June 10, 2022
Ontario: Where we stand post-election
By Scott Munnoch, Temple Scott Associates
As expected, Doug Ford’s Progressive Conservative Party won the most seats in last week’s provincial election and will now form a second consecutive majority government. The official results are: PC’s 83; NDP 31; Liberal 8; Green 1 and 1 independent.
Leading from start to finish, Ford took a very safe, risk-free approach to the campaign, correctly judging the complacent mood of the Ontario electorate. Neither NDP Leader Andrea Horwath not Liberal Leader Steven Del Duca were able to break through and create a reason for change. The electorate clearly decided they were okay with the status quo for the time being. Voter turnout was one of the lowest on record at just 43%, down from the already low level of 58% in the previous election in 2018.
During their respective speeches, Doug Ford called for unification while both NDP Leader Andrea Horwath and Liberal Leader Steven Del Duca announced their intentions to step down as Leaders of their respective parties.
The strong majority means that the PC government will not have to rely on any other party in order to pass legislation. With the pandemic fears winding down, the government will be looking to return to an agenda of economic growth with a strong focus on post-pandemic recovery.
The Plan
During the campaign, Doug Ford focused on delivering key polices to build Ontario. He said yes to getting more women and men in the skills trades, yes to more newcomers to come here and find a job, yes to building Highway 413 and the Bradford bypass, yes to building subways and expanding GO Train service, yes to restoring the Northlander train service and yes to building 1.5 million homes over the next 10 years.
If the government sticks to its plan, as outlined in Budget 2022, delivered on April 29th, the core commitment includes a move away from the pandemic spending and a focus on five main themes. Each theme is aimed at the government’s priorities as highlighted by earlier announcements and is focused on their most urgent priorities for Ontarians. The five themes in the budget are: Rebuilding Ontario’s Economy; Working for Workers; Building Highways and Key Infrastructure; Keeping Costs Down and A Plan to Stay Open.
With respect to the small businesses, Finance Minister Peter Bethlenfalvy will likely continue to advocate as mentioned in the budget:
Ontario’s small businesses are an important part of Ontario’s economy, employing more than two million people in communities across the province. The COVID-19 pandemic has impacted small
businesses significantly, and they continue to face unique challenges in accessing capital, talent and markets. Small business owners are resilient and hard-working, with big dreams and bold ambitions. The Ontario government is committed to helping the province’s entrepreneurs recover and thrive.
Short term
First up will be the establishment of the new Cabinet. With all Ministers re-elected and some new talent added to the mix, Leader Doug Ford will have to make some tough decisions. And, with new caucus members representing the non-traditional conservative regions, look for a geographical expansion of the Cabinet as well. This might include: Neil Lumsden (Hamilton East-Stoney Creek), Andrew Dowie (Windsor-Tecumseh), Andrew Leardi (Essex), George Pirie (Timmins) and Kevin Holland (Thunder Bay – Atikokan).
Additionally, new members have been elected with strong backgrounds and must be considered. This list includes: lawyer Todd McCarthy (Durham), businessmen Rob Flack (Elgin–Middlesex–London) and Rick Byers (Bruce-Grey-Owen Sound) and former city Councilors Michael Ford (York South – Weston), Charmaine Williams (Brampton Centre) and Trevor Jones (Chatham-Kent-Leamington).
Top of the list and most importantly will be to fill the shoes of retired Health Minister and Deputy Premier, Christine Elliott. Look for a veteran Minister from the first term to fill the Health portfolio and then watch the domino effect as changes result throughout the Ministry. Stephen Lecce (King-Vaughan), a Ford favorite, is a possible choice here which then opens up Education etc. etc. Other Ministers that have performed well include Todd Smith (Bay of Quinte), Monte McNaughton (Lambton-Kent-Middlesex), Caroline Mulroney (York-Simcoe), Sylvia Jones (Dufferin Caledon), Paul Calandra (Markham-Stouffville) and Stan Cho (Willowdale).
