Ontario election – And they’re off

By Scott Munnoch, Temple Scott Associates

Last week Ontario Budget 2022 was introduced by the Ford government just prior to the dissolution of the House and the subsequent calling of the 43rd provincial election for Thursday June 2nd. This week, the race has officially begun and the Party leaders are out on the hustings, spreading their messages.

So now that the election campaign is underway, where do things stand and what can we expect.

A CTV/Nanos poll published yesterday, like most polls that have been released this week, indicates that the PC’s are starting with a 7-point lead with 36.9% of the vote compared to 30.4% for the Liberals. The NDP trail with only 23.7% of the voters. Also of note, is the relatively low support for all leaders when it comes to being the best Premier. It is most troubling for Liberal Party Leader Steven Del Duca where only 17% of voters think he would be the best Premier or a whopping 83% think someone else could do the job better. That’s a tough hill to climb as he tries to regain the liberal position in the Legislature. Doug Ford and Andrea Horwath are only slightly better at 30% and 23% respectively.

Other polls have expanded on these themes. In today’s Leger/Postmedia poll, 45% of voters believe Doug Ford will be re-elected. Troubling to the other parties is that at 28%, “I don’t know” came second ahead of Del Duca in third place at 15% and NDP Leader Andrea Horwath trailing at 12%.

So what does this mean?

It means that the election will matter. These early days will be important for all three leaders to try and set the standard – to have the others commenting on their agenda, their events, their policies. And although this is only Day 2 on the official calendar, Del Duca and Ford seem to be off to a decent start. Horwath, on the other hand, seems focused on the other two.

Going forward Ford has to maintain his front-runner position by re-announcing his commitments and avoiding mistakes. Get It Done by getting Ontario moving is his key theme indicated by the many transportation announcements recently. Look for Ford to spend most of his time in the vote-rich GTA where transportation systems are a key issue.

The voters seem to have decided that Horwath and the NDP are old news and offer very few new thoughts – after four elections, what can she possibly say to be different.

The Liberals are presenting a new look with a new leader. And while most think Del Duca has an image problem, he is making bold announcements that are grabbing some attention and engaging coffee shop discussion. Today it was capping school class sizes at 20 students and yesterday it was $1 transit fares across the province. While these are certainly appealing, when you peel back the onion, there are a lot of unanswered questions, especially around costing and timelines.

The campaign is in its very early days so look for expanded discussion of the issues, especially on the main areas of concern. Recent polls identify these issues as: health care; cost of living and inflation; housing; and economy and jobs. Surprisingly, environment, education and debt/deficit reduction trail the pack with less than 10% voter identification each.

Campaigns matter. In 2022, all the major parties have something to gain and they all have very different leaders to lead and promote their cause.

Only 27 days to election day.

POLICY UPDATES

Quebec to lift indoor mask mandate on May 14

Quebec will be officially lifting its indoor mask mandate on May 14, the province’s interim director of public health announced Wednesday.

Masks will still be required in health-care settings, where vulnerable populations could potentially be exposed, and public transit, because it’s more difficult to maintain a minimal distance between passengers.

Elementary and high schools will be allowed to drop the masks. Students will no longer be required to wear a mask for any of their activities, be it when they are in the classroom, in cafeterias or walking in hallways. The same applies to teaching staff.

Wearing a mask will also be optional in school transportation, given that students will have spent the entire day together. 

The province’s mandatory mask mandate has been in place since July 2020, for a total of 21 consecutive months, and will be the last province to require masks in most indoor spaces.

Sask. to increase minimum wage to $13 in Oct., $15 in 2024

The Saskatchewan government is boosting the minimum wage to $13 per hour in October and says it will increase it to $15 in 2024.

On Monday, Premier Scott Moe announced during question period that the provincial government was considering increasing the minimum wage based on the market and said the increase would be “substantial.”

Saskatchewan has the lowest minimum wage in Canada at $11.81 per hour.

On Tuesday, the government announced the minimum wage will increase over next three years. This October it will move to $13, in October 2023 it will go to $14 and in October 2024 it will reach $15.

The province says it has a formula based on the inflation rate which dictates how much the wage increases annually. Moe said Monday that after the hike, Saskatchewan would go back to the following the formula.

Before the last hike in October, the minimum wage was $11.45. Alberta’s minimum wage has been $15 since 2018.

When the increase takes effect, Saskatchewan will have the second-lowest minimum wage. Manitoba will reach $12.35 in October. New Brunswick’s hourly wage will increase from $12.75 to $13.75 in October.

NEWS FROM OTHER COUNTRIES

US Fed increases rates half-point – signals similar moves ahead

The Federal Reserve delivered the biggest interest-rate increase since 2000 and signaled it would keep hiking at that pace over the next couple of meetings, unleashing the most aggressive policy action in decades to combat soaring inflation.

The U.S. central bank’s policy-setting Federal Open Market Committee on Wednesday voted unanimously to increase the benchmark rate by a half percentage point. It will begin allowing its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of US$47.5 billion, stepping up over three months to US$95 billion.

“Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down,” Chair Jerome Powell said after the decision in his first in-person press conference since the pandemic began. He added that there was “a broad sense on the committee that additional 50 basis-point increases should be on the table for the next couple of meetings.”

Powell’s remarks ignited a rally in Treasuries and stocks as he dashed speculation that the Fed was weighing an even larger increase of 75 basis points in the months ahead, saying that it is “not something that the committee is actively considering.”

Wednesday’s increase in the FOMC’s target for the federal funds rate, to a range of 0.75 per cent to 1 per cent, follows a quarter-point hike in March that ended two years of near-zero rates to help cushion the U.S. economy against the initial blow from COVID-19.

Policy makers, who widely signaled their intention to step up the pace of rate increases, are trying to curb the hottest inflation since the early 1980s. Back then, Chair Paul Volcker raised rates as high as 20 per cent and crushed both inflation and the broader economy in the process. The Fed’s hope this time around is that the combination of higher borrowing costs and a shrinking balance sheet will deliver a soft landing that avoids recession while tamping down inflation.

BOE sees risk of U.K. recession with inflation above 10%

The Bank of England issued the most gloomy outlook of any major central bank this year, warning Britain to brace for double-digit inflation and a prolonged period of stagnation or even recession.

The U.K. central bank’s bleak forecasts along with a boost for interest rates to the highest since 2009 sent the pound to the lowest in almost two years and triggered a drop in government bond yields.

BOE Governor Andrew Bailey underscored the stark trade-offs facing policy makers, who are attempting to contain the worst bout of inflation in three decades and maintain the recovery from the coronavirus pandemic.

The BOE lifted its key rate a quarter point to 1 per cent, with three officials voting for an even larger move. 

While the bank predicts the U.K. will avoid a technical recession — two consecutive quarters of contraction — it said output will collapse by close to 1 per cent in the final quarter of this year. In 2023, annual GDP is expected to shrink by 0.25 per cent. 

The BOE’s forecasts also showed:

• Inflation climbing above 10 per cent in October, due to another increase of about 40 per cent in the U.K.’s energy price cap
• Pay growth rising to 5.75 per cent in 2022, sharply higher than the February outlook, before falling in the following two year
• Unemployment dropping this year before climbing to 5.5 per cent by 2025
• Households are facing a 1.75 per cent drop in real disposable income this year, the second-biggest fall since 1964. That’s even after government support measures to ease the cost of living crisis
• The economy continues to stagnate in 2024, when growth is a feeble 0.25 per cent

The BOE added that the war in Ukraine is the latest in “a succession of very large shocks” that are buffeting the economy.

The forecasts, based on a market curve showing interest rates hitting 2.5 per cent by mid-2023, also showed inflation coming down to 1.3 per cent in three years’ time, the biggest downside miss at the forecast horizon since the financial crisis. Excess supply is seen at 2.25 per cent in 2025.

OTHER NEWS

RBC calls spring peak for Canadian housing; sees prices falling in 2023

Royal Bank of Canada Assistant Chief Economist Robert Hogue is calling the peak for the Canadian housing market after its record-setting run.

In a report published Thursday, Hogue said the residential real estate market will likely top out this spring, as the Bank of Canada’s rate-hiking cycle slams the brakes on activity and leads to a moderation in prices.

“We now expect home resale activity to slow more quickly than previously anticipated and, perhaps more important, we see prices peaking this spring as market sentiment sours from extreme bullishness,” he said. “In this altered landscape, local markets could experience a mild price correction, partly reversing outsized gains recorded in the past year.”

According to the Canadian Real Estate Association, the average non-seasonally adjusted home price was $796,000 in March, up 11.2 per cent year-over-year. However, that was a moderation from the record $816,720 from a month before.

Home sales activity also slowed in March, down 16.3 per cent from the all-time sales record hit a year before.

Hogue said he expects those trends will continue, though he noted the rapid run-up in prices so far this year will still likely result in higher average annual prices compared to a year ago.

Overall, Hogue said the national benchmark price could drop close to five per cent on a quarterly basis from peak to trough.

He estimates home sales activity will fall 13 per cent this year, with a further 14 per cent decline in 2023. That won’t translate into lower average prices in 2022 due to the strong start to the year, as RBC sees aggregate prices up 8.1 per cent this year before falling 2.2 per cent in 2023.

Hogue said he expects price declines will be uneven on a geographic basis, with more price pressure in markets like Vancouver and Toronto.

Hogue said there is no escape for prospective homebuyers who have been turning in droves toward variable-rate mortgages due to the recent rise in fixed-rate mortgages.

“Fixed mortgage rates have gone up materially since the fall when financial markets began to anticipate the [Bank of Canada’s] new stance. The impact on mortgage borrowing has been muted so far because borrowers have instead gravitated toward variable-rate mortgages, for which rates remained exceptionally low,” he said.

“But the Bank of Canada’s hiking campaign will soon make variable rates more expensive too, leaving borrowers with no escape.”

Canadians have increasingly been flocking to variable-rate loans, which now account for more than half of all new mortgage issuances.

Hogue said that with rising rates, Canadians will swiftly see their purchasing power shrink, more than reversing gains made during the ultra-low rate environment of the past two years.