Full Comment - Canada’s worst fiscal crisis in generations is brewing

00:00:00.000 Did you lock the front door?

00:00:04.060 Check.

00:00:04.620 Closed the garage door?

00:00:05.780 Yep.

00:00:06.300 Installed window sensors, smoke sensors, and HD cameras with night vision?

00:00:09.780 No.

00:00:10.620 And you set up credit card transaction alerts, a secure VPN for a private connection,

00:00:14.060 and continuous monitoring for our personal info on the dark web?

00:00:17.080 Uh, I'm looking into it?

00:00:19.600 Stress less about security.

00:00:21.360 Choose security solutions from Telus for peace of mind at home and online.

00:00:25.220 Visit telus.com slash total security to learn more.

00:00:28.800 Conditions apply.

00:00:31.000 Wait, I didn't get charged for my donut.

00:00:34.400 It was free with this Tim's Rewards points.

00:00:36.600 I think I just stole it.

00:00:38.000 I'm a donut stealer!

00:00:39.920 Oof.

00:00:40.580 Earn points so fast, it'll seem too good to be true.

00:00:43.600 Plus, join Tim's Rewards today and get enough points for a free donut, drink, or Timbits.

00:00:48.400 With 800 points after registration, activation, and first purchase of a dollar or more,

00:00:51.960 see the Tim's app for details at participating restaurants in Canada for a limited time.

00:00:55.440 Bank more encores when you switch to a Scotiabank banking package.

00:01:05.780 Learn more at scotiabank.com slash banking packages.

00:01:09.100 Conditions apply.

00:01:10.900 Scotiabank.

00:01:11.520 First of all, we are a government that has always exercised fiscal restraint.

00:01:25.460 Prime Minister Justin Trudeau trying to pull a fast one on us, you might say.

00:01:29.800 He's trying to claim that his government, which has been in power for a full eight years now,

00:01:34.960 is fiscally responsible.

00:01:37.320 Are you buying it?

00:01:38.620 I'm not.

00:01:39.680 Hello, I'm Brian Lilly.

00:01:40.780 Welcome to the Full Comment Podcast.

00:01:42.580 This week on the podcast, we're going to take a look at the fall economic statement,

00:01:46.820 the fiscal state of Canada's finances.

00:01:50.320 Are they in good shape or are they in bad?

00:01:53.140 This is a government that was elected in 2015 at a time when Canada had a surplus,

00:01:59.300 at a time when the Trudeau liberals said it was a good time to spend.

00:02:04.520 Justin Trudeau in that 2015 campaign said that Stephen Harper was pushing austerity,

00:02:09.900 even though spending back in those days was still growing higher than it should have.

00:02:13.960 But he got elected promising just four small deficits of $10 billion a year each,

00:02:21.320 and then he would balance the budget.

00:02:23.880 He never balanced the budget.

00:02:25.660 It still hasn't happened.

00:02:26.660 And if you look at the forecast that were released in the fall economic statement,

00:02:29.600 it is a long way off before we will ever come close to balancing the budget.

00:02:34.720 In fact, in the latest statement, the government has decided that between the budget that came

00:02:40.620 out in the spring and the fall economic statement, that in the coming fiscal year,

00:02:45.100 we will spend $10 billion more, $519 billion in total.

00:02:51.460 Here's the shocking part.

00:02:53.140 About $6 billion of that extra $10 billion in spending is just going to service the interest

00:02:59.100 payments on the debt.

00:03:00.500 That's not paying down the debt.

00:03:02.040 That's like the interest payment on your monthly credit card.

00:03:05.140 The credit card bill stays the same.

00:03:07.540 You're just paying the interest.

00:03:09.040 Is that fiscal responsibility?

00:03:11.280 Is that what Justin Trudeau is talking about?

00:03:13.540 I want to bring in our guest.

00:03:15.280 He is a man who knows how to look at all of these numbers.

00:03:17.760 Bill Robson is an economist.

00:03:20.120 He's also the president and CEO of the C.D.

00:03:22.300 Howe Institute, a think tank based in Toronto that looks at fiscal matters.

00:03:26.500 It's also named after a well-known, well-renowned liberal finance minister who might have looked

00:03:34.160 askance at the current state of Canada's finances.

00:03:38.220 Bill Robson, thanks for the time.

00:03:40.500 My pleasure to be here.

00:03:41.540 I wish we were discussing something more cheerful than federal government finances.

00:03:45.160 Well, let me ask you about that.

00:03:49.700 It's, you know, I do this as a lay person.

00:03:53.840 I do this as someone that's covered politics for a quarter century.

00:03:56.480 But you're the economist.

00:03:57.960 You're with the C.D.

00:03:59.520 Howe Institute, named for a renowned and esteemed liberal finance minister from many

00:04:04.820 decades ago.

00:04:07.260 When you look at what the prime minister said about we're a government that's always believed

00:04:11.340 in fiscal responsibility, and then you look at what they brought out with the fiscal update

00:04:15.840 this week, do those two things mesh?

00:04:20.040 I don't think this government takes public finances all that seriously.

00:04:25.400 And it sounds like a very sort of casual and maybe even a kind of unprofessional thing

00:04:31.580 to say.

00:04:32.680 But we have to look at the projections we get nowadays, including in the fall economic

00:04:40.960 statement, with some wisdom of what we've learned from the last few years.

00:04:47.700 And what we've learned from the last few years is that the projections that we see in each

00:04:52.340 individual federal budget or fall statement are almost immediately overtaken by events.

00:05:00.100 And I am confident that between now and the spring budget, there will be new spending

00:05:06.480 announcements made.

00:05:08.640 I think that after the spring budget, we'll see some new projections then, and then there

00:05:14.440 will be more spending announcements made.

00:05:17.440 And so in between the various fiscal updates we've had since before COVID, but now that all

00:05:24.300 the COVID measures are kind of behind us, we've just seen federal spending projections growing

00:05:30.120 by massive amounts.

00:05:32.100 Since the end of 2019, more than $100 billion has come into the projections for the upcoming

00:05:37.980 fiscal year.

00:05:39.520 And so when I see these projections, I just say, well, you know, we have to talk about them.

00:05:45.440 We have to kind of take them on their own merits.