The Premier will have to balance competence with gender, ethnicity and geography, meaning that sometimes the best people get shortchanged. Also, some re-elected Ministers are simply too established in their Ministries to warrant a change. Look for Peter Bethlenfalvy (Finance), Doug Downey (Attorney General) and Vic Fedeli (Economic Development, Job Creation & Trade) to remain in their current portfolios.
The Ontario NDP led by Andrea Horwath won 31 seats and will form the Official Opposition, albeit with a new Leader selected in the months ahead. The Liberal party, with just 8 seats, failed to gain official party status, meaning that the Liberals will be considered independents in the eyes of the Legislature along with Green Party member Michael Schreiner (Guelph) and Independent member Bobbi Ann Brady (Haldimand-Norfolk).
With respect to post-pandemic recovery, Doug Ford promised Ontarians he would keep the economy open. This is evident in his significant investments announced in healthcare; such as the $40 billion into hospitals, giving nurses a 7.6% increase with a $5,000-dollar bonus, PSW’s $3 increase per hour and hiring 27,000 more.
The predicting and timing of the announcement of the new Cabinet is always a guessing game with very few insiders knowing for sure until just day(s) before. However, based on past practices, the Cabinet is likely to be sworn-in the week of June 20th. The process is a closely guarded secret within the Premier’s Office and directed by the Premier and his Chief of Staff, Jamie Wallace.
As for the return of the House, the government has indicated a desire to pass the budget. All members need to be sworn in before the House can return. The governing conservatives successfully campaigned on the budget and are unlikely to make any significant changes.
Traditionally, the new Cabinet members are given some time to get acclimated with their new Ministries and select/appoint staff before being subjected to Question Period in the House or the media outside. This would point to a summer session of the Legislature to deal with the budget. Taking into consideration the Canada Day long weekend, a likely date for the return of the House might be July 11th, some 5 weeks after the election and 2/3 weeks after the Cabinet is decided. With a focus on passing the budget, there are certain regulatory issues that need to be dealt with as well, but it would be unlikely to see the House sitting past the end of July. Any debate on the budget would be preceded by a Throne Speech to start the new session.
The Legislative calendar then suggests the House break until September 12th when it would return to its normal schedule. Given the exhaustive schedule of the past few months, this might be extended with the possible return of the House coming on October 11th after Thanksgiving.
Look for the government to get very engaged on issues starting this fall. With the pandemic virtually behind us, they will want to return to an economic growth platform and a return to key platform planks from 2018 that included the elimination of hallway medicine.
Stakeholder engagement will be ramping up once again after the House deals with the budget, although it is expected that the halls of Queens Park will be mostly quiet during the month of August. But with no election now virtually guaranteed until June 2026, and with a significant majority, it is likely that the government will be aggressive in pushing through its commitments from the election while the Liberals and NDP are both preoccupied with leadership contests.
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ECONOMIC IMPACT & RESOURCES
Housing market correction begins, 15% decline likely: Desjardins
A new report from Desjardins’ economics team says the Canadian housing market will likely bend, but not break, under the weight of rising interest rates and slowing activity.
In a note to clients on Wednesday, Desjardins Senior Director of Canadian Economics Randall Bartlett and Senior Economist Hélène Bégin said prices could plausibly fall 15 per cent from their February 2022 peak by the end of next year, but would remain above pre-pandemic levels.
“Looking ahead, we believe ever-higher borrowing costs are going to weigh on housing market activity as increasingly interest-sensitive households batten down the hatches for the impending storm. This is expected to lead to sustained weakness in sales activity, thereby keeping persistent downward pressure on prices,” they said.
Canadian home prices have fallen sequentially for the last two months, after hitting a non-seasonally adjusted record of $816,720 in February, according to the Canadian Real Estate Association.
The decline came as the Bank of Canada started hiking its benchmark rate aggressively, raising it by a half per cent in each of the last two meetings to combat inflation not seen in three decades. For context, the central bank’s last supersized hike was 22 years ago.
The Desjardins team said they do not expect the declines to be uniform, with greater pain felt in markets where prices soared due to an influx of Canadians able to work remotely during pandemic-era restrictions.
