Look past Trudeau’s stance on energy

The new Liberal government won’t support the energy sector as much as the Conservatives did, but the Canadian economy can still thrive.

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“The big picture, if you look at GDP growth for 2016, is GDP numbers will be more or less the same—but composition will be very different,” says Benjamin Tal, deputy chief economist at CIBC.

The new government, he adds, “will be more positive for the environment, when it comes to the tax or price on carbon. You will see green technology improving. But the energy sector will not benefit to the same extent as when we had Harper in power.”

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Additionally, Prime Minister Justin Trudeau has pledged to redistribute wealth, which could boost the consumer activity of low- and mid-income Canadians, says Tal. “This is where the propensity to spend is higher. We’re going to see a narrower income gap [due to] higher taxes on affluent people and lower taxes on less [wealthy] people.”

But even though such redistribution will be positive for consumption, it could be detrimental for savings rates, he cautions.

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Under Trudeau’s reign, we’ll also see a change in how the economy is managed, says Tal. “The BoC has been doing most of the work when it comes to stimulating the economy. But now, the BoC will take a secondary role and you will have a fiscal policy running the game.”

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This shift will be beneficial for infrastructure, in particular, he adds. “Trudeau is willing to run a $10-billion deficit […] We will see a significant increase in spending on infrastructure, [so] the budget deficit will rise a bit to 0.5% of GDP. That will be positive for the economy.”

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Tal concludes, “You [will] have the consumer and infrastructure positive, and you [will] have energy less positive. That’s the big story, with the effect of redistribution of income sitting in the middle.”

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