very unpredictable 2020. If you look at our Monthly Business Barometer, each month we rate our members’ optimism in the long term, and we’ve referenced that it’s declined; it’s low. If you look at it closely, it’s been all over the place in the last five years, and it reflects the economic and financial status of small businesses and why they can’t necessarily aim to grow. They don’t really know what’s coming up, but also, they’ve accumulated debt through COVID. Many are still paying that off. They have higher costs, as my colleague referenced, and they have lower demand. That’s not a formula for growth. Stabilizing them helps keep jobs that are there.
I would basically see that 55% as a warning sign and say, yes, we do need to provide that relief so that those doors stay open and those individuals can compete and continue employing the people who are there. It is great that 35% can grow. How can we ensure that they are able to grow?
Senator Loffreda: Thank you for that.
My next question is for the Business Council of Canada, Mr. Argitis. I reviewed the Business Council of Canada’s chair’s notes from last week’s 2025 budget consultations in which you summarized the insights gathered from your discussions with 50 of the country’s leading CEOs — very impressive — as well as nearly 20 respected economists, investors and former senior officials. Your consultations emphasized the need for growth‑based budget management anchored in discipline and credibility, a framework that prioritizes fiscal sustainability while tackling structural challenges such as lagging productivity and declining investment.
Focusing on the investment side, could you elaborate on the perspectives shared during your consultations regarding targeted support and up-front government investment to help de-risk major projects? In addition, what feedback did you receive concerning taxes on investment and capital? More specifically, what are your members and partners calling for when it comes to business tax reform?
Mr. Argitis: Thank you for the question.
Top of mind for Canadian CEOs is growth, and we had quite a robust debate on how to think about fiscal policy going forward. We have a government in place now that is seriously thinking about the economy, something that we’ve been asking for for a decade. We are prepared to support investments that are economy-enhancing and productivity-enhancing. The economy does need infrastructure — ports, rail and nation-building projects. There was one question about what type of projects would we like to see from the MPO. We would like to see projects that can actually attract private investment. The investment environment needs to improve.
There are many things the government can do to improve the economy. They can do a lot of things without spending a penny right now, from, largely on the regulation side, an emissions cap on gas, clean electricity regs and Bill C-69. There are a lot of things they can do, but it looks like they’re choosing to move ahead with some deficit financing to make some investments. We want to see real investments, not fake investments, and a readiness to support an investment-driven agenda.
There is a lot of competition for capital right now. A lot of capital is going down to the U.S. because of the incentives, and the taxes there are much lower. Specifically, we need to see some type of competitive taxation. I don’t know what that would look like, and we’re waiting to see some ideas come out of the government, but we’re prepared to support an investment agenda and we’re prepared to support a broad toolkit for that.
Senator Loffreda: Thank you.
[Translation]
Senator Gignac: My first question is for the Canadian Federation of Independent Business representatives. I want to talk about the regulatory burden. One of your predecessors, whom we know well, often talked to us about the regulatory burden. If I’m not mistaken, you put out the seventh edition of your publication Canada’s Red Tape Report at the beginning of the year, and I believe the situation is worse now than it was pre‑pandemic.
Can you talk about that? What impact does it have on economic activity? I think Statistics Canada even did some estimates on that.
Mr. Guénette: Thank you for your question, Senator Gignac. Yes, things are worse than they were before the pandemic. We estimated that, in 2024, the cost of regulatory compliance in Canada was $51 billion. That is a massive weight dragging down the entire Canadian economy. In addition, $18 billion of that $51 billion was spent on red tape, in other words, regulations that could be eliminated without any repercussions for workers, the environment or otherwise. We could quickly improve the economy that way, by getting rid of unnecessary regulations.
We have some recommendations on that front. Priority number one is to reduce the number of regulations. It’s important to know how many rules are in place in the country. I’m sure that if I were to ask the people in this room or anyone on Parliament Hill how many rules, regulations and laws there are in Canada, no one could tell me.
It’s really important to have a solid understanding of the situation.
Next, reducing the number of regulations is crucial. The way we recommend doing that is to establish a two-for-one system, meaning that, for every new regulation the government introduces, it eliminates two. That would reduce red tape. I always say that is the quickest and cheapest way for the government to help businesses, and it remains a priority for the CFIB.
Again, in the months ahead, we will be devoting a week to the issue of red tape, and I encourage everyone here to pay attention to our work that week.
[English]
Senator Gignac: My next question will go to the Business Council of Canada. The current interim Parliamentary Budget Officer, the PBO has mentioned that the financial situation, the fiscal situation, of the federal government in Canada is unsustainable. Do you agree with such a statement? If the only fiscal anchor adopted by the federal government would be to clean the operating deficit, is that something you would be comfortable with? Or would you ask for an additional fiscal anchor?
Mr. Argitis: I believe Canada’s finances are sustainable right now. I mean, it’s fragile. The trajectory is not a great trajectory if you look over the medium term. We do need some corrective action over the medium term, but it’s not a crisis. Investors are buying Canadian bonds. I wouldn’t agree with the PBO on that assessment even though the numbers we saw are legitimate and show a difficult trajectory. I agree with that. But interest rates in Canada are relatively low, lower than they are in the United States. That means international investors are buying our bonds, which suggests confidence in the credibility of Canada.
Sorry, what was the second question?
Senator Gignac: If the only fiscal anchor adopted by the government would be to clean the operating deficit, is that it something you are comfortable with, or are you asking for additional fiscal anchors?
Mr. Argitis: I’m not a big fan of the split between operating and capital. In theory, it sounds good, but we think that creating a separate budget with a licence to run deficits, almost like pre‑authorized credit, is open to abuse. We prefer a holistic view.
On the fiscal anchors, we prefer a dashboard of metrics. We don’t think one fiscal anchor will do. You need a full dashboard to give you a good sense of the fiscal health of the nation.
Senator Gignac: Thank you.
Senator MacAdam: My question is for the Canadian Chamber of Commerce. In your pre-budget consultation published in August, you mentioned the importance of creating a national workforce strategy and highlighted the need to invest in upskilling and reskilling workers with a focus on those vulnerable to automation and AI
First, with regard to the AI issue, what policies or frameworks do you think Canada needs to adopt in order to mitigate the risks and harness the full potential of AI in boosting productivity, while also ensuring that the workforce is adequately supported and retrained for higher productivity jobs?
Mr. Holmes: Thank you for the question.
On AI, Canada is viewed globally as a pioneer, as a leader, in the development of AI and generative AI technologies and the theories behind them. Yet, at the adoption level, we are one of the laggards. We are far behind the Indo-Pacific and even other OECD nations to which we compare ourselves. One of the critical pieces around AI is adoption by business and the use of that. A number of different models can be applied to encourage the adoption by SMEs in particular, as they represent such a large part of our economy.