“For instance, those provinces that experienced the most dramatic price gains — notably the Maritime provinces — should see the largest corrections. In contrast, those provinces that saw home prices increase the least — the Prairie provinces and Newfoundland and Labrador—should see the least correction coming out of the pandemic.”
And with the gradual return to the office, Desjardins’ team thinks there could be some pain felt in Ontario housing markets that are just a bit too far to commute into the large centres, though that could be cushioned by immigration and hybrid work plans.
“Communities within a few hours’ drive of Toronto are likely to see sales activity and prices cool the fastest as borrowing costs rise and commuting becomes more common,” they said. “But again, we don’t anticipate average home prices in any of these regions to fall below their pre-COVID starting points due by and large to high levels of international migration and ongoing hybrid work arrangements.”
Overall, Desjardins said the correction should bring the domestic housing market back to more balanced conditions after the recent supercharged run higher.
“While a correction in the range of 10 per cent to 20 per cent is likely by the end of next year in most provinces, average home prices are expected to remain above the pre-COVID level and trend. As such, the anticipated correction should bring more balance to the Canadian housing market.”
Click here for the full report.
Bank of Canada sees housing-market slowdown as ‘healthy’
Bank of Canada Governor Tiff Macklem said rising interest rates aren’t expected to derail the nation’s economy and may even produce a “healthy” slowdown in the housing market.
Macklem, speaking Thursday after the release of the central bank’s annual report on financial stability, argued home-price gains during the pandemic were unsustainable and produced vulnerabilities among new buyers who were forced to take on extremely high levels of debt.
“The economy can handle — indeed needs — higher interest rates,” Macklem said in an opening statement to reporters. “Moderation in housing would be healthy.”
Thursday’s report is the first comprehensive statement about the risks to Canada’s financial stability since Macklem began tightening policy in March. The Bank of Canada has increased its main policy rate to 1.5 per cent, from 0.25 per cent earlier this year, and is expected to rapidly hike borrowing costs to 3 per cent by October.
Macklem’s comments on housing mirror the central bank’s policy statement last week, in which officials expressed little worry about the impact of any sharp correction in the housing market. But he said policy makers are particularly focused on heavily indebted households that are more vulnerable to higher borrowing costs and are carrying less equity to cushion against any significant price declines.
Canadians who purchased homes recently would be “more exposed” in the event of a correction, according to the 57-page report. Many households stretched themselves financially to get into the housing market, which saw price gains of nearly 50 per cent since the beginning of the pandemic.
“If the economy slowed sharply and unemployment rose considerably, the combination of more highly indebted Canadians and high house prices could amplify the downturn,” Macklem told reporters, adding it could have “broad” implications for the economy and financial system.
“This is not what we expect to happen. Our goal is for a soft economic landing with inflation coming back to the 2 per cent target,” he said. “But it is a vulnerability to watch closely and manage carefully.”
In its report, the central bank said it’s “too early to tell” whether the recent drop in home sales and prices is temporary or “the start of a deeper, lasting decline.”
Officials did, however, express some worry that investor sentiment that fueled home price gains during the pandemic could reverse and amplify price declines.
How this analysis and the interaction between risks and vulnerability plays into monetary policy is ambiguous. Worsening vulnerabilities could give policy makers less confidence about raising borrowing costs for example. But higher rates reduce inflation risks and would help rebalance the nation’s housing market.
The central bank estimated the share of new mortgages this year going to highly indebted households — those carrying loan to income ratios above 450 per cent — has surpassed pre-pandemic levels to hit new records.
POLICY UPDATES
N.L. officially cuts gas tax
A cut to Newfoundland and Labrador’s provincial gas tax has officially come into effect, temporarily lowering the price of gasoline and diesel across the province until 2023.
The province announced it would reduce the gas tax last week as a temporary measure to help residents with the rising cost of living.
The tax was reduced by seven cents per litre — from 14.5 cents to 7.5 cents for gas, and 16.5 to 9.5 cents for diesel. Thursday’s prices reflect the tax change, but are also impacted by changes to the average benchmarks prices used to calculate the price of fuel, according to the Public Utilities Board, which is the province’s fuel regulator.
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