MNI POLITICAL RISK ANALYSIS - Canada Election Preview
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
MNI POLITICAL RISK ANALYSIS - Canada
Election Preview
by Tom Lake
Executive Summary
• Prime Minister Justin Trudeau’s decision to call a snap general election looks to have
backfired, with opinion polling showing his Liberal Party neck-and-neck with the
opposition Conservatives, meaning neither party is likely to win an outright majority.
• There is not expected to be any significant market impact from the election result,
with both major parties committed to continued deficit spending in the wake of the
COVID-19 pandemic, while there is unlikely to be any threat to Canada’s trend of
fiscal rectitude, its stable banking system, or its robust regulatory environment from
either a Liberal or Conservative administration.
• The main risk to stability comes in the form of a deadlocked election, where no party
secures a majority and neither Prime Minister Trudeau nor Conservative leader Erin
O’Toole are able to form a stable minority administration. In this scenario another
snap election could be required to break the stalemate, lengthening the period in
which the Canadian government is unable to enact policy decisions and increasing
uncertainty.
Chart 1. Canadian House of Commons Before Dissolution, Seats
Source: House of Commons, MNI
1
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BGPolitical Parties
Liberal Party of Canada – LPC – Leader: Justin Trudeau – Centre-left/centrist, social
liberalism – Founded: 1861 – Seats: 155
Conservative Party of Canada – CPC, ‘Tories’ – Leader: Erin O’Toole – Centre-right,
economic liberal, conservative – Founded: 2003 – Seats: 119
Bloc Quebecois – BQ – Leader: Yves-Francois Blanchet – Centre-left, Quebec
nationalism/sovereigntism, regionalism – Founded: 1991 – Seats: 32
New Democratic Party – NDP – Leader: Jagmeet Singh – Left-wing/centre-left, democratic
socialism, social democracy – Founded: 1961 – Seats: 24
Green Party of Canada – GPC – Leader: Annamie Paul – Left-wing, environmentalism,
green politics – Founded: 1983 – Seats: 2
People’s Party of Canada – PPC – Leader: Maxime Bernier – Right-wing, populist,
Canadian nationalism, libertarianism – Founded: 2018 – Seats: Zero
Electoral System
Canada uses a first-past-the post electoral system modelled on that of the United Kingdom
to elect the 338 members to the House of Commons, the lower chamber of the Canadian
parliament. The individual seats are known as federal ‘ridings’, and in order to win, an
individual simply needs to win a plurality of the vote in the contest for that individual riding.
Seats across the country are intended to have a similar number of electors, although in
practice this can differ with seats in Alberta averaging around 111,000 people per seat, while
in Prince Edward Island this falls to 36,000. The most populous province, Ontario, has 121
seats while the three territories (Northwest Territories, Nunavut, Yukon) despite their huge
size are each represented by just one MP. Canadian citizens over the age of 18 are allowed
to vote, as are Canadian citizens living overseas (this will be the first election since 1993
where those living outside Canada for more than 5 years can vote).
2
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BGOpinion Polling Chartpack
Chart 2. General Election Opinion Polling (Short-Term), % and 6-Poll Moving Average
45
40
35
30
25
20
15
10
5
0
03-Jul 13-Jul 23-Jul 02-Aug 12-Aug 22-Aug 01-Sep 11-Sep 21-Sep
Liberal Conservative NDP Bloc Green PPC
Source: EKOS, Nanos Research, Mainstreet Research, Abacus Data, YouGov, Leger, Angus Reid, Innovative Research,
Counsel, MNI. N.b. Each dot indicates individual poll result.
Chart 3. General Election Opinion Polling (Long-Term), % and 6-Poll Moving Average
50
45
40
35
30
25
20
15
10
5
0
Dec-19 Mar-20 Jun-20 Sep-20 Jan-21 Apr-21 Jul-21
Liberal Conservative NDP Bloc Green People's Party
Source: EKOS, Nanos Research, Mainstreet Research, Abacus Data, YouGov, Leger, Angus Reid, Innovative Research,
Counsel, MNI. N.b. Each dot indicates individual poll result.
3
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BGChart 4. General Election Opinion Polling (Best PM), % and 4-Poll Moving Average
50
45
40
35
30
25
20
15
10
5
0
Oct-20 Nov-20 Jan-21 Mar-21 Apr-21 Jun-21 Aug-21 Sep-21
Trudeau - Liberal O'Toole - Conservative Singh - NDP
Blanchet - BQ Paul - GPC Bernier - PPC
Source: Nanos Research, Ipsos, Leger, Innovative Research, MNI. N.b. Each dot indicates individual poll result.
