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(Bloomberg) -- Canadian Prime Minister Justin Trudeau appears set to retain power in a close election Monday, but may fall short of regaining the parliamentary majority he’s been coveting.
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Trudeau’s Liberal Party is likely to win 155 of the 338 seats in the House of Commons, compared with 119 for the opposition Conservatives under Leader Erin O’Toole, according to projections based on national polling averages compiled by the Canadian Broadcasting Corp.
The prime minister tried to shore up support Sunday with a blitz through key districts in Quebec, Ontario and British Columbia on the final day of the campaign. O’Toole made a handful of stops near his home district in the suburbs of Toronto.
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The CBC’s projected result would leave parliament little changed from what it was before Trudeau called the election -- a stable minority that gives the prime minister license to continue pursuing a big-spending agenda that is already largely backed by other parties.
It would also represent a historic milestone, marking only the eighth time a Canadian leader has won three successive elections. Trudeau’s father, Pierre, also accomplished the feat.
Still, failure to secure a majority of 170 seats will ultimately be a disappointing result for the Liberals, the second time voters have denied this prime minister full control of the legislature -- limiting his freedom to take big risks or govern unilaterally.
“It’s very close. There are certain advantages that incumbents hold, in terms of name awareness and that kind of thing,” Darrell Bricker, global chief executive of Ipsos Public Affairs, said in an interview Sunday. “But everything I’m seeing is that the level of energy in the Conservative vote is higher than the Liberal vote right now.”
As a share of the vote, polls show the Liberals at just over 31% support and the Conservatives just under 31%. A tie or even a small deficit in the popular vote favors the Liberals, who tend to win more seats with small margins in Canada’s first-past-the-post voting system.
Minority governments have become familiar political terrain in Canada, and popular given they maximize participation of a number of parties in the process of lawmaking. The previous six elections produced four minority governments, lasting on average about two years.
But there’s a downside. Minority parliaments keep parties on constant campaign footing and give them less scope to consider long-term issues. In practice, that means politicians are wary of tackling big problems like Canada’s sagging competitiveness or slow transition toward a low-carbon economy.
There’s also an incentive to spend more, to accommodate priorities of other parties.
In the two years since Trudeau lost his majority in 2019, the Canadian currency has been the second-worst performer among G-10 currencies against the U.S. dollar. The country’s benchmark S&P/TSX Composite Index is up 25%, barely half the gain of the S&P 500.
A stable minority is one in which the government has multiple potential partners to pass legislation, giving the prime minister maximum leverage. Trudeau largely had control over the economic agenda before calling the Sept. 20 vote, with all three opposition parties at one point backing his emergency borrowing to deal with Covid-19.
The Liberals passed a budget with C$140 billion ($110 billion) in new spending measures in April with the support from the New Democratic Party. Even the Conservatives largely supported the Liberal government’s pandemic support measures through much of last year.
The convergence on policy that lawmakers displayed in the last parliament spilled over into the campaign, with all parties promising more social spending and continued deficits to help the recovery. The Liberals, Conservatives and NDP “are relatively aligned on most issues so we aren’t flagging big concerns on policy difference,” Rebekah Young, economist at Bank of Nova Scotia, said by phone.
Still, the outcome does matter for investors. Trudeau has pledged to increase taxes for the country’s biggest banks and impose stricter emissions rules for the oil and gas sector -- the two largest sectors by weighting in the benchmark TSX stock index. He would win support from the NDP on those issues.
O’Toole has pledged some tax credits on investment and is generally seen as more friendly to the energy sector. The Conservatives are also seen as more credible, at least by market players, on fiscal issues.
To be sure, the outcome remains uncertain. A Liberal majority is still possible, with the CBC poll tracker assigning a 15% chance on such an outcome.
“The math is there for a possible majority government but it would be like the equivalent of an inside straight. A lot of things would have to go right,” Charles Bird, principal at Earnscliffe Strategy Group and past Ontario campaign director for the Liberals, said in an interview.
The Conservatives have a 25% possibility of forming a minority government. Gridlock -- and a quick return to yet another election -- can’t be ruled out, either. Since World War II, Canada had three governments that failed to last a full year.
There are wild cards. Voter turnout is one: A low showing could hurt the Liberals more than the Conservatives, whose base tilts older and more likely to go to the polls.
The strength of the nationalist Bloc Quebecois is another -- the Liberals were hoping to take seats in French-speaking Quebec from that party. If the New Democrats can hold onto current levels of support, they are poised to win seats from the Liberals and kill any chances of a majority.
The People’s Party of Canada, meanwhile, is threatening to steal votes from the Conservatives in a number of tight races in Ontario.
There’s also a new source of uncertainty this year: More than 1 million mail-in ballots were requested, due to the pandemic. That could leave the result unknown until Tuesday or beyond if the race is close.
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