THE ECONOMY IS TROUBLE: IS THE NEW PARLIAMENT PREPARED TO TAKE ACTION?
Kevin Carmichael analyzes whether MPs will be humble enough to work together.
The annual meetings of the International Monetary Fund in Washington last week were grim. Trade wars. Negative interest rates. Unprecedented levels of debt. Sagging economic growth and productivity. “Go home,” Kristalina Georgieva, the IMF’s managing director implored an audience of policy-makers and various hangers-on at one point. “Act. How many of you are going to do it?”
No one from Canada’s government was there to receive the message, obviously. But now that the election is over, let’s put the question to Canada’s new Parliament: The economy is in trouble; how many of you are ready to do something about it?
We can put that question to the entire Parliament because Justin Trudeau’s best shot at running a decent government for the next four years will be to proceed bill to bill. Trudeau’s Liberals won 157 ridings, 36 seats more than the second-place Conservatives, but 13 short of a majority. That could prove to be a more stable government than many were expecting.
The Bloc Québécois (with 32 seats) and the New Democratic Party (24 seats) both control enough votes to be kingmakers in the House of Commons. Bloc Leader Yves-François Blanchet said he was uninterested in being anyone’s formal partner, but would collaborate on any legislation that he deemed good for his province.
Jagmeet Singh, who revived the NDP’s swagger during the campaign, even though he ultimately lost more than a dozen seats, listed pharmacare, affordable housing, eliminating interest on student loans, a cap on mobile-phone bills, ending oil subsidies, and taxing the
“super wealthy” as his priorities.
“Canadians sent a clear message they want a government that works for them, not the rich and powerful,” Singh said in his post-election speech.
Micheal Hsueh, a foreign-exchange strategist at Deutsche Bank, warned his clients on Oct. 21 that a Liberal tie-up with the NDP would be “mild negative” for the Canadian dollar. If so, the downward pressure likely will last for about as long as it takes traders to recall why they invested in Canadian assets in the first place. The 10-year bond was yielding about 1.6 per cent on Election Day, a little less than the comparable U.S. security, but much better than the negative yields on offer in Japan, Germany, France, the Netherlands and Switzerland.
Hsueh said the NDP’s opposition to the Trans-Mountain pipeline could give investors a scare. I suspect that would be nothing like the chill Singh would experience if confronted with the economic and national-unity implications of actually orchestrating the death of the project, rather than promising to do so while surrounded by partisans at campaign rallies.
Regardless, the parliamentary alignment will make it difficult for Singh to demand too much. Blanchet said he opposed new oil pipelines in Quebec, not British Columbia; the Bloc’s support could come cheaper than that of the NDP. Or the Liberals could simply team with Conservatives to block any legislative effort to reverse existing pipeline construction. Trans Mountain is safe.
“You are an essential part of our great country,” Trudeau said of Alberta and Saskatchewan, which rejected every Liberal candidate. “Let us all work hard to bring our country together.”
If the prime minister means it, he will sample from the official opposition’s election platform, and not just the wish books of the Bloc and the NDP.
Andrew Scheer, the Conservative leader, said he would have called a meeting of first ministers in January to start work on an enhanced internal free-trade agreement; Trudeau could do the same, as the Liberals also promised to get serious about erasing trade barriers between the provinces.
That’s the kind of thing Georgieva
was talking about when she called on policy-makers to act. The IMF cut its forecast for global growth this year to three per cent, the weakest since the Great Recession in 2009. The trade wars have killed global demand and business confidence, and ultra-low interest rates now provide stability more so than stimulus.
“We’re in a Great Sag,” Ray Dalio, the founder of Bridgewater Associates LP, the world’s biggest hedge fund, said on the same stage as Georgieva.
Stronger economic growth will require politicians doing difficult things to encourage growth. The IMF found earlier this year that internal free trade would increase Canada’s GDP per capita by about four per cent, a larger boost than would be generated by the new North American trade agreement. Tax changes also could help. The government and the opposition each said they would cut personal tax rates by about $6 billion per year. The Liberals promised to look at the government’s long list of special-interest tax breaks, while Conservatives pledged a review of the tax code, suggesting a compromise on tax reform could be found. (The Liberals and the NDP agree on taxing automobiles, boats and aircraft that cost more than $100,000.)
However, it’s unclear if Trudeau, Scheer and their respective tribes are capable of working together. They come from different worlds.
Brendon Bernard, a former finance economist who now does labour-market research at Indeed, a jobs site, found that ridings won by the NDP and Liberals in 2015 experienced a disproportionate share of the hiring over the past four years, while Conservative areas lagged.
Liberals and Conservatives spent the campaign spreading lies and disinformation about the other, and Scheer called Trudeau a “fraud.” On election night, Trudeau broke convention and began his victory speech in Montreal minutes after Scheer had begun addressing his supporters in Regina, denying the opposition leader a moment on live television.
“Canada is a country that is further divided,” the broadcast audience eventually heard Scheer say.
Those divisions don’t look so serious on paper: The Liberal platform features numerous items that are similar to promises made by the Conservatives and the NDP. The question, then, is whether the 338 newly elected members of Parliament are humble enough to work together?
Trudeau would have to acknowledge that Conservatives won 34 per cent of the popular vote, compared with about 33 per cent for his Liberals. “Conservatives have put Justin Trudeau on notice,” Scheer said. Except that about 65 per cent of voters endorsed parties that support a carbon tax, which Scheer said he would scrap, so the Conservatives were put on notice too.
“There is enough money to go around,” Dalio said at the IMF meetings. “The big risk is now we are dealing with each other.”
He was talking about the United States and Europe, but he could have been talking about Canada, too.
You are an essential part of our great country. Let us all work hard to bring our country together.