Canada has voted – results and possible consequences

The early election on the 20th of September, essentially, confirmed the previously existing voting patterns in the Canadian parliament. Justin Trudeau, who had speculated on a majority for his Liberal Party in this “snap election,” won a third term as prime minister but, as before, can only form a minority government. The Liberals won 160 seats (170 would have been necessary for a majority), the Conservatives 119, and the New Democratic Party (NDP) 25 seats. The same number as the separatist party Bloc Québécois, which is only running in the province of Quebec. Trudeau benefited from Canada’s majority voting system to prevent a victory for the conservative party. This is because the distribution of mandates in the electoral districts is based on the principle of absolute majority. In the end, a few dozen contested constituencies in the suburbs of Toronto, Montreal, and Vancouver were decisive for Trudeau’s re-election.

Traditionally, Canada does not have coalitions, but will have either absolute majorities or minority governments with an average two-year holding period. The issues dominating the election campaign was the climate crisis, domestic issues such as the rising cost of living and health care, possible changes in gun laws, and continued reconciliation with indigenous communities.

As Canada’s oldest party, the Liberal Party invokes freedom, liberalism and equality before the law and tends to be on the left of Canada’s political spectrum. Core demands include health care and pensions accessible to all segments of the population, peacekeeping while maintaining multilateralism and multiculturalism, and strong gun control laws.

Founded in 2003 and chaired by Erin O’Toole, the Conservative Party is the second largest party in Canada and is more center-right on the political spectrum. Key policy issues include respect for individual rights and freedoms, a balanced government budget, a reduction in the value-added tax, the Economic and Trade Agreement (CETA), and the Trans-Pacific Partnership (TPP) negotiations.

The New Democratic Party (NDP) is a smaller party that is further to the left of the Liberal Party and supports public health care as well as LGBT rights, international peace, aboriginal rights, and environmental protection.

All parties have hinted during the election campaign at a tendency to further increase fiscal spending, which was massively increased during the pandemic and had led to a drastic budget deficit. The Liberals’ need to push through their campaign goals, only with the help of the NDP, is likely to mean an expansion of the deficit. Their wish lists are long: increasing pension payments, subsidies for childcare and affordable housing, investing in sustainable energy sources, etc. A conservative government would probably have given preference here to fiscal consolidation and strengthening the supply side for companies (investment incentives and tax cuts).

The question of how all these measures are to be financed will be exciting and decisive. Especially, considering the looming threat of interest rate increases in the short term and likely also in the long term. During the election campaign, the Liberals wanted to impose a three-percent surcharge on the big banks and insurance companies and force them to make more money available to the government through a “Canada Recovery Dividend.” Such measures would be poison for profits in the financial sector, but experience shows that such announcements tend to be campaign bluster and are hardly legally enforceable. More likely are (further) tax increases on luxury goods and residential real estate or a possible increase in the capital gains tax. At the end of October, the new cabinet will be presented. By the end of the year, the first concrete measures of the new government should become apparent. Which could then make tactical action, both in liquid and illiquid asset classes, necessary for investors. Together with our Canadian cooperation partners, we will continue to monitor these developments very closely in the interests of our clients and – where appropriate – provide corresponding recommendations for action.