On October 5, 2021, our Strategic Advisory Group hosted “#ELXN44: What is Old is New Again – The ‘New’ Trudeau Government’s Impact on Your Business”. Paul Zed (former Member of Parliament and Chair of several parliamentary committees, Counsel and Strategic Advisor, McCarthy Tétrault) moderated a panel discussion on the results, impact, and longevity of the 44^th Federal Election in 2021. Our panelists included:

• The Honourable Jean Charest, former Deputy Prime Minister of Canada, former Premier of Québec, Partner, McCarthy Tétrault;
• Karine Joizil, Partner, McCarthy Tétrault;
• Gillian Kerr, Partner and co-lead of the firm’s Public Sector Group, McCarthy Tétrault; and
• The Honourable Wayne Wouters, former Clerk of the Privy Council and Secretary to Cabinet PC, OC, Strategic and Policy Advisor, McCarthy Tétrault.

The following are key takeaways from our panel.

Key Takeaways for Business in this Minority Government

1. How will a minority affect businesses interactions with the government?

Trudeau’s minority government is going to be under double scrutiny, from both the Canadian electorate and the opposition parties; it will be good business practice to follow the exact rules when interacting with this government. We are likely to have a Liberal government that will be cautious and sensitive knowing that they are constantly under the microscope and will have difficulty controlling the political narratives. Opponents will be looking for missteps, and the opposition will have an easier time exploiting these missteps in Parliament and on Committees. In a minority government, the opposition parties get more opportunity to speak in Parliament and on Committees, and they are likely to take advantage of this to showcase any of the government’s missteps or errors.

For businesses, it is important to remember that when you are engaging with this government, be up to date on and be meticulous with your lobbying registry, and make sure you are doing everything by the book.  Be strategic about your interactions with the government because it is important to remember that it is not only about following the rule of law, but also not falling into the media or the opposition’s attentions.  Remember, even though in Trudeau Report #3, the ethics commissioner determined that Trudeau did not breach the Ethics Act, the story still dominated the headlines, and opposition parties continually questioned Trudeau and his government at every opportunity.  

As a business, keep these questions mind:  Is there any potential that this could look like an apparent conflict of interest? Is this the right person to be contacting the government or is there a safer person or safer way to do it? The spot light will be on this minority government, so be cautious and specific about interactions, and use proper streams. Avoiding getting mixed in with the ease at which the opposition will be able to direct the media's attention.

2. How should businesses manage the government’s commitment to continued spending and pandemic support?

This campaign was about government spending the money to get Canada out of the pandemic, and businesses should be aware of the consequences of continued government spending on their business. The Liberal Party vowed to increase spending by $78 billion over the next five years, with no immediate plan to balance the budget.  All parties campaigned on an expansionary fiscal policy, the NDP promised to increase spending $214 billion over the next five years, and even the Conservatives proposed $52 billion in new spending over the next four years. While much of this spending will play an important role in restarting the economy, Canadians were given no legitimate option at the ballot box to deal with the $1.1 trillion federal debt.

In an election where balanced budgets seemed off limits, businesses should be cautious of an increase in interest rates affected by government spending. The Consumer Price Index rose to 4.1% in August, with inflation increasing at its fastest rate since March 2003. Canadians are already aware of the increased costs of gasoline, housing, goods such as vehicles, appliance and furniture, and travel. Canadian businesses should be cautious, a sudden increase in inflation would likely have a significant impact on their ability to borrow money and leverage their debts, and consumers would have less cash to spend. Even when it seems like business might go back to normal, prudent long-term fiscal planning is key to any business emerging from the pandemic, and this economic climate, unscathed.

3. How should businesses manage the increased focus on climate policy?

For the first time in Canadian electoral history, all the major political parties agreed on a carbon tax and the need to spend heavily on green infrastructure. Climate change has become an important economic imperative, and the Liberals have embraced an expansionist fiscal policy to reflect that priority. The Liberals have pledged $8 billion to help large industries reduce greenhouse gas (GHG) emissions to net zero in 30 years. This means a 40-45% reduction in GHG emissions by 2030, with net zero by 2050. There are also 5-year targets for the Oil & Gas sector, including carbon capture and storage initiatives. While consensus is developing in Canada as to how to develop climate policy, the new Liberal Government has picked a specific path with lower emissions in mind.

