Year in review: Liberals win. What will a minority government mean for Canadian pocketbooks?

Glacier Media has selected 10 top themes, events and issues for the year in our coverage. This story is one in a series of those.

Original online publication date: October 7, 2019

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With no party winning the 170 seats required for a majority government it seems like a government propped up by some form of a Liberal-NDP agreement is inevitable.  

The Conservatives managed to get the second largest number of seats at 122, 34 shy of the Liberals' 156. However, despite a strong showing, it is unlikely the Conservatives will be able to form government. Bloc leader Yves-François Blanchet Blanchet said he would not prop up a Conservative government, and even if he were willing to do so, the two parties would still fall short of the 170 seats needed for a majority. 

The Liberals and the NDP do not need to create a formal coalition government either and could create a minority government based on a confidence and supply agreement similar to the agreement currently governing the province of British Columbia, whereby one party agrees to support the governing party on confidence motions in exchange for some legislative priorities. However, with the strong showing from the Liberals, they could turn their back on the NDP and reach out to the Bloc Quebecois for support  by creating spending initiatives focused on Quebec. 

However with the strong showing from the Bloc they could create an alliance with the NDP where they would not support government unless that government took a stance against the construction of new pipelines. However this seems unlikely.

So on what common ground can the Liberals and the NDP stake their governing relationship? When it comes to the economy, the answer is likely higher spending and an increased tax burden on wealthy Canadians.

When it comes to deficit spending, David Moscrop, political theorist with the University of Ottawa, says that a Liberal-NDP agreement would likely err on the side of increased deficit spending rather than cutting services and instituting austerity measures to lower the deficit. However, the NDP’s platform is not void of new tax measures that could be adopted to help lower annual deficits.

The NDP proposal includes raising corporate income tax rates by three percentage points, returning to the 2010 rate of 18%. However, no revenue estimate of this proposed change was provided by either the NDP or the Office of the Parliamentary Budget Officer (PBO). A Jagmeet Singh government would also raise the top income tax rate two percentage points to 35%, which the plan says will raise more than $500 million annually.

But how willing will the Liberal party be to sign on to these tax hikes after fighting a bitter battle over its own tax reforms in 2017 and 2018? Those reforms introduced legislation to crack down on income splitting and raise the tax rate on passive income generated by private corporations like accounting firms and doctors’ offices.

“If it’s a matter of having to live with irritated folks who collect passive income versus losing government, I think they’d live with it,” said Moscrop.

The Liberal platform also included corporate tax reform promises. One proposal is to restrict the deductibility of interest charges for corporations whose interest expense exceeds  $250,000. According to the PBO, this is expected to raise an average of $1.27 billion annually over the next 10 years.

There are other areas of overlap between the tax plans of both parties. For one, both propose a tax on luxury goods. Unsurprisingly, the NDP’s plan goes significantly further to include an annual 1% wealth tax on people with more than $20 million in assets. Both parties have also suggested taxes on foreign residential homebuyers, though there is a wide gap between the plans. The Liberals have proposed to introduce a national 1% annual vacancy and speculation tax on residential properties owned by non-resident non-Canadians. The PBO projects this will generate an average of $275 million over the nine years following 2020. The NDP’s plan would add a 15% sales tax on the sale of a residential home to a foreign buyer. The PBO projects this will generate an average of $357 million annually for the next 10 years.

The Liberals have also proposed a broad-based tax cut by increasing the basic exemption to $15,000 from $12,069, saving the average family $600 annually. However, this will lower government revenue and raise the deficit. While the NDP is more likely to sign on to a tax cut for the taxpayers at the lower end of the income spectrum, its platform doesn’t have a similar tax cut.

“There are two ways to frame the deficit issue: one is, do we have a spending problem? and the other is, do we have a revenue problem?” said Moscrop. “These matters often get cast as spending problems when they’re really revenue problems, and I suspect that’s what the NDP would tell you.”

The most difficult tax reform to implement would be the NDP’s wealth tax, according to University of British Columbia economist Kevin Milligan. A wealth tax would require an augmented Canada Revenue Agency infrastructure that doesn’t exist and would take years to develop, time a minority government likely wouldn’t have.

