May 6, 2015 4:20 pm
Updated: May 6, 2015 9:33 pm

How the economy is reacting to the Alberta NDP win

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Above Watch: The markets reacted negatively to the NDP’s win in Alberta, but industry groups plan to wait and see what policies the new government will implement. David Boushy reports.

Alberta woke up this morning to an NDP government. The rest of Canada: to a sudden plunge in the stock market.

The S&P/TSX composite index was down 193.89 points on Wednesday, and the decline is being attributed directly to the New Democratic Party’s win. More specifically: to the oilpatch’s reaction to the NDP win.

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Colin Cieszynski, chief market strategist at CMC Markets Canada, said investors were reacting to uncertainty after Albertans elected a government that campaigned on corporate tax hikes and a review of oil and gas royalties.

Oil stocks fell too, by about 2.5 per cent in mid-afternoon trading.

So what are investors so afraid of?

In the NDP’s campaign platform, the party promised to raise the corporate tax rate from 10 to 12 per cent. They also promised to create a Resource Owners Rights Commission to review royalties that oil companies pay to the provincial government, though it’s unclear at this point how much, if at all, royalties would be raised. The NDP also promised to raise the minimum wage to $15 an hour by 2018.

FULL COVERAGE: Alberta election 2015

But business groups don’t seem to be especially worried.

“The oil and gas industry in Canada works with governments of all political stripes at all levels of government, whether it’s federal, provincial or municipal,” said Jeff Gaulin from the Canadian Association of Petroleum Producers (CAPP).

“Obviously there is a lot of concern about what will the impacts be of a new government in Alberta on the industry. And we share those concerns,” he said. CAPP looks forward to sitting down with the new government to discuss those concerns, he said, namely how to protect jobs and increase investment in the oil sector.

“At the end of the day, I think the Alberta government and the oil and gas industry have the same interests. When our industry is strong, the Alberta economy is strong and the Alberta government is strong and working families are strong.”

WATCH: The Alberta election in five minutes

In a press conference Wednesday morning, NDP leader Rachel Notley said that she would be reaching out to industry and working collaboratively with them. Aside from the oil industry, Alberta’s small businesses want to hear more too.

“The small business community is definitely concerned with the Alberta Advantage,” said Amber Ruddy, senior policy analyst with the Canadian Federation of Independent Business. “That’s why on the corporate tax side, hiking it up to 12 per cent is concerning. We’re not expecting a mass exodus, but we really need to see and hear from business owners as the policies are hitting them and we will be sharing those concerns with the government.”

The new government is going to offer a refresh, she said, and she is waiting to see what will happen.

READ MORE: Canadian politicians react to Alberta NDP majority government

But it’s likely far too soon to know what the ultimate effect of the NDP’s election will be on the economy, said David Allwright, dean of Bow Valley College’s Chiu School of Business. “Don’t ever try to predict the future based on the reaction the day after an election.”

Corporate tax increases will likely have some effect, he said, but it’s unlikely they will be as damaging as former premier Jim Prentice was predicting during the election campaign. “I don’t think a lot of organizations are going to be pulling the plug and abandoning Alberta,” he said.

“A small change in the corporate tax structure in relation to all of the other things that are going on, particularly the price of raw resources, that’s only one factor.”

TD Economics agrees. “We are not inclined to change our economic forecast based on yesterday’s election result. The most important driver of Alberta’s prospects remains the price of oil,” reads a report put out by the bank’s deputy chief economist Derek Burleton Wednesday afternoon.

While much will depend on the policy actions taken, in particular the outcome of the royalty review, reads the report, “The projected trajectory of revenues and spending are not dramatically different from the Budget 2015 forecast over the course of the 5-year fiscal plan.”

With files from David Boushy and The Canadian Press

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