What a Liberal Minority Government Will Mean for the Markets and Canadian Investors
Canadians went to the polls on September 20th, 2021, and Justin Trudeau led his liberal government to victory. The liberals will govern with a minority government for another term. Here is what you need to know about how this outcome could affect your finances.
What You Need to Know
- The consensus in the financial community is that there will be no resounding short term effects on the markets caused by this election. There is greater concern of impact from factors that were in play well before the election was even called; specifically, the pandemic and global trade issues. While the TSX shot up 153.8 points the morning after the election—the highest it’s been in two months—it would be unlikely that Canadian investors will see any more election-related excitement in the markets in the short term.
- Long term, there are some sectors that could see impact from liberal election promises. Renewable energy and climate action technology could see a boost from a liberal government if they follow through on some of their campaign promises. While the liberals hold a minority position in parliament, their most-likely allies are the NDP. The NDP is also committed to increased government spending to tackle climate change. This sets the stage for growth in the environmental sectors.
- Sectors that could potentially see slowed growth under this government are the telecommunication and energy sectors. Both the liberal and NDP government made campaign promises that included establishing more consumer-friendly mobile plans and more focus on renewable energy.
- The bond market has been performing poorly due to issues with interest rates since the pandemic begin. Analysts do not expect this to turn around any time soon, with the election having little to no impact on the bond market. However, Canadians bonds have always been an attractive investment to investors based on their reliable performance in the past.
- The loonie has also weakened significantly since the pandemic began and experts expect that trend to persist in the coming months.
Though the long-term effects of another term of Trudeaus liberal government is unclear, what Canadians can expect is large amount of fiscal spending, which will be supported by the NDP.
The liberal election platform included some tax changes that could affect both corporations and individuals if carried out.
Here are some of the key points:
- The liberals pledged to raise corporate income tax 15-18% on banks and insurance companies that make over one billion in profit.
- A 2019 campaign promise that still seems to be in the works, this policy would impose a luxury tax on luxury cars, planes, and boats that are purchased for over a certain amount.
- The Liberals have committed one billion dollars to the CRA to combat excessive tax planning and avoidance. They have also pledged to impose a minimum tax of at least 15% on the highest earners in the country who have traditionally avoided paying taxes through aggressive tax planning.
Canadians With Disabilities
- Trudeau has committed to an improved disability benefit, which would see Canadians with a disability between the age of 18-64 get a direct monthly payment. They have also pledged to review current benefits and make accommodations for those with mental health disorders.
- The liberals have also promised to double the home accessibility tax credit.
- Housing prices and housing shortages was a hot topic in this election. The liberal government has proposed a new tax-sheltered account that would allow young Canadians to save up to $40,000 towards a down payment. Early information suggests the account would be a hybrid of the RRSP and TFSA.
- First time homebuyers can also look forward to a doubled home-buyers tax credit.
- The liberals have proposed a career extension tax credit that would be applicable to working seniors. Canadians over 65 who earn at least $5,000 at their jobs will be able to eliminate tax payable on a portion of their income and receive a tax credit of up to $1,650.
- The Liberal Party is pledging to increase the guaranteed income supplement by $500 for single seniors and $750 for senior couples.
- The Trudeau government has committed to getting rid of flow through shares to move investors away from oil, mining, and coal.
- A one-time tax deduction for health-care professionals in first three years of practice of up to $15,000.
- The liberals have promised 10 sick days for federally regulated employees.
- A key part of the federal government’s 2021 budget is a $10-per-day national childcare system, which is at the centre of the Liberals’ promise to working parents in this election. It is likely they will follow through on this promise in their new term.
The Bottom Line
Canadians shouldn’t expect any major changes in the short term but the recent election could have some big impact long-term if the liberals follow through on their campaign promises. If you are unsure about what this means for your current investment strategy, then be sure to contact us for a free review.