SNC Could Win, Lockheed and Oil-Sands Firms Lose as Canada Votesby
Energy, engineering sectors have most at stake in election
Trudeau, Harper and Mulcair differ on plans for taxes, carbon
While they can’t vote, there’s plenty at stake for Canada’s corporations in the Oct. 19 election.
Pipeline companies such as TransCanada Corp. and contractors including SNC-Lavalin Group Inc. are among companies with the most to win or lose in an election that is pitting Prime Minister’s Stephen Harper’s Conservatives against Justin Trudeau’s Liberals and Tom Mulcair’s New Democrats.
Based on an analysis of the party platforms, here’s how the vote could play out in corporate Canada.
Harper is warning opposition parties would crush the economy with carbon taxes and has sought to speed up review of major projects. He also has signaled he favors a global climate change plan Canada can join without losing competitiveness. The Liberals will seek to put a price on carbon and work with provincial governments to allow flexibility on meeting pollution targets, with the NDP calling for a cap-and-trade system.
Stricter emissions rules could hurt the shares of companies such as Suncor Energy Inc. -- even though Suncor has asked for a higher price on carbon -- and Imperial Oil Ltd., while those that produce greener energy and could sell credits or avoid new taxes may benefit, such as hydroelectric producers Brookfield Renewable Energy Partners LP and Boralex Inc.
Four major pipelines are awaiting approval, and further delays may weigh on share prices: TransCanada’s Keystone XL and Energy East; Enbridge Inc.’s Northern Gateway and Kinder Morgan Inc.’s Trans Mountain.
Trudeau would consider all except for Northern Gateway, which he says threatens the British Columbia coast. Mulcair is opposed to Keystone and Northern Gateway. Harper is in favor of all oil pipelines, in principle.
“Overall, we see anything other than a Conservative majority government as a headwind for the Canadian energy and conventional power space,” Macquarie Group Ltd. analysts led by Robert Hope wrote in an Oct. 8 report.
More delays would mean higher crude-by-rail shipments, a potential benefit to Canadian National Railway Co. and Canadian Pacific Railway Ltd. David Tyerman and Tao Ding, analysts at Canaccord Genuity Group Inc., said Liberal or NDP delays on pipelines, excluding Keystone, would boost their forecast for 2020 per-share earnings for Canadian National by 7 percent and for Canadian Pacific by 13 percent.
New infrastructure spending could be a boon to engineering firms such as WSP Global Inc., Stantec Inc. and SNC-Lavalin, according to Macquarie. The Liberals pledge an average of C$4.2 billion ($3.2 billion) of new spending on projects including bridges over the next four fiscal years starting in 2016. The NDP calls for C$1.3 billion a year to reduce commuting times, and another C$1.5 billion by the end of their term for municipalities to spend on transportation infrastructure.
Doyle and Brendan Livingstone, Toronto-based analysts at Macquarie, said this month there’s “a high probability” the Liberals or NDP would work together if either party won the most seats, meaning there’s a good chance construction spending would increase.
Doyle and Livingstone also said stocks of lenders such as Toronto-Dominion Bank and Royal Bank of Canada would benefit from a Harper majority. The Conservatives have committed to increasing the retirement savings of Canadians by expanding to C$10,000 the annual cap on tax-sheltered accounts, so-called tax-free savings accounts or TFSAs, managed by the private sector.
The Liberals and NDP, on the other hand, favor expanding the government-run Canada Pension Plan. The Liberals would roll back the cap increase on TFSAs. The bank sector would take a hit from the NDP plan to raise corporate taxes to a rate of 17 percent in 2016, from 15 percent now.
The Liberals plan no changes to the corporate tax rate, which has fallen from 28 percent in 2000 under a Liberal government to 21 percent in 2006, when Harper’s Conservatives took power, and again to 15 percent by 2012. All parties will give smaller companies a break, lowering their tax rate to 9 percent from 11 percent.
The NDP and Liberals would tax stock option benefits at a higher rate. Currently, 50 percent of options are considered taxable, with some exceptions. Mulcair has pledged to change rules only for employees with more than C$100,000 in annual stock option benefits.
On capital gains, the Conservatives say they intend to raise the Lifetime Capital Gains
Exemption from C$500,000 to as much as C$800,000 and index it. The NDP abandoned a one-time party measure to increase taxes on capital gains.
Bankers may pick up some additional fees from government bond sales if the Liberals come to power. The party proposes running a deficit of C$9.9 billion in the 2016 fiscal year, followed by shortfalls of C$9.5 billion and C$5.7 billion. The Conservatives and NDP are committed to balanced budgets.
Harper plans to implement the Trans-Pacific Partnership, an agreement between a dozen nations negotiated earlier this month, saying it will grow the country’s exports. The Liberals support free trade and want to see the full text before deciding whether to approve it. The pro-labor New Democrats say they’ll back out of the deal, with Mulcair saying it amounted to “selling out” workers.
Wireless companies such as BCE Inc. may feel the pinch under another Conservative government. The party’s platform released Oct. 9 signaled plans for tougher consumer regulations of mobile phone services.
The Liberals vow they’ll refuse to purchase a new fleet of Lockheed Martin Corp.’s F-35 jets, with Trudeau saying in September they’re too expensive. The Conservatives have advanced plans to help develop the new aircraft without signing a purchase contract, and Harper said Sept. 21 that work is vital to Canada’s manufacturers.
Beyond clamping down on stock options, the NDP says it can find C$500 million of revenue a year by tightening tax loopholes, including on high earners. The Liberals say they’ll raise taxes on the top 1 percent of earners and use revenue of almost C$3 billion a year to cut taxes for the middle class.