00:05:47.740 But when it comes to things like, you know, what's going to happen to the budget balance

00:05:51.580 is the ratio of debt to GDP, which the government has said is a really key indicator for them.

00:05:56.960 Is it actually going to go down?

00:05:59.980 I have to reserve judgment on that and say, you know, we just haven't been able to rely

00:06:04.920 on these projections in the past.

00:06:06.820 And so it's hard to say we should take these ones any more seriously.

00:06:10.580 Well, you get the budget in the spring, you get the fall economic statement, and I think

00:06:17.960 it was in the last budget, which was supposed to be, by this government's measures, an austerity

00:06:24.580 budget.

00:06:25.020 They were going to cut back.

00:06:26.340 They didn't do that.

00:06:27.160 They added $20 billion in new spending.

00:06:29.860 The fall economic statement that just came out compared to the budget from, I believe it

00:06:35.800 was April, you know, each year of projections, it adds billions more.

00:06:40.580 In new spending, we're about to hit that level of spending on debt that I didn't think we

00:06:48.520 would ever do again, and that is that we're going to be spending more on servicing the

00:06:52.840 debt than what the federal government spends to pay for health care in the provinces.

00:06:58.500 Did that shock you?

00:06:59.640 I mean, I've been watching that for a while, and I thought in a couple of years, we'll hit

00:07:03.740 that level.

00:07:04.600 I didn't think that would be this coming fiscal year.

00:07:08.540 No, it's a problem for sure.

00:07:10.220 They ran up a lot of debt.

00:07:11.780 They borrowed and they said they couldn't afford not to borrow.

00:07:15.320 Now, interest rates are back to levels that are much more consistent with the longer term,

00:07:22.840 and we've got this added problem that all that spending added to inflationary pressure,

00:07:28.040 and now central banks, it's not just here.

00:07:30.380 It's true in the United States and elsewhere as well.

00:07:33.640 A lot of governments kind of overdid it at the same time, but now central banks have put

00:07:38.980 the brakes on, and so the cost of servicing the debt is up.

00:07:43.740 Since you mentioned the cost of debt service, I want to point out that there's a lot happening

00:07:49.520 in federal finances now that is different from what happened when the federal government

00:07:55.940 got into big debt and deficit troubles back in the 80s and 90s, and one of the things

00:08:01.880 that really concerns me when I look at these numbers is not just what they're showing on

00:08:07.120 those debt servicing costs, which, as you point out, are now much higher than we thought they

00:08:11.880 would be, certainly much higher than the government projected they would be, but there's a whole

00:08:15.720 other side to the federal government's balance sheet.

00:08:18.420 The federal government has a lot of financial assets as well.

00:08:21.380 They have all these crown corporations, and investment income from those crown corporations

00:08:26.360 is historically a very important source of revenue for them, so the total cost of servicing,

00:08:31.740 you know, there's two sides to the balance sheet.

00:08:34.040 There's two sides when it comes to the interest you pay and the interest that you receive,

00:08:37.720 and that whole interest-receiving side is in trouble now in a way that we never looked at

00:08:44.180 this before.

00:08:44.800 It was never an issue, so this is new.

00:08:47.420 Okay, but can you unpack that for me?

00:08:50.340 What are you meaning by that?

00:08:52.020 Well, we'll start with the Bank of Canada.

00:08:53.840 The Bank of Canada bought a whole truckload of federal debt during the pandemic, and the

00:09:02.120 bonds that it bought, that was when interest rates were very low.

00:09:04.960 Now interest rates have gone up a lot, and so the bonds that they bought have lost a lot

00:09:08.600 of value.

00:09:10.180 Historically, the Bank of Canada paid a dividend to the federal government, but the Bank of

00:09:14.720 Canada is now in this situation where they've lost so much money that they're not going to

00:09:18.360 be paying a dividend.

00:09:19.640 So that's one example where you had this investment income coming in on the revenue side of the

00:09:24.160 balance, or the revenue side of the federal government's statement of operations, to use

00:09:29.000 the formal term, what you see when you look at the budget, what you see at the end of the

00:09:32.700 year when you look at the public accounts.

00:09:34.020 Now there's a whole lot more money going out to these various crown corporations, and the

00:09:40.440 federal government is projecting that they're going to be seeing a healthy flow of investment

00:09:45.180 income.

00:09:46.220 So in ordinary times, and back in the day when the federal government was in trouble before,

00:09:51.160 that was an important offset to the interest payments that they were making.

00:09:55.680 But I'm worried that in addition to the higher interest payments that you just mentioned,

00:10:00.040 we're also going to be seeing that there's a hole on the investment income side.

00:10:03.580 And so what that means is effectively that the cost of servicing the debt has gone up by more

00:10:07.920 than what you see when you look at the interest payments alone.

00:10:10.720 So I'm taking nothing away from your observation that the interest payments are higher.

00:10:14.460 That is true.

00:10:15.760 They're going to be more than 10% of revenue.

00:10:17.880 That's, in many people's eyes, kind of a bad indicator when you're spending more than 10%

00:10:23.360 of your tax revenue on interest payments.

00:10:26.520 But we also now have to pay attention to the other side.

00:10:30.060 of the balance sheet, all their financial assets and the revenue that may or may not

00:10:34.960 be coming in.

00:10:36.100 So I just wanted to put that flag up for the numbers, people in the audience, that it has

00:10:42.760 gotten more complicated.

00:10:43.880 And I think that we're going to be needing to pay more attention to some of those numbers

00:10:48.100 than we needed to in the past.

00:10:49.860 When governments get into fiscal trouble, things, you know, sometimes the numbers that

00:10:54.800 you're used to watching stop telling you the whole story.

00:10:57.820 That's not something that I was expecting.

00:11:02.900 And then, you know, this growth in debt, you know, you look, we can cut the government some

00:11:08.240 slack and say, look, they had to take on some debt during COVID.

00:11:11.960 But they took on an extraordinary amount of debt.

00:11:15.480 And we have known for some time that much of the spending that they undertook during COVID

00:11:21.080 was not even related to the pandemic.

00:11:22.780 It was not related to supports for individuals, supports for businesses.

00:11:26.660 It was not related to buying, distributing the vaccines or other measures.

00:11:33.220 They just went on a spending spree.

00:11:35.540 They decided that this was what needed to be done.

