Stephen Harper believes the combined forces of the New Democrats and the Liberals would be devastating for the economy.

There's no way of telling until Monday what the NDP's surge in the opinion polls will mean, of course, whether Jack Layton will wield far greater influence in Ottawa, or whether the NDP is flying on a left wing and a prayer in terms of how that translates to the Commons, to borrow a phrase from others.

While unemployment remains high, Canada has come back nicely from the depths of the recession, and observers have applauded its fiscal outlook, particularly compared to its peers. The banking system is strong, and commodity prices are high, helping to buoy the Canadian dollar. But the global outlook is one of uncertainty.

Should it go in their favour, would the NDP-Liberal forces in fact be such an Evil Empire where the economy is concerned?

I wanted to put Mr. Harper's comments to the test and find out what independent observers in the financial community are thinking. No one appears to be shaking at the prospect, there are no predictions of apocalypse, and, indeed, there's a recognition of the NDP platform.

And here's the thing: Not only is it not your father's NDP, it's not your father's economy either, as David Watt of RBC Dominion Securirties put it to me.

This is not to endorse or reject any of the political parties or their platforms, only to report on what's being said. Here are some of the views:

David Watt, RBC
Considering the possibility of the combined forces of the Liberals and NDP reaching the magic 155-seat number, Mr. Watt said: "Abstracting from the potentially constitutionally-relevant issues that could unfold, this result would place PM Harper under watch, given the possibility of an alternative government that could garner the confidence of the House of Commons, be it Liberal or NDP led. This would likely create the greatest degree of political uncertainty, and boost [Canadian dollar] volatility. The easiest, and likely incorrect, conclusion would be to consider the result as outright [Canadian dollar] negative, even though the federal government could take a more activist stance.

"The NDP election platform still projects a four-year deficit-reduction strategy, as Canadians have no desire to revisit the dark days of the early to mid-1990s. As well, the Liberal party wrestled the deficit to the ground in the late 1990s, and is unlikely to support a fiscally irresponsible agenda. Both parties do plan to unwind corporate tax cuts and to raise corporate taxes to 18 per cent (Liberals) or to 19.5 per cent (NDP). Even so, the NDP do pledge to 'keep Canada’s corporate tax rate competitive by ensuring that our combined federal/provincial Corporate Income Tax rate is always below the United States’ federal corporate tax rate.'"

Sheryl King, Bank of America Merrill Lynch, to Bloomberg News
“A coalition government in general means more spending and higher taxes. I do not think the corporate tax hike will be sufficient. Higher taxes elsewhere will have to occur as well.”

Stephen Gordon, Laval Unversity, writing in Economy Lab
“Where there are differences - on such files as the corporate income tax or Employment Insurance, for example - the NDP’s position is the least sensible. But it would be a stretch to say that these are transformational differences of the kind promised by the NDP under, say, Ed Broadbent’s leadership ... The party that wins the election will be forced to face the fact that the federal deficit is not going to go away on its own, and that the measures in its platform would make it worse. This election is the first in which the prospect that this government might be formed by the NDP would change comparatively little.”

Tom Nakamura, AGF Investments, to Bloomberg
“It would create uncertainty. The global community isn’t used to thinking of a more left-leaning government.” But he added that the NDP would probably be held in check by “other voices in Parliament ... I don’t think it’s drastic.”

Ed Devlin, Pacific Investment Management Co., to Bloomberg
“From a markets perspective, while it could create some volatility, I can’t see a resurgent NDP being relevant.”

Jack Spitz, National Bank of Canada, to Reuters
“The polls are still suggesting a strong minority or possible majority by the Conservatives. Any meaningful move away from that could have an impact, but it’s unlikely to be long-lived. Canada still continues to be seen as an oasis of stable government in a democratic form.”

Douglas Porter, BMO Nesbitt Burns, to Postmedia News
"We could finance it relatively easily, even if there were some questions about the fiscal path. In a world where there's talk of the U.S. having its credit rating downgraded, and with all the problems in Europe and Japan, Canada would still look quite good."

Stéfane Marion, National Bank of Canada
“From a financial-market perspective, somebody voting on the left in Canada is still very different from somebody voting on the left in Europe,”

Charles St-Arnaud, Nomura Securities
"It may create some uncertainty, at least for the first few weeks, or right after you could have some, maybe, a quick sell-off of people who don't understand exactly what's going on and may just get spooked and create some uncertainty for the next few days. But as people get more comfortable, I mean, investors will be waiting for some clarity in what are the intentions exactly.''

Camilla Sutton, Scotia Capital
“What we're talking about here is a minor difference between party platforms and potential fiscal outlook, and outlook towards the corporate sector."

Article provided via the Globe and Mail

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