In terms of the workforce question, though, that obviously could lead to some disruption in certain categories of labour that will see higher indexing of effect from the adoption of AI. There are a number of tracks. One is introducing AI skills into the workforce. The glib statement is, “AI is not coming for your jobs; people who know how to use AI are coming for your jobs.” Not to diminish the issue in any way, it’s important that we introduce AI skills throughout our labour force and adoption. In other areas, there will be, as we’re seeing in the current environment, discussions around entire industries needing to reskill or adapt as the context changes. We will see that over time in certain industries as well.
Senator MacAdam: Thank you.
According to Statistics Canada, the unemployment rate for those aged 15 to 24 reached 14.6% in July 2025, up from 10.3% in July 2023. This was the highest youth unemployment rate since September of 2010, except during the COVID pandemic. Do you have any comments on how you think Canada can mitigate the risks associated with youth employment? Do you have any comments on the importance of strengthening strategies for new entrants to get into the workforce?
Mr. Holmes: Yes. It is an excellent question. It is a very concerning trend to see the youth unemployment rates where they are, particularly coming out of the summer season when you would typically see an uptick. The issue has many factors behind it. My colleague may want to speak to this, but we are not seeing a correlation between temporary foreign workers and youth unemployment. We’ve done some data which does not show a direct link between those — or a very weak one. I will invite my colleague to add.
Mr. DiCapua: Thank you for the question, senator.
It is an alarming trend. We’re experiencing very slow growth in Canada. Usually, when we’re on the downturn in terms of a business cycle, the first jobs to go are, unfortunately, our youth jobs. It’s unfortunate, and we’re seeing it across different sectors. One interesting trend to which my colleague alluded is, in the summer months, when you would expect a seasonally high employment on the youth side, we just haven’t seen that. When you look at the employment rate for youth, it’s declined to almost 2%. It’s a concerning trend.
In terms of recommendations, I’ll leave that up to my colleague. Nonetheless, we are in a unique situation. There are supports and Employment Insurance programs, et cetera, for those who don’t have employment, but it is a very precarious time for youth unemployment. It’s a concerning trend, yes.
Senator Kingston: Welcome, everyone, here today.
My first question is for the Canadian Chamber of Commerce. I’m interested in what main factors are holding back business investment in Canada. You’ve talked about some of those, but how significant are tariffs compared to other factors?
Mr. Holmes: I’ll start and then see if my colleague has anything to add here.
Tariffs are certainly a factor right now. It’s not the tariff per se; it’s the business uncertainty. The rules of the game keep changing. The tariff rates themselves keep changing. Are you CUSMA-compliant, or are you not? Does that have a bearing on your trade and your access? Is a section 232 tariff being applied to a specific sector or residual goods based on those materials? All of those questions are creating an incredibly uncertain environment for trade. Many businesses will just stand down and take a pause and wait until the air clears a little bit. As a result, you see a lack of expansion, a lack of growth and a lack of investing in new capital infrastructure, in machinery and in people. You see the delay of product launches, expansions or new sites. All of that contributes rapidly to the chill effect that we’re seeing. It’s not just the trade itself; it is the uncertainty that pervades the economy.
Mr. DiCapua: Thank you, senator, for the question.
We’ve seen uncertainty come down in some respects. Of course, the tariff rates have been changing on a week-to-week, day-to-day basis, but Canada — the government has seen this as a talking point, which is somewhat correct — faces a relatively low effective tariff rate relative to other countries. That could be a competitive advantage for us heading into this new era of trade with the United States. As my colleague pointed out, the Canada‑United States-Mexico Agreement, or CUSMA, has protected almost all the goods heading down to the United States, which has allowed for this continued flow of trade with the United States. Businesses will have to take into account these tariff rates and the competitiveness of the economy. You heard this from all of our panellists today. That will have to be recalculated, and it will inform investment decisions, as everyone has alluded to.
The Business Data Lab, or BDL, looking at Statistics Canada research, looked at federal regulations, and there are about 350,000 federal regulations that, by Statistics Canada measures, have reduced the GDP over the time horizon that they looked at — over the past decade — by 1.7%, and investment was down 9%. So, clearly, federal regulations do have an impact on investment as well as the GDP. We have an opportunity now with this federal government, with the budget coming up as well as just creating conditions for success, to rebrand the Canadian economy relative to the United States as a country that has fiscal prudence but also has a growth agenda. You’ve been hearing that that is a very tough balance to strike, but it is one that we need in order to be competitive.
[Translation]
Senator Hébert: My first question is for the CFIB and Canadian Chamber of Commerce representatives. My second question is for the Business Council of Canada representative. I want to hear what you have to say about labour. As we know, a lot of investment is coming to Canada, but we are going to need workers to build the homes and infrastructure we are looking to build. When it comes to immigration policies, especially the Temporary Foreign Worker Program, or TFWP, the cuts that were announced are affecting businesses and their ability to keep up production levels — and what’s coming will only exacerbate that. I’d like to hear your thoughts on that and what we should do about it, knowing that immigration puts a strain on certain social programs.
Ms. Santini: Yes, especially in construction, where the labour shortage is pretty serious. It’s a strain on the industry, hindering the ability to deliver products in accordance with contracts, to expand and to honour commitments that were made. We’d like immigration programs to be more flexible, so that the sector can still access those workers. Right now, construction is protected from the tightening of the TFWP, but not manufacturing, the sector that makes the inputs used in construction. The government should take a more holistic view of the immigration system. It needs to make sure that the program changes align with labour needs. It’s the program that is the most aligned, with the necessary test and the capacity to strengthen that test to ensure alignment with market needs, in areas with labour shortages.
Mr. Guénette: May I add something? The program changes that were made last year are affecting many SMEs across the country, including in Quebec. People are reaching out to us to say that they are worried about losing workers they hired through the TFWP, so the changes that have already been made are having an impact on many of the country’s SMEs.
We want the government to make sure that businesses needing those workers, under the TFWP, can access that labour, because sometimes there are no other workers available. That’s especially true in the regions, whether in Quebec or elsewhere in the country; regions need workers, and temporary foreign workers are often the ones who fill that need. A lot of work has to be done to keep those people in the country and make sure that businesses have access to labour through immigration, because it’s not true that they can rely strictly on people already in the country for all their labour needs.
[English]
Mr. Holmes: Thank you for the question.
Many of these jobs are seasonal. They may involve night shifts, they may be jobs that the domestic population just doesn’t go for or they may be taking place in areas of low available labour. For that reason, over time, we’ve developed tools and policies that allow for businesses to find the labour that they need. The irony of the economy right now is that there are many businesses — small- and medium-sized enterprises in particular — that are struggling to find that right labour pool. Can the system — the International Mobility Program and the Temporary Foreign Worker Program — be refined and improved? Absolutely, they should be reviewed and refined. However, we cannot throw out these programs. They are essential for the economy: the service economy, construction, as noted, and agri-food.