00:11:39.560 And now we're paying for it with higher interest payments.

00:11:42.660 But as far as the bonds go, here's what I don't get.

00:11:46.940 But when I looked at the Ontario fall economic statement, yes, their interest payments are

00:11:53.320 going up as well, but they're going up to about from 6% to 7% of revenue.

00:12:00.760 The federal government used to be down around 6% of revenue going to interest payments on

00:12:07.100 the debt.

00:12:07.760 Now it's going over 10% next year.

00:12:10.120 And when I asked the folks at Ontario, I said, why the difference?

00:12:14.480 And they said, all during COVID, they just kept refinancing their debt.

00:12:19.840 When interest rates were at historic lows, they would refinance with 30-year bonds at 1%,

00:12:24.040 1.5%.

00:12:24.760 It appears that the federal government didn't do that.

00:12:28.720 And now the interest rate increases are going to be hitting the federal government's bottom

00:12:36.220 line, which eventually does hit services.

00:12:39.520 We can sound like two pointy heads talking about this, but this has a real world impact

00:12:45.280 when you're no longer able to afford the services that people expect.

00:12:49.620 Well, there's another very straightforward reason why the federal government's interest

00:12:54.240 payments have gone up so much more than Ontario's or other provinces.

00:12:57.920 And that is just the scale of the borrowing they undertook was so huge.

00:13:02.740 And it was huge relative to the federal budget.

00:13:05.640 During the pandemic year, they came close.

00:13:07.960 They didn't quite get there, but they came close to financing half their spending with

00:13:11.680 debt.

00:13:12.600 So if you're running up debt at a rate like that, yeah, your interest payments are going

00:13:17.340 to go up.

00:13:19.260 You didn't intend to lead me back to what I was saying earlier about the investment income

00:13:25.320 side of the federal government's budget.

00:13:28.400 But I will go back there because the federal government sold all these bonds to the Bank

00:13:36.280 of Canada.

00:13:37.480 And so if you just focus only on their selling bonds at a time when yields are really low,

00:13:44.840 so this is a good time to be borrowing, then it looks like they were doing something similar

00:13:49.700 to what the province of Ontario was doing with refinancing.

00:13:53.400 But the kicker is they sold all those bonds to the Bank of Canada and they own the Bank

00:13:57.580 of Canada.

00:13:58.160 So they were selling those bonds to themselves.

00:14:00.420 How does the Bank of Canada finance itself with short term?

00:14:03.340 You know, all of the Bank of Canada's liabilities that, you know, when they're pushing money

00:14:10.460 out into the financial system, a lot of this stuff, these are short term liabilities.

00:14:15.940 So even though the federal government itself looked like it was financing in a prudent way

00:14:20.960 and the finance minister was saying we can't, you know, not afford to borrow these interest

00:14:24.440 rates, they were selling the bonds to themselves.

00:14:27.080 And so that's a really important difference.

00:14:29.760 Is it a problem that the Bank of Canada was buying federal government bonds?

00:14:35.880 I think you'd put this into the same category of what you had said earlier about the need

00:14:40.960 to do something.

00:14:41.800 Yeah, we certainly needed to do something.

00:14:44.060 And I would not have been at all critical of the government for going into deficit.

00:14:49.620 I mean, they should have been in surplus before the pandemic because the economy was

00:14:52.740 strong and there was no reason to be running a deficit, but it was kind of like a signature

00:14:56.180 policy.

00:14:56.740 Anyway, leave that aside.

00:14:58.480 Once the pandemic hit, yeah, for sure, you do not want when the bottom is falling out

00:15:03.820 of the economy and there's genuine fear.

00:15:06.440 I mean, how long are we going to be locked down for?

00:15:08.440 How many deaths are there going to be?

00:15:09.860 All that.

00:15:10.720 You don't want to be suddenly raising taxes and cutting programs.

00:15:14.300 You want to be providing the support.

00:15:15.780 So no question that that was desirable.

00:15:18.740 And when you go over to the monetary and financial side, the payment system was in danger of seizing

00:15:25.040 up suddenly there was, you know, people wanted cash, people wanted liquidity.

00:15:29.720 And so here in Canada, as elsewhere in the world, central banks were pumping all this

00:15:33.340 money out.

00:15:34.500 So you put those two things together.

00:15:36.100 Governments were raising debt.

00:15:37.360 And a very obvious place to sell the debt to is the central bank, because the central bank,

00:15:42.580 that's how central banks operate.

00:15:43.740 They have two sides of their balance sheet as well.

00:15:45.920 If they're going to be emitting a whole lot of money, they got to hold some assets that

00:15:50.080 counterbalance that.

00:15:52.180 So it actually worked quite well.

00:15:53.960 But just as you said about the spending itself, it went on for too long.

00:15:57.760 We got the high inflation that we did because they just kept their foot to the floor too

00:16:02.420 long.

00:16:03.380 The central banks, you know, here, the Bank of Canada, the Fed, other central banks, this

00:16:07.960 was a mistake that got made in many places, not just here, but they kept it up for too

00:16:12.660 long.

00:16:13.460 They printed too much money in return for all these bonds that they absorbed.

00:16:18.260 And as a result, we got the high inflation.

00:16:21.160 What bothers me now, just to sort of update to where we are now and look ahead.

00:16:25.340 So we know, because we have high inflation, that we push the economy as hard and then maybe

00:16:32.140 a little bit too hard.

00:16:34.140 You know, the foot was to the floor there.

00:16:36.480 We were exceeding the speed limit.

00:16:38.420 The engine was running too hot.

00:16:39.780 Now the brakes are on.

00:16:41.100 What I would really like to see from the federal government, and we just didn't see any discussion

00:16:46.180 of this in the fall statement, and I don't know if we'll see any in the spring budget.

00:16:50.440 I sure hope so, but on past performance, probably not.

00:16:54.060 They've overdone it.

00:16:55.340 They ought to be easing back on the accelerator.

00:16:57.640 They ought not to be continuing to spend all this money.

00:17:01.840 And if they did that, then the Bank of Canada's job would be a lot easier.

00:17:07.540 So I'll stop there.

00:17:10.020 That's something that Scotiabank, among others, Scotiabank was back in the news.

