The role of the Senate in Canada’s political system

Ashleay: Hello and welcome to the “In Your Interest!” podcast. My name is Ashleay and, as usual, I’m joined by my colleague, Sébastien Mc Mahon, Chief Strategist. Today we’re pleased to welcome Clément Gignac, senator and economist, for a second episode. We’ll be discussing his role at the Senate and his view on monetary and fiscal policy. So welcome back, Monsieur Gignac.

Clément: Thank you for inviting me.

Sébastien: It’s great to have you here to discuss the Senate. We all feel like the Senate has been there forever, but I’m sure if we did a vox pop just outside the studio here and asked people what the Senate is and what it does, I’m not sure many would be able to answer. So maybe after listening to us today, people will have a better understanding of what the Senate does.

Ashleay: Right. So for our listeners, can you explain the role and importance of the Senate in the Canadian political system?

Clément: Of course. First, the Senate is part of the Parliament of Canada, what we call a branch. As a matter of fact, it has existed for more than 150 years now, since the beginning of the constitution. And, believe it or not, it’s the provinces that want the Senate because they want to protect their provincial interests and to be sure that the example is not only driven by Ontario, which represents more than 40% of the population. So, it was initiated by the provinces and, make no mistakes, the Senate can initiate its own bills, but the main role of the Senate is what we call a “sober second thought.” To the extent that the majority of senators have been independent from political parties since Prime Minister Trudeau’s reform in 2015, bills can be analyzed without any guidance from the government in power and the Senate can amend bills. But if we amend a bill—because we have witnesses and we study in committees—it has to return to the House of Commons. But guess what? Since 2015, the House of Commons has agreed to 95% of the amendment that the Senate has proposed. For me, this is confirms that the Senate has an important role to play.

Sébastien: I like the idea of the “sober second thought,” I think it tells us a lot. So when there’s a project that goes through and you look at it and you find that there are maybe some questions that are unanswered, then there’s some work and then it goes back to the government. They say there’s an interaction, there’s a dance there.

Clément: Yeah, exactly. So keep in mind that, at the end of the day, senators are nominated; we’re not elected. Which, for me, means that the legitimacy of the House of Commons is always higher than us. But even the Supreme Court judges are nominated, not elected and they’re still credible and legitimate. So it’s important to note that if the government goes ahead with what was promised during the election, the Senate will not oppose them. But if, out of blue, the government, were to release some reform on abortion, for example, I think, at that time, the Senate would protect the interests of minorities, of women, in this case. You know what I mean? So the Senate has an important role to play, but at the end of the day, keep in mind that the government will have the final word, not the senators.

Ashleay: And speaking of minorities, I believe a bit earlier you mentioned to us that there are a lot of minorities currently seated on the Senate—different ethnic groups and such. Can you tell us a bit more about that?

Clément: Thank you for the question. In fact, believe it or not, men are actually the minority at the Senate now! There are more women senators than men. In fact, the Senate is more representative of Canadian society since it’s nominated rather than elected. There are Indigenous senators: more than 10% of senators come from Indigenous communities. So we have a lot more diversity at the Senate. And the fact that the Senate is an elected body helps. And since there’s now eighty senators who have been nominated since 2015, its profile has greatly evolved. This is good for society because, in fact, senators protect the minority, not only the provinces, but the rights of minorities as well.

Ashleay: Right, absolutely. And you sit on several Senate committees. Can you tell us about your involvement in the Senate?

Clément: I don’t think you’d be surprised to learn that the two committees on which I sit on a permanent basis are the National Finance and the Banking Committees. Since I have spent most of my career working with financial institutions, it was an easy fit, let me tell you. But also, the fact that I’d followed and commented on the federal budget on an annual basis since Paul Martin, in the mid ’90s, I believe, it seems like a natural fit for me to be on these two committees. From an intellectual point of view, I like the committee because we can invite witnesses who comment whether they are in favour or against the bill, or if they have some proposal to amend. I like this. But beyond that part of the committees, I’m also a member of parliamentary groups. As a matter of fact, I’m a permanent and executive member of the NATO Canada parliamentary group, which gives me the opportunity to go to NATO headquarters in Brussels. I also, from time to time, attend and participate in the National Defence and Security Committees, and that gives me the opportunity to visit some facilities like the NRA headquarters in Colorado. So what an opportunity.

Ashleay: Yeah, absolutely.