At the Canadian Chamber of Commerce, we would say that the farther we can get this away from the federal government, the better; the more we can devolve this to the provincial, municipal or even employer level, the better. That’s where the decisions are being made, and that’s where the real rub of available labour and talent versus the general population is most apparent.
Senator Galvez: Thank you very much.
We’ve had many interesting questions from my colleagues. I want to ask a little question in order to better understand this, and then I will ask a specific question of the Business Council of Canada.
There are two things that seem to be unanimous here in your presentations. One thing is that the American environment is very good for investment and for opening innovation and productivity. At the same time, you are also saying that the Canadian economy is very lazy, we rely too much on the Americans, everything goes to the United States and we depend on the Americans.
I just came back from the United States and was reading that unemployment is high, real GDP is low, there is a drop in consumer spending, the stock markets have declined, consumer confidence is low, inflation is high and people don’t feel safe. So which part of the United States do we want to resemble: the part that is open for investment or the safe place? That is my first question.
Mr. DiCapua: Thank you, senator, for the question.
I agree with you that the United States economy is actually not growing very fast right now. At the beginning of the year, as well as in the fall of last year, the idea of U.S. exceptionalism was being tossed around, but tariffs are going to slow the economy. You’re seeing high inflation. The Federal Reserve won’t be lowering rates too much lower than where they are now. So the economy will slow. They’re only growing at about 1.8%. It’s not much more than where we are, but they are investing in AI, talking about the right things and mobilizing the federal government as well as private capital to where the puck is going.
We’re having the right conversations. We just need to align those actions. Incentivizing the business community to stop thinking about the United States and come to Canada is going to be a perennial task for us. We have an opportunity now to do that. People are seeing the U.S. as a source of risk, and that has not happened in a very long time.
Senator Galvez: Mr. Argitis, in your recent report “Selling to our Strengths,” recommendation 6 to the federal government is to future-proof Canada’s low carbon advantage. We know that one of the projects is liquefied natural gas, or LNG, but China and Russia announced agreements to bring LNG to China, and University College London, or UCL, is saying that this will become a standard asset. Who is going to invest in this? Why isn’t there a line of corporations waiting to invest in this right now? Why are they waiting for the government to invest first?
Mr. Argitis: Thanks for the question.
There is a lot of investment happening in LNG — huge tailwinds in that sector — and it’s all happening in the U.S. Canadian businesses are investing in the U.S. in LNG, and we have to ensure that we are part of that kind of economy. It’s not just old energy use but also new energy use through AI and the energy management from data centres. That’s a big part of that tailwind. A lot of investment is happening globally, just not here in Canada.
[Translation]
The Chair: I have two questions. The first one is for Mr. Guénette. You brought up red tape and the number of statutory instruments. Statistics Canada put the number of statutory instruments at 321,000 in 2021, and I imagine that number hasn’t gone down. The Treasury Board of Canada Secretariat undertook a red tape review in July and released a preliminary report in September. According to the report, the review identified 500 recent achievements to reduce regulatory barriers and initiatives to cut red tape.
Did they consult you? Do you have a list of regulations or standards you’ve deemed as non-essential?
Mr. Guénette: Yes, we have a list. I’m not sure whether it corresponds exactly to what you’re talking about, but over time, we have identified reviews of burdensome and unnecessary regulations.
My colleagues and I were examining the government’s recent review, and we noticed a number of measures that the government had taken a few years ago. It’s as though the government recycled announcements that had been made a number of years back. We weren’t all that impressed by what was announced.
The Chair: Basically, I take it that you weren’t consulted. Second, could you send us your list? We would like more than just examples; we’d like a comprehensive list, one that will help us when questioning future witnesses.
Mr. Guénette: Yes, certainly. We’d be happy to.
The Chair: Thank you. There’s a lot of talk about reducing our dependence on the U.S. and putting our focus on Europe. You raised a number of latent elements as far as weaknesses go. Red tape and the like have always been an issue, but American protectionism and tariffs have magnified the problem. I’m also talking about the uncertainty created by those tariffs, because I think the uncertainty is worse than the tariffs. Is the government helping you turn your focus to Europe, so you can diversify? Do you have the sense that specific measures have been taken? Do you have any specific suggestions to improve the situation? The Europeans are encouraging us to send them our energy and telling us they want to do business with us.
Mr. Guénette: I may be able to answer in one minute. First, there are various federal government services that deal with diversification. As a rule, they are not very well known to business owners. Improved communication would definitely be beneficial to many businesses that want to diversify, because what exists right now is often poorly understood.
Before giving the floor to my colleagues, I would add the following. Yes, diversification is one of the solutions to the tariff situation between Canada and the United States, but it takes time. We can’t instantly find customers in Europe. There is a process, and these things take time. We need to support businesses and help them find customers. We were used to dealing with our American friends, but we need to take the time to diversify.
[English]
Mr. Holmes: Next week, I will be in the United Kingdom and in Brussels to meet with Canadian chambers, binational chambers, throughout Europe that are coming together. Last week, I was in Japan meeting with Canadian chambers that are throughout the Indo-Pacific, to bring them together and start to develop a network of services that we could offer businesses around the world in key trading markets. It’s important for us. As my colleague said, it will not happen overnight, and we also need trade infrastructure to be able to expand into these markets and reach them.
[Translation]
The Chair: Thank you.
Honourable senators, for our second panel, we are pleased to welcome by video conference, from the C.D. Howe Institute, William Robson, President and CEO. We also welcome by video conference, from the Centre for Future Work, Jim Stanford, Economist and Director. Hello, Mr. Stanford. We also welcome in person Armine Yalnizyan, Economist and Atkinson Fellow on the Future of Workers. Welcome, Ms. Yalnizyan.
Thank you for accepting our invitation.
[English]
William Robson, President and Chief Executive Officer, C.D. Howe Institute: Good morning, and thank you for having me here. I hope my answers to your questions will help your work.
To prepare for your questions, I’ll touch quickly on five areas where Canada needs more serious federal fiscal policy. My remarks may resemble those from the earlier panel a little more than they will resemble those of my co-panellists, Jim Stanford and Armine Yalnizyan.
The theme of being more serious implies that federal finances have recently been less than serious, and I would cite a casual approach to presenting budgets, primacy of spin over substance in budgets, the recent acceleration of spending and borrowing, populous tax policy and unwillingness to face compelling evidence that unserious fiscal policy is undermining our economic performance.
