Normally every ten days, I will give an update on state of US election. However with little polling and few shifts, the answer is not much has happened here. Only change I would make is I would give Trump North Carolina instead of Biden, but its always been close all along so really unless a more dramatic shift, best prediction is it will be close but could go either way. Instead two big things have happened north of the border and below are my thoughts on those.
Bill Morneau resigned as finance minister and Chrystia Freeland replaces him. On this I have mixed opinions. Morneau was not a good finance minister, but if rumours in media are true, he seems to be the one adult in the room who pushed back against out of control spending. Kind of hard to believe as this has been the least fiscally responsible government in over 40 years and quite worrisome too. Nonetheless, after WE scandal he needed to go so not sad to see him go. On Chrystia Freeland, I see both reasons for optimism and pessimism. Below I will give positives and negatives.
Positives: She is without question the most competent and capable minister in Trudeau government and with a very weak bench, their options were limited. She is a good listener and is good at working with people with different viewpoints. Doug Ford who has little in common philosophically with her, had nothing but praise for her. Likewise on trade file, she managed to get a good deal on USMC which was no doubt very difficult with an unpredictable and belligerent administration in Trump. She was also born in Alberta and her father still lives there so I think for Prairie provinces where alienation is strongest, she will push back against any policy that is harmful to them.
Negatives: She is very much a strong supporter of redistribution and soaking the rich. Her book in 2012 on plutocrats lays this out. While her book is largely true for the United States where she lived at the time, it is not for Canada where super rich don’t have the same cozy relation with those in power as in US. Our campaign donation limits, lobbying rules, as well as just much less inequality means top 0.1% don’t have the kind of clout they do in United States and likewise our politicians haven’t bent the rules too heavily in favour of them. Our top marginal rates in most provinces are already near the top in OECD and now over 50% in 8 of 10 provinces so I believe any further tax hikes on rich would just make Canada less attractive to top talent and entrepreneurs. If anything we should be lowering not hiking top rates, but with COVID-19 and huge debt that is probably best to wait for the time being but maybe down the road fix. She also is much closer to Trudeau and I worry she won’t push back as hard. Trudeau unlike her is not good at listening to those with different viewpoints. I fear he wants to take Canada hard to the left and sees crisis as an opportunity to do so. No doubt pandemic has really hit a lot of people and it is important for government to step up and help those struggling. But that can be done without a radical overhaul, rather plugging gaps. I will have more once Fall update comes and we get a clearer picture of what is ahead, but my worries are we will see a big shift left and it won’t be good for Canada.
The Tories chose Erin O’Toole as their next leader. He was my second choice on the ballot while MacKay first. I believe he is quite capable and if opportunity presents itself has potential to do well, but the results are quite disturbing. With how poorly MacKay did and how well Sloan and Lewis did as well as O’Toole tacking hard right even though a moderate himself suggests party has a membership that is well to right of general public and is totally out of touch with modern Canada. It is blatantly obvious to anyone following politics the public has moved left yet membership still despite past results insists on remaining on the ideological right. I feel too many on right are stuck in their echo chambers and wrongly assume Canada is way more conservative than it really is. Few realize how big a rut the Tories are in and notwithstanding 2019 results; I believe the road back to power is a lot harder than most realize.
Pandemic has in many ways pulled public from being left on some issues and right on others to left across board. People don’t care about deficits or if programs are affordable. They want a government that will help them and thus Tories used to have possibility of being fiscally conservative but socially progressive, but now even that is gone. As such, I think Tories would be lucky to win 100 seats if an election were held today. With membership being detached from mainstream Canada, I think the idea of party becoming a permanent opposition and never forming government again is not nearly as far fetched as some think it is. Success whether it is in the business world or political world means adjusting with the times and those that don’t wither away. In many ways Tories today are like Social Credit of Alberta in late 60s and Union Nationale in Quebec around 1960. Both once dominant parties, but failed to adjust with times and withered away.
O’Toole is showing signs of being inclusive and moderate and that is a good thing. But his pandering to more right wing elements during leadership race means they will expect things from him and if he doesn’t push back, party will remain in ditch. More importantly if he pushes back and doesn’t win; his successor will likely be more right wing thus ensuring party loses the election after next. In addition Liberals probably have lots ready for attack ads and he is going to need to push back hard. Yes he is a huge improvement over Andrew Scheer and I feel had he be chosen in 2017 instead of Scheer party would have done better last Fall. But since then so much has changed and public has shifted so much to left that it is a whole new ballgame. I plan to still vote Tory next election and I think he will be an improvement over Trudeau, but whether he understands just how much trouble the party is in remains to be seen.
My advice for O’Toole would be forget about bringing government down until at least 2022. Instead propose positive solutions to help us get through pandemic and if NDP won’t back government, then abstain. He is too unknown and needs more time to define himself. Also I would focus on economic recovery which he has lots of good ideas for and stick with market policies while at same time ensure spending targeted towards helping those left beyond. Avoid the culture wars. In tough times, Canadians come together to help each other and such wedge issues are tough sells even in best of times, but suicidal in bad times. I believe party should still be concerned about deficit, but promise no tax hikes or spending cuts until economy has fully recovered to pre pandemic levels. And after that ensure any spending cuts are aimed at wasteful programs or those helping those struggling least, not those at bottom. I agree there should be no tax hikes, which Trudeau promised (I suspect he will break this much like McGuinty did in Ontario and George HW Bush did), but also no overall tax cuts. Instead once economy has fully recovered, establish a policy of tax shifting whereby cut taxes that help induce growth most while raise on ones least harmful to growth. This can be done with an independent full review like MacKay promised. On social issues, he should come out and say right away he is for gay marriage and a woman’s right to chose and under an O’Toole government there will be no changes. Also drop the idea of free votes. Boomers may have been tolerant of different viewpoints on these, but millennials are not, so social conservatives need to either change their views to bring them align with modern Canada or shut up. I unlike others don’t accept all issues are debatable. I believe in parameters and certain viewpoints have no place in modern Canada. Right to opinion simply means you don’t go to prison for having a controversial one, it does not mean rest of us have to accept or tolerate it.
I believe O’Toole is an improvement over Harper and Scheer, but still wish party would move even closer to centre. More importantly as an investor, I believe all should prepare for idea of big shift left as I think chances of a Tory government before 2025 are low (yes even with MacKay or a Red Tory too). So while I hope we don’t swing too hard to left, I think the odds we do are very strong so my investment decisions are predicated on a strong leftward shift. I really hope to be proven wrong, but I am putting my money on a big shift left.