Canada Budget Rejection Means Government Poised to Fall

Canadians may face their fourth federal election in seven years as early as May, after opposition parties said they wouldn’t back Conservative Prime Minister Stephen Harper’s fiscal plan.

Leaders of all three opposition parties said that C$7.6 billion ($7.7 billion) in new measures announced yesterday by Finance Minister Jim Flaherty weren’t enough to warrant their support. Harper will face a Liberal motion of non-confidence on March 25.

Opposition lawmakers are seeking to benefit from what they say have been ethics violations by Harper’s administration, including accusations by Liberal Leader Michael Ignatieff that former Harper aide Bruce Carson was peddling influence with companies seeking state contracts, as well as charges that ministers have misled Parliament. Harper has said he doesn’t want an election that could undermine the country’s recovery.

“The opposition parties are going to talk about contempt of Parliament and ethics” to weaken the government’s position, said Robert Drummond, a political scientist at York University in Toronto. The Conservatives “are going to want to talk about their economic record.”

Gilles Duceppe, leader of the Bloc Quebecois, and Jack Layton of the New Democratic Party told reporters in Ottawa they will support the Liberal non-confidence motion that will be debated on Friday.

Polls

The motion will refer to a committee report that says the Harper government has been “in contempt of Parliament, which is unprecedented in Canadian Parliamentary history, and consequently, the House has lost confidence in the government.”

Polls show the Conservatives are likely to win the election, and may improve their standing in Parliament, making Harper, 51, the first Conservative leader to win three consecutive mandates in more than a century. Under Canadian law, an election would take place on a Monday following a campaign of at least five weeks, meaning a vote could be held as early as May 2 if the government is defeated this week.

The Canadian dollar fell 0.1 percent at 4 p.m. in Toronto to 98.16 cents per U.S. dollar, from yesterday’s 98.07 cents. It has traded in a range between 97.92 cents and 98.44 cents since the budget was presented.

A Vision Critical/Angus Reid poll, published March 10, had 39 percent of voters supporting the Conservatives, followed by the Liberals with 23 percent, and the New Democratic Party at 17 percent. It was an online survey of 1,021 Canadian adults conducted from March 8 to March 9, with a 3.1 percent margin of error.

Nearing Majority

A poll taken last week by Nanos Research showed the Conservatives had the support of 38.6 percent of voters. Harper, who has been prime minister since 2006, won 37.7 percent of the vote in 2008 elections, which gave the Conservatives 143 seats in the 308-member Parliament. A party generally needs about 40 percent support to form a majority government. Harper’s minority government needs the support of at least one opposition party to pass legislation.

The Liberals won 77 seats in the 2008 election, the Bloc Quebecois 49 and the New Democratic Party 37 seats.

The Nanos poll suggests the ethics accusations may be having an impact. While Harper remains the most trusted party leader among voters, his score on that measure has fallen over the past month to 26.6 percent from 29.1 percent. Layton was considered the most trusted leader by 17.2 percent of voters, and Ignatieff by 12.7 percent.

Ethics and Judgment

“The Liberals will likely seek to raise questions around Harper’s ethics and his judgment” in an election, said Andre Albinati, a principal at Earnscliffe Strategy Group and former adviser to Liberal Prime Minister Paul Martin.

Lawmakers today began debate on a committee report that says the government held Parliament in “contempt” over its reluctance to detail the cost of legislation, delaying debate on the budget. Opposition parties have accused the government of misleading Canadians on the costs of its initiatives, citing estimates by Parliamentary Budget Officer Kevin Page.

Two former government officials also face possible investigations by the Royal Canadian Mounted Police, while four Conservative Party organizers are being charged by the federal public prosecutor with violations of election spending rules.

As well, International Cooperation Minister Bev Oda faced charges she misled lawmakers regarding cuts in funding to a non- government organization, while opposition lawmakers have called for Immigration Minister Jason Kenney to resign after one of his staffers sent a fundraising letter from his office, violating Parliamentary rules.

Tax Reductions

At stake in an election are tax reductions valued at C$6 billion annually for businesses such as Royal Bank of Canada (RY) that the Liberals say are unaffordable and have pledged to reverse if elected. The Liberals also have said they would cancel the government’s plans to acquire 65 of Lockheed Martin Corp. (LMT)’s F-35 Joint Strike Fighter jets.

In his budget yesterday, Flaherty used an improving fiscal outlook to provide some new funding in a bid to assuage opposition lawmakers, particularly the NDP, which was considered the party most likely to support the budget.

The five-year fiscal plan projects a C$29.6 billion deficit in the fiscal year that begins April 1, down from C$40.5 billion this year and a record C$55.6 billion two years ago. A surplus is projected for the 2015-2016 fiscal year.

The budget provides C$400 million for a program that benefits homeowners who carry out energy-saving improvements, and increases an income supplement for low-income seniors. NDP Leader Layton said yesterday Harper’s budget “missed an opportunity” to address his party’s concerns.

‘Came Short’

Harper “came short”, said Robert Asselin, an assistant director of the Graduate School of Public and International Affairs at the University of Ottawa.

Recent data have shown Canada’s recovery is accelerating, even as inflation remains tame. The economy added jobs for a fifth straight month in February, and expanded at a 3.3 percent annualized pace in the fourth quarter, the fastest in the Group of Seven nations.

Canadian government bonds have returned 4.7 percent over the past year according to Bank of America Merrill Lynch index data, compared with a 2.8 percent average for the G-7. Canada’s benchmark S&P/TSX Composite Index has risen 17 percent in the past 12 months, compared with a 7 percent gain for the Dow Jones Industrial Average.

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net

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