00:17:14.640 But I've been citing Scotiabank reports for two years now that said if the federal government

00:17:23.480 doesn't control its spending, then it will be left up to the Bank of Canada to do what

00:17:28.620 it can to deal with inflation.

00:17:31.600 And that will mean higher interest rates, which means higher mortgage payments for households,

00:17:37.100 higher line of credits for households and businesses, that the pain will be felt where it shouldn't

00:17:45.480 be.

00:17:45.720 And unfortunately, they never heeded that.

00:17:50.340 You know, I ran the numbers on the final budget of the Harper government, 2014-2015.

00:17:59.080 Let me just pull up so I've got exact numbers here.

00:18:01.940 But this is this is from the the 2016 federal budget.

00:18:06.580 So this is once the Trudeau liberals are in and they on the summary statement of transactions

00:18:11.480 say that that they spent we had a one point nine billion dollar surplus that year, by the

00:18:18.640 way.

00:18:19.520 But budgetary spending was at two hundred and eighty million dollars in that year.

00:18:25.900 You look at the fall economic statement and we're at four hundred and fifty six billion,

00:18:32.780 four hundred and eighty eight billion, sorry, in spending this year, five hundred and nineteen

00:18:37.280 billion in spending for the coming fiscal year.

00:18:40.140 That's an increase of more than 60 percent in government spending at a time when the Bank

00:18:46.000 of Canada says inflation's been twenty five percent.

00:18:49.820 So we're running at more than double the inflation rate in terms of government spending.

00:18:53.500 And I'd be hard pressed to find anyone that says, yes, government services are 60 percent

00:18:59.780 better than they were when this government came in.

00:19:03.020 I honestly don't know what we're spending the money on beyond the debt servicing costs have

00:19:08.220 gone up.

00:19:08.600 But that's that's only a small part of it.

00:19:11.080 Well, a huge part of the increase in federal spending has simply been the federal government's

00:19:15.440 own operating costs.

00:19:17.300 They have been hiring like crazy.

00:19:18.820 They've been giving wage increases to their employees and they're also running up pension

00:19:27.340 obligations.

00:19:28.260 I mean, one of the difficult things about federal government spending on their own operations

00:19:35.020 is that it's got a very long tail.

00:19:37.180 You know, you hire somebody now and then they start to accrue pension benefits.

00:19:42.440 And so there's this big, long liability that's going to be payable, you know, long after the

00:19:48.440 person retires and so decades into the future.

00:19:51.040 So there's a big problem with the type of spending they've been undertaking.

00:19:54.740 If they had been improving the quality of the services that they are providing, if passports

00:20:00.920 were getting issued, if they were handling immigration properly, if our taxes were getting done in a more

00:20:06.240 expeditious way, then yes, there'd be something positive to say about all this.

00:20:11.600 But these this massive increase in personnel has not has not had commensurate benefits.

00:20:18.680 They have a big productivity problem in the federal government and it seems to be getting worse.

00:20:23.080 I do want to come back to what you had said about the Bank of Canada, because it's absolutely true that the

00:20:27.820 bank is having to apply the brakes more than they would need to because the government's got its foot on the

00:20:33.360 accelerator. And if you think of that straightforwardly as a metaphor for what's

00:20:37.360 happening in a car, if you've got one foot on the accelerator and one foot on the brake, your car is

00:20:41.420 in trouble. But the other the the other way of of expressing what you were just talking about is to say

00:20:49.220 if the economy is running at capacity and if the federal government is increasing its

00:20:55.340 spending at a rate that's faster than the economy's productive capacity is growing, then the federal

00:21:02.300 government is crowding other stuff out. And you think about, OK, so if the federal government's

00:21:08.720 getting bigger, what's going to get smaller? How about we're going to spend less on residential

00:21:14.340 construction on housing? Well, that doesn't seem like a very good idea because we have a colossal

00:21:19.580 housing shortage. The federal government, of course, is making it worse with their immigration 0.99

00:21:23.480 policies. But we don't want to see the amount of our economy that's getting devoted to building new

00:21:29.180 housing get any smaller. How about business investment? Well, business investment has been

00:21:34.420 terrible over the last little while. The amount of capital per worker is actually falling. And

00:21:40.180 that's that's something that hasn't happened since the 1930s in the Second World War. That's a very

00:21:45.780 weird and ominous thing. It sure isn't happening in the United States. It isn't happening elsewhere in

00:21:49.960 the OECD. So we don't want lower business investment. We want higher business investment.

00:21:53.940 So, you know, what else what's going to give? Well, the consumer is going to have to cut back.

00:21:59.660 People are going to actually have to, you know, have less goods and services for households. And

00:22:05.140 who wants that? Our living standards have been stagnant for quite a while. So it's not simply that

00:22:10.560 they're, you know, creating this problem in the here and now for the Bank of Canada. They're squeezing

00:22:16.000 the productive capacity, the economy by expanding. And I suppose just, you know, while I'm listing all the

00:22:22.280 things that we don't want to see crushed by the federal government getting bigger and bigger,

00:22:26.880 we got provincial governments as well. We were talking a bit about this earlier.

00:22:30.760 They're the ones that have the heavy lifting to do on health care. They're the ones that are

00:22:34.660 on the front line when it comes to all kinds of services that matter to us in our daily lives,

00:22:39.380 including the stuff that we get through our municipalities. So we don't want to see that

00:22:43.080 getting squeezed earlier. So I really think that we've got a big problem here and that the federal

00:22:47.440 government is growing without giving us commensurate value for the increase in its overall fiscal

00:22:53.680 footprint. And that of necessity means that other parts of the economy have to get smaller. And I don't

00:22:59.480 see any part of the economy that I want to get smaller so that the federal government can get bigger.

