Northern Exposure

What do recent changes in the Canadian Parliament mean for businesses?

by Brian Smeenk

Much has been happening on the political front in Canada in the past two weeks. It has kept us spellbound, but all the politics has certainly not advanced the government’s economic agenda.

On Monday, December 1, the three opposition parties in the federal Parliament announced that they had formed a coalition and intended to topple Prime Minister Stephen Harper’s Conservative Party, minority government. They would do so by bringing a no confidence vote one week later.

Since the Liberals, New Democrats and Bloq Quebecois have enough seats to out-vote the Conservatives, if they vote together, they were in a position to bring down the government. They then intended to ask the Governor General, the official head of state, to allow them to form a coalition government. Their government would include Liberals and socialist New Democrats in the cabinet, with the support of the pro-Quebec sovereignty Bloq Quebecois. They actually signed an agreement spelling all this out, along with the main goals of their nascent government.

The stated reason for what some were rhetorically calling a “coup,” was that the Conservatives’ recent economic update statement lacked sufficient government stimulus to help avoid or turn around the recession that now seems to be upon us. The real reason, however, seemed to be that the Conservatives had also announced their intention to end government funding of political parties.

Federal law currently gives parties just less than $2 for every vote they receive in a federal election. Like U.S. President-Elect Barak Obama, the Conservatives are less reliant on public funding than the others, so they sought to do serious damage to the other parties by ending that lifeline.

The problem was that such a move threatened to do mortal damage to the opposition parties. They reacted like cornered animals with a weapon pointed at them. And the cornered animals outnumbered the aggressor.

Harper declared that the opposition coalition was bad for Canada. Bringing socialists into the cabinet would do nothing for the economy and governing in a pact with the avowed separatists would do serious damage to the country, he charged. He vowed to fight the coalition with all possible legal means at his disposal.

What Harper did was to ask the Governor General to prorogue Parliament, that is, end the current sitting of Parliament. Although she could have denied this request, the Governor General granted it. This allowed Harper to avoid the no confidence motion for now.

He has undertaken to recall Parliament in January, when his finance minister will present a speeded-up budget to address the current economic crisis. The government may or may not then face a motion of no confidence, if the opposition coalition holds together. At this writing, that is very much an open question.

What does all this mean for business? Mostly, it has been an interesting distraction. More importantly, it appears to have contributed to a decline in the Canadian stock markets, out of proportion to that in other markets over the same weeks. It has damaged Canada’s aura of stability in these very unstable economic times.

On the plus side, however, the federal government’s timing for presentation of a new budget has been moved forward. So we will likely see new economic stimulus measures announced and beginning to be implemented early in 2009, along with previously announced tax cuts. This could very well include help for the automotive sector as well as significant public infrastructure projects. We may also see additional support for financial institutions.

Canada has outperformed most G-8 and G-20 countries in economic terms in the last six months. It remains to be seen whether this political drama does anything to damage that record. The Canadian public has sent its message to the politicians to stop acting like children in a schoolyard brawl. Let’s hope they got the message.