The Liberals and Conservatives are in a tight race as they woo voters with spending plans to ease the pandemic’s impact and ensure a broad economic recovery. But fiscal policy isn’t likely to change much after Sept. 20 no matter which party forms government, a report from DBRS Morningstar says.
“While the electoral outcome is highly uncertain, there is more certainty around the overall direction of economic policy in Canada,” the report released Tuesday said.
With less than two weeks to go in the campaign, the Conservatives are ahead in most polls in terms of popular vote while the Liberals have the edge in seat count. In the 2019 election, the Conservatives won a greater share of the popular vote but Justin Trudeau’s Liberals won the most seats in Parliament and formed a minority government.
From a credit perspective, the “broad contours” of each party’s economic policies are similar, the rating agency said, and the country’s credit fundamentals are strong.
The report noted that the Liberals and Conservatives have both promised to extend certain pandemic aid programs and to provide additional assistance to hard-hit sectors.
The election outcome won’t change much in terms of deficit reduction, DBRS said. The Liberal platform released last week forecast the $156.9-billion deficit in 2021–22 falling to just over $32 billion in 2025–26, with the debt-to-GDP ratio declining. Under leader Erin O’Toole, the Conservatives said they would eliminate the deficit within 10 years.
Proposals for growth may also have similar effects, the report said, with more “difference in tactics than strategy.” The Liberals proposed a national plan for $10-a-day child care while the Conservatives would use a means-tested refundable tax credit to cover up to 75% of childcare costs. All federal parties agree that “access to affordable childcare is a political priority and would have positive effects on medium-term growth,” DBRS said, even if the costs and “distributional effects” of the plans are different.
The rating agency expects Canada’s economy to grow rapidly in the second half of the year, despite risks from the Delta variant and supply bottlenecks.
“Regardless of who forms the next government, fiscal policy looks set to provide targeted support to the economy until the effects of the pandemic fade,” the report said. “And while fiscal repair does not appear to be a high political priority in this election, both the Liberals and Conservatives aim to return fiscal accounts to a sustainable position within the next few years.”