00:23:04.820 No, no, that that is not something we want. Bill, we've got to take a quick break. But when we come

00:23:10.060 back, you mentioned something about the federal government's immigration policy, making the housing

00:23:15.440 situation worse. There's a stat that that I just saw for the first time today. I'll tell you about

00:23:20.640 that when we come back, because it is quite shocking and telling in terms of the left hand not knowing

00:23:28.200 what the right hand is doing more when we return. Ontario, the wait is over. The gold standard of

00:23:34.820 online casinos has arrived. Golden Nugget Online Casino is live, bringing Vegas style excitement and a

00:23:40.940 world class gaming experience right to your fingertips. Whether you're a seasoned player

00:23:45.540 or just starting, signing up is fast and simple. And in just a few clicks, you can have access to our

00:23:51.180 exclusive library of the best slots and top tier table games. Make the most of your downtime with

00:23:56.620 unbeatable promotions and jackpots that can turn any mundane moment into a golden opportunity at

00:24:02.340 Golden Nugget Online Casino. Take a spin on the slots, challenge yourself at the tables or join a live

00:24:08.120 dealer game to feel the thrill of real-time action, all from the comfort of your own devices.

00:24:13.200 Why settle for less when you can go for the gold at Golden Nugget Online Casino?

00:24:18.500 Gambling problem? Call ConnexOntario 1-866-531-2600. 19 and over, physically present in Ontario.

00:24:26.000 Eligibility restrictions apply. See goldennuggetcasino.com for details. Please play responsibly.

00:24:31.400 When I found out my friend got a great deal on a wool coat from winners, I started wondering,

00:24:36.320 is every fabulous item I see from winners? Like that woman over there with the designer jeans. 1.00

00:24:42.660 Are those from winners? Ooh, or those beautiful gold earrings? Did she pay full price? Or that

00:24:48.240 leather tote? Or that cashmere sweater? Or those knee-high boots? That dress? That jacket? Those

00:24:53.300 shoes? Is anyone paying full price for anything? Stop wondering. Start winning. Winners. Find

00:25:00.120 fabulous for less. So Bill, just before we went to the break, you were discussing several things going

00:25:07.900 on with the federal government and housing, you know, residential construction not being where it

00:25:13.100 should be, that being squeezed out by federal government spending. And you mentioned the

00:25:17.100 immigration policy. And this week, Stats Canada, or this past week, Stats Canada, it's in the last

00:25:24.980 little bit. They said that we went over 40.5 million people in the country. Our population

00:25:32.400 is more than 40.5 million. Now, what's shocking about that is, according to Stats Canada, we just

00:25:38.960 crested over 40 million people in June. So between June 15th, when they announced we hit 40 million

00:25:45.820 people, and the end of November, we've added half a million people. But we're not adding half a million

00:25:53.440 homes. And, you know, while the federal government has their own financial problems, the rest of us

00:25:58.680 have financial problems because of the inability to, for people to be able to buy homes, to find

00:26:06.100 affordable places to live. The Consumer Price Index said, in some parts of the country, rent increases are

00:26:13.480 at 15% year over year. That's unsustainable.

00:26:19.720 I'm very dismayed to see what's happening on the immigration front, because

00:26:24.880 we've historically had a very successful approach to immigration in Canada.

00:26:33.380 People elsewhere in the world who look at Canada have regularly expressed amazement that we could have

00:26:40.780 the high rates of immigration that we have had, and have the economic success that immigrants have

00:26:46.900 had, and the people who are here already, at the same time. And, and, and broad based support for

00:26:55.020 the exactly, yes, that is that is just where I was about to go, because they all go together.

00:27:00.220 It's been a successful system. And now, the federal government has really raised very significantly the

00:27:10.540 targets for permanent arrivals. So, up to 500,000. So that's a, that's a big number 500,000 annually.

00:27:19.580 And then on top of that, we have a huge inflow of temporary workers and students. And we're not even

00:27:26.900 sure about the numbers there. One of the stranger things that's happened lately, and it complicates

00:27:32.120 the Bank of Canada's job, among other things, is, is even under even measuring the labor force

00:27:38.020 accurately, and being confident that we know how many people are working in the economy, because

00:27:42.360 the rate of increase is so great, as you've just been saying. And so, if you, if you look at the

00:27:51.080 sort of, you know, 1 million increase in temporary people of, of temporary residents of one kind or

00:27:58.180 another over the course of a calendar year, and then what you were just talking about, with respect

00:28:02.680 to the increase in permanent arrivals, it's, it's a very large number. And I, so I think it's about when

00:28:10.520 you add up the 900,000 that the federal government has talked about for international students,

00:28:17.520 about 450,000 to 480,000 for permanent residents, and then about another 250,000 in temporary workers,

00:28:27.480 everything from a professor to an NHL coach to the farm workers, that's 250,000. You're, you're at 1.6

00:28:33.520 million annually. And the growth rate, last time I looked, the, the numbers that you were referring

00:28:39.840 to might be an update on that, but our population was growing at a bit more than 3% year over year,

00:28:46.980 and almost none of that is, is, is births minus deaths. It's essentially all net immigration.

00:28:53.740 So 3% increase would mean in very, you know, broad strokes, you, you, you have to be adding to

00:29:02.640 the number of dwellings in the country at about the same rate. If you just want to keep pace with where

00:29:10.400 we are, and I think most people would say that where we are right now, isn't really all that good.

00:29:14.380 The fall economic statement did say quite a bit about housing, but when you talk up the total

00:29:21.020 number of new spaces that they're talking about, and you think about how many years it's going to be

00:29:26.560 until those are actually places people can live in, you know, presuming that we do eventually get to

00:29:33.140 those numbers, it's just nothing close to what we would need to accommodate the influx of population.

00:29:40.880 And I don't mean to, you know, it's, it's, it's a, it's a weird thing to be talking this way,

00:29:45.240 because I've always thought that our immigration system was a good one, and that we were a real

00:29:51.600 success story. And now it sounds like I'm, I'm, I'm talking against immigration, but I, you know,

00:29:57.260 you look at the housing situation, and you say this just, it's not working out what they're doing

00:30:02.020 on the fiscal side isn't just any, it is nowhere close to what we would need just thinking about

00:30:06.300 housing alone. And then you're, you're seeing the stories of Ukrainian refugees, leaving the country

00:30:12.240 of people who immigrated here, leaving the country saying it's too expensive. I can't live here 1.00

00:30:17.500 anymore. When my parents came to this country in 68, they bought a house within five years. You know,

00:30:24.760 you talk to new immigrants now, and they're, and unless they're coming with money, they say,

00:30:29.040 that's just not feasible. You know, they either have to come with money, or there has to be a huge

00:30:35.880 family effort with an extended family buying house. We, we are not setting anybody up for success with

00:30:43.460 the way things are now. No, we're not. And I mentioned earlier, the problem with other types

00:30:49.680 of investments. So not if you if you look at away from the residential side, you look at non residential

00:30:56.080 investment. So all of the machinery and equipment and software and all the infrastructure that

00:31:02.960 businesses put in place, in order to allow workers, you know, give workers the tools they need to earn

00:31:09.640 good wages and, and, and compete internationally. The problem is, there's also a problem on that side,

00:31:17.700 we just do not have enough investment happening in the economy. So that all this growing population

00:31:24.320 can earn higher wages, be more productive and earn higher living standards.

