:
I call this meeting to order.
This is meeting 77 of the Standing Committee on Finance. The orders of the day, pursuant to Standing Order 108(2), are to study the report of the Bank of Canada on monetary policy.
I want to welcome our two witnesses here this morning.
First of all, we have the Governor of the Bank of Canada, Mr. Stephen Poloz. Welcome back to the committee, Governor. I am glad to have you with us.
We have the senior deputy governor, Ms. Carolyn Wilkins, back to the committee as well. Thank you so much for being with us this morning.
We understand you have an opening statement, and then we'll have questions from members. Please begin.
Good morning, Mr. Chairman and committee members. Carolyn and I are happy to be here for one of our twice-yearly meetings on the monetary policy report. Today we'll outline for you the bank's latest economic outlook, published in the MPR on April 15.
[Translation]
In this volatile and uncertain environment, it is helpful to maintain a historical perspective. When we appeared before this committee a year ago, the price of Brent crude oil was at $100 per barrel. It had risen steadily for a decade, from $25 in 2002 to a peak of just over $110 in 2012.
By November, when we last met with you, oil prices had fallen to what was then their lowest level in four years. The average price of Brent was $90 per barrel. It was clear to us that while lower oil prices would benefit consumers, the net impact on the economy would be negative. Lower oil prices would reduce Canada's terms of trade and domestic income, and have a material impact on investment, activity in the oil sector and the associated manufacturing supply chain.
All of that happened quite quickly over the next two months. By January, Brent prices had dropped to an average of $60.
[English]
Oil prices are an important component of Canada's terms of trade and one of the key drivers of movements in the Canadian dollar. As oil prices rose over the 2002-12 period, so did the value of the dollar, increasing from around 63¢ to above parity. For the convenience of the committee, I've brought my favourite chart. It's a chart of the Canadian dollar with the price of oil—an undeniable relationship in both directions.
Now, the fall in oil prices has set in motion complex dynamics, including sectoral and regional adjustments, which will take time to work their way through the economy. The negative effects of lower oil prices hit some sectors of the economy right away. For example, the impact of lower prices on income and wealth has already led to a fall in household spending. The various positives—more exports because of a stronger U.S. economy and a lower Canadian dollar, and more consumption spending as households spend less on fuel—will arrive only gradually, and they're of uncertain size. Therefore, in January we faced a risk that returning the Canadian economy to full capacity and stable 2% inflation would be delayed significantly. Accordingly, we took out some insurance against that risk, in the form of a 25 basis point reduction in the policy interest rate.
Our interest rate cut occurred in the context of widespread easing in financial conditions around the globe. No fewer than 25 central banks eased their monetary policies in the early months of 2015. All of this monetary policy easing led to lower rates across the entire yield curve.
Now, what was behind this easing? Well, many central banks were adding stimulus in response to persistent economic slack and below-target inflation. This easing, coupled with the positive implications of lower energy prices for world growth, should help the global economy pick up through the year. The bank expects global economic growth to strengthen and to average about 3.5% over the 2015-17 period.
[Translation]
Here in Canada, we saw that some of the effects of lower oil prices, such as the lower household spending I mentioned earlier, were clearly being felt in late 2014 and early 2015. Our updated forecast in the April MPR suggests that the Canadian economy saw no growth in the first quarter. While the impact of the oil price shock is happening faster than initially expected, it does not appear to be larger than we anticipated in January.
Outside the energy sector, other areas of the economy appear to be doing well. The segments of non-energy exports that we expected to lead the recovery are doing so, and we expect this trend to be buttressed by stronger U.S. growth and the lower Canadian dollar.
The results of our Business Outlook Survey suggest that capacity constraints are beginning to emerge for exporters, which is promising for new investment. And, although we still have material slack in our labour market, the market fundamentals have begun to improve. Even so, companies remain cautious about new investment and hiring intentions.
[English]
Weighing these various forces acting on the economy, we anticipate a partial rebound in growth in the second quarter and a move to above-trend growth thereafter, for annual growth of about 1.9% this year. This projected growth profile gets us back on track to absorb our excess capacity around the end of 2016, at which time inflation will settle sustainably at 2%. We see the risks around this projection as roughly balanced, but they will be reassessed continuously as new data become available.
