POLITICS

To markets, dire warnings over budget delays just politics as usual

06/11/2012 05:23 EDT | Updated 08/11/2012 05:12 EDT
OTTAWA - The political brouhaha over the Harper government's massive omnibus budget bill seems to have raised barely a ripple in the arena it's supposed to matter most — equity and financial markets.

That's because regardless of the merits of the 425-page bill under scrutiny in Parliament, economists say there are few worries on Bay Street that at the end of the day the budget will be rejected, or that a few weeks of delay will be matter.

That's an unusual response, given the way the government has sold the urgency of passing C-38 and quickly.

For the past several weeks, Tory ministers have pressed the case that delay is not an option given the fragile nature of the economy and that jobs and growth were at stake.

On Sunday, Tory House Leader Peter Van Loan characterized the issue in stark terms.

"The NDP and Liberals' obstruction and delay is a threat to Canada's economic growth and prosperity," he affirmed in a release.

The opposition dismissed such warnings as so much hooey, that, in the Green Party's Elizabeth May's words "would be laughable if it weren't so serious."

On Bay Street on Monday, the Toronto Stock Exchange appeared fixated on Madrid rather than Ottawa, as doubts emerged over a US$125-billion bailout package for Spain's troubled banks.

Next to such real-world anxieties, the political mix-up in on Parliament Hill did not register, analysts said.

"It is true you don't want to play with market confidence and leave the impression that Canada is ungovernable, but we have not heard investors express concern about that," said CIBC chief economist Avery Shenfeld.

"The market goes under the assumption that in Canada under a majority government the budget eventually will get passed ... unless there's a rebellion among the Tory caucus."

Analysts say Finance Minister Jim Flaherty's sixth budget — named Jobs Growth and Long-term Prosperity for maximum market appeal — is unusual not just for it's heft at 498 pages, but also for the lack of topical contents.

There are no significant tax changes and few spending items. Ottawa is ushering in cuts to the public service which it has already started.

Its major themes have an eye to the long game — free trade and innovation as economic drivers, a more sustainable public pension system that won't kick in until 2023, changes to environment protection rules to speed up future resource projects, and tweaks to employment insurance eligibility rules to encourage job seeking.

Bank of Montreal economist Doug Porter says this year's budget is very different from the 2009 document, which cut taxes, and pumped money into the economy to boost jobs.

Several months into a recession, the 2009 budget's goal was to fix the economy now, not later. Delays meant job-creating infrastructure projects were set back that much further.

Conditions are more stable today, although risks remain. Canada's economy is expanding at just above two per cent and job growth has averaged about 30,000 a month so far into 2012.

"I would say the budget bent over backwards to trump a number of long-term reforms that were aimed at creating jobs long-term," said Porter, deputy chief economist with BMO Capital Markets.

"Whether the budget gets passed this week or in a couple of months, it's not obvious it's going to make a difference, however."

Porter noted a few measures with nearer-term horizon, including grants for research and innovation, but on the immediate job front, he said the emphasis was on restraint, pointing to the projected 19,200 public service job cuts.

C.D. Howe economist Finn Poschmann adds two other issues he believes Canadian businesses would like assurance on sooner rather than later including changes that will put the Canadian Mortgage and Housing Corp. under a shorter leash, as well as put covered bonds under a new legislative framework.

That will effect mortgage lenders and borrowers, he points out.

Secondly, Poschmann said businesses would prefer to know that changes to the new environment approval process are in place before proceeding with resource development plans.

"Those two do have a relatively near-term impact on people's behaviour, but whether it's passed today, tomorrow or next Friday is much less important than it gets done, he added.

As to the dire warnings in Ottawa, Poschmann said markets "will as they often do ignore the political show in Ottawa."