5 things Canadian consumers should know about a Liberal majority

A surprise majority will give the Liberal party a clear runway to implement its electoral promises, a platform aimed squarely at easing financial burdens on middle-income households while attempting to trigger higher economic growth through government spending. Something that should benefit all, in theory.

“The Liberal platform emphasizes infrastructure [investment, and a] tax revamp,” TD economists said.

Here’s five things to know about how a Liberal majority will steer the economy and reshape the personal finances of households:

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Picks and shovels

Laid off oil-and-gas workers could soon find work building bridges and other state-financed projects.

“By far the most important thrust of the Liberal platform … is the proposal to boost the budget deficit to up to $10 billion annually over the next three years,” BMO economists said Tuesday morning.

The Grits plan to spend billions on infrastructure projects over the next three years, doling out $5 billion next year and 2017, respectively, and another $6 billion in year three. Experts say more detail is needed on what projects the deficit spending will target, but the consensus is that it will spark growth through new jobs, spending and related spin-off effects.

“Several elements of the Liberal platform are moderately constructive to growth over time,” Scotiabank economists said.

MORE: Complete coverage — Decision Canada 2015

Armed with a majority, it’s expected that infrastructure spending will kick in with the next budget early next year and start delivering a boost to growth through 2016. Growth could climb as much as half a percentage point next year, BMO predicts, to 2.5 per cent from the current estimate of 2.0 per cent.

Household borrowing

Ottawa’s economic jolt could even help drain momentum out of an increasingly worrisome borrowing boom among households, BMO suggested.

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“A firmer underlying GDP growth rate, even if it does prove temporary, would at the margin reduce the chances of further Bank of Canada rate cuts, and indeed could even bring the first rate hike somewhat closer,” BMO said.

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MORE: Cash crunch ‘inevitable’ for Canadian households deep in debt

Middle-income tax cut

For many, a tax break looms. For some, a hike awaits. Trudeau’s second biggest economic plank is a broad cut in the federal income tax rate for middle earners.

Those making between $45,000 and $89,000 annually will see their federal rate drop two percentage points to 20 per cent.

That cut will be funded by a higher rate for the country’s highest earners. Those earning north of $200,000 will see their federal tax rate move to 33 per cent from the current 29 per cent.

This would bring the effective tax rate, including provincial rates, to between 43 per cent and 58.75 per cent for high income earners, depending on the province. New Brunswick would have the highest taxes in the country, while Nova Scotia, Quebec and Ontario would have effective tax rates north of 50 per cent for the highest earners, TD said.

WATCH: A cornerstone of the Liberal platform was tax cuts for middle class families, now that they’re elected they have to follow through and families are wondering what that means to their budgets. Global’s Tony Tighe reports.

MORE: Here’s what Trudeau promised and what he’ll face as PM 

Personal finance implications

The Liberal platform is promising a plethora of tweaks and changes in household finances aimed at shoring up the balance sheets of middle-income households across the age spectrum.

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The Canada Pension Plan will see “enhancements,” but “specifics on how this revamp would work have not yet been released,” TD’s economists said.

Annual limits on Tax-Free Savings Accounts meanwhile, will remain at $5,500, the Conservative plan to increase limits to $10,000 being scrapped. Raising limits was largely panned by critics as benefitting higher earners and retirees.

One of Trudeau’s most ambitious – and costly – promises is a Canada Child Benefit that replaces the newly boosted Universal Child Care Benefit with one that’s means-tested against income. Families with young kids with combined income of below $150,000 will qualify for the new child benefit program. Families earning more than that will see their current benefit cheques halted when the new program kicks in.

Income splitting – another Conservative budgetary item labelled as largely benefiting higher earners– will be phased out for families, though pensioners will still be able to shift income from one spouse to the other to help lower tax bills.

Finally, eligibility for Old Age Security cheques will be rolled back to 65 from 67.

Dollar impact

For snowbirds, travellers or anyone else who has seen their foreign purchasing power slide sharply over the past two years, the election holds implications for the dollar too. But don’t get too excited.

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Experts say Ottawa’s stimulus agenda could boost the loonie as the economy gears up. But there is still reason for caution on the currency’s outlook:

The U.S. dollar will remain strong, keeping a lid on the value of the Canadian dollar; oil prices remain an “x” factor and could move lower still; while the fiscal stimulus is generally viewed negatively by foreign-exchange circles because it’s coming at the cost of deficits, as is the Liberals plan to tax more.

MORE: Complete coverage — plunging loonie 

But so far, market reaction is muted.

“The C$ has barely moved,” Scotiabank economists said.

“The uncertainty stemming from a minority government has been avoided, and markets will begin to digest the new government once the budget is released,” Rahim Madhavji, president at Toronto-based Knightsbridge Foreign Exchange said.

“In the end, the markets seem to be ok with Trudeaumania and his fiscal plan (for now).”


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