“My suspicion would be that the wealth tax would just be really hard,” said Milligan, “but changing tax rates on higher earners in the current income tax system, that might be something those parties could agree on.”

While there are some significant areas of overlap between the Liberal and NDP tax plans, any confidence agreement will likely favour the Liberals as the governing party over the NDP, Moscrop said. While a minority Liberal government would likely have no one else to turn to except the NDP, the NDP would be in a similar situation because it is unlikely that the Conservatives would seek Singh’s support. 

The NDP and Liberal platforms also line up on a number of spending and legislative initiatives, including climate change policies, banning single-use plastics and implementing the United Nations Declaration on the Rights of Indigenous Peoples.

But Singh would almost certainly demand something with an NDP brand, to be seen to be delivering on policies that are near and dear to New Democratic hearts, said pollster Mario Canseco, president of Research Co. 

A vote on electoral reform is one. Another is a national pharmacare program. 

“You want to have something that is more meaningful to your base, and the base of the NDP cares about social issues,” Canseco said. 

The NDP estimates its pharmacare program would cost $10 billion a year. A government advisory council on national pharmacare put the estimate higher than that – $3.5 billion in the first year, rising to $15.3 billion annually within five years. 

That’s billions more than the $1.5 billion per year (over four years) that the Liberals have pledged towards increased health-care spending in their platform.

Rob Gillezeau, assistant economics professor at the University of Victoria, agrees pharmacare would likely top the list of NDP demands, should the party be in the position to make demands.

He thinks another likely demand from the NDP would be its pledge to eliminate interest on federal student loans. The Office of the Parliamentary Budget Officer has estimated that pledge would average out to $508 million annually.

Gillezeau said he could also imagine the NDP pushing for increased child-care spending, ensuring clean drinking water for all First Nations – estimated at $1.8 billion – and increased spending for the 500,000 affordable housing units the NDP platform promises.

Singh might also demand that the Trudeau government cancel the Trans Mountain pipeline expansion. The Trudeau government borrowed $5 billion to buy the existing Trans Mountain pipeline and will need to spend an additional $6 billion to $8 billion to expand it.

Cancelling the project not only would spark a war with Alberta, but would also mean taking a $2 billion writeoff and the loss of $500 million a year in new tax revenue from an expanded pipeline, which the Liberals pledged to earmark for clean energy and other climate change policies.

Gillezeau said the Liberals have too much political and literal capital invested in the project to give it up, and Johnston doesn’t think the NDP would have the clout to insist on it.

“I cannot imagine the Liberals agreeing to that,” Gillezeau said. “I think they would be unwilling to take the loss of face that will come with reversing that decision, and having engaged with a purchase where the numbers would turn out so badly.”

“There’s no way he [Singh] can make the basis of supporting the government the most important single thing, symbolically, which would be to terminate [the Trans-Mountain expansion],” Johnston said. “He has no mandate for that.”

Johnston thinks it is unlikely the Liberals will need the NDP’s formal support to govern. And even if Singh did become kingmaker, Johnston said his power would be limited, and points to BC Green Party Leader Andrew Weaver to prove his point.

“Think about what the Greens actually got out of it – not a lot,” Johnston said. 

Weaver got a vote on pro--
-portional representation, a stronger climate action plan and not much else. He failed to stop either Site C dam or a liquefied natural gas industry.

Ultimately, Johnston said, Singh’s hand is weakened by the NDP’s inability to afford to bring a minority government down, because it can’t afford to fight another election right away.

“They’re broke,” he said. “Nobody wants an election for a while.”

If Canadian businesses are worried about overspending and higher taxes, the biggest concern may not be NDP spending promises, but rather Liberal spending promises.

The Liberal platform contains $9.3 billion in additional spending promises that would boost the deficit to $27.4 billion in 2020-21. Johnston said he could see the Liberals getting support from the NDP for most of their spending promises.

“There’s almost no Liberal promise that the NDP wouldn’t want them to spend more on,” he said.

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