Election could hinge on oil and the economy: Don Pittis

In political lore, the Bill Clinton campaign slogan "It's the economy, stupid" stopped theGeorge H.W. Bush presidency after a single term. Despite his other successes, the economy became the elder Bush's electoral Achillesheel.

As Canada heads into an election year, it is certain that federal campaignadvisers of all stripes arethinking hard about how a sudden turn in the domestic economy is goingto affect their chances in the coming vote.

Perhaps most devastating for the Conservativeswas yesterday's report from TD Bank that falling oil prices, now well below half what they were last summer, mean the government's fiscal record no longer looks so good.

• Little change of federal budget surplus any time soon, TD says
• Welcome to the election year, date to be determined

"The conclusion is unambiguous," writes TD senior economist Randall Bartlett in the report. "In the absence of new measures to raise revenues or cut spending, TD is projecting budget deficits in fiscal 2015-16 and 2016-17."

Rate risk

Oil is just part of the problem. The Canadian economy continues to lose jobs while the U.S. economy surges. And that adds an extra difficulty. As the economy heats up south of the border,the U.S.central bank could begin to raise rates, pushing Canadian long-term interest rates higher.

• Canada loses 4,300 jobs in December
• U.S. adds 252,000 jobs pushing unemployment to 6-year low of 5.6%

Higher rates are not good for Canadians."So much debt has been taken on during the course of this downturn that every uptick in interest rates that we getis going to hit the cash flow of ordinary people," saidBank of Canada governor StephenPolozduringaCBC Radio interviewin what may be my favourite economic quote of 2014.

But not everyone is gloomy about the state of the economy during thiselection year, includingSimon Fraser University economics professor Richard Harris. He calls the sharp decline in the value of the Canadian dollar that has accompanied the decline in oil"incredibly good news," especially in B.C.,a province dependent on U.S. tourism.

Loonie to the rescue

"Canada's competitiveness has improved dramatically from where we were a year ago," says Harris. "It would be great if we could get the dollar down another five or six cents."

Harris says that will create a new two-speed economy. But the roles will be reversed.

"I think the election strategies are going to have to revolve around that particular dichotomy. Ontario and Quebec are going to see dramatically improving economies," says Harris."Alberta is going to be in quite a pickle and the rest of the provinces are somewhere in between."

A report from non-profit think-tank the Conference Board of Canada says Harper's home province, Alberta, may be heading into recession.

• Oil price plunge could put Alberta into recession, Conference Board says

"The Conservatives are in a tough spot," says Harris."Here they are,a fiscally conservative party and their base is being hammered."

It's difficult to hand out subsidies to the energy sector after telling everyone else in Canada to let the market decide. Harrisdoesn't rule that out, but any subsidies would have to be huge to have any more than a token impact. It would also leave the Conservatives open to opposition criticism of favouritism and recklessness.

When the [oil] price falls it doesn't look like they made a good choiceYork University's RobertMacDermid

One thing governments often do when the economy weakens is to spend on infrastructure. But experts say that even if the Toriesare willing to go against their promises and increase the deficit,there won't be time for that stimulus tostrengthen the economy this year. And when it comes to promises about the future, the governingparty has no advantage.

Youthvote

One bit of stimulus that elections always bringis spending on the election itself, York University'selections specialist Robert MacDermid says. He calculates additional spending by Elections Canada and by the parties and candidates at something over $400 million.

MacDermid saysthe Harper Conservatives will take politicalheat for identifying so wholeheartedly with the energy industry.

"When the price falls and suddenly jobs start to disappear, it doesn't look like they made a good choice," says MacDermid. But he believesthat isn't enough to wreck their chances."I think that the Conservatives will quite ably be abletoclaim that they have managed the economy extremely well from 2011 on."

According to MacDermid's analysis, two economic issues that may not play high in the coming election campaign are poverty and youth unemployment. Poor people and the young just don't pay enough attention inelections to make a difference.

"Why would you spend your time and money in a short period of time on a group of people who are very unlikely to vote?" he asks.