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Prime Minister Justin Trudeau and U.S. President Donald Trump speak at the NATO Summit in Watford, U.
K., on Dec. 4, 2019.
Mr. Trudeau’s resignation could affect Canada’s negotiations with U.S.
president-elect Donald Trump, who has threatened 25-per-cent tariffs on Canadian imports. Sean Kilpatrick/The Canadian Press The federal government’s economic agenda has been mired in uncertainty and gridlocked in Parliament. Justin Trudeau’s announcement Monday that he will step down as Prime Minister now leaves Canada’s economy rudderless as a potential trade war looms over the country.
For much of the past year, the minority Liberal government has struggled to implement economic policy. Key priorities from its spring budget have been held up in the House of Commons by obstinate opposition parties. The government’s fall economic statement was delayed more than a month, then undercut when Finance Minister Chrystia Freeland resigned just hours before she was expected to deliver the document.
With Mr. Trudeau stepping aside and proroguing Parliament ahead of a likely spring or early summer election, numerous economic policies are stuck in limbo. It’s unclear whether the increase in capital gains tax for businesses and wealthy individuals will proceed as announced or whether the $250 cheques that were promised in November will ever be mailed.
Mr. Trudeau’s resignation could also affect Canada’s negotiations with U.S.
president-elect Donald Trump, who has threatened 25-per-cent tariffs on Canadian imports if the country does not address border-security issues. Mr. Trudeau will remain Prime Minister until the Liberal Party picks a new leader or the government falls.
But Mr. Trump may have little time for a lame-duck prime minister. “A murky picture just got murkier,” said Douglas Porter, chief economist at the Bank of Montreal, in an interview.
“We knew there was going to be an election in 2025, and I personally doubt that this will change the arc of where we’re heading,” he said. “Having said that, it’s not helpful that we’re not even sure if the capital gains change, for instance, is going to ultimately get passed.” What we know so far about Justin Trudeau’s resignation All this comes at a moment of heightened volatility for the Canadian economy.
U.S. tariffs, if implemented, could devastate Canadian exports and stunt business investment in the country.
Other issues are percolating in the background, including a sharp slowdown in population growth, after Ottawa’s new immigration caps, and a wall of mortgage resets approaching in 2025. “[At] a moment where our political leadership is weak in this country, at a moment of economic existential crisis, really, the timing could not be worse,” said Robert Asselin, a senior vice-president at the Business Council of Canada who previously served as a budget director to then-Finance Minister Bill Morneau. The political hiatus in Ottawa could affect Canada’s ability to counter U.
S. tariffs or address Mr. Trump’s concerns.
The government’s $1.3-billion plan to boost border security, outlined in the fall economic statement, can’t be passed while Parliament is prorogued. It will also be difficult for Canada’s trade negotiators to speak with authority, given the country’s changing leadership.
Jeremy Kronick, vice-president of economic analysis and strategy at the C.D. Howe Institute, said the government should bring opposition politicians into trade negotiations with Mr.
Trump, including Conservative Party Leader Pierre Poilievre, who will likely become prime minister this year if his party’s lead in the polls holds. “The key there is to have a voice at the table in those negotiations that Trump takes seriously,” Mr. Kronick said.
“All parties kind of see the issues mostly the same way, and so I think it’s up to this government to bring the opposition leaders to the table so ...
we’re talking as much as possible with one voice regardless of who wins the election when it comes.” Other economic legislation that has not yet received royal assent may be dead in the water. This includes the increase in the capital gains tax inclusion rate, announced last spring, for businesses and individuals on earnings over $250,000.
The change was carved off from the rest of the 2024 budget and put into force through a government motion last summer. The Canada Revenue Agency began enforcing it on June 25 with the expectation that the legislation would eventually pass. The bill, however, has not been formally approved by Parliament because of legislative gridlock, throwing its future into doubt in the event of an election.
The elimination of the capital gains tax hike would be welcome news to many businesses and entrepreneurs who strongly opposed the measure. But it would also mean a steeper federal deficit without spending cuts, said Tyler Meredith, a former head of economic strategy and planning for Mr. Trudeau and Ms.
Freeland. The tax change was projected to generate $19.4-billion in tax revenue over the next five years.
With a federal election looming, other changes on economic policy are likely on the horizon. Mr. Poilievre is promising to undo the Trudeau government’s legacy, including elements of its climate policy.
He has strongly opposed the Liberals’ consumer carbon price and its emissions cap on the oil and gas industry. It’s unclear whether he would keep the green investment tax credits brought in by the Trudeau government. “There will be also a lot of uncertainty around climate policy at a moment again where energy is required in the world, and I think investments are being made elsewhere,” Mr.
Asselin said. While Mr. Trudeau’s announcement adds to the sense of turmoil in Ottawa, it may also be a prelude to a more stable government with a stronger mandate from Canadians, Mr.
Kronick said. “I think it was clear we needed an election. I mean, if your finance minister is resigning the day of the fall economic statement, it’s probably not a good sign,” he said.
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