Returning to Ottawa the same political parties in the same proportions, the federal election should not result in major economic or financial changes in Canada, analysts say – only slightly higher spending, taxes and deficits.
” The more it changes […], more is the same, ”summarized Tuesday the economist of the National Bank Warren Lovely in a brief analysis of the result of the federal elections of the day before. No wonder, with a Parliament whose composition promises to be almost identical to that before the election, “that the markets have not really found material to react”.
In particular, it seems clear that Ottawa is not close to reducing its spending or returning to a balanced budget, he observes. Even before the election was called, the Liberals announced their intention to maintain their financial assistance policies related to the COVID-19 pandemic for as long as necessary, to establish a public child care system and not to ‘wipe out deficits, but only gradually reduce the debt burden in proportion to the size of the economy. On the front of the fight against climate change, it was also notably a question of achieve carbon neutrality by 2050 and raise carbon pricing to $ 170 by 2030. In their election platform, they pledged $ 95 billion in new spending over five years only partially offset by stronger-than-expected economic growth and $ 25 billion in additional revenue from , among others, new taxes on large financial institutions and the rich.
If the last year and a half has shown that a Liberal government can operate in this context even if it is in a minority, it is possible that it will not succeed in meeting all of these commitments, but it is also more than likely that it will. will have to gain the support of elected officials from other parties in order to move forward. However, “his dance partner” most likely will be the NDP, with which he also shares several priorities in terms of health, housing and employment insurance reform, noted the Bank of Montreal in another analysis, but who calls for more spending and more taxes on the richest. New Democrats will also urge the Liberals to keep their word on eliminating subsidies to the oil sector.
Spending, deficits, inflation …
These additional expenditures will give, next year, a little additional boost to economic growth, but also to inflation, “which could force the Bank of Canada to raise its interest rates earlier than expected”, Oxford Economics analysts warned Tuesday. The pace of progression of the Delta variant of COVID-19 and the difficulties businesses face in responding to the recovery in demand, however, will continue to have the most significant influence on these factors, the Bank of Montreal estimated.
The Liberals’ electoral platform already suggested “slightly more pronounced deficits in the medium term,” noted Sri Thanabalasingam, economist at TD Bank. The obligation for the Liberal minority government to negotiate a deal with the New Democrats “would further widen the fiscal deficit.”
The Speech from the Throne of the “new” Liberal government will give a first idea of its priorities, says the Bank of Montreal. But everyone’s attention will go mostly to its economic update this fall and its first budget this winter, not to mention “the Delta variant, the US Federal Reserve, global growth, the US debt ceiling, supply chains, inflationary pressures and those millions of other factors that weigh more heavily on the economic outlook than the ambitions of Canadian politicians ”.
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