The main risk to our outlook is the size and duration of the negative impact of the oil shock, weighed against the positive forces that are building in the non-energy sector. Our outlook is for the positives to begin to reassert themselves during the second quarter, and to do so clearly in the second half of the year. The interest rate cut in January and the lower Canadian dollar are working to speed up this transition.
Inflation, as measured by total CPI, is running at about 1%, well below our 2% target. This is largely due to the drop in gasoline prices, which is a temporary effect. Total CPI inflation would in fact be quite close to zero were it not for exchange rate effects and some additional one-time factors. Core inflation is a little over 2%, but is also being boosted by the exchange rate effects and other one-time factors. In our projection, total inflation and core inflation converge on 2% as these temporary factors dissipate and the economy reaches full capacity around the end of 2016.
Meanwhile, financial stability risks remain front and centre in our deliberations. These risks are evolving in line with our expectations. The level of indebtedness, as measured by the ratio of debt to disposable income, continues to edge higher. It is likely to rise further as the decline in gross national income caused by the drop in oil prices works its way through the system. On the surface, lower interest rates would be expected to promote more borrowing, which would increase this vulnerability. However, in the near term, lower borrowing rates will actually mitigate this risk by reducing payments for mortgage holders and giving us more economic growth and employment gains. We believe that the best contribution the bank can make to lowering financial stability risks through time is to help the economy return to full capacity and stable inflation sooner rather than later.
With that, Carolyn and I would be happy to take your questions.
:
Thank you kindly, Mr. Chair.
[English]
Thank you, Governor and Deputy Governor Ms. Wilkins.
I want to get back to the housing market. You've said that you are expecting a soft landing in the housing market. Back in December, you said that you estimated the overvaluation in the housing market to be in the order of 10% to 30%. There have been many estimates coming from other banks. I know that the Deutsche Bank reported that it was about 35% relative to income. The Economist said in January that it was at about 25%.
When we talk about a soft landing, it means that the overvaluation can actually be deflated slowly, to the point where we can actually have a more normal market. On the other side, the Bank of America said that Canada seems to be experiencing something like “a classic bubble”.
The question really is, if we have to have a soft landing, we really need to be outside of the bubble mode, don't we, in the sense that the bubble can actually explode if it's really something more...?
[Translation]
It's more of a situation where the bubble can deflate more slowly. Is your view more or less optimistic than the private sector's?
:
Just to go back to the first premise, first of all, we don't believe we're in a bubble. There are many other characteristics of a bubble situation that are not present: highly speculative behaviour, people buying multiple houses just because they can sell them later, and that sort of thing. We have in fact been building houses very much in line with demographic demand in Canada, so there's no excess, if you like. Those are important things to bear in mind.
Our modelling, which is based on not just Canada but on something like 40 or 50 housing events globally, did suggest that the extent of overvaluation was around 20%. The “around” is a very important word, because statistically it says it could be as low as 10% or it could be even higher than 20%. That's a statistician's way of describing a range of possibilities. What this means is that our modelling is reasonably consistent with all of these different statements that are taken much less cautiously, if you like.
It would be unusual for us to have a cycle like we've had where housing did most of the work of keeping us out of recession. People buying houses sooner in their lifetimes because of lower interest rates is why we did not have a recession, plus the oil sector. Those are the two things that were really keeping us going. So it would be very unusual to come through all that and not have a degree of overvaluation; one has that in every business cycle like this.
When we talk about “a soft landing”, it's not necessarily the case that it's prices that do the adjusting, because the economy is below where we expect it to be, it's going to converge on its capacity and create a lot more jobs over these two years. What that does is it boosts the things that go into that model—incomes in particular—that make the housing market more sustainable from beneath. That's an important and complicated set of dynamics. It's in that environment that we look at the data and we say that macro-wise we feel that all those ingredients are coming together about as expected. It's later than we expected, but it's happening, so we're comfortable.
To Mr. Poloz and Ms. Wilkins, thank you very much for being here.
I'm from the west coast in British Columbia, and I appreciate the great leadership you've provided over the challenges we've seen across our country. Especially, being born and raised in Alberta, I'm seeing lots of uncertain times.
