The Year Ahead in Federal Politics: What to Watch in 2024
CRITICAL ISSUES
• Slow-down in Canada’s economy and the end of rate hikes
• A tough political environment for the Liberals; Time to shift into campaign mode
• Will there be a federal election in2024?
• Legislation coming this year, including:
• Draft legislation on investment tax credits
• Budget 2024: Is the government in campaign mode or fiscal restraint?
• Finance consultation on Canada’s biggest innovation tax credit (SR&ED)
• The long-awaited Indigenous loan guarantee program
• Wild card: other elections
• Presidential election in the US
TOPLINE CONTEXT: ASLOW-DOWN IN CANADA’S ECONOMY
But a Victory Over Inflation?
Canada’s GDP has already ground to a halt with zero growth in Q2 2023 and a -0.3% decline in Q3, but the worst is yet to come with most economists forecasting a mild recession in 2024. Even the Governor of the Bank of Canada warned that the first part of 2024 is “not going to feel good”.
As a consequence, inflationary pressures will diminish in2024 and inflation should be well within the 1-3% target range by mid-2024. This will enable perhaps two interest rate decreases in the second half of 2024.
The Government may be tempted to declare victory overinflation, as the Deputy PM did last summer when inflation hit 2.8%, but there are two reasons the government must be cautious. Firstly, falling inflation does not mean that prices are decreasing, it just means that further increases have slowed or stopped. Food prices are 29% higher than they were two years ago (in November2021), so even if further increases decline, consumers will still feel a pinch in their wallets.
More importantly, some key cost of living components will continue to increase throughout 2024 including rent, up 7.4% due to severe lack of supply, and mortgage interest costs (+29.8%) because of higher interest rates.
Housing
Expect a flurry of announcements from the National Housing Accelerator throughout 2024 as rising star Minister Sean Fraser seeks to accelerate home construction. The legislation (C-56) that eliminated GST on the construction of new rental apartments received royal assent on December 15 and applies to projects built on or after September 14, 2023. The Minister is aiming to have the catalogue of pre-approved blueprints ready for builders to see by the fall of 2024.
Even if Minister Fraser achieves extraordinary results, Canada’s housing shortage will persist and may even worsen. Private sector housing starts have already declined by 8% due to higher financing costs. With Canada’s population growth accelerating to well over 1 million per year, (430,000 new arrivals in Q4 alone), the shortage of homes is projected to increase this year and next. In fact, Canada’s population is growing so much faster than CMHC projections that Canada’s housing shortage could hit 3.5 million by 2026(instead of the projected 2030).
This means that CPI inflation will dissipate but cost of living pressures will remain the top issue for a frustrated Canadian public and will therefore continue to drive the political discourse in Ottawa.
A TOUGH POLITICAL ENVIRONMENT FOR THE LIBERALS
Canadians Pondering Poilievre
The biggest political story of 2023 is the persistent 15% lead in the polls that the Conservatives have enjoyed since August when they stopped talking about foreign election interference to adopt a laser-focus on pocketbook issues and cost of living. Seat projections show the Conservatives with a likely majority government if an election were to be held today. Will the sizeable conservative lead persist through 2024? Or will the polls narrow as an election nears?
There is some evidence that the current CPC lead is more a result of public frustration with the Liberal Government and stress about rising cost of living as opposed to a sudden love for conservatives. A recent Nanos poll asking Canadians which was the most appealing candidate for Liberal Leader found Justin Trudeau coming in fifth at 9% below “none of the above” (24%), “unsure”(19%), Chrystia Freeland (18%) and Mark Carney (15%). While only one poll, it does indicate that Trudeau’s personal brand is flagging and that he may have difficulty getting his message across in 2024.
Nevertheless, Trudeau seems committed to leading the Liberals through the next election campaign. In a speech to the Liberal caucus holiday gathering, Justin Trudeau showed that he is eager to campaign against Poilievre, giving a passionate speech which railed against “MAGA Conservatives”, “exploiting problems”, and bringing “far-right populist politics” to Canada.
Many Liberals are eager to shift into campaign mode and begin more aggressive attacks. But that may not be enough if Canadians are tuning out the Liberal Leader. The Liberals will have to try to get results on some of the bread-and-butter issues that Canadians care about to prove that they can deliver results, not just promises. Conservatives, on the other hand, will have to stay on-message about cost of living issues and avoid getting distracted by culture war issues or over-reaching with their attacks.
Will there be a federal election in 2024?
The short answer is “unlikely”, so long as the governing Liberals’ polling remains in the doldrums, but this is also a decision for NDP Leader Jagmeet Singh. Together the Liberals and the NDP have 183 seats, a comfortable margin above the 170 needed for a majority in Parliament. The NDP has successfully driven the government’s agenda on issues such as universal dentalcare and anti-scab legislation, but it’s not clear that their “coalition” has benefitted their political prospects. The NDP have failed to make any gains in the polls despite the weakness in Liberal support. Most polls show the NDP could lose seats in the next election with their percentage of the popular vote stagnant or falling below 20%.
