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Canada Opposition Topples Harper, Triggers General Election

Opposition lawmakers toppled Canadian Prime Minister Stephen Harper’s government, triggering an election that may result in an alliance to reverse his corporate tax cuts and overturn plans for more military spending.

Lawmakers from the opposition Liberals, New Democrats and Bloc Quebecois passed a motion of no confidence in the government today, which under Canadian parliamentary tradition leads to the legislature’s dissolution. The motion was passed by a vote of 156-145.

While polls show the governing Conservatives would likely win the most seats in an election, the main opposition Liberal Party may seek to form an alliance or formal coalition to govern if Harper, 51, doesn’t win a majority, said Nelson Wiseman, a political scientist at the University of Toronto.

“Harper has been saying if the Conservatives don’t win a majority, the next day the Liberals and the NDP will be negotiating a coalition,” Wiseman said. “I don’t even think they’ll wait for the next day. I think they will be negotiating the night of the election.”

Such a scenario could bring together parties opposed to planned corporate tax cuts and additional spending on military jets, and who have called for rules to protect Canadian companies from foreign takeovers and more federal spending on education and health care. Both the Liberals and NDP backed the government’s decision to reject Melbourne-based BHP Billiton Ltd. (BHP)’s $40 billion hostile takeover bid for Potash Corp. of Saskatchewan Inc.

Dollar Declines

Canada’s dollar fell 0.6 percent to 98.12 cents per U.S. dollar at 2:32 p.m. in Toronto, from 97.52 cents yesterday. It weakened as much as 0.8 percent, the biggest intraday drop since March 16. Yields on Canada’s two-year bonds rose 0.3 basis points to 1.74 percent. The Standard & Poor’s/TSX Composite Index rose 38 points to 14,067.75 at 3:47 p.m. in Toronto.

Harper tomorrow will meet with the Governor General David Johnston, Queen Elizabeth II’s representative in Canada, to request the dissolution of Parliament and set a date for the vote. 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.

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.

Cost of Plans

The motion of non-confidence today found that Harper’s government held Parliament in “contempt” over its reluctance to detail the cost of legislation. Opposition parties have accused the government of misleading Canadians on the costs of its initiatives, citing estimates by Parliamentary Budget Officer Kevin Page.

A poll taken March 12-15 by Nanos Research showed the Conservatives had the support of 39 percent of voters. Harper, who has been prime minister since 2006, won 38 percent of the vote in 2008 elections, which gave the Conservatives 143 seats in the 308-member House of Commons. The telephone poll of 1,216 Canadians, which has a margin of error of 2.8 percentage points, had the Liberals at 28 percent and the NDP at 20 percent.

Harper oversees the fastest growing economy with the lowest deficits among Group of Seven nations. The currency has been the strongest in the G-7 over the past two years. Government bonds has returned 5.1 percent over the past year as of March 24, 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 over the past 12 months, compared with a 12 percent gain for the Dow Jones Industrial Average.

Line of Attack

Harper has tried to turn the possibility of a coalition among opposition parties into a line of attack against them. The Conservatives have broadcast television spots recalling that the Liberals and NDP in 2008 announced plans for a coalition that, with the help of the Bloc Quebecois, would have ousted Harper. Liberal leader Ignatieff, the ad says, backed that coalition and was willing to put the country’s economy “in the hands of the high-tax NDP.”

The opposition parties counter that Harper -- who avoided defeat in 2008 by suspending Parliament -- was willing to consider entering into a similar arrangement when he was opposition leader.

Asked whether he would form a coalition with the New Democrats, Ignatieff told reporters today that such talk was a “smokescreen” created by the government and the election will be a choice between a Conservative and a Liberal government.

Not Ruled Out

New Democrat leader Jack Layton, asked the same question, said he would work with any party to advance his policies.

Should the election yield another minority government, it would be Canada’s fourth in a row. That recent history suggests “every political party has to be open that after the election we look at how we’re going to govern the country,” Joe Comartin, an NDP lawmaker, told CTV television yesterday.

Harper’s campaign will focus on the economy and argue a coalition could undermine the recovery.

Opposition parties will seek to convince voters the government is untrustworthy and that Conservative spending and tax policies are undermining the country’s ability to reduce the deficit and finance new social spending.

Corporate Tax Cuts

At stake in the vote are reductions in corporate tax rates that would cost the government more than C$6 billion ($6.14 billion) in revenue next year, according to estimates by the Canadian Manufacturers and Exporters, an Ottawa-based lobby group that supports the measures.

The Liberals and NDP say the cuts are unaffordable and have pledged to reverse them if elected. The opposition has also said they would cancel the government’s plans to acquire 65 of Bethesda, Maryland-based Lockheed Martin Corp. (LMT)’s F-35 Joint Strike Fighter jets, which the parliamentary budget officer has said would cost $29 billion.

All parties back a return to a balanced budget, after Harper’s government ran record deficits to stem the effects of the global recession.

“I don’t see either major party substantially changing fiscal policy.” Ed Devlin, a London-based money manager at Pacific Investment Management Co., said in an interview. Bond investors may have a “very marginal” preference for the Conservatives, he said.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

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

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