Canadians returned Justin Trudeau’s Liberals to power on Monday, but the Liberals fell short of securing a majority, in what some commentators are regarding as a “strong minority government.” The Liberals garnered enough support to win Atlantic Canada, Quebec and Ontario with 157 seats (170 is required for a majority). The Conservatives locked in 121 seats, winning 71 of 107 in Western Canada (British Columbia, Alberta, Saskatchewan and Manitoba).
The coming days will determine the direction of the new minority government: Will the Liberals form a coalition with the New Democratic Party and possibly the Green Party, or will they maintain confidence around individual issues on an ad hoc basis? History suggests that Canada’s minority governments do not last long – on average about two years or less. So Canadians may be back at the polls in the not-too-distant-future. Fiscal policy will become increasingly important in the short term.
Slowing growth and fiscal policy
Canada’s economy is slowing and financial conditions are tightening as the RSM Canada Financial Conditions Index shows. The global economy and Canada face considerable challenges: the U.S.-China trade war, conflicts in the Middle East and Brexit, to name a few.
The Liberals appear to favor infrastructure funding relative to other forms of fiscal stimulus (e.g., C$3 billion per year in funding for public transit). Infrastructure funding has the potential to boost productivity over time, but may not be the best way to stimulate an economy in the short run. Other measures, including individual and business tax relief, might be more effective at increasing consumer spending and investment in the near term.
The Liberals announced C$9.3 billion in new spending for 2020-2021, which will increase the deficit to C$27.4 billion in the same year. This figure could increase if the Liberals commit to a universal pharmacare plan as put forward by the NDP.
East-West divide
The new government will have to contend with a regionally divided country. Indeed, this is the second most divided federal election since 1980 when Trudeau’s father, Pierre Trudeau, won a majority as measured by the relative popular vote in Eastern Canada versus Western Canada. Is history repeating itself? The Liberals had a popular vote that was nearly two times larger in Eastern Canada than in Western Canada.
Canada has not been this regionally divided since 1980. Managing this stark regional divide will be challenging. How will the Liberals ensure representation from Alberta and Saskatchewan in Cabinet?
Conservatives won nearly 70% of electoral districts, or ridings, in Western Canada. In Alberta and Saskatchewan, the Conservatives won every riding except for one. In Eastern Canada, the Liberals took 140 of their 157 seats and about 60% of all seats—excluding Quebec, they had nearly 70% of all seats. Canada has not been this regionally divided since 1980. Managing this stark regional divide will be challenging. How will the Liberals ensure representation from Alberta and Saskatchewan in Cabinet?
Trans Mountain Expansion Project
The previous Liberal government took the extraordinary step of buying the Trans Mountain Expansion Project, which has the opportunity to generate a significant economic boost by tripling crude oil capacity in Western Canada in the face of a slowing global economy. However, the NDP and Green Party are opposed to TMEP as is the Bloc Quebecois, which controls 32 seats. Navigating TMEP through a minority government will not be easy.