Before Christmas, Sussex had heard that NDP-Liberal negotiations over the Supply and Confidence agreement were badly deadlocked over pharmacare. The Liberals had seen the same polling as Conservatives that most Canadians didn’t care very much about pharmacare, didn’t know what it was, and left it aside when ranking important issues. Thus the Liberals were reluctant to spend $11-$18 billion on a program with little to no political benefit and could only promise “a framework for pharmacare”,“steps towards” pharmacare, or “a plan to have a plan” about pharmacare.
A compromise was reached, but many NDPers are left wondering if the party would be better off outside a supply-and-confidence agreement, voting to support individual bills, but without triggering an election. In so doing, Jagmeet Singh could position himself as an agent of change rather than propping up the status quo. If Liberal numbers continue to slide, progressives might conclude that an orange resurgence is their best bet to pushing back against Poilievre.
However, as of right now the polling shows no scenario where the NDP would benefit from triggering an early election. Even if they could pick-up seats, they have the choice between (1) the status quo, as kingmakers with a strong voice in a Liberal minority government, or (2) gaining slightly more seats but becoming irrelevant in a Conservative majority. And if the NDP were the ones who had forced an election that granted Conservatives a majority, they would likely be punished by their base.
CRITICALL EGISLATION IN 2024
When the House of Commons resumes sitting on January 29, the Liberal Government will have a packed agenda with a back-log of legislation they need to get through parliament. Making good on promised legislation is one of the best ways for the Government to show Canadians that it is still having an impact and driving the agenda after eighty ears in power.
The top priority that the Liberal Government will want to see passed is bill C-59, the Fall Economic Statement Implementation Act, 2023, which is the most up-to-date outline of government priorities. The bill contains the government’s measures on housing and affordability, but also includes long awaited legislation such as the clean energy investment tax credits, amendments to employment insurance for parents, the digital service tax, among others.
The Liberal Government will also be prioritizing already introduced legislation that is at various stages of the parliamentary process, such as:
• C-27, Consumer Privacy, Artificial Intelligence and Digital Charter Implementation Act, 2022
• C-34, National Security Review of Investments Modernization Act
• C-50, Canadian Sustainable Jobs Act
• C-57, Canada-Ukraine Free Trade Agreement Implementation Act, 2023
• C-61, First Nations Clean Water Act
In addition to the bills, there are also a great deal of environmental laws and regulations coming in 2024. We are closely tracking the draft legislation on investment tax credits which could be a gamechanger in so many renewable sectors. This includes:
• Clean Hydrogen investment tax credit
• Clean Technology Manufacturing investment tax credit
• Changes to the Income Tax Act, ensuring Concessional Loans from public authorities are not considered government assistance
These three draft legislative proposals can be found here and the consultation period will be open from now until February 5th, 2023. It is expected that legislative proposals for the clean economy tax credits-related measures and other income tax-related legislation will be included in the spring 2024 Budget Implementation Act.
We are also awaiting draft legislation on the investment tax credits for clean electricity and an expansion of eligibility for the Clean Technology and Clean Electricity Investment Tax Credits to support using waste biomass to generate heat and electricity. That should come in Fall 2024.
Budget 2024 should be modest, with few major announcements beyond some additional funds for housing and other immediate priorities. The Finance Minister is keen to show fiscal restraint amid lingering inflation and any major new spending announcements will be held for election year Budget 2025. One item we have been tracking closely is that the government promised that Budget 2024will contain "next steps" for a long-awaited Indigenous loan guarantee program. Indigenous leaders and industry groups are still waiting for details on how the program will work and whether it will facilitate equity ownership in oil and gas projects.
Finally, the government will launch consultations in January on a “cost-neutral modernization” of the Scientific Research and Experimental Development tax incentive program, which is Canada’s largest R&D support program, providing roughly $3-billion a year in tax credits to companies that employ knowledge workers across Canada. This is of critical importance to Canada’s technology companies.
WILD CARD: PROVINCIAL ELECTIONS IN 2024
British Columbia, Saskatchewan, and New Brunswick are all scheduled to hold general elections in2024, by the end of October at the latest. In each province, affordability and housing are likely to play prominently roles in the election discourse.
British Columbia
In British Columbia, Premier David Eby will be looking to win his first full term as premier after assuming the role following John Horgan’s resignation in November 2022. Eby currently holds a relatively high approval rating of 46% with voters, and looks set to benefit greatly from a fractured opposition vote. BC United, the official opposition and formerly BC Liberal Party, has lost significant support in recent months to the provincial Conservative Party, who have seen an incredible surge in the polls in the months following the Covid-19 pandemic.
Current projections have Premier Eby and the NDP government comfortably winning re-election due to vote splitting among supports of BC United and the BC Conservative Party, with some projecting a near clean sweep of the 87-seat legislature for the NDP.
Saskatchewan
In Saskatchewan, the right-leaning Saskatchewan Party under Premier Scott Moe, will be aiming to win their fifth consecutive majority mandate from voters. Having been in government since 2007, this will be the second election that Premier Moe has contested following him succeeding Brad Wall in 2018.
