Election Results

Justin Trudeau’s Liberals survived a difficult election year to emerge with a minority government after Monday’s vote.

The Liberals won 157 seats (a loss of 27 seats), beating the 121 seats (a gain of 22 seats) for Andrew Scheer’s Conservatives.  Jagmeet Singh’s New Democratic Party won 24 seats, the Bloc Québécois won 32 seats, Elizabeth May’s Green Party won 3 seats, and Jody Wilson-Raybould won her Vancouver-Granville riding.

Minority Government

The Liberal seats fall short of the 170 required for a majority and we are thus in a minority government.  This means that the Liberals will have to work with other parties in the House of Commons to pass legislation.  The Liberals would need support from either the NDP or the Bloc for a majority of votes.

Minority governments are not rare in Canada. Ten of the last 23 elections have resulted in minority governments, and they historically remained in place for about two years before failing a vote of confidence.

Liberal Campaign Promises

The Liberals’ re-election plan was focused on combatting climate change and lowering taxes for the middle class.  Here are some of the promises made by Justin Trudeau and the Liberals:

• Raise the basic personal amount by $2,000 to almost $15,000 for people earning less than $147,000 a year
• Increase OAS by 10% for seniors over 75 who fall below the clawback amount
• Increase the Canada Child Benefit by 15% for parents of children under the age of one, and make maternity and parental benefits tax-exempt at source
• Allow mortgages of up to $750,000 to qualify for the first-time homebuyer incentive in the most expensive housing markets
• “Crack down” on corporate tax loopholes that allow businesses to deduct debt from earnings to reduce taxes
• Impose a 10% luxury tax on vehicles that cost more than $100,000
• Cut the cost of federal incorporation from $200 to $50
• Double the child disability benefit
• Cut corporate taxes in half for companies that develop and manufacture zero-emissions technologies
• Introduce a 15-week leave for adoptive parents

The Liberal victory likely means that proposals from the 2019 federal budget that haven’t been legislated will receive renewed attention.  These proposals include a $200,000 limit for employee stock options at large companies, and small changes to annuities, IPP, and RDSP plans.

Investment & Economic Implications

Keep in mind that Canada only makes up 3-4% of total world GDP.  The effect of the Canadian elections on a geographically diversified portfolio is relatively minor.  By comparison, a swift and successful resolution to the U.S. – China trade conflict or Brexit will have a far greater impact on markets.

The TSX, Canada’s main stock index, finished narrowly lower on Tuesday as investors met the re-election of a Liberal government with a muted reaction.  The Canadian dollar also remained unchanged.  The loonie generally fluctuates as a function of oil prices, not political leanings.

Royal Bank Global Asset Management provides the following opinion on the election’s impact on the economy:

“From an economic perspective, elections rarely drive a deviation from the current trajectory, and this is particularly the case given that none of the parties were campaigning with the focus of taking a hard stance on the deficit or planning to move the needle in a dramatic way. If the Trans Mountain expansion project does become a sticking point and investment in the oil patch dries up, it could lead to modest negatives for the growth outlook. On the other hand, the increased appetite for running a fiscal deficit may be modestly supportive for rates and the Canadian economy going forward, though we’re unlikely to see government policy change in a significant way and fiscal policy operates with a big lag. Broadly speaking Canada still faces four main challenges to its growth outlook; slower U.S. growth, inadequate transportation infrastructure within the oil space, continued deterioration in Canada’s competitiveness, and a housing market that continues to face long-term vulnerabilities. This election outcome has not impacted any of these concerns in a major way, and as a result we continue to look for below-normal levels of growth from Canada.”

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