In your opening comments you talked about the significant drop in the oil prices in just a few months, the tenderness in the market, and the fluctuating currency rate, yet Canada was the first of the G-7 nations to be able to have a balanced budget.
I was just wondering if you could elaborate, from your experience at the Bank of Canada, on what monetary policies have helped Canada achieve a balanced budget.
:
Monetary and fiscal policy are conducted independently. As I said before, monetary policy must take into account whatever the fiscal plan is for government, because it's an important driver of what the economy will look like.
Our policies, in monetary policy land, have to look pretty far out into the future, because they have their effects over a two-year horizon. Full effects go within six to eight quarters. We must know what is happening on the fiscal side, but of course there's no actual interaction between those two.
In terms of outcomes, any time monetary policy helps bolster economic growth, which I firmly believe it does, that, of course, all other things equal, means that government revenues are stronger and so on. That's what you get when an economy is closer to balanced than far away from balanced. There's interaction in that sense.
:
The answer is that once we get beyond, I would say, about a two-year horizon, you're at the point where it's only long-term structural things that are in the forecast tool kit.
For an economist, it would be asking what the demographic picture looks like, how many people are either arriving as immigrants or being born here and therefore how much the labour force is growing, and what companies are doing to the capital stock. That analysis, for us, given that we're at the back end of the baby boom and people are retiring, is that we believe that the Canadian economy is capable of long-term growth, a little below 2%, for a long, long time.
That's where that kind of analysis comes from. To go out 50 years or something, you would have big demographic-type cycles, perhaps, superimposed on that, which I have not done for you.
Those kinds of long-term determinants we can think of almost as constants. They only move very, very gradually. For us, what we want over the next two years is to be above that 2% growth so we can close the excess capacity gap. That will give us all the job growth and get people who may have lost their jobs back reintegrated into the workforce. When we get there, everything settles there at around or a little below 2%.
:
Just for clarity, that 3.5% number I gave you was for the world economy, which of course has a mixture of very fast-growing economies like China and India and so on. It's higher than our average. Our growth rate is a little less than 2% farther out. Between now and then we're going to grow above 2%, around 2.5%.
In that context, the reason we need to have growth in Canada above our potential growth rate is because we have the excess capacity. If we don't achieve that, then the excess capacity will persist and inflation will continually be pushed down below our target.
This is why our interest rates are what they are: to speed the economy up, to fill up that excess capacity gap, and to get inflation to sustainably land on 2%. For right now, my best estimate of inflation, as I said in my opening remarks, is complicated because prices are moving because of oil prices and because of the exchange rate depreciation. Those are temporary things that we look through.
We believe that, taking out all the temporary effects, inflation is running at around 1.6% or 1.7%. If nothing else happens, that's where we'll stay. But under our forecast, it creeps up to 2% because the economy gets back to full employment.
:
Thank you, Mr. Chair. I'd like to thank the witnesses for being with us.
I want to stay on the topic of excess capacity in Canada's economy.
In your January report, you talked about long-term unemployment. You said that it was continuing, still close to its post-crisis peak. You also mentioned involuntary part-time workers. In your current report, you say the long-term unemployment situation has improved. But the report doesn't mention unstable employment. In your Business Outlook Survey, you indicated that, in terms of intentions to increase employment, opinion had decreased to its lowest level since 2009.
That's a worrisome environment for those who are unemployed or currently looking for work. Has the situation really changed since January, or are we more or less in the same boat?
:
That's another very complex question.
We compiled the figures, and they show that the unemployment rate will clearly rise in the oil sector and perhaps in other sectors of the supply chain, as well. These examples come from the manufacturing sector, given that we're dealing with the supply chain.
During the first month of the year, we saw mainly a negative impact. At the same time, we observed positive things. Two parallel economies exist, one that is affected by the shock and another that is picking up speed because of the shock. And both of those elements have a push and pull effect when it comes to the figures.
In the second quarter, the positive effects will be clearer, but not 100%. They will be much more visible in the third and fourth quarters.
Thank you, Governor and Deputy Governor, for being with us. We always enjoy your visits, and they are always informative.
We have spoken about what I would think we all agree are solid fiscal policies that have been carried out in Canada and that have resulted in a strong position, relatively speaking, compared to so many of the other countries in the world, specifically the G-8 and most G-20 countries.
