Canada’s Liberal Party is returning to power federally after a 10-year absence. With Justin Trudeau planning to ramp up infrastructure spending and cut taxes for the middle class, among other promises, the stocks on our list today could get a boost from a Liberal government that it expected to last at least four years.
Alex Cutulenco | October 21, 2015: “When you have an economy that works for the middle class, you have a country that works for everyone,” said Justin Trudeau in the Liberal Party of Canada’s fiscal plan. Mr. Trudeau campaigned on a platform that included running $25 billion in deficits over three years to stimulate the economy with infrastructure spending, while increasing taxes on top earners and cutting taxes for the middle class. But what exactly does this mean for business and the overall Canadian economy?
Canadian Dollar
More government spending by the Liberals could take the pressure off the Bank of Canada to cut interest rates again in the coming months. The central bank, which has already cut its key rate twice this year to spur the stalled economy, is due to announce its next interest rate decision Wednesday. In addition, the clear majority win for the Liberals signifies a stable economy – all factors that should give rise to the Canadian Dollar.
Infrastructure
The centerpiece of the Liberals’ economic plan is a pledge to fund up to $5-billion a year (evenly split among public, social and green) in additional infrastructure spending by running budget deficits over the next three years. In essence, a Trudeau government would borrow more money to pay for such things as roads, bridges, seniors’ homes and flood-control systems. Several companies standing to benefit from this are WSP Global Inc. (TSX: WSP), Stantec Inc. (TSX: STN) and Aecon Group Inc. (TSX: ARE), all up 5.7%, 9.8%, and 8.2%, respectively so far for the month of October.
The infrastructure plan by the Liberals makes a lot of sense, as interest rates are at an all-time low, the economy is sluggish and the country needs to upgrade aging infrastructure. The nation’s Debt-to-GDP (analytical representation of how indebted a country is) currently stands at 86.51%, which is much lower than the United States’ 102.98% and Japan’s 230%.
Marijuana
One industry that could benefit from the leadership change is the medical marijuana producers, noting that the Conservatives were the least marijuana-friendly of all three major parties. There is clearly an opportunity to collect taxes on something that is already being sold into the market, as seen by the same decisions being made in several states south of the border. Many publicly-traded companies were already gaining ground as the Liberals advanced in the polls. Canopy Growth Corp. (TSXV: CGC) shares were up 35% MTD, while Mettrum Health Corp. (TSXV: MT) gained 25%.
Environment and Sustainability
The Liberal party is budgeting to spend roughly $400 million to create clean and sustainable jobs, with half of the spend going towards the resource sector’s clean-tech strategies. Their strategy includes ensuring each province and territory has their own carbon-pricing policies, while also investing in clean technologies, sector-specific strategies that support innovation and clean technologies in the forestry, fisheries, mining, energy, and agricultural sectors. Some companies potentially benefiting from this are Questor Technology Inc. (TSXV: QST), Titanium Corporation Inc. (TSXV: TIC), and H2O Innovation Inc. (TSXV: HEO).
Taxation
Mr. Trudeau has promised to raise taxes on the Top 1% in order to cut taxes for the middle class. In practice, this would mean a new federal tax bracket of 33% on incomes above $200,000, up from 29%. The cut would be on income earned between $44,701 and $89,401, which would drop from 22% to 20.5%. The plan is forecasted to be revenue neutral, yet providing middle-income families more room for growth, stability, and innovation – arguing that the middle class is what drives business in Canada. The Liberal Party is also planning on cutting the small-business tax rate from 11% to 9%.
Alex can be reach at: alex@gravitasfinancial.com