I will start with budget timing. The C.D. Howe Institute publishes an annual fiscal accountability report card on Canada’s senior governments. We give timeliness considerable weight because budgets should not follow the beginning of the fiscal year or Parliament is approving spending after the fact. In the six fiscal years since 2020-21, the federal government presented only one budget before the fiscal year started. It presented no budget at all in 2020, which was unprecedented. We don’t know — at least I don’t know — what the plan is for the November 4 budget, but if it is for fiscal year 2026-27, we’ll get a budget before that year, which is good, but it suggests we might get no budget for 2025. Serious respect for Parliament’s stewardship of public finance requires us to do better.
On budget content, our report card asks a simple question: How accessible are the key budget numbers? Can any motivated user readily find them?
Recent federal budgets have buried the fiscal plan in an annex hundreds of pages deep. Most other senior governments put them right up front where a serious budget puts them. The explosion of federal spending and borrowing is a problem for many reasons. I call it unserious because it undermines the credibility of federal fiscal planning.
If we go back to 2019, the Fall Economic Statement before the budget we didn’t get in 2020, it said that spending in the 2024-25 fiscal year would be $421 billion. Two years later, after the COVID measures, the 2021 fall statement put spending in 2024-25 at $465 billion. Two years after that, the fall statement of 2023 said $523 billion for 2024-25. Last year’s Fall Economic Statement said $543 billion. We don’t have the federal Public Accounts yet. They have also been typically too late lately, but when we do get the numbers, I would not be at all surprised to see spending above $550 billion. Protected spending rising $25 billion every year shows that the government itself is not serious about its fiscal projections. We need fiscal projections we can take seriously.
On taxation, serious taxation funds government services without gratuitous damage to prosperity. We are failing in big ways. We tax incomes and investment too heavily, consumption too lightly, and incur debt that guarantees higher taxes in the future. In small ways, the higher capital gains taxes that never happened is poking holes in the GST, and there is current uncertainty about 2025 drawdowns that affect RRIF holders. Serious tax policy works out the details before announcing changes and considers how its rationale and execution will affect confidence. We need serious tax policy from the federal government.
For the last item before wrapping up, I have to comment on the dismal productivity and stagnating living standards highlighted by previous presenters and by my friends David Dodge and Don Drummond in The Globe and Mail today. My bellwether indicator is investment per worker. For a decade, business investment in nonresidential structures, machinery and equipment and intellectual property products in Canada has fallen short of depreciation and population growth. The stock of capital per worker has been falling. That has not happened before in our lifetimes, and it’s no wonder that productivity and real incomes are not rising. The same is not true elsewhere, especially not in the United States. One jarring statistic — you’ve heard some already this morning — is that in the second quarter, U.S. businesses invested three times as much in machinery and equipment per worker as Canadian businesses. The United States is our biggest trading partner and also our biggest competitor, and it is tooling up while we are rusting out.
I don’t think it is any coincidence that investment has struggled while government spending and borrowing have surged and tax policy has prioritized populism over prosperity. We need serious federal fiscal policy that addresses the challenges that are undermining our competitiveness and our living standards.
Thank you again for the invitation to be with you. I look forward to your questions.
[Translation]
The Chair: Thank you for your remarks, Mr. Robson.
[English]
Jim Stanford, Economist and Director, Centre for Future Work: Thank you very much, senators.
Because of the unprecedented attack on our prosperity and sovereignty from the Trump administration in the U.S., Canada’s economy is now at a historic juncture, and this budget will be an important marker in our response to this challenge. It is not a normal budget, and it cannot be debated and analyzed through a normal lens. The pre-eminent economic importance of defending our country, protecting our industries and sustaining our communities must shape the decisions made in this budget.
Government’s role is never to balance its books. Government’s role is to do whatever is necessary to protect its citizens, an imperative that is all the more urgent at this time. This doesn’t mean that budget balances are irrelevant; simply, they must be understood in the context of the broader mission and responsibility of government.
Predictably, most of the public discourse around this budget is already focusing too narrowly on how big the deficit will be. This focus is unhelpful. The deficit will be significant, no doubt about it, and it should be, partly because Canada is on the verge of recession — if we are not already in one, primarily due to the attacks from south of the border, and deficits are appropriate in that situation — but more importantly, because of the enormous responsibilities government faces right now, which will clearly require deficit funding, including aid to export industries, investments in infrastructure, strengthening income supports like Employment Insurance, public services for Canadians who need them, defence spending and more. Those things have to be done. As Keynes famously showed, if we can do something, we can afford it.
The federal government’s net financial debt as of June 30 this year was equivalent to 33% of GDP. Its accumulated deficit, including actuarial liabilities at the end of fiscal 2024, was 42% of GDP. Deficits are expected for the past and next fiscal years in the order of 2% to 3% of GDP. This does not constitute an emergency in any way, shape or form. Indeed, given an appropriate macroeconomic context with decent growth and moderate interest rates, deficits of that scale could be incurred every year while still maintaining stability in the debt-to-GDP ratio, which is a much more relevant measure of fiscal position than the size of the nominal spending or the nominal deficit measured in billions of dollars.
Government debt is smaller in relative terms than private debt in Canada. The debt of non-financial corporations is 150% of GDP. The debt of Canadian households is 175% of their disposable income. They pay higher interest on their debt, they have less capacity to manage the broader environment in which they operate, and they are more financially precarious than governments. Reducing the federal government’s debt by shifting a fiscal burden to households or businesses through spending cuts or other measures makes the overall debt situation worse, not better. Canada’s deficit and debt are smaller than most other industrial countries, particularly smaller than the United States.
In reference to Mr. Robson’s comments just now that America has a huge boom in investment in machinery and technology, that is true, but if that was the result of fiscal probity, that shouldn’t be occurring because America’s deficit, populist tax cuts and other uncertain fiscal policy — clearly unserious south of the border — should have driven investment down. In fact, the opposite has occurred.
In this context, I feel it necessary to express my disappointment at the recent interventions from the interim Parliamentary Budget Officer, Mr. Jacques. His judgment that Canada stands at the precipice of fiscal crisis and that the federal fiscal situation is stupefying and shocking are economically and historically false and, frankly, irresponsible. His mandate is to provide neutral information on budget issues to parliamentarians, but both the content and the mode of delivery of these remarks have veered far into advocacy and have done a disservice to informed policy discourse. He should correct those statements. They undermine the credibility of everything else his office will produce.
I am very sympathetic to the concept of treating investment and current spending separately in fiscal policy and planning. We already do that to some extent, of course, with accrual accounting and so on, but a more explicit disaggregation of capital and current spending is helpful, in part so Canadians can better understand the purpose and value of public debt in the context of investment. However, this distinction between investing and saving is not justification for austerity in current program spending. To the contrary, treating public investment as a distinct pillar of fiscal policy provides more fiscal and political room for continued federal support for current programs, not less.
