(Bloomberg Businessweek) -- So far, Canada has largely avoided the kind of populist upheaval that put Donald Trump in the White House, undercut Chancellor Angela Merkel, and gave rise to Brexit. Much of the credit for this lands on Justin Trudeau, the buoyant 45-year-old heartthrob prime minister with a penchant for selfies and quirky socks who champions free trade and welcomes refugees. He’s cultivated an image of a tolerant, open, progressive Canada that, incidentally, boasts the strongest economic growth in the Group of Seven.
Outside Canada, it looks enviable: a charismatic leader with a powerful majority government and a solid economy. But internally, the shine is fading. Two years into Trudeau’s first term, a polling aggregator run by the Canadian Broadcasting Corp. shows his support at 37.9 percent, down eight points from a year ago—still strong in Canada’s three-party system. He campaigned as a friendly Everyguy, but scandals within Trudeau’s administration have sullied that image. His finance minister, Bill Morneau, isunder fire for holding substantial shares in his family’s business through a shell company. Although that’s not technically against the rules, Morneau says he’s sold his shares. A bid for tax reform that would’ve hit high-earning professionals blew up, and Trudeau’s chief fundraiser, Stephen Bronfman, is linked in the Paradise Papers to an offshore trust. Trudeau himself was dinged for a secret vacation last Christmas at the Aga Khan’s private island.
Traditional fault lines of Canadian federalism are also reemerging. Some western regions feel underrepresented in Canada’s eastern-centric government. In French-speaking Quebec, identity politics continue to run deep; and across the nation, federal-provincial battles are heating up over health care, climate, and marijuana legalization. Voters’ patience also is being tested as Trudeau’s government has failed to deliver on such lofty pledges as sweeping electoral reform.
Meanwhile, his rivals for the 2019 election are in place: One is a social democrat pledging steep business tax hikes; the other, a conservative who backed Brexit. Both are younger than Trudeau, who won power in part because he was a fresh face. “We’re not immune” to sweeping upheaval, warns David Green, director of the Vancouver School of Economics at the University of British Columbia. “We’re lucky.”
Trudeau’s support stands at 37.9 percent, down eight points from a year ago
Green’s research finds that Canadian wage growth, driven largely by oil, has helped avoid U.S.-style anxiety and antiglobalization sentiment. But no Group of 20 nation is more reliant on the U.S. as a share of total trade, meaning none is more exposed to Trump’s attempts at rebalancing. The latest round of trilateral North American Free Trade Agreement talks, concluded Nov. 21 in Mexico City, yielded little progress and no hope of a quick deal. And while the latest quarterly data indicates that Canada’s economy is expanding at a rate of 4.5 percent, projections for the next seven quarters go no higher than 2 percent, according to a Bloomberg compilation of forecasts.
A Nanos Research poll conducted for Bloomberg News shows discontent with Trudeau’s handling of the economy is highest in the prairies, of which Alberta—the heart of Canada’s oil sector and its conservative movement—is the biggest part. The sense of alienation there is “typical of what we’ve seen in Europe and the U.S., where a lot of it is first driven by the economy when it’s down, and then they start looking at things that make it harder to improve,” says Jack Mintz, a professor and Palmer chair in public policy at the University of Calgary.
Alberta is Canada’s richest province by almost any measure; its workers earn the highest average wages and pay some of the lowest tax rates, and its economy leads the nation on a per capita basis. After the price of oil plummeted in 2014, however, job cuts and capital spending clawbacks set voters on edge. Trudeau’s carbon price proposal and mounting delays in pipeline construction don’t help. Attempting to court the middle class, Trudeau cut taxes starting in 2016 on those earning from about $35,000 to $70,000 and raised them on incomes greater than $157,000. He expanded unemployment benefits, particularly in regions affected by the oil downturn, and created the Canada Child Benefit, which gives as much as $417 per month for each child to most families and costs a fourteenth of the federal budget.
Economic anxiety in Canada is mitigated by a social safety net far more sprawling than that of the U.S. The budget deficit, though small by world standards, is a real concern. The Nanos poll found 40 percent of Canadians want Trudeau to cut the deficit, twice as many as want new social spending.
Trudeau is already shifting his approach. In an October mini-budget update, the government allocated about two-thirds of a growth-fueled budget windfall to reducing the deficit, with the remaining third largely for social programs, including funding for the working poor. “I mean, my God,” Morneau, Trudeau’s embattled finance minister, said at the time. “If we don’t find a way to make those people feel less anxious, what outcome do you think we’re going to have?”
To contact the author of this story: Josh Wingrove in Ottawa at jwingrove4@bloomberg.net.
To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net, Matthew Philips
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