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Canada’s Federal Election: Post-election government will center efforts on economic investment and stimulus spending

14 September 2021 John Raines, Ph.D.

Polling numbers in the early weeks of the election campaign suggest a close race, with either a slight Liberal Party (Liberals) or Conservative Party (Conservatives) minority victory being the most likely outcome.

The Conservatives, led by Erin O'Toole, have been gaining ground steadily in the polls and have taken the lead slightly over the incumbent Liberals. However, even if the Conservatives win the popular vote, as they did in 2019, geographic constraints are likely to work against them, reducing the probability of them gaining a majority (over 170 seats) in the next parliament.

Political candidates during the 2021 election cycle have been targeted by anti-vaccination and anti-lockdown protests, with at least one campaign stop for Liberal leader Justin Trudeau being cancelled over security concerns.

A re-elected Liberal government would be likely to tighten existing corporate tax laws, implement more stringent measures to curb greenhouse gas (GHG) emissions, and increase tax revenue from digital services companies and financial institutions to fund its coronavirus disease 2019 (COVID-19) economic recovery strategy and implementation of a universal childcare plan.

A Conservative win would result in the modest loosening of GHG emissions restrictions but with maintained plans to impose a 3% digital services tax on gross revenues in Canada.

Outlook and implications

Despite the increased divisiveness of Canada's election campaign, as evidenced by vocal special interest groups targeting campaign stops, any government make-up will center efforts on Canada's need for post-COVID-19 economic investment and stimulus spending. Common themes across all parties include spending on green technologies, job stimulus, greater ease in accessing employment insurance, and affordable housing construction. As such, no government composition is likely to eliminate deficit spending over the course of its next mandate. Large corporations that are perceived to have profited from the pandemic, such as financial institutions and digital companies, are likely to see the implementation of new temporary tax measures in order to finance those spending commitments and address Canada's growing federal budget deficit.

A Liberal-led or coalition government is expected to pursue policy continuity, implementing existing promised programmes from previous election platforms and the 2021 federal budget presented in April. Existing vaccination requirements for travel and federal employees are likely to be maintained and strengthened. Trade and diplomatic relations with China are likely to remain strained, with the Conservatives being slightly more likely to pursue a more confrontational approach, including military exercises with allies to strengthen the Canadian presence in the South Pacific.

Policy change is likely to be greatest in the case of a Conservative government with a strong minority or majority win. This would include a rollback of emissions targets and carbon-pricing policies, a shift in approach on federal childcare support to a subsidy or a tax-break system, and an easing of environmental permitting and remediation requirements for hydrocarbon, forestry, and agribusiness sectors. This approach is likely to result in rising social unrest for resource development sectors and at strategic infrastructure sites, increasing the frequency of operational disruption, particularly if the Conservatives pursue related criminal code changes, outlawing blockades of ports, rail lines, and resource construction sites.

Posted 14 September 2021 by John Raines, Ph.D., Principal Global Risks Adviser and Head of North America, Economics & Country Risk, IHS Markit

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