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Impacts of the 2021 Canadian Federal Election

WealthCo Asset Management

THIRD QUARTER 2020

Impacts of the 2021 Canadian Federal Election

Peter Lieu, CFA

Chief Investment Officer

WealthCo Asset Management

Canadians experienced a collective déjà vu late on Monday, September 21st as the 2021 federal election results came in…and were remarkably similar to the results from the last federal election on October 21, 2019. Again, the Liberal party has a minority government. And again, the Conservatives won the popular vote. Leaving many to wonder, what exactly was the point?

 

While Prime Minister Trudeau claims that the impetus for calling a snap election two years early was because “Canadians need to choose how we finish the fight against COVID-19”, many suspect that the Liberal party was hoping to win back the majority government they had lost in 2019.

 

In order to secure a majority government, the Liberal party would have needed to win at least 170 seats. They fell short by 12 seats. There is a prevailing sentiment in North America that having a majority government is necessary. That a party is stymied in its ability to make real progress when they are a minority government. But history has proven that this simply isn’t the case. Consider Lester B. Pearson, who served as Prime Minister from 1965 – 1968, and who Policy Magazine has decreed the best Prime Minister of the last 50 years (by a landslide, no less). Pearson didn’t allow a minority government to slow him down from crossing some mighty impressive items off his to do list, including:

 

  • The implementation of universal health care;

  • Leading Canada as the first country in the world to institute a points-based immigration system;

  • The Royal Commission on Bilingualism and Biculturalism;

  • Much-needed labour legislation including the 40-hour work week, two-week vacation policies, and the minimum wage; and

  • Introduction of the Canada Pension Plan and Canada Student Loans.

 

Or, more recently, look across the pond to Germany. Leading a minority government hasn’t held back Chancellor Angela Merkel, who currently holds the highest approval ratings of any world leader.

 

Majority government vs minority government debates aside, the best course of action is to have all parties collaborate together to develop economic policies that will contribute to long-term and sustainable growth. Policies that will encourage citizens to be engaged in the economy. Policies that will have lasting effects beyond just the current election cycle.

 

Here are some of the Liberal platform promises that are likely to impact Albertans.

 

  • Creation of a million jobs

  • $10 a day childcare

  • Increasing the corporate income tax rate from 15% or 18% for banks and insurance companies on all earnings over $1 billion

  • Potential implementation of a luxury tax, which would apply to high-end vehicles, aircraft, and boats

  • Heightened funding to Canada Revenue Agency to close the tax gap

  • Introduction of the First Home Savings Account, a TFSA and RRSP-like tax-sheltered savings account for Canadians under 40

  • Introduction of an anti-flipping tax for residential homes

  • Net zero emissions by 2050

 

We asked Ryan Sawka, Investment Counsellor with WealthCo, to share some of his thoughts on what the impacts of these promises could be.

 

“Regardless of leader or party, a minority government is typically a good thing for markets.” Sawka shares, “The worst thing for markets is uncertainty. As an investor, one of the most important considerations is to know your goalposts. Regardless of the policies themselves, more of the same defines the goalposts.”

 

The Liberals have pledged $78 billion in new spending over the next five years. Has Canada ever been faced with this level of increased spending?

 

“Stephen Poloz, former Governor of the Bank of Canada, had spoken at the Portfolio Management Association of Canada conference last year,” Sawka recalls. “He likened this level of federal debt to Canada’s situation coming out of the second World War, in the 50s and 60s. How we got through it back then was a focus on growth policies and eventually the nation grew their way out of it.”

 

Sawka elaborates on what potential impacts could exist from this level of spending.

 

“In the very short-term, increased spending typically generates economic tailwinds. Beyond that, the spending can lead to crowding out of private investments as well as increased inflation which generally stagnates GDP and hurts Canadian households. We’re already noticing those inflationary pressures today.”

 

If you’d like to discuss any potential impacts to your portfolio, reach out to WealthCo today.

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IT'S 2021 - WHAT DOES RISK LOOK LIKE TODAY.

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WealthCo. Asset Management Inc. (“WealthCo”) is registered as an Exempt Market Dealer in the province of Alberta. It holds a Portfolio Manager registration in the provinces of Alberta, British Columbia, Manitoba, Northwest Territories, Ontario and Saskatchewan and an Investment Fund Manager license in the province of Alberta. The information provided herein is for general information purposes and should not be construed as an offer to purchase, sell or trade in securities.  Important information regarding the WealthCo funds discussed herein is set out in the fund’s trust agreement. A copy can be obtained from info@wealthco.ca. The historic returns and their relative performance shown above may not be indicative of future returns. Performance cannot be guaranteed. Balanced Model Portfolio: The returns set out above reflect a time weighted average of the returns of a model portfolio invested in a Balanced model portfolio during the investment period shown and the asset mix set out herein reflects the composition of a typical Balanced portfolio as at 12/31/20. The actual result of a portfolio invested under this risk category may deviate from the composite because of differences in the composition and type of assets held. The performance of the S&P/TSX has been provided for general information purposes only. It may not be a fair comparative to the composite return because the types of securities in the index and the index’s overall market risk differs from the model.

 

“WealthCo Asset Management is monitoring the outbreak of the novel coronavirus (“COVID-19”) and its potential impact on the Pools. The outbreak of COVID-19 has increased volatility in financial markets. While the extent and duration of the impact of COVID-19 on global and local economies, financial markets, and sectors and issuers in which the Pools may invest in is uncertain at this point, the outbreak has the potential to adversely affect results.”