To sum up, buttressing Canada’s economy in the face of Mr. Trump’s trade war will require a combination of urgent measures, all of which will require more powerful and determined federal intervention and federal spending. These are historic priorities. The federal government has abundant fiscal capacity to fulfill its responsibility to lead Canada into a new chapter in its economic history.
Thank you very much. I look forward to the questions.
[Translation]
The Chair: Thank you.
Armine Yalnizyan, Economist and Atkinson Fellow on the Future of Workers, as an individual: Thank you, Mr. Chair. Honourable senators, thank you for inviting me to appear before you today as you study the state of the Canadian economy and the challenges facing the Canadian federal budget.
[English]
I am an economist. I am the past-president of the Canadian Association for Business Economics and the Atkinson Fellow on the Future of Workers.
This summer, I submitted pre-budget recommendations to the Finance Department and to the House of Commons Standing Committee on Finance. At the top of my short list was the case for three crucial EI reforms as we head into recession. I have left a copy with your clerk for your information.
My presentation today, however, is not a pre-budget presentation. It is a presentation to help you read the context in which we will receive the November 4 budget. Today, I will focus on the economic powerhouse that is completely in our control: the care economy and what you can do, in your respective spheres of power as senators, to avert a deepening crisis that affects all of us directly or indirectly. It is shaping our future economy.
The care economy combines two Statistics Canada industrial categories: health and social assistance, and education. The care economy includes everything from childcare to post-secondary education, from health care to long-term care. It includes public and private spending. The care economy is not a “nice to have” part of the economy; it is a “must have.” How we take care of each other, or how we do not take care of each other, enhances or drags economic potential and productivity.
Care consumes public resources, but it also produces public wealth by developing the well-being, skills and ingenuity of the main factor of production that generates GDP. That factor is people. The people of Canada have generated the ninth-largest economy on the surface of the planet.
The industrial strategy that is currently being developed to protect our economic sovereignty has a huge blind spot, and that is the care economy. This is a mistake. Statistics Canada includes the care economy as part of Canada’s industrial base. So should the government, and so should you. That’s because the care economy is an economic powerhouse. It accounts for 13.6% of the nation’s GDP. No sector is bigger. Its closest rival is real estate, which clocks in at 13.2%, and you do not want real estate to be propelling your economy, as we have very painfully learned.
The care economy produces one and a half times more GDP than all of manufacturing combined. It is almost double the size of construction, both industrial and residential. It is closing in on three times the GDP generated by all forms of mining, quarrying and extraction, including but going far beyond oil and gas. It is also the single biggest source of earned income for Canadians. Over one in five jobs in the Canadian job market are in the care economy. That’s almost twice as the second-most, job-rich sector, which is retail.
With real growth poised to barely surpass 1% this year and next, according to the PBO, constrained public spending on care will mean some people will have to reduce their hours of paid work this year to care for those who are too old, too young or too sick to be able to care for themselves. That will deepen what seems to be an inevitable recession, which we will find out about on November 28. Potential output could be reduced for years to come.
The demand for services like childcare, health care and long‑term care is growing faster than the overall economy. This is happening everywhere around the world where there was a baby boom after the Second World War. Investors have noticed. They see the care economy as an increasingly rare source of organic demand growth. They see predictable government-backed cash flows associated with public spending. Based on the experiences of citizens in the U.S., the U.K. and Europe, Canadians will end up paying more and getting less from public expenditures if the government does not put some guardrails around this investment.
Staffing agencies for nursing and growing for-profitization of care are driving up public costs without improving either the quantity or quality of care. Lengthening wait times are increasing private, out-of-pocket spending. In fact, prices paid for out‑of‑pocket health services is one of the fastest-growing components of inflation since last year.
Households and governments are wasting our money unnecessarily. Even as affordability and fiscal restraint remain top concerns, we need an industrial strategy that includes the care economy. A government focused on levering more investments to be able to maintain Canadian productive capacity and finding efficiencies is super important right now, but that strategy needs nuance. Guardrails on private investments in care can avert unnecessary growth in both private and public costs. Increased public investments on providing high-quality, low-cost care can boost productivity and growth.
I conclude by noting that past Senate committees have historically produced some of the deepest thinking on the important public policy issues of the day. I ask you to consider please adding to this rich treasure by launching a Senate investigation on the growth and financing of the care economy.
[Translation]
The Chair: Thank you.
I should inform you that Mr. Robson was with us, but he had to leave. It seems there was an issue. A fire alarm went off where he was. If he comes back, we could save a few questions for him.
Senator Forest: I had a burning question for him, but I can wait.
My question is for Mr. Stanford.
In our work, we have often heard calls for more fiscal responsibility on the part of the government, and with good reason. However, it seemed worthwhile to me to have you here today to talk about workers and the measures that should be put in place to better protect them, as well as SMEs, in this difficult trade environment. Entire sectors of our economy are being asked to transform themselves, given what is going on right now.
What kinds of programs and measures are you expecting to see in the budget to help workers and industries affected by the trade war?
[English]
Mr. Stanford: Thank you, senator, for the question.
The assistance for those export industries being affected by Mr. Trumps’ tariffs, and, first and foremost, for workers, needs to come from strengthening the Employment Insurance system. I concur with Ms. Yalnizyan’s comments on that earlier. Our Employment Insurance system is not strong enough. It’s too hard to qualify. A large share of unemployed people, particularly young unemployed people, cannot receive any benefits. The level of benefits is very low. There are problems such as the waiting period for benefits and the interaction between EI benefits and attending retraining or vocational education. We want to encourage people to get retrained, but the Employment Insurance rules are a disincentive for that at this point. There have been many changes proposed. The Canadian Labour Congress has a very well-developed agenda of reforms for the EI system. I do commend the government for some of the changes they’ve made since Mr. Trump’s trade war began, including waiving the waiting period in industries that are being affected. I would say EI is the most important priority in terms of providing support for workers.
We also have to support the industries, of course. We are seeing the government moving, such as the recent financial assistance to Algoma Steel. We will need significant support for the auto industry and the other high-value industries that Mr. Trump is targeting.
I would note the pattern in Mr. Trump’s tariffs, particularly the section 232 tariffs, those that are not reduced by reference to compliance under the existing Canada-United States-Mexico Agreement. Those industries are bearing the full weight of his tariffs. There is something in common with them. All of them are high-tech, high-value success stories in the industrial economy: primary metals, automotive, heavy trucks as of yesterday, aerospace, pharmaceuticals and industrial machinery. These are the things where we transform our resources into high-value products, and those are the things that Mr. Trump is going after. It is absolutely imperative that we preserve the footprint of those industries and help them transition to a world that’s less dependent on U.S. markets.
