With Canada mired in a COVID-19-driven recession, the Liberal government’s Throne Speech promised an economic reset for the post-pandemic world. But it was coloured by two harsh realities. A second wave of COVID- 19 appears to be spreading and slowing the recovery. Moreover, with the projected 2020 deficit crowding $400 billion, how much deeper into debt will Ottawa go to support vulnerable Canadians while setting a new economic course?
That said, the Throne Speech gave us a clearer indication into how Ottawa hopes to stimulate the economy to create one million jobs. Ultimately, however, the pace of growth will depend on how long it takes to bring COVID-19 under control. Indeed, even after a vaccine is developed, it could take months before Canada’s (and much of the world’s) population is fully inoculated. Until then, fiscal and monetary support may be needed for an extended period.
In addition to COVID-19, low oil prices have hurt the Canadian economy. At the same time, household spending, which accounts for 59% of Canada’s GDP, has been slowed by high consumer debt levels. And while housing has held up relatively well thus far – partially due to mortgage payment deferrals and stimulus spending – it could soften in a protracted low-growth environment. As a result, we continue to be underweight the Canadian market in the Sun Life Granite Managed Portfolios.
Highlights from the Throne Speech
- The government’s recovery plan includes a two-year effort to fund infrastructure, energy-efficient retrofits, clean energy, rural broadband and affordable housing.
- Taxes could be increased to address “extreme wealth inequality.” This may include limiting stock-option deductions for wealthy individuals
- Ottawa also intends to tax multinational tech giants like Netflix on their Canadian operations. Tax revenues would be shared with companies and individuals working in the production and distribution of entertainment and media products.
- The government wants to exceed Canada’s current carbon emission reduction targets, by in part investing in mass transit and electric vehicles. And it may reduce corporate taxes to attract clean technology companies.
- The wage subsidy program for struggling businesses will extended until next summer, covering 75% of employee wages up to $847 a week.
- The Canada Recovery Benefit will be created to help people coming off of the Canada Emergency Response Benefit, who don’t qualify for unemployment insurance.
- An affordable child-care program may be created in conjunction with the provinces.
- Inadequate conditions in long-term care homes that were exposed by the pandemic may be improved.
- The government plans to increase investments in a national affordable housing program, and further move toward a national pharmacare program.
This commentary is published by SLGI Asset Management Inc. Although this commentary has been prepared from sources believed to be reliable, SLGI Asset Management Inc. cannot guarantee its accuracy or completeness and is intended to provide you with general information and should not be construed as providing specific individual financial, investment, tax, or legal advice. The views expressed are those of the author and not necessarily the opinions of SLGI Asset Management Inc. Please note, any future or forward looking statements contained in this commentary are speculative in nature and cannot be relied upon. There is no guarantee that these events will occur or in the manner speculated. Please speak with your professional advisors before acting on any information contained in this commentary.
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