You touched upon some of the policies. We remember our former finance minister, the late Jim Flaherty, who used to talk about the conversations within the inner circles about what was necessary, and governments participated in a program that certainly saved us in 2009 from fiscal ruin. I am hearing cautious optimism as your approach to how you see the Canadian economy. What are the things on a global scale that keep you awake at night, things you see as something that we, as a government here in Canada, can do very little about but that will affect our economy? Is there anything particular in Europe at present? I wonder if you could just elaborate on that.
:
That's fertile ground. There are a lot of unknowns in the world. I began with the premise that in the post-crisis period, the global economy has continually disappointed us. The forecasts from such organizations as the IMF looked for recovery, and then it was delayed a year, and it was delayed another year, and each year there's a series of downgrades for the outlook. It's precisely because we're in an environment that we've never really been in before.
There have been crises, or what we call balance sheet recessions, in the past. What that means is that it's not just a typical recession where there's a shock, and interest rates move, and we're down for six months, nine months a year, and then we go back. It's one in which people go bankrupt, or banks must rebuild balance sheets, or companies must rebuild balance sheets before they're back to where they can behave normally again. That process takes an undefined amount of time. By the way, it applies to governments, too.
The good news is that, as you allude, everybody got in gear in 2008-09. The G-20 acted in concert, and that really made a big difference. Certainly the policies in the U.S. made a big difference.
This is what concerns me: is the job done? Have we done everything? In Europe we can see they've made some very positive steps this past year, so that's good, but we're not sure yet if it's working or how well it's working. So Europe remains an area that concerns us, but with something to watch, if you like.
China is decelerating. It's a very natural process as they restructure their economy. They're even bigger than they were five years ago, so 7% growth is a lot of growth, yet every time a new number comes out, someone will say, “I think it's slowing more”. That makes you concerned about commodity markets, what matters for Canada, and so on.
Brazil is having a slow growth period. Then there's India, the bright light.
All those uncertainties come up. We want to make sure that you understand that what we try to offer is a balanced risk forecast. We have to be able to tell you that there's something on the upside that we're worried about, too, as a forecaster. That would be the U.S. economy. The U.S. economy appears to be firing on all cylinders. It's had a questionable first quarter but it has a very good momentum. So it has the potential to surprise us on the upside.
Yes, there are negatives, but there are always positives, too, and that's why we can offer it up and say that we think we've balanced the judgment around these numbers we give you.
I guess we should begin with a little bit of history. We've mentioned a couple of times here this morning that in fact a number of Canadian companies were forced to exit the export sector over the course of the post-crisis cycle. Those who stayed, of course, did so by being very careful on their costs and actually becoming more efficient.
One of the byproducts we're seeing of this is quite a good increase in productivity. In the Canadian economy, this is a very positive sign. What it means is that our competitiveness is not just about a lower Canadian dollar but better cost performance among those companies that survived this very difficult period. Of course, now we're laying the groundwork for whole new kinds of sectors, high-tech things like environmental technologies—windmill blades, new jet engines, smokestack emission scrubbers, or robots that inspect metal parts. I mean, ten years ago we didn't even imagine these things, and now they're part of our exports. That is the phase of the cycle that we call the rebuilding cycle, which we believe is just in progress. It's not just about expanding companies who are now up at their capacity; it's brand new companies. We'll be watching those signs very closely.
There are challenges that we're facing, of course. Where are you going to sell? You have to have that kind of global perspective, because it's not just about the U.S. That costs real money; it's hard. There are language barriers, and all kinds of rules and regulations that one has to understand. We have people to help companies do that. It's also about the cost of capital equipment, which came up before. A lot of that comes from other economies.
So you have to take those costs into account, but I'm very optimistic that we have all of the ingredients there for a very successful phase in our cycle.
:
Well, the evidence we have at present would be primarily in the export sector. We also know that consumers, those with flexible rate mortgages, have already lower payments. This is important as a buffer to the oil price shock. Those who are renewing, who don't have variable rates—that block of people are already getting the benefit of lower mortgage payments.