The latest polling data has Premier Moe as the second most popular premier in the country, surpassed only by newly elected Manitoba Premier Wab Kinew, with approval rating of 54%among voters. This popularity is reflected in voter intention as well, as the Saskatchewan Party is currently at roughly 52% according to the latest information.
Premier Moe has done an effective job at convince voters that much of the issues around affordability, housing, and increase in violent crime rates, are the responsibility of the federal government. If current trends hold, as many expect they will, it is rather a question of by how much, rather than if the government will get re-elected in October.
New Brunswick
New Brunswick finds itself in a very different situation from the two previous provinces, as Premier Higgs is currently trailing the opposition Liberal Party in the most recent polling information, and Premier Higgs is the second most unpopular premier in Canada, with an approval rating of 34%.
Following a decisive defeat in the 2020 election, the Liberal Party has seen success at reorganizing around their new leader Susan Holt. She is a former president of the New Brunswick Business Council, and had not held political office prior to winning a by-election in April 2023. The latest polling information has the Liberal’s up with a 6 point advantage over the Progressive Conservatives, but the information comes from a relatively small sample size.
The election may ultimately come down to the popularity of the third place Green Party, who could be king-makers if a minority legislature is elected. Green Party leader David Coon is quite popular and the party has seen increased success in recent elections, currently holding 3 of the 49 seats in the legislature.
WILD CARD: MAJOR COUNTRY ELECTIONS IN 2024
Politicos will have no shortage of excitement as 2024 will be the biggest election year in world history. A staggering 76 countries encompassing more than half the global population, over 4 billion people, will go to the polls this year.
We have to be cautious not to declare victory for democracy. The Economist points out that eight of the ten most populous countries in the world—Bangladesh, Brazil, India, Indonesia, Mexico, Pakistan, Russia and the United States—will hold elections in 2024. In half of these, elections are neither free nor fair and many other essentials of democracy, such as freedom of speech and association, are absent. Elections in Bangladesh and Pakistan will be deeply flawed in systems with authoritarian tendencies, while in Russia Vladimir Putin has stomped out any opposition and will be manipulating results.
USA: Biden vs. Trump
The most exciting and important election for global politics will take place in the USA as Donald Trump’s legal problems go from bad to catastrophic. With four indictments (comprising91 felony charges), plus two civil cases (defamation of election workers and sexual abuse) going ahead in 2024, Trump staffers will have a tough time scheduling campaign events between court dates (by law, he has to attend criminal proceedings).
The Trump team’s strategy has two sequential steps:
1. Race to win the Republican nomination before any criminal court cases are decided. This could happen as early as March 5th which is called “Super Tuesday” because it marks the date when sixteen states hold their primaries and caucuses (including the two largest: California and Texas) so that candidates are competing for about a third of the overall delegates at stake. According to Ipsos/Reid, 61% of self-identified Republicans said they would vote for Trump in state primaries, more than double the other candidates combined. This means that Trump could lock down a gigantic lead among the 1,344 delegates allocated on Super Tuesday which would effectively settle the race, because it will be nearly impossible for anyone else to overcome.
2. Run a general election campaign based on the narrative that Trump is being persecuted by a corrupt deep state that is trying to take out the Republican nominee so that it can continue to victimize ordinary Americans unimpeded. The refrain he repeats constantly at rallies, “I am being indicted for you. They’re not after me, they’re after you.”
Biden’s strengths are actually also his political challenges.
1. No economist on earth would dispute that the US economy is booming – job creation is at a record high, wages are up, investment and manufacturing are growing at the fastest pace in decades; however, a great many Americans are struggling with the rising cost of living. This means that trumpeting his economic record and successes makes him look out of touch.
2. His legislative accomplishments are considerable– the Inflation Reduction Act has led to an astonishing surge in green tech investment, the CHIPS act is bringing semiconductor manufacturing back to the USA, the infrastructure investments are unprecedented. But these are all difficult to communicate or will take years to show benefits to ordinary Americans, particularly in areas like infrastructure spending.
Beyond his record and policy framings, President Biden’s biggest challenge is the perception of his age. A recent survey found that 77% of Americans (including 69%of democrats!) say Biden is too old to be effective for four more years.
Recent polls show the Trump vs Biden 2024 race is dead even or within the margin of error. Canadians, including our federal politicians in Ottawa, will be paying close attention to the race as US Election Day 2024 nears.
CONCLUSION
2024 promises to be anything but dull. The Liberals in Ottawa will work hard to implement legislation, regulations and public consultations to show they are still delivering for Canadians. The opposition parties, meanwhile, sharpen their rhetoric and policy playbooks for the election campaign whenever it does come.
This will not happen in a vacuum, of course. Events – both international and domestic – will impact the political agenda and force party leaders to be nimble and responsive while not straying far from their core messages.
Throughout the year, Sussex will be at the heart of it all, helping clients to impact the agenda and the outcomes. We look forward to another interesting and rewarding year in Ottawa.
