A Liberal Party minority government will need cross-party collaboration to push through key priorities and that could lead to higher spending and bigger deficits, some analysts and economists said on Tuesday in reaction to federal election results.
Given platforms that “overlap nicely," the most likely collaborator would be the New Democratic Party, Bank of Montreal economists said in a report. In that scenario, consensus building may bring NDP proposals to the bargaining table, such as its wealth tax and greater investments in affordable housing.
“All told, if that’s how the support lines are drawn, the first budget could look a lot like past Liberal budgets, but with spending commitments and deficits scaled up a few more notches even beyond those laid out in the Liberal platform,” Douglas Porter and Robert Kavcic said.
The Liberals campaigned on running deeper deficits, resulting from billions in new spending, while targeting a modest reduction of the country’s debt-to-GDP ratio.
It’s a goal that “certainly faces some risk that we head into a recession,” said Rebekah Young, director of fiscal and provincial economics at Bank of Nova Scotia. “I think everybody agrees that anchor no longer holds” in a downturn, she said, adding the Liberals would likely scrap that target and embark on deeper spending.
“I guess the one way in which I’m nervous is more on the spending front than the tax front,” said Aaron Wudrick, federal director of the Canadian Taxpayers Federation. “[The Liberals'] most likely partner on issues, the New Democrats, are also very big on spending.”
With that in mind, here are some platform overlaps that could actually drive policy and regulation.
Housing reform
The Liberals and NDP both said they would target foreign home buyers – albeit, in dramatically different ways.
The Liberals said they would tax vacant residential properties held by non-Canadians who don’t reside in the country, in a bid to curb speculation.
“They could probably push that through if they wanted to,” said Robert McLister, founder of mortgage comparison site RateSpy.com.
The NDP proposal was tougher, pledging a 15-per-cent tax on home sales to those who aren’t Canadian citizens or permanent residents. It would apply on top of similar taxes in place in B.C. and Ontario.
Both parties tried to court first-time home buyers – but again, the execution differed. The Liberals proposed expanding their First Time Home Buyer Incentive to allow for a maximum purchase price of $789,000 in the Toronto, Vancouver and Victoria areas. Ms. Young sees that as fixing a “miscalculation in the design” of the program, which currently allows a top qualifying price of about $565,000, which renders it less effective in pricey markets.
The NDP, however, said it would extend the amortization period for insured first-time buyers to 30 years from 25 for “entry-level homes.” Several industry experts have said this would inflate home prices and pour fuel on the country’s affordability problem.
Luxury tax
The Liberal Party said it would impose a 10-per-cent tax on the purchase of personal vehicles, boats and aircraft costing more than $100,000. The NDP would tax the same items, only at 12 per cent. The respective proposals were costed with the Office of the Parliamentary Budget Officer; by Year 4, each plan would bring in more than $600-million in revenue, but the estimates had “high uncertainty.”
“I recognize how politically popular any ‘soak-the-rich’ policy will be," Mr. Wudrick said. “Frankly, they’re ill-advised, they never pan out the way people hope they’re going to, and they have more detrimental side-effects than their proponents would care to admit.”
Telecom prices
The Liberals and NDP want to cut cellphone bills – only, it’s unclear how they would pull it off, or if it’s needed.
For its part, the Liberals pledged to cut cellphone bills by 25 per cent over the next two years “by using the government’s regulatory powers” and working with telecom providers. The NDP said it would introduce a “price cap” to ensure Canadians aren’t paying more than the global average on both cellphone and internet bills.
The Liberal platform did not include precise legislation, and thus, "we do not expect they will table anything specific that would be disruptive to the industry,” Scotia Capital telecom analyst Jeff Fan said in a report Tuesday. “Besides, we think the 25% price reduction promise has already been achieved,” he added, noting that current prices are already lower than those cited by the Liberal campaign, in part because the Big Three carriers introduced unlimited plans earlier this summer.
Mr. Fan says he expects the focus on the telecom file to turn to a regulatory review of the wireless market planned for January. The Canadian Radio-television and Telecommunications Commission has already said its early view on the hearing is that increased regulation is needed to open the industry up to more competition. “We think the Liberals will (and should) let the CRTC’s current proceedings play out, perhaps with less political noise,” he said.
Carbon pricing
The federal carbon tax is not going anywhere. However, the Liberals may find themselves under greater pressure to get more ambitious on climate policies.
The NDP said it would keep carbon pricing in place, and its platform set loftier emissions goals than the Liberals. The Bloc Québécois also supports the carbon price and, separately, opposes new pipelines running through its home province.
Carbon pricing started on April 1 at $20 a tonne and, under the Liberals’ plan, will rise by $10 annually to $50 in 2022.
Employment Insurance changes
The Liberals and NDP proposed a raft of EI reforms. One point of overlap was sick-leave benefits. The Liberals said they would bump EI sickness benefits to 26 weeks of coverage, from the current 15 weeks. The NDP said it would boost coverage to 50 weeks.
With file from Rachelle Younglai and Christine Dobby
Matt Lundy