2025 Canadian Election

It was a nail-biter of a Canadian election, as both the Liberals and Conservatives received more than 40% of the popular vote. But with trade and tariffs dominating the election issues, voters chose the Liberals and their leader, former Bank of Canada Governor Mark Carney, to tackle these critical issues.   

To break down what the election result means for the North American economy and investors, BMO Capital Markets held a panel discussion that included:  

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  Camilla Sutton, panel moderator and BMO Managing Director and Head of Equity Research Canadian and U.K. 

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  Brian Belski, Chief Investment Strategist, BMO Capital Markets 

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  Jennifer Lee, Senior Economist and Managing Director, BMO Economics 

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  John Waters, Vice President, Director of Tax Consulting Services, BMO Private Wealth  

Prime Minister Carney has a lot of work ahead of him, but the Liberals must focus on some key priorities, said Jennifer Lee. Firstly, they must quickly address the dominating election issue: trade and the relationship with the United States. Lee expects Carney to set up a face-to-face meeting with U.S. President Donald Trump as soon as possible. 

“Canadians are looking to Prime Minister Carney to establish a better working relationship — warmer, friendlier perhaps — than what we’ve seen in the past,” she said. “It isn’t going to be easy, and a lot of it will depend on how he is received in the U.S. by President Trump and his cabinet. It also depends on what the U.S. demands will be.” 

The government will also have to look at shoring up areas of the economy that have already been negatively impacted by tariffs. Canada may be in the middle of a 90-day pause on some tariffs, but others are still in place, such as the 25% tariff on steel and aluminum and 25% on finished cars not made or produced in the U.S. At the same time, the government must be prepared in case there is a reprieve at some point.  

Lee is also interested in seeing what Canada does about defence spending, something the U.S. is particularly focused on. Prior to the election, Canada’s parties were talking about boosting defence spending to 2% of GDP, well short of the 5% that President Trump recently said he wants. “We’re going to have to step it up on the defence front,” she noted. 

The trade situation will largely depend on how the relationship between the U.S. and the new Canadian government plays out, Lee said. With Canada and Mexico serving as the destination for roughly 33% of U.S. exports, she’s hoping a deal gets done sooner than later. If not, Canada still has options. “We’re going to be looking at trade deals Canada could make with other countries,” she noted. “It’s going to take time, but hopefully we see more diversity in our trade, not just to the U.S. but to other parts of the world.” 

Brian Belski cautioned investors to avoid rushing to judgment until all the trade negotiations have taken place. In fact, he’s feeling bullish on Canadian stocks, despite the news.  

“Our companies are massively intertwined, not just in financials but from the consumer side and transportation as well,” he said about Canada and the U.S. “We believe the majority of the downside in Canadian stocks has already been represented in those areas. That’s why we’re so positive on Canada going forward.” 

The Canadian market actually performed well in the second half of last year, Belski noted, and that trend has continued into 2025. While the U.S. market is down 6% year-to-date, Canada has been flat over that period. Over the past 12 months, the S&P/TSX Composite Index is up 13%, while the S&P 500 is up just 8%.  

That’s why Belski has been calling for clients to add more Canadian stocks into their asset mix. “We started talking in print about Canada outperforming the U.S. last July,” he said. “Even though we revised our Canada target and our U.S. target lower on April 9, we still see new highs in Canada at 26,500 in terms of the index and earnings of $1,550 for the TSX index. Going forward, for the next three to five years, we’re going to have more equalized returns in both markets.” 

When it comes to taxes, John Waters said we can expect to seea 1% decrease at the lowest end of the marginal tax rate this year. In housing, he expects the Liberals to move ahead with other proposed changes, such as removing the GST on new builds up to $1M for first-time homebuyers and reintroducing tax incentives for multi-unit residential buildings to spur action on the supply side. To encourage innovation, he’s anticipating the introduction of a Canada patent box, a tax incentive intended to reward innovators and encourage them to  develop projects in Canada. 

Seniors can expect to see a temporary 5% increase in the Guaranteed Income Supplement, and there will also be a reduction of 25% in the minimum Registered Retirement Income Fund payment that account holders are required to pay out to themselves annually, likely in 2025.  

“For people who have already taken out their minimum, it’s probably an opportunity to re-contribute up to 25% if they so choose,” he said. “Folks who haven’t taken their RRIF  minimum for this year might want to hold off for a couple of weeks until we get more clarity.” 

As far as changes to capital gains, a heated topic prior to the election, Waters expects the inclusion rate to remain at 50% and not increase to two-thirds as previously proposed. “Mark Carney and Pierre Poilievre both came out and said they don’t intend to move forward with that. If it is a minority government and compromises are required, I don’t think it’s going to be over this issue.”