Recent testimony before the House of Commons Standing Committee on Finance (October, 2023)
This testimony was as part of the House of Commons pre-budget consultations.
VIVEK DEHEJIA
ASSOCIATE PROFESSOR OF ECONOMICS
CARLETON UNIVERSITY
https://www.linkedin.com/in/vdehejia/
Thank you, Mr. Chair.
Canada’s economy today stands at a crossroads. For the last quarter for which we have data, GDP actually contracted. Inflation just clocked in at 4%, still well above the Bank of Canada’s target. More rate increases, therefore, could be on the horizon. Households in Canada have amongst the highest debt of any G7 country. Coupled with high house prices and insufficient new housing, many middle class families can no longer afford to own a home, and many are fearful that they won’t be able to afford the monthly payments on homes they already own as rates keep going up and stay high. There is a homeless and drugs crisis on our streets making people feel unsafe. You just have to walk about five minutes from here to see that for yourself.
Meanwhile, the government’s massive fiscal stimulus has reaped mixed dividends, at best. A recent Fraser Institute study shows that most of the job creation in Canada since the pandemic has been in the public sector not the private sector. Not only is our economy becoming more socialized, we’re not creating enough new good jobs and new business to power growth into the future. Indeed, Canada is probably, at present, the worst performer in the G7, after Germany.
I had warned as long as as Fall 2021, and then before this Committee in Spring 2022, that the Bank of Canada needed to get serious about inflation. It was not transitory and needed to be dealt with before it got out of hand. Unfortunately, the Bank, in my judgement, began acting too late, and the problem had gotten worse. They now have to be more aggressive to fix the problem, and that is making life difficult for all fo us who owe money, that is most of us, while it profits only the wealthy who have spare money to invest.
Where do we go from here? There is a real danger that we will fall back into “stagflation”, that is, stagnation in the economy, and high inflation. We’ve seen this movie before, in the 1970s and again in the 1980s here in Canada and we know it doesn’t end well.
We seem to have forgotten the important lessons of that time, which were painfully learned. The recipe for success is prudent fiscal policy, sound money, and sensible regulation that protects consumers while not stifling business in red tape. That is the formula we used in Canada to right the ship under governments of different parties.
In Canada now, we have the opposite situation. Profligate government spending, the long-lasting harmful effects of loose money, and stifling regulation, are giving us low growth, high inflation, and a doing business environment that chokes new business creation, gives us low productivity compared to our G7 peer group, and means that the prospects for many young people coming into the workforce or looking to start their own business are dim.
In thinking about the next budget, my suggestion to the Committee is to consider the things we did right that gave us a booming economy and what is going wrong now. We need a combination of tax cuts and spending cuts that helps us balance the government’s books in a prudent manner while lifting the burden on average Canadians. We need to hold the Bank of Canada accountable for their mandate to protect the value of our currency and not allow loose and irresponsible monetary policies that have created our present inflation and affordability crisis. And we need to pare back excessive government interference in the economy that kills entrepreneurship and holds our economy back.
Thank you, Mr. Chair.