We know that companies with existing export contracts receive a substantial boost in their cashflow immediately when the currency moves as it did. That would be not only in the non-energy export sector but in all export sectors. In the case of oil, it provides a partial offset to lower oil prices, but in other sectors where prices have been stable, it's an enormous effect on their cashflow, and then, of course, positions them for more competitive offerings in the next cycle of contracting.
The evidence we have is thin at this stage. It's an accumulation of fundamentals that we believe are there, and as we say in the monetary policy report, our biggest risk is that somebody surprises us. For example, consumers spent less in the first quarter—we believe because of bad weather. However, if it turns out that they've changed their minds about something, then that's something that would carry on longer. That's a risk.
In the case of companies, companies tell us in the non-energy export sector they're ready to invest. They need a little more time perhaps, or they need a little more assurance, and I think the numbers are proving that.
No one is claiming that we know exactly what's happening in the first quarter or the second. That's our job to continue to monitor all those things.
:
Good morning, Mr. Chair, vice-chairs and members of the committee. Thank you for the invitation to appear and discuss our April 2015 economic and fiscal outlook.
Today, I am joined by Dr. Mostafa Askari, Assistant Parliamentary Budget Officer, Chris Matier, a senior director, and Scott Cameron, an analyst. They can also answer any questions you have regarding our outlook or other PBO analyses.
[English]
As you know, given the timing of this year’s budget, we provided the committee with a pre-budget economic and fiscal outlook. This outlook was constructed on a status quo basis and was intended to provide parliamentarians with an independent point of reference that could be used to assess budget projections as well as the scope for new measures.
[Translation]
First, I would like to briefly highlight some key findings from our pre-budget report.
We have expanded on our January analysis of the impact of lower oil prices. Based on model simulation results, our estimates indicate that the impact of the decline in oil prices on the Canadian economy is ultimately negative, albeit relatively modest.
In preparing our pre-budget outlook, we assumed, based on recent future prices, that oil prices will increase gradually from US$50 per barrel for West Texas Intermediate in the first quarter of 2015 to a high of US$66 per barrel by the end of 2020.
PBO's pre-budget economic outlook indicated that real GDP growth would slow to 2% in 2015 and then average 1.8% from 2016 to 2020, which is in line with our estimate of potential growth in the Canadian economy.
Prior to accounting for Budget 2015 measures, PBO's fiscal outlook showed that the government's budget would be in surplus in 2014-15 and would be roughly balanced over the next five years.
[English]
We have updated our economic and fiscal projections to incorporate budget 2015 measures as well as revisions to the government’s forecast of direct program expenses. There are some notable points of contrast between PBO's updated economic and fiscal outlook and the outlook presented in budget 2015 that I would like to draw to your attention.
The budget 2015 oil price assumption is that WTI oil prices will rise sharply to $67 U.S. per barrel in 2016 and continue rising, ultimately reaching $78 U.S. per barrel in 2018. You have the table and my remarks that were sent to the clerk prior to the meeting.
In contrast, PBO assumes that oil prices will rise only gradually to $64 U.S. per barrel in 2019, which is also in line with recent futures prices.
While near-term projections of real gross domestic product growth are similar, the budget outlook over 2017-19 is relatively optimistic, with real GDP growth 0.4 percentage points higher annually on average.
Reflecting differences in oil price assumptions and real GDP growth projections, the outlook for nominal GDP in budget 2015 is $20 billion higher annually, on average, over 2017-19 compared to PBO's updated projection.
Updating PBO's fiscal outlook for budget 2015 measures and for the government’s new direct program expense forecast results in relatively small projected budget deficits over 2017-18 to 2019-20.
[Translation]
On balance, our judgment is that the economic and fiscal outlook presented in Budget 2015 is relatively optimistic and that there is downside risk to the medium-term outlook over 2017-18 to 2019-20.
[English]
Just before concluding, Mr. Chair, as you are aware, the joint committee on the Library of Parliament recently passed a motion supporting the PBO's access to government information. The motion instructs the PBO to report to your committee and some other committees when I'm unable to obtain the required information from departments. The motion also refers to the standing committee's considerable powers to send for papers and records.
I welcome this parliamentary remedy and look forward to establishing a correspondence with your committee.
My colleagues and I will be happy to respond to any questions you may have regarding our economic fiscal outlook or any relevant matter.