00:31:30.860 I don't think a lot of people would understand the relationship between a business investing in a

00:31:35.720 piece of machinery or some software, and them getting a higher paycheck. Well, does that work?

00:31:42.880 Labor, labor productivity is not a term that everybody makes everybody's heart beat faster. But,

00:31:48.740 you know, it's at the core of what allows us to live better than our grandparents did. We all have

00:31:57.460 better tools to work with. You know, once upon a time, a construction site, you had a bunch of guys

00:32:02.640 with shovels and wheelbarrows. Now you have excavators. Once upon a time, people were using,

00:32:07.800 you know, manual adding machines. Now we have computers that do all that work for us.

00:32:11.720 The list is very long. If you just look around a modern workplace, and you say how much of what

00:32:17.740 people are working with here nowadays was there 10 years ago or 20 years ago, that constant process

00:32:25.000 of retooling is what enables us to earn higher wages, compete, and live better. And what's very

00:32:32.660 much concerning me right now is that after the middle of the last decade, initially, the SAG and

00:32:39.760 business investment in Canada, you could chalk it up to the fact that oil prices collapsed.

00:32:44.960 Natural resource industries are very capital intensive. And so there was naturally a bit

00:32:49.940 of a fall off of business investment reflecting that. That's all in the past. Now, you look at

00:32:54.720 energy related investment in the United States, it's way up in Canada, it's just struggling along.

00:32:59.800 You look at investments in machinery and equipment. In the United States, it's up so much that by now,

00:33:05.260 the average worker in the US is getting almost double every year, the new investment in machinery

00:33:10.360 and equipment that the average Canadian worker is getting for software.

00:33:14.800 And so our wages in this country, compared to the US, have stagnated for a long time,

00:33:22.060 they're increasing. I'm sorry to put you on the spot, off the top of your head, do you know roughly

00:33:28.100 what the disparity is between what the average worker makes in Canada versus the US?

00:33:32.980 I don't have that in front of me right now. But the gap is widening. We've always had a gap.

00:33:38.480 But it is widening. And I think very largely attributable to what I've just been talking about,

00:33:44.860 that there's been less investment. If you don't mind me just going back to the numbers,

00:33:50.140 for the sort of intangible stuff, which is so important nowadays, software databases,

00:33:55.640 all of the intellectual property products that are so much part and parcel of the new economy,

00:34:02.480 in the United States, they're investing four times per worker what we are. So this is not a good

00:34:09.560 situation for us to be in. And the gap between output per worker in the United States and Canada

00:34:15.580 is growing. The gap between output per worker in Canada and other OECD countries is growing as well.

00:34:22.800 There is something uniquely problematic in Canada. So it's a big conversation, all of the different

00:34:29.380 reasons why that might be happening. But one of the things that you don't want to be doing when

00:34:34.720 you've got that kind of slow burn investment crisis is bring in a whole lot more people.

00:34:40.780 Because pretty soon, our construction sites are going to have guys with shovels and wheelbarrows,

00:34:45.700 because it's all you know, we're adding all this labor, but we don't we're not giving them the

00:34:49.920 equipment that they need to do their jobs. We do not want to be turning ourselves into a economy,

00:34:55.040 you know, where people are making t shirts on sewing machines. We want to be the country that's making

00:35:00.580 the machines that are making the t shirts, or maybe the country that's making the software that,

00:35:04.640 you know, that controls those machines. Canada is going down a very strange path right now.

00:35:10.580 And it disappoints me to say it. But if it were up to me, I would slow the immigration down until 1.00

00:35:16.560 we fix this investment problem. You know, for people that think, well, we've always been a,

00:35:22.880 you know, a highly functioning economy, a wealthy economy, that's not going to change.

00:35:28.460 You know, I would just point out that Venezuela and Argentina used to be economies that rivaled Canada

00:35:33.660 in terms of, you know, average wages, in terms of GDP per capita, things like that. They used to be,

00:35:41.880 you know, going back to the 1960s, perhaps, but they used to be strong economies, and they have,

00:35:49.460 due to bad economic decisions, mostly at the government level, they've turned into basket

00:35:53.900 cases. The current line, and of course, there's politics involved in all of this, not just numbers,

00:36:02.040 Bill. The current government is not doing well when you look at the polling. And, you know,

00:36:08.500 as much as every politician I've ever covered will tell you, polls don't count except on election

00:36:14.260 day. They all read them, and they all adjust their policies based on that, or their messaging.

00:36:20.340 And so with the conservatives up and the liberals down, one of the messages from the liberals is that

00:36:25.480 you can't vote for the other guys, because they're going to bring in austerity. And they try and scare

00:36:32.200 people and say, well, you know, the other guys want to cap spending. Well, that means you're not going

00:36:37.580 to get your national daycare program or your dental program. I added up the spending at National

00:36:45.160 Defense, the national childcare program, the pharmacare program, and I was just over half of

00:36:51.640 what we're going to be spending on that interest debt payment we were discussing earlier. These are

00:36:56.700 small programs in the grand scale of things. Can we have a slowing down or a paring back of

00:37:05.040 government spending without it being, quote unquote, austerity and taking away services that

00:37:12.520 Canadians want? Or do we have to get to the point where we were in 94 and 95 when Jean Chrétien and

00:37:20.020 Paul Martin gutted government spending because they had no other choice?

00:37:25.560 Well, we don't want to have to go through something like what Jean Chrétien and Paul Martin went through.

