Harper Wins Clear Path to Tax, Spending Cuts as Canadians Deliver Majority

Canadian Prime Minister Stephen Harper won a majority of seats in Parliament for the first time, giving his Conservative Party a mandate to bolster the economic recovery with additional tax cuts and erase the country’s deficit with curbs on government spending.

Harper’s party won 167 of 308 districts, according to results posted on Election Canada’s website as of 10:09 a.m. New York time. Jack Layton’s pro-labor New Democratic Party won 102 seats to form the official opposition, followed by 34 for the Liberal Party led by Michael Ignatieff, four for the Bloc Quebecois and one for the Green Party.

The victory ends seven years of minority governments that have fueled government spending, and puts the Conservatives in control of the federal agenda for the first time since the early 1990s. Harper pledged to balance Canada’s budget by 2014 after running record deficits during the recession, even as he moves ahead with personal and corporate income tax cuts to help sustain the expansion.

“Having a majority government that can pass a coherent plan is very reassuring to the market,” said Paul Ma, who manages about C$500 million ($528 million) at McLean & Partners in Calgary. “It’s great for investors.”

The Canadian dollar rose as much as 0.5 percent following the elections before paring gains on falling prices for crude oil. The currency declined 0.13 percent to 95.18 cents per U.S. dollar at 10:12 a.m. in Toronto, from 95.06 cents yesterday. The loonie had fallen against all Group of Seven currencies over the past month except the U.S. dollar, as support for the NDP surged, raising concern that party may have ended up with a share of power, or created gridlock for a Conservative minority government.

Political Landscape

The election produced the biggest change in the political landscape since 1993. The rise in support for the NDP, a party with socialist roots, was unprecedented as it had never fared better than third in national elections. The Liberals, which governed for most of the past century, lost 43 seats and its 19 percent share of the national vote was the party’s lowest since the country was formed in 1867. Ignatieff, 63, who failed to win re-election in his own Toronto district, told reporters today he planned to step down as party leader.

The election also marked the worst performance by the separatist Bloc Quebecois since that party was founded in the early 1990s. The party’s four seats are down from 49 in the 2008 election. Leader Gilles Duceppe lost in his district and will step down.

Canada’s Green Party scored its first ever federal election victory, with leader Elizabeth May winning her constituency in British Columbia.

Opposition Lawmakers

Harper, 52, had governed since 2006 with a minority of seats, meaning he’s had to rely on support from opposition lawmakers to pass laws and implement his fiscal plans. He campaigned on a plea to voters for a majority to end the string of elections that he said were threatening the country’s ability to recover from recession. Canada has had four elections in the past seven years.

“Canadians can now turn the page on the uncertainties and repeat elections of the past seven years and focus on building a great future for all of us,” Harper told his supporters during his victory speech in Calgary.

Under Harper, program expenditures have increased by 40 percent to C$245 billion as the Conservative leader sought to placate opposition parties and win favor with voters.

The Conservative leader has also refrained from lifting barriers to foreign investment, among the most restrictive in the industrialized world, even after pledging in 2008 to open up the country’s phone market to more competition.

Potash Deal

Facing calls from opposition parties for more restrictions on foreign investment, Harper became the first Canadian leader in more than two decades to reject foreign takeovers, including BHP Billiton Ltd. (BHP)’s $40 billion hostile bid for Potash Corp. of Saskatchewan Inc. last year. He’s implemented tax credits and deductions targeted at families, small businesses and the self- employed.

A majority is “good for the country,” said James Cole, who oversees about C$800 million as a money manager at Portland Investment Counsel Inc. in Calgary. “A majority of any party would be better than the succession of minorities that we’ve had, which has degenerated into the worst of the U.S.-style having-to-buy-off-everyone politics with every vote at the taxpayers’ expense.”

One outcome of Harper’s victory is that planned corporate income tax cuts will move ahead. Canada reduced the federal rate by 1.5 percentage points to 16.5 percent on Jan. 1, and it will fall to 15 percent in 2012 under legislation passed in 2007.

Business Taxes

Royal Bank of Canada (RY), Bank of Nova Scotia, Suncor Energy Inc. and Barrick Gold Corp. (ABX) -- which reported paying a combined C$6.4 billion income taxes over the past 12 months according to data compiled by Bloomberg -- may be among the biggest beneficiaries of the reductions.

Both the NDP and the Liberals had pledged to raise corporate taxes to fund new social spending.

A Harper majority also means the country’s oil companies will have an advocate in Ottawa, after the Liberals and the NDP pledged to eliminate tax breaks and subsidies for the industry.

Canada is relying on business investment to help lead the recovery. Energy companies have been a main driver of spending, allowing the country to grow in the fourth quarter at a faster pace than any other Group of Seven country. Canada also has the lowest deficit in the G-7 and commodity sales have made its currency the strongest in the group over the past two years.

‘Under the Bus’

Canadian publicly traded oil and gas companies spent C$17.4 billion on investment in the latest quarterly filings, up from C$12.4 billion from the same quarter a year earlier.

Internationally, Harper has promoted Canada as an “energy superpower,” pointing to its political stability in a bid to fend off concerns in the U.S. about the environmental impact of the oil sands. The country sits on the largest pool of oil reserves outside the Middle East, mostly in the province of Alberta.

“The big one that was at risk was the energy industry, where the Liberals and NDP were quite prepared to throw Alberta under the bus,” Cole said. “There was a lot at stake.”

Among Harper’s first tasks will be to pass the 2011 fiscal plan, which didn’t pass Parliament before elections were called. During the campaign, Harper pledged a review of government operations to find C$4 billion in annual savings that he promised will be used to balance the budget by 2014, help to fund already legislated corporate tax cuts and finance C$6.6 billion in new election pledges that include a tax cut for families.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net.

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