Opinion polling in the run-up to the election has shown the Liberals and Conservatives neck-
and-neck, both drawing around 30-33% support. If these numbers were reflected in the final
result it would show support holding steady for both parties from the previous election. The
NDP has experienced a small but notable rise in support levels over the course of the
parliament, with polling showing the party around 20% support, up from around 16% in the
previous election.
The right-wing People’s Party has experienced a jump in support in the last weeks of the
campaign. Following strong performances in televised debates and a shift to the centre from
the Conservatives, support for the PPC has risen to around 6-7%, from 2-3% previously.
If these polling numbers are reflected in the final result, it is likely to give both the Liberals
and the Conservatives around 130-140 seats each. This would put both parties well short of
the 170 seats required for a majority in the Commons. The NDP and the Bloc are on course
to win around 30-35 seats each, the Greens could pick up 2 or 3 seats. The People’s Party,
hindered by the FPTP electoral system are likely to only pick up one seat, Beauce in Quebec
where party head Maxime Bernier is contesting.
4
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BGElection Scenario Analysis
Liberals Largest Party, Short of Majority – 45% Probability:
• The most likely scenario following a recovery in support for the Liberals following the
televised debates on 8 and 9 September. Given that this was the situation for the
Liberals prior to the election, Prime Minister Justin Trudeau is likely to face notable
criticism for calling an ‘unnecessary’ election and then failing to win a majority.
However, given the dearth of potential challengers it is unlikely that Trudeau would
face a challenge from within the LPC.
• A continuation of the pre-election governing system, with the Liberals governing in a
minority supported in legislation by smaller parties on a vote-by-vote basis.
• The closer ideological views between the Liberals and the smaller parties in
parliament able to prop up a minority government – the NDP and the Bloc – reduces
(but does not eliminate) the prospect of gridlock in which no government is able to be
formed.
• While Trudeau likely to remain in office in the short-to-medium term, this scenario
would likely accelerate the eventual transition from Trudeau as Liberal Party leader
and prime minister, with his standing and prestige damaged.
• In terms of policy implications, this scenario would likely prove the least impactful
given that the make-up of the government would be the same as prior to the election.
Conservatives Largest Party, Short of Majority – 30% Probability:
• This scenario leads to the greatest chance of political instability post-election.
• As the largest party, Erin O’Toole could argue that he has the prerogative to seek to
form a minority administration. However, as the incumbent Justin Trudeau remains
as prime minister until he resigns or is ousted in a confidence vote.
• Given that the other parties likely to sit in parliament with a substantial number of
seats – the NDP and Bloc – are more closely aligned to the Liberals than the
Conservatives, these parties could vote in support of Trudeau in a confidence vote
should the Conservatives seek to oust the PM.
• The more likely scenario, though, is that Trudeau resigns having lost his mandate
and O’Toole leads a minority Conservative administration. Given that the party would
rely on support of other parties to pass legislation, this would likely see some of the
more right-wing Conservative policy aims (returning to an aim of 30% emission
reductions by 2030, creating the CANZUK trade bloc).
Liberal Majority – 15% Probability:
• If the Liberals win an outright majority the party would have a much greater chance of
implementing its full slate policy aims, with some of the most impactful listed below:
• Jobs: Extension of the Canada Recovery Hiring Program until March 2022. Creation
of a CAD2bn find to help hydrocarbon sector workers retrain. CAD10/day childcare
program would seek to encourage more women into the workplace.
5
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BG• Hydrocarbons Sector: Gradual, managed transition out of hydrocarbon production,
with new more restrictive caps on emissions that become stricter in 5-year intervals.
End of subsidies to the sector.
• Taxation: Targeted tax increases aimed at raising CAD25.5bn through to 2025-26,
with around half of the revenue increase coming through increased enforcement by
the Canada Revenue Agency. Corporate income tax increased to 18% from 15%
presently on earnings over CAD1bn at banks/insurance firms. A ‘Canada Recovery
Dividend’ also raised from these firms, raising CAD5.5bn over 4 years. Tighter rules
on federal minimum tax on individuals aimed at raising CAD1.7bn over 5 years.
• Healthcare: Additional CAD6bn to be spent reducing healthcare waiting times, and
CAD3.2bn to help provinces hire doctors and nurses. CAD500mn for drug treatment
programmes and CAD400mn over 4 years to improve virtual care.
