MNI: Trudeau Calls Snap Canada Election For Sept 20-RPT

Canada Prime Minister Justin Trudeau called a snap election for Sept. 20, seeking to turn his minority Liberal government into a majority on support for record deficit spending through the pandemic and the vaccine rollout.

The Liberals were reduced to a minority during the last election in October 2019 and held 155 of 338 seats in the House of Commons at dissolution, followed by Conservatives at 119 and a combined 56 seats for the Bloc Quebecois and NDP.

Minority governments often last less than two years instead of the regular four-year term and Trudeau had signaled an early campaign for weeks. Conservatives led by Erin O'Toole have lagged the Liberals in recent public opinion polls, though it's unclear if Trudeau can win a majority needed to avoid votes of confidence on budgets and other key bills.

"Canadians need to have their say" on managing the pandemic and recovery, Trudeau told reporters Sunday, just days after the chief health officer said the country has entered a fourth wave. Trudeau said a new Liberal government would work on affordable housing and daycare, fighting climate change and curbing Covid.

BUDGET DEFICITS TO CONTINUE

The results may also change the political futures of Finance Minister and Deputy PM Chrystia Freeland and former central banker Mark Carney, who supports the Liberals but declined to run in this campaign.

Sources have told MNI outsized deficit spending will continue no matter who wins, a strategy Parliament's independent budget office says is only affordable for so long. (See: MNI INTERVIEW: Big-Spending Trudeau Seen Calling Snap Election)

Liberals say deficits will help the economy recover from the biggest shock since the Great Depression in the 1930s and are affordable thanks to record low interest rates, top credit ratings and low debt before the pandemic. Conservatives have also signaled that deficits will be needed through the next mandate at least, and the smaller NDP and Bloc Quebecois favor bigger spending. Investors aren't alarmed with government bond yields historically low this year and Canada's dollar firm on a rebound in exports and signs the BOC may raise interest rates before the Fed.

The next government will also likely sign off on the BOC's review of its 2% inflation mandate due this year, with no major changes expected on the remit, though some risk of an expanded focus on outside goals of inclusive employment, climate change or reining in a housing boom. Conservatives have also criticized Governor Tiff Macklem's QE program, which has already been scaled back, saying it risks runaway inflation.

CAMPAIGNING BEFORE CHECKS END

Canada in April booked a record CAD354 billion deficit for the fiscal year ending in March and called for another CAD155 billion deficit in this period, going beyond income supports through the pandemic to include a push for a national child care program and spending to tackle climate change.

Freeland also pushed ahead with a plan to spend up to CAD100 billion over the next three years on economic stimulus. Parliament's budget officer and business groups have told MNI the extra spending is questionable because most will come after the economy has rebounded and may imperil long-term finances.

While the delta variant leaves the economy vulnerable, Canada's jobless rate of 7.5% has dropped from a record 13.7% and GDP is within striking distance of where it was before the pandemic. Calling an election now allows Trudeau to campaign on those gains before the biggest household relief checks lapse this fall and the BOC moves closer to raising interest rates.

O'Toole said Trudeau called the campaign at a dangerous moment in the pandemic without restoring jobs, curbing inflation or setting out a fiscal plan. "The Liberal Party's answer: to ask you to reward them with another four years of majority government for doing the bare minimum," he said.