[Translation]
Thank you, Mr. Chair.
:
Over time. So when combining this with the government's choice to broaden out income splitting....
Again, we're in favour of it towards seniors. We see the equity that it goes across middle-, low-, and high-income seniors, but when income splitting is broadened out, 85% of Canadians receive no benefit whatsoever.
Now, we're also seeing that in the government's budget document, they gave us a preview of what the Conservatives think is a typical family. They've done this the last number of years. Interestingly, in this budget, the genders switched in terms of income. Previously, in the typical family, according to the Conservatives, the woman was earning more than the man, but not appreciably more, with only a $14,000 or $20,000 difference between their salaries. Now suddenly the typical family under the Conservatives' world view has the woman earning almost $50,000 less in order to achieve the maximum benefit under their income splitting. So she has to take a pay cut of $50,000 in order to get into that 15% cohort as a family. That's the Conservatives' typical family.
With income splitting, what is the general impact on the economy and what is the view of equity? Is it an equitable measure to apply to an economy that is not creating jobs right now and is overwhelmingly unfair?
:
Okay, tax policies. What I would like to ask you then, in terms of your calculation, is, if it won't affect behaviour.... There are 11 million Canadians whose behaviour has been affected, so I want to ask you some questions on the analysis.
I'm a chartered accountant. When I worked at Price Waterhouse, if we did an analytical piece, we would endeavour to do both sides of the analysis for the client. I would like to suggest that you've only done half the job, and I'd love to get the other half of the analysis, because we have two tax models.
An RRSP has an immediate cost to the treasury. Take the example of a nice 24-year-old person who has just graduated from school. If they put $1,000 into a tax vehicle named the “Registered Retirement Savings Plan”, there is an immediate cost to the treasury. Further, given the time value of money—you can look up the algorithms, and there are a number of them—the reality is that if you defer the payment of tax for seven years, you've pretty well saved that tax dollar. This 24-year-old student is going to declare his or her RRSP perhaps 40 years hence, so the deferral is multiples of seven years. There's an enormous tax—as you would say—cost to the treasury.
You contrast that with the tax-free savings account. That individual has already paid the tax on that investment. He or she did not get any benefit from the government. What they did was pay the full tax—there was no cost to the treasury—and then put their $1,000 into a tax-free savings account. That's the basic difference.
The third piece of the missing analysis in terms of your work that I'm very fearful of.... You're so worried about the loss by 2080, but as time goes, that young man who has made that investment at 24 years old is going to actually contribute to a pool of capital. Whether it goes into mutual funds, investments of other kinds, the equity market, or the bond market, that is a pool of capital that future entrepreneurs will be able to draw upon and invest from, and it will strengthen the economy. That is the piece that I believe, sir, is missing in your analysis. Could you please comment on that?
Mr. Fréchette, for the benefit of Ms. Bateman and the committee members, it would be helpful if you could send us the TFSA studies that have been done here and around the world. A number of studies have been done on the subject, and I've had an opportunity to read them. The government would benefit from having access to them, as well. That would be appreciated.
Mr. Saxton said that income splitting levels the playing field for families. Conversely, I would say that when one spouse—usually the man—makes $80,000 a year and the couple has two or three children, the other spouse can choose whether or not to work. But for a couple that has three or four children, with one parent earning $40,000 a year, the other spouse almost has to work just so the family can make ends meet.
As for whether the policy levels the playing field or not, you didn't want to comment, and I won't ask you to. My example contradicts the government's claim that the measure eliminates an unfair element in the tax system. What's more, couples benefit from economies of scale, as compared with individuals who don't have access to income splitting, even if they are single parents. The Carter commission raised that point at the time.
I'd like to pick up on something Mr. Cullen said about the Auditor General's report, something I find quite interesting. According to the report, the government doesn't provide Parliament with appropriate information on tax-based expenditures. That leaves Parliament unable to ascertain how much tax-based expenditures will end up costing the government in lost revenue. The report also mentions the fact that it's impossible to obtain a description or proper follow-up from the Department of Finance.
My first question is this. In a speech to the UN, Mr. Harper had previously said that it was impossible to manage effectively without the ability to measure data. And according to the Auditor General's report, we can't adequately assess tax-based expenditures.
