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Country faces even higher deficits as Liberals forced to broker alliances with rival parties with expensive demands to retain power
TORONTO/CALGARY – A stronger than expected minority government in Ottawa will mean less uncertainty for businesses than was feared but still raises concerns about pipeline investment and higher deficits as the Liberals are forced to broker alliances with rival parties to retain power.
Though polls had suggested a much tighter result was in the offing, Justin Trudeau’s Liberals held their ground in the Toronto area and British Columbia to win 157 seats to the Conservatives’ 121 seats. That leaves the Liberals short of the 170 seats needed for a majority — and dependent on the support of the NDP and the resurgent Bloc Quebecois to pass legislation. The Bloc tripled its seat count to 32 while Jagmeet Singh’s NDP took 24 seats, down from 39.
“There still will be some uncertainty, typically minority governments don’t last that long,” said Doug Porter, chief economist for BMO Financial Group. “But if there’s any surprise it’s the strength of the Liberal minority. So while they’ll have to listen to the NDP, the Liberals are much more in the drivers’ seat than they were going into this.”
While the Liberals are free to court the support of any party, they are most likely to form an alliance with the NDP given broad similarities in policy priorities that include the carbon tax, restrictions on non-resident ownership in real estate, a desire to expand pharmacare and reduce cell phone bills.
However, Porter expects the NDP to demand even more in exchange for its support. The party has made aggressive proposals for a wealth tax, national dental care program, elimination of subsidies to the oil sector and waiving interest on student loans.
That raises the prospect of even higher deficits from a Liberal government that has been in the red every year since taking power, Porter said. The Liberals’ campaign promises alone are expected to push the existing deficit to $27 billion from $20 billion. The cost of a national pharmacare plan like the one the NDP has proposed could add another $10 billion to that tab, according to some estimates.
“That is the net result of this election outcome, that we probably are looking at a somewhat looser fiscal policy and somewhat larger budget deficits than would otherwise be the case,” he said.
“Speaking as an economist, this is not the time to add stimulus to the economy when you have the lowest unemployment rate in 40 years. It actually makes more sense to let the economy do the work and bring the deficit down a bit, saving your resources for a time when the economy needs it. That said, Canada is in stronger fiscal shape than most other G7 economies.”
For international investors and domestic companies, the strong Liberal showing means a less fragile political landscape in which to do business than was anticipated.
“To the extent that uncertainty is the enemy of business we have a medium level over the next few years,” said Dan Kelly, president and CEO of the Canadian Federation for Independent Business. “That’s enough to allow business people plan without worrying about a massive amount of policy change in the days ahead.”
But Kelly and others remain concerned about the lack of a plan to balance the budget and the absence of substantive discussion on long-term competitiveness and economic issues on the campaign trail.
Meantime, the election exposed wide divisions in the country that will present a host of new challenges, said Perrin Beatty, president and chief executive of the Canadian Chamber of Commerce.
The Conservatives dominated the vote in Saskatchewan and Alberta, taking all but one seat in the latter province amid simmering anger over the slow progress on the Trans Mountain Pipeline.
“The first thing that members of parliament have to do is look at ways of bridging some of those gaps, the gaps between regions, between ideologies and sectors as well,” Beatty said.
The oilpatch’s mood turned sombre as the results rolled in from East to West Monday evening.
“It’s disheartening and frustrating. It’s hard for us to understand,” said Whitecap Resources Inc. president and CEO Grant Fagerheim. “Have we miscommunicated how important the energy sector is to the Canadian economy?” Fagerheim said, shortly after the major networks projected a Liberal minority government, which he said was a negative outcome for the energy industry.
Have we miscommunicated how important the energy sector is to the Canadian economy?Grant Fagerheim, president and CEO, Whitecap Resources
Fagerheim, whose company is headquartered in Alberta and operates in Saskatchewan, is concerned that a minority government would lead to more uncertainty for investors and for major energy infrastructure projects like the Trans Mountain pipeline.
Potential Liberal coalition partners such as the NDP, the Bloc Quebecois and the Green Party have been vocally opposed to new pipelines and have demanded more stringent regulations on oil and gas.
“It’s so difficult to understand why and how the rest of Canada doesn’t understand the contribution of Alberta and Saskatchewan to the rest of the country’s economy,” said Fagerheim.
While the Trans Mountain pipeline doesn’t need another vote in the House of Commons to proceed “any other pipeline faces a very high hurdle at this point,” Porter of BMO said. “Judging by the vote in Alberta and Saskatchewan, they won’t be pleased by this to put it mildly.”
Copyright Postmedia Network Inc., 2019