Minority government could go on spending spree: report

Canada’s new minority government could face pressure to expand spending, imperilling debt reduction expectations, says Fitch Ratings.

In a new report, the rating agency said that the election of a minority government shouldn’t result in any major economic policy changes, but that the realities of power-sharing “could lead to a more expansionary federal government fiscal policy,” and that the country’s elevated government debt “may not stabilize” as expected.

“On fiscal policy, the 2020 budget will be a key signal for whether the new parliamentary makeup will lead to greater spending pressures and an increased federal deficit,” Fitch said.

The rating agency noted that the Liberals’ platform included deficits of more than $20 billion over the next four years. “The NDP, which the Liberals will likely need to rely on to pass budgets, could push for even higher deficits,” Fitch said, noting that its platform included a $33 billion deficit next year.

“A marginally wider federal deficit could still be in line with a falling general government debt to GDP ratio. However, even modest fiscal loosening amid a high general government debt load and moderate growth will increase the vulnerability of public finances to a downturn,” Fitch said.

Indeed, an economic slowdown remains a risk to the government’s debt trajectory, particularly as high household debt levels and the overvalued Canadian housing market “could exacerbate any future downturn, constraining consumption and investment growth.”

“On broader economic policy issues, key issues like the USMCA trade agreement are likely to find sufficient consensus for passage given the support from major parties,” Fitch said. “Other more controversial policies, like the construction of the TransMountain pipeline expansion, should find support from both the governing Liberals and main opposition Conservative Party.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.