Senator Ross: You have made recommendations, both in general and pre-budget, to governments on behalf of your organizations and stakeholders. For all of you, I am interested in what you believe is the number one most impactful economic or fiscal change you’ve recommended government to implement. I would start with you, Ms. Yalnizyan. You mentioned three crucial EI reforms. Is that what you think is the number one thing or, if not, what is?
Ms. Yalnizyan: In the immediate, we have to fix EI. We’re not recession-ready. We might be in a recession right now. We will find out on November 28. I would agree with some of the things Mr. Stanford said. I encourage you to look at the recommendations I have made in my submissions to the Finance Committee in the House as well as the Department of Finance’s pre-budget consultations. I won’t waste your time now talking about that, because that is easy to follow and push for.
What is more difficult is for you to wrap your heads around the importance of the care economy and the fact that, if we don’t do this right, what is an economic powerhouse is going to cripple us as individuals, households and as an entire economy. We think about the care economy as this nice thing to do. We have seen from the Canada-wide early learning and child care agreement that the federal government’s spending power has fiscal strength when conditions are attached. We have seen the governments that have not lived by the agreements they signed with the federal government are seeing an explosion in for-profit care. We have seen elsewhere in the world, when there is an explosion in for-profit care, that you pay more and get less. The jobs that are there — I said 21.5% of all jobs in Canada are in the care economy. The jobs get degraded and devalued. We have lower staffing ratios, more decertification and disqualification of the care we need. The conditions of work are the conditions of care. Watch what you wish for if you want for more investment.
I encourage you to take a look at my pre-budget submission to the Department of Finance where I indicate the six things that can be done in the care economy, some of which have no dollar value associated with them. We have talked a lot in the earlier hour about regulations are terrible and we should get rid of regulations. Without regulations, we will pay more and get less. That is a cost-free way for the federal government to ring-fence the market share of private caregivers and what they can do to staffing requirements. Please take a look at it.
[Translation]
Senator Miville-Dechêne: Ms. Yalnizyan, you speak very emphatically and knowledgeably about the care economy. I really believe in it. We tend to exclude it from the economy, but it involves an extensive workforce in education, child care, elder care and, especially, health. The people who work in this sector are mostly women, so there is an interesting feminist angle.
You say that investment is needed, but there is also a lack of flexibility and problems with labour rigidity. That means that in Quebec, for example, people go private for surgeries and use agencies, so it’s not exactly the paradise you would expect. Yes, people work hard, but there is rigidity and a lack of flexibility in the system that increases costs. Would you say that the system needs an overhaul or just more investment?
Ms. Yalnizyan: Both. Thank you for the question, senator.
[English]
First, I want to make very clear that women are the predominant workers in the care economy. Women make up half of payroll. If we do not fix the care economy — so people can’t find the childcare long-term or health care they need — we are going to reduce productivity of the existing workforce outside of the care economy because people will be doing less paid work or not be focused on their paid work while doing their work. This is an economy-wide problem.
As for investments, we cannot get more without paying more. That is impossible. Our only question is, are we going to pay more out-of-pocket so some of us can get more, or are we going to pay more for all of us through public investments? And that requires conditionality on staffing and recognition of internationally trained workers.
The previous session talked about the importance of temporary foreign workers, particularly in Quebec. We don’t have any pathways for permanence for these people. The groups that got ring-fenced when the changes were made to the temporary foreign worker file were construction and health. That’s nuts. We don’t have people who are here to do the jobs we need them to do have the ability to stay.
Senator Miville-Dechêne: Are you recognizing there is a flexibility problem here, or are you saying —
Ms. Yalnizyan: On whose part?
Senator Miville-Dechêne: On the part of the systems. The systems are highly unionized. To displace a worker in the health system is complicated. There are many bureaucratic measures there that complicate the system. The provincial government in Quebec is struggling with that. They have a new agency to try to make the system more fluid. It’s not a perfect system. That’s what I’m saying.
[Translation]
The Chair: I’m sorry, but I can only give three minutes to each senator. Long introductions definitely affect the timelines.
[English]
Senator Gignac: My question is for Mr. Stanford from the Centre for Future Work. On your website and in a presentation I attended recently, you point out that Canada has a positive foreign investment balance of $1.6 trillion with the U.S. You raised the possibility that pension funds could play a role here. Could you elaborate more about that?
Mr. Stanford: Yes. We’ve provided background information on the interesting and I think underappreciated change in the nature of our foreign investment relationship with the rest of the world in general, but with the United States in particular.
In contrast to previous periods of Canadian history where we depended on incoming U.S. capital to help develop our industries and so on, in the last generation, that has switched entirely. For the last 10 years, we’ve had a positive foreign investment balance with the United States that’s grown quite significantly, now reaching $1.6 trillion net. That means Canadians have invested more in America than America has invested in Canada to the tune of $1.6 trillion. That reflects all kinds of changes in individual investment decisions, institutional investments and our pension plans. Even the Canada Pension Plan has half of its investments invested in the U.S.
At a moment when we need more capital in Canada to develop our infrastructure to support our export industries in the face of Mr. Trump’s trade war, this seems like a good moment to think about ways of trying to recruit, incentivize or encourage that Canadian capital to come home. I do think in the world of pension investing, it is tricky, of course, because you have to keep an eye on ensuring healthy returns for the pension trustees, but I do believe there are ways to combine reforms in some of the parameters governing pension fund investment, including the CPP but also occupational pension funds to encourage them to put more of that capital into this huge task of investing in Canada.
[Translation]
The Chair: It’s interesting that you just talked about the Canada Pension Plan, or CPP. Speaking of care, the CPP invests in care in Europe, but not in Canada. It’s a little strange.
Mr. Robson is back. I guess it was a false alarm.
[English]
Mr. Robson: It was a false alarm.
[Translation]
The Chair: I’m very glad to see you again. I will invite the senators to ask you any questions they may have.
[English]
Senator MacAdam: Mr. Robson, government will introduce a new capital budgeting framework and distinguish day-to-day operational spending from capital investment. The press release from Finance refers to drawing on best practices from other advanced economies. I’m wondering if you can comment on what advanced economies use this sort of capital budgeting framework.
Are you aware of a generally accepted framework for categorizing different types of expenditures connected to capital formation? I am familiar with public sector accounting standards so I know this is different.
The third thing I would like you to weigh in on is the potential confusion that may arise with the PSAS, Public Sector Accounting Standards, being used for the statement of operations and accumulated deficit and this other figure that could be presented because government has committed to, after three years, balancing the day-to-day operating spending. It could potentially be two different numbers circulating, and one would be audited and one wouldn’t — or potentially that’s the way I’m reading it right now.
Could I get your comments on those issues?
Mr. Robson: Thank you. You are familiar with Public Sector Accounting Standards. For those who are not, I’ll say that I think international best practice is pretty much exemplified by Canada’s Public Sector Accounting Standards. They are very well thought through, very well articulated and very well observed. That’s a big asset for us.
