The ruling Liberal Party secured its long-sought-after majority in Canada's parliament by winning all three by-elections late Monday, said Scotiabank.
While the two Toronto ridings were easy to win for the Liberals, the Quebec riding win was achieved with a wide enough margin to put to rest the contest against the regional BQ, noted the bank. The result gives the Libs 174 seats in parliament, or two more than needed for a majority.
Markets are ignoring the outcome as the Canadian dollar (CAD or loonie) and bonds are snoozing throughout it all because a) the majority outcome was generally expected well in advance in the wake of floor crossings and by-election calls, and b) because the real test for the economy, fiscal policy, monetary policy and markets will come in the form of how Prime Minister Mark Carney's administration uses its majority.
Anonymous Liberal party members have remarked in the press that they continue to explicitly target up to eight more opposition members of parliament to cross the floor, pointed out Scotiabank.
Even more defections could conceivably strengthen the majority further, which could offer some padding if any of them turn out to be disloyal to future initiatives, stated the bank.
PM Carney is wasting no time with his newfound majority government. Carney plans to announce new affordability measures at a press event at 10 a.m. ET on Tuesday, added Scotiabank. They are reportedly focused on gasoline and diesel prices. The bank hopes that whatever is announced is very limited and very targeted while sticking to the plan of extending the average duration of the government's spending plans to address underperformance in areas like resource development, infrastructure and defense.
Those areas, however, carry high uncertainty in terms of deficit projections, given they are globally notorious for cost overruns and delays.
Scotiabank will watch for the date of a spring fiscal update after Finance Minister Francois-Philippe Champagne held consultations with private sector economists in Toronto last month on a day when many were tied up with the Bank of Canada and Federal Reserve communications. Tuesday's presser may start the advance announcements on the path to a mini budget of sorts.
It's widely understood that the federal deficit is coming in lower than anticipated for FY25-26, according to the bank. That may be a combination of decent growth in the domestic economy as a subset of soft gross domestic product figures, plus surging revenues from taxing coating commodity prices, plus perhaps slow rollout of some initiatives.
As deficit tracking looks more favorable, the temptation may be to spend the surprise and book a bunch of last-minute initiatives. That would extend past practices at the expense of the deficit if it happens, said Scotiabank.