00:37:31.120 But since you started on the political angle, I will say that they were politically quite

00:37:36.500 successful. It's clear, it feels so intuitive that if you spend a whole lot more money and

00:37:47.280 finance it by borrowing so that nobody has to pay the taxes, that it just feels like that's

00:37:53.180 a recipe for political success. But in fact, I think over time, the historical record doesn't

00:37:59.120 really bear that out. It's not necessarily true that fiscally irresponsible governments

00:38:05.000 reap the benefits of the polls, maybe in the very, very, very short run, but these things catch up

00:38:10.260 to you fast. And there are plenty of examples of governments that did take a more austere approach,

00:38:16.720 if you like that term, and were politically successful. So I think that what sort of seems

00:38:22.440 obvious or intuitive isn't necessarily true. And I don't think that a government that's,

00:38:28.280 you know, committed to a more responsible fiscal program should be quite as concerned as we often

00:38:36.240 feel they should be that it's going to be politically hard to sell. On to the sort of meat of the question,

00:38:42.320 can you cut without it hurting? Well, everybody benefits from spending of one kind or another.

00:38:47.980 But we talked already about the degree to which the federal government has grown itself just with

00:38:54.760 its own internal operating costs. The spending on consultants gets headlines, and it has ballooned

00:39:02.920 like crazy. But when I'm just a couple of blocks from the beautiful McKinsey headquarters here in

00:39:08.400 Toronto, they've got a fireplace going and they've got a lovely cereal dispenser for all the workers that

00:39:14.900 spend 24 hours a day there. It's beautiful. Well, McKinsey is a very high profile name. They are

00:39:19.860 far from the only one that has been benefiting. There's lots of them from this. Yeah. And one of

00:39:25.260 the reasons that, you know, you put an exclamation point on it is that if the federal government were

00:39:30.060 cutting back and cutting back in areas where it's hard to do things internally, like, you know, all of

00:39:36.400 us spend on outside people when we have to do IT stuff, that often doesn't work out all that happily,

00:39:42.460 but compared to if you tried to do it yourself. Yeah, there are certain types of things where you

00:39:45.980 bring in outside people, it just makes sense. But in the case of the federal government, they've been

00:39:50.120 expanding all over the place anyway. So there is this question.

00:39:53.560 So they're up by 30% or so on their workers. Yeah, but they're also up on their consultants.

00:39:58.920 So you could cut back and the average Canadian would not experience any pain as a result of that. But

00:40:06.840 the pressure of the federal government sort of squeezing the rest of the economy, that would be

00:40:11.380 alleviated. And so there would be some benefit from that. But let me not dodge the harder parts of your

00:40:18.700 question entirely, because there are some places that we really do need to see the government

00:40:24.940 exercise some restraint in complete contrast to what they've been doing, where there would be some

00:40:30.580 political pain. And I'll mention the Harper government's plan, and it would be kicking in

00:40:36.560 about now to gradually raise the rate, the age at which people normally receive OAS payments,

00:40:42.760 old age security payments. That was a, you know, reversing that not proceeding with that was a big plank

00:40:48.620 in the liberal platform back in 2015, which then Finance Minister Bill Morneau, who knows the thing

00:40:54.540 about her tubo pensions, fought, but then caved on, which is a great shame that he did. At some point,

00:41:02.240 with Canadians continuing to live longer, and healthier lives, so that a lot of people can

00:41:07.280 afford to work longer, they've got to revisit that. It doesn't mean that...

00:41:11.920 Or let me throw this out to you, because I argued with the Harper guys, when they brought this in,

00:41:17.160 and I said, why are you raising the age? Why don't you lower the rate at what you claw back?

00:41:22.800 So in 2013 or 14, when they brought that policy in, or proposed it, they were sending

00:41:30.680 OAS payments to seniors who made $112,000 a year in retirement. And I said, there's no way that the

00:41:41.980 government of Canada should be giving you a penny if you're making $112,000 a year in retirement.

00:41:47.780 They said, well, we can't cut back there, so we have to raise the age. And I think that would be

00:41:53.500 an easier sell. Now, are you going to get as much bang for your buck? Perhaps not. But

00:41:57.340 if old age security is supposed to be there to lift people out of poverty, which was the

00:42:02.840 original intent, even making $80,000 a year in retirement, are you in poverty? Do you need

00:42:09.480 an extra paycheck from the government? I think there's an argument there.

00:42:12.680 Well, another way of thinking about what you've just said would be we've got the guaranteed income

00:42:17.900 supplement. So that is the real safety net program to take care of destitution in old age. So you would

00:42:25.660 treat that differently from how you would treat the rest of the program. If somebody who is in bad

00:42:32.160 financial shape and also just can't work anymore at age 60 that needs an income, then you've got the

00:42:39.700 guaranteed income supplement to do that. So you can change these programs in ways that reduce some

00:42:46.860 of those perverse kind of redistributive things. There's another important thing that you can do

00:42:52.660 as well, and that is we've now got, as with the Canada Pension Plan, a provision that you can take

00:42:58.320 a different amount of OAS depending on whether you defer a receipt or not. So there are various ways of

00:43:05.560 handling this type of thing. So it's not, you know, a kind of cliff edge thing where somebody who

00:43:10.840 really needs the money suddenly isn't going to be getting it. But those are areas where...

00:43:16.360 But it's reform. You're basically saying there needs to be some kind of reform.

00:43:21.160 We can't, yeah, we have to be realistic about demographics. And that's an area where, yeah,

00:43:28.340 there would be some political pushback. But the other thing I'm just going to jump right in,

00:43:34.060 since we're talking about pensions, I resisted talking about this earlier, but I have to talk

00:43:39.700 about the federal government's own pensions. They have extraordinarily rich pensions in the

00:43:45.980 federal public service. Members of parliament, federal judges, they accrue pension benefits at a

00:43:50.780 rate that is way beyond what would be legal for you or me or, you know, our...

00:43:56.620 Legal?

00:43:56.920 Our fee saver. Yeah, there's these Income Tax Act limits on how much you can put aside and how

00:44:03.440 much benefit you can accrue in a pension. But the federal pension plans kind of get around those

00:44:09.440 limits. They have special provisions for getting around them. And they're not properly funded either.