Would you draw a parallel between the situation identified by the Auditor General and the fact that the government is ramping up its estimates-based management approach, making it extremely difficult for committees to study departments' estimates and make a final determination on budget-related issues?
:
We are in the process of doing that follow-up. Without letting the cat out of the bag, I will say that that will probably be the focus of our first discussions with the committee.
Our relationship with the Department of National Defence seems to be improving gradually. You may know that we produced our last report with virtually no information provided by the department. We received more information from the United States Air Force and the United Nations than we did from the department.
This time around, we've contacted the new minister and new deputy minister, and both appeared to be very open. We are following up on the subject, given that we did receive a request to that end in connection with the report.
I'd just like to come back to your other point, the net reduction of 7,000 jobs resulting from the family tax cut. It's equivalent to 0.04% of the total hours of labour supplied, so it's still fairly marginal.
:
So this is a measure that, in your view, favours the rich.
Now I'd like to move on to another measure, income splitting.
I've done a bit of math. A couple in which one person earns $100,000 a year and the other earns $20,000 would see their tax bill drop by $1,800. But a family with a total income of $50,000 a year wouldn't benefit at all. In fact, according to a study, 86% of people wouldn't benefit.
I see that the income splitting measure will cost just about as much as a measure that would have brought seniors out of poverty.
Do you have any figures related to seniors and how much it would take to raise their income above the poverty line?
Thank you for being here, and thank you for the work you do. I know it's a difficult job to on the one hand—I'm starting to sound like an economist here—keep the government in check, and on the other hand to give a fair and informed analysis of where the economy is going. I appreciate your challenge there as well.
The issue that I take, however...and it's not a criticism, it's something that I find somewhat perplexing. When you create your analysis—Mr. Cameron, maybe you can delve into this in a minute as well—you seem to do what Harry Truman wished his economists would do, which was not give them the one hand and the other hand: you give them one hand.
I would suggest that the biggest part of the analysis comes from how you see the futures in oil. You have to admit that there are a number of issues and outside forces, geopolitical and just a range of different things, that would completely alter what your analysis would be.
As a matter of fact, we had a great chart from our governor this morning, and we saw the rapid rise of oil prices. I don't know if anybody...well, maybe there were. A lot of people were thinking “peak oil” back then. That's not a term we hear too much about anymore. I'm in that camp that feels there will be a change in oil prices. If all things were equal, absolutely, we would probably see this gradual rise.
I'm asking the question in all sincerity. Wouldn't it be prudent to maybe in this case be one of those economists who says on the one hand, the government's projections are such and we feel this, but on the other hand, they might be pleasantly surprised because we may see something that changes that whole scenario?
The Prime Minister famously said at the UN once that if you don't measure, you can't manage. That was a fair comment, and hopefully true. Yet we have the Auditor General's report here that says not only is the government not measuring the impact of their tax expenditures, but they are not providing information to parliamentarians to actually understand what the impact has been. Let's look at some of these right now...so flying blind and playing politics.
The TD Bank pointed out that the investment per $1 in early childhood education, child care, earns back to the Canadian economy anywhere between $1.50 and $2.78. By any economist's or banker's definition, that's a good investment and a good return on money.
You cited in the government's changes to childhood benefits to Canadians that there would be negligible impact on the creation of child care spaces and early childhood education. Is that true?
I'm just looking at your economic fiscal outlook of October 2013, and it seems to me for 2014 you were predicting $100, and this is WTI; 2015, $90; 2016, $85; and 2017, over $80.
On July 2014, it was over $100; October 2014, $85; January 2015, $50; and April 2015, $57.
I think we're almost putting too much.... It's almost like asking who's going to the Stanley Cup. The closer you get, of course, the better you can predict it, but I don't know if we should put too much into any oil price figure going out more than two days, frankly. It's very challenging.
I think perhaps what a number of you were saying was let's not be too critical of the budget numbers and let's not be too critical of your numbers. There are two sets of numbers; take them for what they are. They're two data points and let's use that as information. But for us to say, yes, in 2017 oil prices are going to be this, I didn't hear anybody predict the oil price drop from $100 per barrel to $50. I didn't hear anyone predict it. I mean, everybody now is saying they predicted it, but....