However, many Canadians do not fully trust Prime Minister Trudeau on the economy and his climate commitments complicate this trust; he was heavily criticized during the campaign on his economic management, and post-election polls show that the Conservatives’ stance on economic issues are still more favoured.

In order to win the trust of Canadians, Prime Minister Trudeau must seize the opportunity that exists in this consensus on climate action and use it to develop the Canadian industry and infrastructure needed to support his climate policies. The Liberals have a clear opportunity to leverage the remaining fiscal stimulus in the Federal budget to develop infrastructure that benefits climate policy. Tens of billions of infrastructure dollars remain unspent, and will need to be spent to get these infrastructure projects off the ground. These dollars may be spent through the Canada Infrastructure Bank, through agreements with provincial and municipal governments, or through direct spending on green infrastructure. The effectiveness of these projects will rely on cooperation between the public and private sectors. The government will have to reach out more to the private sector to make these infrastructure goals a reality, and to stimulate the economy.

Businesses should engage their board and their management on the issue of reducing GHG emissions as soon as possible. However, target-setting means that there will be costs to Canadian consumers down the line. With target-setting, there is less investment and production in commodities like coal. Meanwhile, Canada will likely still need to export energy for many years.

That being said, a big issue that’s emerging in the discussion on climate change is ESG. This will affect anyone operating a business in Canada; our 10 biggest pension funds taken together are some of the most important infrastructures investors in the world. Affirmative industrial policies like those in the United States, France, and Germany, and energy transition projects, will be major priorities for the Liberal Government, and will be major sources of investment and opportunity for Canadian businesses.

Key Takeaways about Minority Governments Going Forward:

1. Will minority governments be the new normal in Canadian federal politics in the years to come?

Majority governments are still possible in Canada, but the leading federal parties need true cross Canada platforms in order to achieve this goal. Election 44 has brought us our second minority government in a row, and the fifth since 2004. What was once an exception is now the norm. The last two minority governments were elected with the lowest total votes over all. Clearly, something in the party strategy rooms need to change if they ever want to win a majority.

Winning the 170 seats needed for a Parliamentary majority can only be done if Canada’s major political parties evaluate the limitations of their current platforms in winning votes across all of Canada. Parties will not win a majority if they continue to rely only on their base and already convinced voters. They will not win a majority if their campaigns rely on criticizing specific regions or industries to the benefit of winning some voters and to the determine of other voters. The next majority government will go to whatever party can expand beyond its typical voters, and offer clear national policies that benefit all Canadians. Canada needs national political parties, and a successful federal party will only win a majority if it can reach Canadians from all backgrounds, in all regions, and representative of all industry. Only this will mobilize the cross-Canada electorate needed to win a majority.

2. How long will this government last?

The average life of a minority government is anywhere between 18 – 24 months.  This has become almost the rule and when Trudeau hit that timeframe in August, he called an election. To develop the momentum necessary to win a majority, the Prime Minster needs to demonstrate to Canada that there is something not working about the current government, and this cannot be solved with a minority government.  Trudeau was unable to do this.  As such, Canadians were not happy heading to the polls, so the minority government perhaps may last longer than the average.  

If this government lasts for about two to three years, then Canada will have, in Trudeau, a Prime Minister who has been in power for eight to nine years.  While we have had longer term Prime Minister’s in the past, in modern days the Prime Minister usually lasts only about 10 years.  So the question for both Trudeau and the Liberal party will be whether or not Trudeau will lead the Liberals in the next federal election. This is the current debate, and Trudeau’s performance will be key in determining the answer.

Please contact Paul Zed, Karine Joizil or Gillian Kerr if you require additional information to determine the potential impact of the 44^th Federal Election on your business.