Sébastien: And you know, anyone out there who wants to get a glimpse into how the Senate works and everything that’s it’s involved, they can follow you— I think on LinkedIn would be the best way to do it. But when you’re on those trips, of course, we don’t learn any security secrets or anything, but, we can see where you are, what you’re doing, we can watch interviews that you conduct with witnesses that are summoned before the Senate. So just as a way to communicate and make what you do accessible to the public—I think following you is a great opportunity to learn more.

Ashleay: Absolutely.

Clément: And thank you for raising that point, because I think part of my role is also to explain what a senator does. And not only in Ottawa, but also when we have a special study. For example, we’ve gone into the Arctic. Due to climate change, there will be many challenges there because the arctic will become a commercial route. Regarding the commercial Arctic Sea, we have to consider infrastructure, facilities, and we have to protect the sovereignty of Canada. So I think that sharing what we’re doing, even when we travel, is a golden opportunity.

Ashleay: And what’s your opinion on the current state of monetary policy in Canada, and what recommendations would you make for the future?

Clément: So the timing of the podcast this week was good, because if you asked me a two or three weeks ago, I’m not sure I would have had the same answer. Finally: the rate cut is very welcome because I think we were overdue. So even though we were the first central bank to cut interest rates, I think it was overdue. Keep in mind that monetary policy in Canada is the most restrictive in the G7. The interest rate was 5% before the rate cut, with a core inflation now lower than 3%. And the degrees of indebtedness of Canadians are so much higher than the US and others. And, in addition, the structure of mortgage financing is different in Canada. The transmission lag is shorter in Canada because we do not have the opportunity to borrow with a fixed rate for 20 years or 30 years like in the US. So I think these were some of the reasons they decided to move. And second, keep in mind that now the unemployment rate has started to accelerate, we’re no longer in an excess demand situation, the youth unemployment rate in Ontario, for example, is now 15%. So, I think the world has changed. We’re no longer in a labour shortage. I think our monetary policy has to adjust and become much less restrictive. And I’m optimistic that the interest rate will continue to decline now.

Sébastien: And if we’re— well, not if we’re lucky, but I think the base case now is that we could get another rate cut by the end of July if inflation continues to behave the way it has. So the good news there might continue.

Clément: Yeah, exactly. And, interestingly, the Banking Committee will launch a special study this fall. It will cover three aspects. First, do we need the Bank of Canada to have a dual mandate like the Fed or not? Second, is the 2% inflation target still relevant? And third, how should we measure core inflation? So that’s what we’ll be analyzing at the Banking Committee this year. There will surely be an interesting debate about that.

Sébastien: Ya, these are important questions.

Ashleay: And how do you see the Canadian tax policy evolving over the next few years? What measures do you think should be given priority?

Clément: First, as we speak, keep in mind that the Federal Government’s public finances remain under control. Some people have a different impression—I respect that—but if you compare apples with apples and the federal debt as a percentage of GDP, in fact, net debt is the lowest among the G7. We are one of the few countries who have a Triple-A rating. The annual debt service is $0.12 for each dollar of revenue, compared to $0.38 in the mid ’90s, for example. Having said that, okay, even if public finances are under control and debt service is much less than the three decades ago, my current concern comes from the fact that the current government—maybe under the pressure of the NDP—is likely putting too much energy into distributing wealth instead of creating wealth. Yes, it’s interesting to have new social programs like drug insurance, dental insurance and so on. But, at the end of the day, if we want to respect the next generation and have some public finances, it’s important to create wealth. Because right now it actually seems like we distribute wealth at a faster pace than we create wealth. And down the road, that could be a problem. Not to mention the fact that we have yet to respect our military commitment under NATO. We also have to adapt to climate change, we have to adjust our infrastructure locally, provincially, federally. So a lot of things have to be done. And I’m disappointed that we don’t put enough energy into a wealth creation agenda in Ottawa.

Ashleay: I see. Well, that concludes today’s episode. Thank you very much, Monsieur Gignac, for explaining your role at the Senate and for sharing your views on monetary and fiscal policy. It was such a pleasure to have you with us and to reconnect with you once again. And also, of course, thank you, Sébastien and all of our listeners. Don’t hesitate to drop us a line if you have any questions. We’ll see you next week. Love this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast, available on all platforms. Visit the economic news page on ia.ca or follow us on social media.