I might say, in case it’s helpful, that the guiding principle in many respects is that the accumulated deficit or surplus ought to be a useful measure of a government’s capacity to deliver services. This is one of the reasons why I think it does make sense to focus on the bottom line more than perhaps some other presenters have indicated. It is not perfect. We can ask God, if we are so lucky, sometime what would have been a better representation, but the motivation is to measure our government’s capacity to deliver services, and when the bottom line is negative, that suggests that there is a deterioration in the government’s capacity to deliver services which implies higher taxes in the future for a given level of services.
The Public Sector Accounting Standards in Canada, as you know, senator, do amortize capital, so there already is appropriate notice taken and integration of the investment in capital and the running down of capital, the amortization of capital, in the government’s financial statements. That, to me, is fairly clear. It means that when you borrow to invest in a hard asset like infrastructure, it does not show in the deficit immediately, but you’ll show it as an expense over time as the asset delivers its services.
I do not understand exactly what the government has in mind when it talks about a separate capital and operating budget. I do think it will give rise to confusion. I think that the potential definition of capital-related expenditures in the federal government’s budgeting framework would be so broad as to be not meaningless but certainly not helpful for understanding what is actually directly connected to creating a real asset, so I’m suspicious of this. We have an excellent accounting framework right now, and we should be doing our best to adhere to it and make sure that people understand it better and the government itself uses it as a guideline to its fiscal policy, which I think it is.
Senator Kingston: My question is for Ms. Yalnizyan, first off, and maybe also a comment from Mr. Stanford if there is time on the same question.
I’ve read in the past that Canada’s social safety net and other social policies like childcare can be seen as a positive aspect of Canada’s ability to attract investment, and I notice that Mr. Stanford in the past has spoken about alternative measures of living standards and well-being and how Canada compares to the United States, in particular, using these. Would you comment, please, on that take on this whole thing, that possibly we could see the care economy as part of our ability to attract investment?
Ms. Yalnizyan: One hundred percent, and I appreciate the question and your attempt to pronounce my name.
If you take a look at the auto sector, one of the reasons why we have so many great plants here is our productivity is much higher than the United States because our workforce is better educated and more healthy. One of the reasons for that is because of universal health care. That actually reduces the costs for American producers who are here who have to pay for private insurance benefits in the States. So there is your microcosm for the case that you are making.
I want to be clear that the non-profit sector is supporting an awful lot of people that are falling through the cracks in our increasingly poor social safety net, and there is no money for them right now. In fact, I will be producing a keynote at a data summit tonight for the charitable sector and speaking to Imagine Canada on Thursday. They are struggling with the number of people that are homeless, are food insecure, including some of their own workers, and we are treating this sector as disposable. If we don’t fix things like EI, people that are currently earning six figures are going to lose their ability to refinance their mortgage this year. They’ll lose their home and move into the rental sector.
As this trade war continues, people that are now working in retail and hospitality — that’s slightly over the minimum wage — are going to get 55% of slightly over the minimum wage, and they are likely to lose their rental housing, and there is no place cheaper to go. If we don’t fix EI, we are looking at a cascade of economic dislocation that the not-for-profit sector will be asked to try and put a Band-Aid on, and they are losing both donations and volunteers. So good luck with that.
We can do this. We have shown the world how taking care of one another actually advances your economy, and we have seen that in mostly Scandinavian countries, but we are riding on fumes right now in our sector. It is not necessarily the path forward that it was in the past, primarily for some of the reasons that Senator Miville-Dechêne was talking about in Quebec and everywhere across the country. We are watching the system collapse, and the only solution is to pay out-of-pocket because there is no care. There is no timely care. That is going to be more expensive and worse for us all.
Senator Hébert: My question is for Mr. Robson. You called for a serious fiscal policy from the government. Can you please tell us what would be the three main conditions for you to consider that we have a serious fiscal policy?
Mr. Robson: Well, thank you for the invitation.
I did mention in my remarks a couple of things that might appear a bit cosmetic — the timing of budgets and the presentation of the budget numbers. I do think that these little appearing manifestations do show something deeper about a government’s approach. If the new framework that’s just been announced works out this way such that we’re getting fall budgets say in December for the upcoming year, that would be a big step forward. That would show greater respect for Parliament and its stewardship of public money.
I mentioned what might sound like a cosmetic thing, but can you find the numbers? If you look at recent federal budgets, it is very hard to do. If you look at budgets from territories such as Yukon or provinces such as Saskatchewan, you will find that the numbers are right there up front.
It is also perhaps a little bit up in the air right now about how the relationship of the Main Estimates to the fiscal plan will be. In many provinces, the estimates and the budget come simultaneously and you can reconcile them with each other. The federal government does not do that, and it really ought to do that.
As far as the trajectory for fiscal policy and the more substantive issues are concerned, I don’t want to give an overlong answer. I would like to see a path back to budget balance. I don’t believe there is any substitute for focusing on the bottom line when it comes to getting people to think seriously about $1 of spending on this versus $1 of spending on that or, alternatively, if you are going to have to raise $1 of revenue, which revenue will it be, instead of just borrowing and letting the future take care of itself.
With respect to stimulating the economy, I would favour something quite dramatic in the short run. I do not think we are going to be able to do a kind of comprehensive tax reform, such as some presenters in the earlier session were talking about, within the time frame that is necessary when you look at what the competitive pressures are that we are facing against the United States right now. One thing we could do in the very short run with great confidence that would have the effect that we predict is an investment tax credit. It does cost the fisc a fair amount of money, but it would sure be an attention-grabbing jolt and would help a lot of businesses tool up, which we badly need right now.
I hope that was a satisfactory answer to your question.
Senator Hébert: You partly answered my next question when you talked about the investment tax credit. Would you say that the lack of predictability is seriously undermining the capacity of Canada and the capacity of our businesses to attract foreign investment?
Mr. Robson: Yes, I think that is the case. Certainly, President Trump’s trade aggression has amplified that problem. We can’t do much directly about the trade aggression, but we could improve our domestic environment. There was a comment made in the earlier session about the difficulty of handing out money through regional development agencies or other mechanisms where the timelines are slow and the decisions are uncertain. One of the things that I like about a broad-based tax measure is that it will apply to everybody, it will take effect right away, and we can be quite confident what the effects will be. That type of certainty would be most welcome for Canadian businesses and for individuals right now.
Senator Galvez: My question is for Mr. Stanford. We are waiting for the budget coming in November, and we know that there will be funds for Bill C-5, the nation-building projects. I have a question about when to consider something an investment or a subsidy or an expense. For example, TMX was presented as an investment, but then later we learned that this pipeline will not be sold and we are going to lose money. At the end, it will be considered a subsidy to the oil and gas sector. Can you please tell us how to be more alert to these differences?
