The Rising Influence of Rising Affluence

[DewDiligence]

Canada’s new government is good news for oilsands investors, IMO.

http://online.wsj.com/article/SB10001424052748704810504576305352498474430.html

›A Green Light for Canada's Leader

MAY 7, 2011
By PAUL VIEIRA

OTTAWA—When Canadian Prime Minister Stephen Harper forms his third government this month, he will return to Parliament with a free hand to push through economic policies that his Conservative Party has struggled to enact during five years of minority rule.

Mr. Harper campaigned largely on his economic track record. Now with a comfortable majority, he is expected to push for spending cuts aimed at reducing Canada's swollen budget deficit; clarify rules on foreign ownership of Canadian companies; and push through stronger economic and security ties with the U.S.

Mr. Harper has also championed some free-trade pacts and is in talks with the European Union over a sweeping trade deal, and his victory will ease their passage in Parliament.

"I suspect the prime minister is going to try to do over the next few years some very significant, legacy-like economic policies," said Lawson Hunter, who heads the competition and antitrust practice at Canadian law firm Stikeman Elliott.

The federal parliamentary election on Monday dramatically reshaped Canada's political landscape, elevating Mr. Harper's Conservatives into a comfortable majority in the House of Commons—a first for a right-leaning party since 1988.

The election also slashed the ranks of two powerful political parties that have fought Mr. Harper over a number of key policy initiatives.

Mr. Harper won 167 of Parliament's 308 seats, up from 143 in the last session of Parliament. Canada's centrist Liberal Party, which has ruled Canada for 32 of the past 50 years, won just 34 seats, down from 77. The Bloc Quebecois, a separatist party in French-speaking Quebec, lost all but four of its 47 seats.

Mr. Harper still has to contend with an emboldened left-leaning opposition, the New Democratic Party. The NDP nearly tripled its representation, to 102 seats. The party has been one of Mr. Harper's harshest economic critics, calling for increased government spending, particularly on health care, and opposing many global trade and foreign-investment initiatives.

The NDP's leader, Jack Layton, buoyed by his surprisingly strong showing, has promised to fight Mr. Harper. But Canada's parliamentary system makes it difficult for even a strong opposition party to effectively block policy initiatives of a majority government. Another election isn't required for more than four years.

That gives Mr. Harper more room than he has ever had to push his policies. Since coming to power, his Conservatives have had to win support from at least one of Canada's three main opposition parties to pass significant legislation, including the budget.

Business groups are hoping for big changes. "Policies, not politics, must be the focus," said Jayson Myers, president of the Canadian Manufacturers and Exporters, an Ottawa lobby group.

On the campaign trail, Mr. Harper tried to placate worry that a Conservative majority would push hot-button social issues that some members of his party have championed, including curtailing abortion rights. Instead, he framed his campaign as a referendum on his economic stewardship.

Mr. Harper's previous governments ran up a 56 billion Canadian dollar (US$58.4 billion) deficit, partly due to stimulus spending to mitigate the impact of the global economic and financial crisis. That spending helped, but Canada also benefited from a strong banking system and housing market. More recently, higher commodities prices have bolstered government coffers and strengthened the Canadian dollar.

In his last budget, in March, Mr. Harper forecast a surplus by 2016. Opposition parties refused to back the document, helping to topple the government and trigger the election.

On the campaign trail, Mr. Harper pledged to bring his deficit-reduction measures up a year, by cutting an extra C$11 billion over four years. The Conservatives had also promised to cut corporate tax rates further—a measure opposition leaders opposed. Those cuts will now go ahead.

Mr. Harper's Conservatives are also expected to clarify foreign-ownership rules, a political minefield during his years atop a minority government. Last year, his government rejected a takeover attempt by Australia's BHP Billiton of Potash Corp. of Saskatchewan, amid political opposition to the deal.

Canada has welcomed foreign investment, but the BHP-Potash rejection raised worries the country was taking a protectionist turn. Prior to the election, the government pledged to clarify which sectors would be out of bounds for foreign ownership.

Such rules, many say, would make decisions on foreign investment more transparent, reducing worry about political interference in cross-border deals.

Last year, the Conservatives promised to liberalize foreign investment in the telecommunications sector, in particular, to foster increased competition in the fast-growing wireless market.

"I think that will be one of the priorities over the next couple years," said Jack Mintz, head of the University of Calgary's public policy school. "To try to take some of the politics out of foreign investment approvals."‹