Canadians have cast the ballots in the federal election as the long-awaited economic recovery shows signs of faltering. Kim Parlee speaks with Derek Burleton, Deputy Chief Economist, TD Bank, about the election results’ potential impact on the economy.
Well, talk about similar results to the last election. Continuity with a capital C here. Yeah, we will go through the platform. We've already started to look at some of the... it is a lot of spending promises to total about 70 or 80 billion over five years. It will have an impact on the outlook. I think if anything in the near term it will be a growth positive as some of the spending moves through the economy, probably affect our 2022 outlook by roughly 0.2 to 0.4 percentage points. So given the fact that this year has been a little disappointing, I think next year will be a bit of an offset. But I mean, for all intents and purposes, it doesn't change the outlook dramatically, higher deficits, but if anything, I think will give a little bit more oomph to the recovery going forward.
And I guess if you were to think about maybe how Canada kind of compares to other countries in terms of oomph to recovery, I mean, that's something that every country is trying to do. Do you think we'll be able to keep up, or is it going to put us in some deficit problems later on?
Well, yeah, I think it will keep up. This year has been a disappointing year for Canada's economy. We, in a recent forecast, just downgraded the growth outlook by more than a full percentage point for this year. Fiscal stimulus has been an important part of the recovery so far, and we have expected it to remain that way, if anything, a little bit more so. So Canada, for all intents and purposes, in comparison, we're looking to get back to full capacity as an economy by the tail end of next year, something the Bank of Canada expects as well. And I think if anything, this just increases the chance of that. So a pretty good outcome given how depth the declines were in 2020.
If I'm to cherry pick some of the things that I saw in the liberal platform, and I think we all have to acknowledge the platform doesn't always turn into policy, especially in a minority government. But there was talk of more cuts for the energy sector, more to bring greenhouse gas emissions down by 40 to 45%, in this new kind of carbon constrained economy to which we're moving forward. What impact is that going to have on your outlook?
Well, there are two sides to that equation. Clearly during the election campaign the liberals have filled in more of the details around how they're going to transition away from fossil fuels, imposing five year regulations on the oil and gas sector to bring down their emissions. Not a dramatic shift. I mean, most of the liberal plan was known in advance, the carbon tax plan to get it up to 170. Also on the other side, they included more investments to support this transition, both in helping some of the displaced workers and clean tech and the like. So in a sense, I think from an oil and gas perspective, I think just the fact that we do have a very continuous government. Stability is important. We've seen energy policy swing around quite a bit in recent years. At least there's the stability there. And I think that's something that's that's welcome to the energy sector overall as they prepare for the inevitable to get their carbon emissions down.
OK, let me ask you again, cherrypicking again. Housing. There's a whole list of things that came out and things on tax free home savings account, also at the same time, taxing flippers who hold homes for less than 12 months, the moratorium on foreign purchases. There's a lot condensed into that one piece there. What impact would that have?
I think housing is going to be a huge area. I think, just given the liberal plan, they do devote a huge share of their 70-odd billion to housing. It's kind of the flagship, other than the child care, which is part of the last budget, this is their flagship policy. Something they will be able to get, cooperation with other parties in a minority government. You mentioned it, it's multilayered and, it kind of pulls on different ends of it. They're going to increase taxation. They're going to ban foreign purchases for two years. On the flip side, efforts to help, certainly incentives to help first time buyers borrow more, getting the savings accounts, increasing the home owners tax credit. I think net net, this is a positive for demand. I don't think we're going to take our home price forecast, which is modest gains next year and drive it up hugely. But if anything, this creates an upside risk more because of the demand, if anything. And in a sense, it works a little bit against what they were trying to achieve, increasing stress testing and the like. So, you know, this was an election. This is politically popular and they've done this. So I think, just to summarize, I do think this is going to increase our sales outlook modestly as well as the the sales price forecast modestly.
You mentioned the child care. And I thought this is interesting. It felt to me during the campaign this turned more into an economic conversation versus a social conversation, where all the parties were coming in in support of that. So is that something that you see having an impact economically as we move ahead?
I do, it's something that we embedded in our last forecast. This is a big plan. If anything I mentioned we talked a little bit about the recovery. This is going to help the recovery and the labor force. Canada doesn't have a huge problem, as the US does, in terms of getting more people in the job market. They're dealing with fairly tight labor supplies. We do to a certain extent. But if anything, this is going to help that participation rate going forward. It's a multi-year thing. And eight of 10 provinces have already announced that they've reached deals with the federal government in terms of the flow of money. So I think from a longer term perspective, this will support the recovery in the economy overall. So give it a plus from that perspective.
Derek, another piece that came out from the platform was news that they would look at increasing taxes on corporations. Your thoughts on that?
Yeah, there were some sector-specific initiatives, and I do think, Kim, that this is going to be the more interesting thing as we kind of move through the months ahead, as we get policies and those are translated into actual legislation. What will those details mean? So from a broad macro perspective, I certainly didn't see a lot of impact. But I think the sector-specific policies will be key in terms of determining any kind of investor reaction going forward.
Last question for you, Derek. As I mentioned earlier, this is a liberal minority government, which means that they have to work in coalition with another party. We're seeing a lot of people think that means you could see the platform veer left a bit. Is there anything else that we think that could happen as a result of some of the cooperation that needs to happen in order to get things done?
Well, I think just the durability of the next parliament, the last one was two years, do we get another two years out of a minority government? It's a pretty stable minority. So one would think there's a good chance, but hard to predict. It really depends in part on the other key parties in parliament and whether we even go that far. But I think the next steps will be the speech from the throne. We'll get a bit more detail on where the government's headed. And, of course, that fall update and I think early on will get a bit of a sense as to the early start on this and some of the durability question on that front.
Derek, thanks so much.
Thank you. Kim.