Conservative Majority – 10% Probability:
• A Conservative majority, while unlikely based on the percentage of the nationwide
vote share required to give the party 170 seats, would result in the most substantial
policy shift of the four scenarios listed here. However, as noted below in our Policy
article, the party is set to continue with the deficit spending of the Liberals given the
economic impact of the pandemic.
• Jobs: Similar plan to Liberals’ Canada Recovery Hiring Program: 50% of wages of
new hires covered for 6 months from end of the government’s wage subsidy program
in October. Five per-cent tax credit for investment in capital equipment over the next
2 years, and a 25% tax credit for individual investments up to CAD100k in small
businesses.
• Hydrocarbons Sector: More support for the sector in this scenario than any other.
Conservative administration would seek to boost natural gas exports for other nations
seeking to reduce coal consumption. CAD5bn investment in carbon capture.
Legislation to stop blockades of pipelines and other protests aimed at disrupting the
sector. End to ban on tankers sitting off the BC coast. Northern Gateway pipeline
revived.
• Taxation: Main focus of tax policy would be targeted tax cuts and increased tax
credits. Canada Workers Benefit would be doubled for low-income
individuals/families at a cost of CAD5.8bn/yr by 2025-26. Tax cuts very specific or
time limited, such as deferral of cap gains tax on rental housing investments and a
month-long GST holiday in December for purchases made in-store, coming at an
estimated cost of CAD1.8bn.
• Healthcare: Pledge to increase healthcare spending by CAD60bn over 10 years, but
with just CAD3.6bn of this coming in the next 5-year period. Healthcare workers
would be allowed to refuse abortion care or assisted dying, but would have to refer
patients to other healthcare providers. The 10 day waiting period for those
considering assisted dying would be reinstated, as would the requirement of two
independent witnesses present.
6
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BGSell-Side Analyst Views
CIBC:
• It’s our view that this election is unlikely to mean much for the CAD. In fact, most
election campaigns in Canada don’t really end moving the dial for the loonie at all.
• …while there is a premium priced in at times, it’s generally i.) very small, and ii.)
inconsistent in terms of directionality. What’s more…whatever premium is priced into
USD/CAD is often overshadowed by other far more important exogenous factors
(such as oil prices, or movements in the trade-weighted USD).
• Today…the degree of correlation between currencies is still elevated, and this largely
due to the heavy-handed monetary policy responses around the world. As a result,
the trade-weighted USD is still the primary driver for USD/CAD, and will easily
overshadow whatever premium the market wants to attach from the upcoming
election.
• The above explains why USD/CAD should be unaffected by election risk in the
coming weeks, but not why the beta is so small. However, if you look at the
breadcrumbs it should be obvious. First, Canada is a AAA-rated country (in a
shrinking pool of such countries) offering close to the highest yield in the developed
markets. Second, it’s extremely unlikely that this election will lead to a heavy outflows
of capital and investment. Third, compared to other countries, Canada has a long
history of fiscal prudence, a sound regulatory framework, and soild banking system.
Basically, the country’s risk/return profile is still far too attractive to foreign investors,
and this election won’t change any of that. Without the specter of capital outflows,
there’s little risk to the CAD and the beta should remain muted.
TD Securities:
• Recent polls give a slight edge to Justin Trudeau's Liberal Party over Erin O'Toole's
Conservatives, but the tight margins suggest another minority government is the
most likely outcome.
• Both the Liberal and Conservative platforms call for significant new spending and
neither party plans to balance the budget within the foreseeable future. We anticipate
a slightly larger near-term economic impact from the Liberal platform, although it
would also result in larger deficits from 2023 onward.
• FX: For USDCAD, the election jitters could offer a rally to fade, reflecting scope for
less fiscal support or paper-thin governing mandates. That said, global factors remain
the key CAD driver, where we like the prospects of reduced growth worries and a
lighter form of reflation to emerge through the fall. The result would be another peak
in the broad USD, offering an opportunity to fade USDCAD rallies towards 1.28.
• Rates: With both parties promising deficits that are roughly similar to the 2021/22
budget, we do not expect any change in GoC supply in the current fiscal year
following the election. Future deficit projections are also similar enough that the
actual winner is not expected to have a material impact on the medium-term supply
outlook. We do see a risk that a relatively fragile minority could strengthen the
bargaining position of third parties to increase spending beyond the Liberal and
Conservative baselines.