Mr. Stanford: That’s a good question. Since it deals with investment, that gives me a chance to just follow on Mr. Robson’s comment about the investment tax credit. That is one topic he and I would agree on. I agree that an investment tax credit would be an immediate and significant measure to boost investment in Canada, which has been too weak.
In terms of the major nation-building projects, we do have, as Mr. Robson noted earlier, accounting standards that do clearly define what an investment is in terms of an asset. The benefit for fiscal policy of conceptually thinking about capital investment as different from current spending is it allows you to make an argument that even debt-financed public investment in a long‑lived productive asset actually can be quite neutral in fiscal terms. You’re obviously adding a liability on your balance sheet, but you’re adding an asset on the balance sheet. The impact on the current deficit is small. In fact, if it is a productive asset that will enhance the capacity and the output of the economy down the road, then the benefits of that investment flowing back help to pay for or offset the interest incurred on making the investment. This is why I think, conceptually, capital budgeting makes a lot of sense, although as Mr. Robson pointed out, we do have accounting standards that make those distinctions.
According to the accounting, an investment in an asset is something that lasts over a period of time against which the asset is depreciated. When supporting an asset morphs into a subsidy, as you pointed out with the TMX pipeline, would be if you’re investing in something that isn’t returning what you think it would return or what was claimed that it would return in the first place. Then your investment in an asset doesn’t generate returns but generates a loss. That could just be one of the investments that doesn’t work out, or it could be a deliberate subsidy. In the case of that pipeline, and, in fact, future oil pipelines if in fact they’re going to be discussed, there is a huge subsidy component as part of it because the basic private sector components don’t add up for those projects.
While I support the idea of capital budgeting, obviously we have to be careful in terms of it not being misused.
Senator Loffreda: I would like to begin by acknowledging the presence of two recent recipients of the Galbraith Prize today — it is an award that recognizes outstanding contributions to economics — and that is Ms. Yalnizyan and Mr. Stanford. Congratulations to you both, and it is a privilege to have you here today.
Ms. Yalnizyan, you made eloquent remarks this morning on the care economy: 13.6% of our GDP, and, at 13.2%, real estate is second in our economy. We are the ninth-largest economy in the world, so it is important. But the remarks I’m referring to are ones you made in 2024 when you received your prestigious award. You spoke extensively about the care economy, describing it as the foundation of the broader economy and suggesting it has the potential to create the middle class of the 21st century, much like manufacturing did in the 20th century. But you’ve raised concerns about the growing role of private equity within the care economy and what you referred to as the rise of big foot owners across various sectors. For the benefit of this committee’s work and for my own understanding, could you elaborate on your perspective regarding the care economy and explain why you are concerned about it being increasingly subjected to market forces, and also guardrails or conditions you would recommend?
Ms. Yalnizyan: Thank you, senator, for your question.
I probably don’t have time to answer it and give time to everybody else. I really do mean that the Senate should open up an investigation on the growth and financing of the health care sector and the care economy in general.
There is more money sloshing around in the world than ever before, and much of it is private equity. What is private equity? It is dark money. You can’t follow it. Publicly traded stocks and bonds, you can see every minute of every day how much they’re worth. Private equity, you only see what value is being created or sold when an asset is bought or sold if the entities wish you to see what is bought or sold.
There are good forms of private equity and there are bad forms of private equity, but what we are seeing in Australia, the United States, Europe, the United Kingdom, everywhere, is more investors coming in, ripping out assets, stripping the assets, flipping the product, kind of like house flippers. The question is, are they zhuzhing up the place, staging the place and putting a new coat of paint on it, or are they actually creating value that the public sector did not create or that the previous owner/operator did not create?
We are seeing a very bad pattern around the world, and we are walking into this eyes wide shut because we want to lever more investment. We have runway and can fix this, but we need to know how big the sector is in Canada, how it’s growing and where that money is coming from.
I would conclude by saying that private equity in Canada is largely determined by our public pension plans, and yet we do not expect much return from Canadian public pension plans in how things are invested in. That is the opposite of how they were created in the 1960s, where they helped finance the world we live in now.
[Translation]
The Chair: How can we repatriate the labour force or limit the brain drain and outflow of work? Let me explain. In a recent study, the Conference Board of Canada said that there was a shortage of about 64,000 engineers. That figure does not take into account the engineers and programmers who work in India or other countries or the development work done by Canadian businesses. Have you calculated the cost of this loss of workers due to engineers working in India, for example, as opposed to working here? Do you have a strategy to suggest, fiscal or otherwise, to bring these positions back home to Canada?
[English]
Mr. Stanford: I’m not sure who the question was directed to, senator.
The Chair: Both.
Mr. Stanford: I have not looked at the question of engineers in particular and the India-Canada connection, but I’ve certainly followed the issue of immigration and its importance in Canada’s labour force development.
Certainly, there is both a huge need and a huge opportunity for Canada in terms of immigration opportunities to contribute to, first of all, the replenishment of our labour force. Our domestic fertility is zero or below zero, so we need immigration so the labour force can continue to grow. Unfortunately, the whole immigration file has been disrupted and damaged by what has happened over the last few years with the misuse of non‑permanent migration streams for short-term or profit‑seeking activity.
Particularly given what is happening in America now, I think there is a huge opportunity for Canada to reinforce its efforts to attract skilled immigration for engineering and many other fields as well. The advantage of a superior quality of life in Canada, public health care and other advantages, I think, reinforces that opportunity. I hope the government will think about how to reform the immigration focus on permanent immigration channels, supported immigration channels, to ensure that people who come can build a life here.
Mr. Robson: May I weigh in on this as well?
[Translation]
The Chair: Thank you. Be quick.
[English]
Mr. Robson: Canada’s immigration system of relying on the point system has been, in the past, a huge success economically and, as a result of economic success, politically successful, so I agree with very much of what my colleague, Jim Stanford, just said.
The other thing that is worth a little bit of extra attention is the number of immigrants who come to Canada and then leave for the United States. There is fresh information about that from Statistics Canada. It’s clear that Canada is a bit of a waypoint for many people who have already demonstrated their willingness to get up and move, and I think that we should also look at our tax treatment of high income earners. It’s a disincentive. We all, I think — those of us with children — have seen them looking at the United States and in some cases going there. I would love to have the rewards of staying in Canada in material terms be a little better, because there is no doubt that there are many other rewards, and we shouldn’t lose so many people to the United States.
[Translation]
The Chair: Thank you. The most famous one is Elon Musk.
Thank you. This concludes today’s meeting. We will resume our study tomorrow at 6:45 p.m. Thank you.
(The committee adjourned.)