00:44:14.780 One of the things in federal debt servicing costs, and again, for the numbers, people in the audience,

00:44:22.620 this might make your heart beat faster. Everybody else bear with me. The cost of those pensions,

00:44:30.880 that's a big part of the federal debt. And when we look at the interest payments on federal debt,

00:44:35.840 it's important to remember that they're not capturing some of those costs. What the federal

00:44:39.500 government did a few years ago is they moved some of those costs below the line. When you look at the

00:44:44.860 presentation in the fall economic statement and what they're showing us in budgets nowadays,

00:44:49.000 they've got this amortization of net actuarial losses below the line. Now, who reads an entry

00:44:58.360 like that? What on earth is an amortization of a net actuarial loss? Well, it is plain language that I

00:45:04.820 can manage. I'm going to say when they make these pension promises, they do not record the full cost

00:45:11.880 of them in their expenses. And so what you're seeing below the line there is a kind of liability that

00:45:18.340 was hidden from view and it's gradually coming into view. So in addition to restraining their

00:45:24.120 hiring and in addition to restraining the wage increases that they are giving, they ought to do

00:45:29.240 something about those pension plans. Nobody in the country has pension plans like federal employees

00:45:34.820 do. We used to have stuff like that in Ontario. They performed the teacher's plan. They performed the

00:45:42.660 municipal employees plan all across the country. Now you see these shared risk, shared governance

00:45:48.820 plans. It's a very much better way of running a pension plan. The federal government should go in

00:45:53.860 the same direction because a lot of the costs that we're seeing and some of them not displayed very

00:45:59.780 transparently are coming from those pension plans. So we should be looking at overall compensation for the

00:46:05.760 federal government, not just the wages and salaries they're paying in the here and now, but also the

00:46:09.640 pension promises they're making. Because for the average Canadian, that's a big cost and we're not

00:46:15.960 seeing a commensurate benefit for it. So if I'm advising the federal government about where, how to

00:46:20.800 get their costs under control, I'd be looking at that whole compensation package. Wow. I knew nothing

00:46:26.440 about that. I knew at one point the MP's pension plan, I think for every dollar they put in, we put in

00:46:33.360 four or five and Stephen Harper changed that, but much with much grumbling from his own MPs so that

00:46:39.720 it's a 50-50 split. And I thought, well, that's fair, but I didn't know about the rest of it. So

00:46:43.560 that's eye-opening. No, even that plan, it's not funded. You'd think that a basic discipline of any

00:46:51.260 pension plan, and it doesn't matter whether you're private sector or government, whatever you are,

00:46:55.500 is you promise somebody a dollar in the future, you better put aside the money that's going to yield

00:47:00.820 that dollar so that when the time comes, you're going to be able to pay that obligation and not

00:47:06.280 say to the taxpayer, oh, sorry, we forgot to fund this. You're going to have to cover it.

00:47:10.680 The MP's pension plan is not funded. They did start funding some of the rest of their pensions,

00:47:15.660 but this whole area needs a lot of attention. And it was important what they did there,

00:47:21.800 and there was indeed a lot of grumbling. But MPs are in no position to lead on pension reform when

00:47:27.900 their own plan is unfunded. I'll ask you this to close, Bill. I think the federal finances are a

00:47:36.000 mess. We've both discussed this in various ways, but are we at that 94-95 cliff yet, where the Wall

00:47:43.180 Street Journal has to declare us an economic banana republic before things change? Are we at that point?

00:47:49.400 Are we headed to that point? Well, we're certainly not going in the right direction.

00:47:53.300 One of the things that I always get concerned about when I hear people talking about our good

00:48:00.400 credit rating is that the credit rating agencies have a very particular question in mind when

00:48:06.300 they're looking at any borrower, and that is, is the debt going to get serviced? And if the debt's

00:48:11.580 going to get serviced, then they say, good, everything's fine. Well, from a bondholder perspective,

00:48:18.540 sure, that's what matters. From a taxpayer perspective, that's not what matters. If you're

00:48:23.960 getting squeezed harder every year to cover interest payments, then the credit rating agency is happy

00:48:31.380 because the debt is getting serviced, but you're not happy because you're paying more and more of

00:48:35.560 your income just to cover the debt servicing costs. So I take some comfort from the fact that we're not

00:48:41.140 going to have a sudden stop, like that people are going to suddenly not be willing to lend us money

00:48:45.640 anymore. But I don't take any comfort from the point of view of Canadians who are paying higher

00:48:50.220 taxes not to get any higher services. One of the things I keep an eye on is this, how much tax money

00:48:57.220 are you paying every year compared to the dollar of government services that you're getting back?

00:49:03.500 So take out all the debt servicing costs, take out the interest income, and just look at the taxes

00:49:07.980 that we're paying and the services that we're getting back. During the pandemic year, hey, it felt great.

00:49:13.320 As I said earlier, the federal government was financing almost half its programs by borrowing.

00:49:18.320 So right in the here and now, it felt like we were getting all this free money. Already that balance

00:49:23.280 has switched back. Already now we are paying about a dollar in tax for every dollar in programs that

00:49:29.680 we're getting. And as the debt and the interest payments mount, that dollar that we're paying in

00:49:35.740 tax is going to be getting less than a dollar in programs. That's what started to happen to us in the

00:49:40.660 eighties and in the nineties. And that was one of the reasons why the fiscal situation got to the

00:49:46.240 point where the government felt they had to do something about it because people were paying

00:49:49.280 more and more, but they weren't seeing what they were getting back for it. So yeah, we're not about

00:49:54.180 to lose. We're not about to run out of borrowing room internationally, but we are certainly getting

00:49:59.300 less for our tax dollars than we were. And until that turns around, I think people are going to be

00:50:03.580 unhappy. Bill Robson, thanks for the time.

00:50:05.980 My pleasure. Thank you.

00:50:07.620 A full comment is a post-media podcast. My name is Brian Lilly, your host. This episode was produced

00:50:12.640 by Andre Pru with theme music by Bryce Hall. Kevin Libin is the executive producer. Remember,

00:50:18.120 you can subscribe to full comment on Apple Podcasts, Google, Spotify, Amazon Music, listen through the

00:50:23.480 app or Alexa enabled devices and help us out by giving us a review, leaving a rating and telling

00:50:29.320 your friends about us. Thanks for listening. Until next time, I'm Brian Lilly.

00:50:35.980 Bye-bye.

Full Comment - November 27, 2023

Canada’s worst fiscal crisis in generations is brewing

Episode Stats

Summary

Transcript