Ahead of the 2019 Canadian federal election, our Chief Strategist John Johnston gives an overview of potential election outcomes and key policy issues that are important for investors.
Key Points
- The election is too close to call.
- Wide range of potential outcomes: Liberal or Conservative majority or minority governments.
- Canada has a long history of reasonably productive minority governments.
- Fiscal policy is very likely to remain prudent. More deficits ahead, but small enough to keep the federal debt/GDP ratio falling.
- If we get a Conservative majority: Big push for pipelines, elimination of carbon tax, small personal income tax cuts, some new tax credits, and a tax on tech/online giants. USMCA (the new NAFTA) will pass.
- If we get a Liberal majority: Maintain the carbon tax, small personal tax cuts, and tax on tech giants. USMCA will pass. Maybe some progress on pipelines.
- Minority government (Conservative or Liberal): No progress on pipelines, maintain carbon tax, small personal tax cuts favouring lower incomes, a possible tax increase at the high end of the spectrum, and a tax on tech giants. USMCA will pass, but some compensation needed for Bloc or NDP support that can be done without reopening negotiations with the U.S.
Discussion: Potential Election Outcome
- The CBC and 338Canada poll trackers suggest a very tight outcome in the October 21 federal election. A minority government is the most likely outcome, but it could be a Liberal or a Conservative government.
- It could turn out that none of the smaller parties will have enough seats to form a stable minority government for either major party.
- The latest 338Canada projections (as of October 18): Liberal 135 seats, Conservatives 136 seats, NDP 30 seats, Bloc 32 seats and Greens 4. CBC’s poll tracker shows the Liberals at 137, the Conservatives 125, NDP 34, Bloc 39, Greens 2 and the People’s Party 1.
- Both polling groups show very wide confidence intervals around their predictions. For example, the CBC results show the range of seat outcomes for the Liberals at 91-188, the Conservatives 83-170, NDP 16-62, Bloc 22-49 and the Greens 1-6.
- This suggests a range of outcomes: Liberal or Conservative majority government, Liberal or Conservative minority government.
- It is important to note that Canada has had a history of success with minority governments that were able to conduct the business of the nation rather than sinking into paralysis.
Discussion: Key Policy Issues
- A wide range of important policy issues are at play in this election. However, we will focus on just those that are important for investors: Fiscal policy (taxes, spending, budget balance, and debt), international trade policy, and industrial/regulatory policy.
- Government budget balance: The Conservatives, Greens, and People’s Party have all promised to balance the budget in five years (Conservatives and Greens) or less (People’s Party – two years). The Liberals, Bloc and NDP propose steady, but small deficits. Their deficits are small enough to keep the federal debt declining as a share of gross domestic product (GDP).
- All parties propose a decline in federal debt/GDP.
- Carbon tax: The Conservatives and People’s Party will abolish it. The other four parties will keep it, but the Bloc proposes to increase it.
- Corporate tax: The Greens propose an increase, the People’s Party a decrease.
- Personal Income tax: The Liberals and Conservatives propose a tax cut favouring the lower end of the income distribution. The NDP want to increase the capital gains inclusion rate to 75% from 50%, increase the top federal tax rate to 35% from 33%, and propose a wealth tax of 1% on household assets in excess of $20 million a year.
- Special taxes: All parties except the People’s Party propose a tax on the “tech giants”. The Liberals also plan a tax on luxury vehicles.
- Tax credits: The Conservatives plan to bring back the designer tax credits of the Harper years (transit, fitness, and arts).
- Key items on the spending side are the NDP’s proposal for national pharmacare and dental care plans. Also, the NDP, Greens, and Bloc want to cut subsidies to fossil fuel companies. The Liberals want to end “inefficient” fossil fuel subsidies and work slowly toward a national pharmacare program.
- International trade policy: Both the Liberals and Conservatives favour an open trade policy, and neither are likely to propose reopening the USMCA agreement. The NDP, Bloc, and Greens are very critical of it.
- Industrial/regulatory policy: Pipelines are the dominant issue here. The Conservatives are pro-pipeline while the NDP, Bloc, and Greens are opposed. The Liberals are wallowing around in the middle. A Conservative majority government would likely push the party’s innovative National Energy Corridor, which would create a pathway for oil, gas, electricity, telecommunications, and any other item that runs along the ground to move across Canada. A Liberal majority would mean more of the same: Support for Line 3, Keystone XL, the liquefied natural gas pipeline running to the B.C. coast, and the Trans Mountain extension. Any minority outcome would delay any activity on the pipeline file.
Remember to go vote Monday, October 21! If you’re not sure where your closest polling station is, visit the Elections Canada website to find out.
Uncommon Sense 