Four key economic issues in Canada’s election
With the new Liberal majority government in Ottawa, it is key for investors to look at the economic platforms of both opposition parties to see what was offered to voters to undo nine years of Stephen Harper’s administration.
After nine years of Conservative rule, there is substantial discontent in Canada with the ruling government and PM Stephen Harper, in particular. As of October 18th almost 70% of those polled have indicated that they are not voting for the incumbent Conservatives.
Canada’s first-past-the-post electoral system could have seen the Conservatives win a minority, yet the general consensus was that the Liberals – headed by Justin Trudeau (left) – looked most likely to form government, albeit also a minority. This in turn put the New Democratic Party (NDP), headed by Tom Mulcair (centre), in the kingmaker position to underwrite a Liberal government.
The commanding Liberal majority surprised many, especially given the similarities between the main left-of-centre parties. Consequenrtly, it is important to look at some of the economic policies that were on offer.
Both parties proposed changes to the tax code in the name of protecting the middle class and jump-starting economic growth. Currently the Canadian economy is sluggish and flirting with recession. It is weighed down by low oil and commodity prices, and a lack of investment, with businesses sitting on CAN$680 million in ‘dead money’.
The main economic difference between the parties is that the NDP campaigned on balancing the budget in a platform based on refocused national priorities, while the Liberals will run several modest deficits at under $10 billion a year to invest in the economy and take advantage of low interest rates. Despite this difference, both seek to reduce Canada’s already low federal debt-to-GDP ratio from 31% to 27% by 2019.
The Liberals are touting a twofold federal tax rate readjustment: firstly, a reduction from 22% to 20.5% for individuals making between $44,700 – $89,401, and, secondly, increasing the top tax bracket to 33% for those earning over $200,000. This increase is projected to bring in $3.4 billion, yet some economists have voiced concern, as said increase would push the total tax rate to above 50% in many provinces.
The NDP in turn vowed not to increase personal tax rates, instead seeking to increase the corporate tax rate for large corporations from 15% to 17%, an increase – to 28.3% including provincial taxes – that keeps Canada under the G7 average of 29.9% and American rate of 39%. Both parties also pledged to reduce the federal corporate tax rate for small and medium businesses from 11% to 9%.
The NDP also sought to raise $500 million from closing the stock option tax loophole that allows executives to avoid tax on salary received as stock options. The Liberals have a similar stance, yet are exempting those who receive up to $100,000 in annual stock options; noting that such options are useful compensation tools for startups.
A large part of the Liberal’s deficit spending will be focused on infrastructure revitalization and expansion. Specifically, Trudeau has promised a fourfold increase in transit spending, at $20 billion over ten years. In total, the Liberals are pledging to double national infrastructure spending to $125 billion over ten years.
This national spending drive will in part be facilitated by a new Canada Infrastructure Bank, which will use the federal credit rating to offer loan guarantees and small capital contributions to provinces and municipalities.
Similarly, the NDP presented its Better Transit Plan, which allocated $1.3 billion annually for 20 years. This is in addition to the $1.5 billion increase in annual provincial infrastructure transfer payments by 2019. Together the NDP’s investments were projected to create 54,000 jobs in transit and construction, and add $4.5 billion to Canada’s GDP per year.
3. Trans-Pacific Partnership
The TPP has become an election issue in Canada as both opposition parties have criticized the Conservatives for signing up to the deal whilst being a caretaker government, during an election. The secretive nature of both the TPP negotiations and the Conservatives have riled the Liberals and NDP: both parties rejected an offer by the Conservatives for a closed-door viewing of the deal’s details.
The Liberals have expressed their support of the TPP in theory, but are calling for greater transparency going forward. The NDP have come out more strongly against TPP, stating they will not be beholden to a deal signed by a caretaker regime during an election.
4. Natural resources and the environment
Both parties claim to reject the false dichotomy of either growth or environmental sustainability, and as such have proposed policies to promote a green economy. The Liberals have stated they will endow the Low Carbon Economy Trust with $2 billion to promote low-carbon growth.
Trudeau and Mulcair both proposed to introduce Green Bonds as a low-risk means to fund clean tech and alternative energy growth. Specifically, the NDP hoped to generate $4.5 billion for clean energy development via said bonds.
The parties do diverge on Keystone XL, with the Liberals in favour of the project, whereas the NDP has long been against it. The NDP argues against the export of refining jobs to the US, with Mulcair having traveled to Washington in 2013 to counter Harper’s promotional efforts for Keystone. It is important to note that both parties advocate sustainable oil sands development, yet are pledging to remove subsidies for oil companies.
Despite its Keystone XL stance, the NDP remains broadly in favour of developing Canada’s natural resources, having made a $1 billion commitment to fund environmental assessments and development of Ontario’s ‘Ring of Fire’ – a highly promising mining basin. The party also promised to extend the Mining Exploration Tax Credit to further spur investment in the sector.
A post-Harper Canada?
The Liberals and NDP have sought to frame the election as one about rectifying socioeconomic inequality, yet investors should be assured that these sentiments have not resulted in drastic pledges. That said there does exist a notable anti-austerity vein in the electorate after nine years of belt-tightening, as well as feelings that Harper’s pro-business tax breaks have failed to produce growth.
Hence, bipartisan promises of substantial increases in infrastructure spending offers opportunities for construction firms. Similarly, promises to boost transit could see lucrative rail and bus contracts emerge, aiding firms like Canada’s Bombardier. Moreover, fears about stagnation in the mining and oil sectors are overblown as both parties are interested in responsibly developing different facets of these sectors, albeit with a focus on further diversifying the economy.
This election was the longest in Canadian history since 1878 and was a three-way tie for most of that time: Monday night finally put it to rest.