7
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BGRBC:
• Monday’s Federal election has been a key focus in recent weeks, with the principal
discussion point being around any change in fiscal tack, from both growth impulse
and issuance perspectives. We have been consistent in noting that the Conservative
fiscal platform was quite centrist in nature.
• The CBC Poll Tracker is currently showing the Liberals and Conservatives roughly
equal in popular vote, with this resulting in a seat projection in the Liberals’ favour
(and similar to the 2019 election outcome). However, uncertainty remains on the final
result given how tight the polls have been. In the event of a very close race, the
higher amount of mail-in ballots due to the pandemic may mean that a clear result
will not available on election night.
MNI Policy
MNI: Canada Conservative Pledges Cost CAD51.3B Over 5 Years
8 September 2021
By Greg Quinn
OTTAWA (MNI) - Canada's Conservative Party Leader Erin O'Toole said Wednesday his
election spending promises will cost CAD51.3 billion over five years, details announced
around televised debates that could carry him to a come-from-behind win over Liberal Prime
Minister Justin Trudeau in a Sept. 20 vote.
The deficit will shrink to CAD24.7 billion in five years, according to party documents, from
this year's budgeted CAD155 billion. The costs as given are less than Liberal pledges for
CAD78 billion of extra health, housing and childcare programs over five years with a
CAD32.1 billion deficit at the end of that timeframe.
The costing was released before two nights of debates that could shift control of a campaign
where the Liberals' polling lead has faded to a draw with the Conservatives. Trudeau called
the snap vote last month hoping to capitalize on vaccination progress, generous relief
checks and a job rebound, momentum broken by more recent reports that GDP shrank in
the second quarter and a rise in Covid cases linked to the Delta variant.
"With the only shrinking economy in the G7, Justin Trudeau has nothing to show for running
reckless deficits and spending," O'Toole said in a statement.
AUSTERITY TAKES A BACKSEAT
The preliminary list of Conservative promises released Aug. 16 sought 1 million new jobs
within a year, business tax breaks and replacing the Liberal plan for ten-dollar-a-day
childcare with tax credits.
8
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BGO'Toole says he needs a decade to balance the budget after paying more for healthcare and
a sales tax holiday, while the Liberals set no timetable to balance the budget in their five-
year plan. The new Conservative fiscal largesse contrasts with Stephen Harper's austerity
after the 2008 recession that helped bring Trudeau to power in 2015. O'Toole promised the
plan can be reached without spending cuts or relying on a boost to economic growth, areas
where the Liberals have attacked in recent days.
MNI has reported that while inflation and housing are major voter concerns, the campaign
trail remedies may not give either leader a clear path to power. The CBC network's poll
tracker showed that as of Wednesday, the chances of the Liberals winning a majority
government have faded to 11% from 45% when the campaign was launched. The
Conservatives are close to the Liberals on potentially winning the most seats in the House of
Commons, at 39% versus 46% for the Liberals.
_______________________________________
IMPORTANT: This email contains information protected by copyright which can only be used in accordance with the terms of your
Market News subscription agreement. UNAUTHORIZED DISCLOSURE, PUBLICATION, REDISTRIBUTION OR FURTHER DISSEMINATION
OF THIS INFORMATION MAY RESULT IN CRIMINAL PROSECUTION OR OTHER SEVERE PENALTIES. Any such authorization requires the
prior written consent of Market News. Redistribution of this information, even at the instruction of your employer, may result in personal
liability or criminal action unless such redistribution is expressly authorized in writing by Market News. Market News takes any such
violation seriously and will pursue available legal remedies.
This document may contain forward-looking statements. Forward-looking statements may be identified by the use of such words as;
"may," "might," "will," "would," "should," "could," "expect," "plan," “planned,” "intend," "anticipate," "believe," "estimate," “estimated,”
"outlook," "predict," "project," "probable," "potential," "possible," "target," "continue," "look forward," or "assume" and other similar terms.
Forward-looking statements are not historical facts or guarantees of future performance but instead express only beliefs regarding
future results or events, many of which, by their nature, are inherently uncertain and outside the control of Market News. It is possible
that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking
statements. Subscribers are cautioned not to place undue reliance on any forward-looking statements or examples. None of Market
News or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking
statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of
the date that they were made.
This information has been obtained or derived from sources believed to be reliable, but we make no representation or warranty as to its
accuracy or completeness. This is not an offer or solicitation of an offer to buy/sell. Copyright @ 2021 Market News Ltd & Hawking LLC
d/b/a Market News. All rights reserved.
9
Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3A 2 BGYou can also read
