UPDATE 3-Canadian government set to be toppled on Friday
* All three parties to back nonconfidence motion
* Polls show Conservatives would retain power in election
* Canada PM says opposition could damage economy (Recasts lead, adds quotes from Harper, opposition)
OTTAWA, March 23 (Reuters) - Canada's minority Conservative government looks set to fall on Friday on opposition charges it is incompetent and tainted by sleaze, setting the scene for an immediate election campaign that might barely change the balance of political power.
All three opposition parties said on Wednesday they would back a motion of nonconfidence in the government from the Liberals, the biggest opposition party.
If they all vote for the motion at a debate on Friday, Prime Minister Stephen Harper will be defeated and Canada will face its fourth federal election in less than seven years.
"We've worked with the government in times past, but we've reached the end of the road here," said Michael Ignatieff, leader of the Liberal Party. "They have made choices that will harm Canadian families. They have made choices that are not good for our democracy."
Polls show the Conservatives would easily retain power in an election, if voting intentions stayed where they are now.
But Harper might not win enough votes to transform his minority right-of-center government into a majority one that cannot be easily defeated. An election would probably take place on May 2 or May 9 after a campaign of around six weeks.
For stories on Canada's political crisis, click here [ID:nN21203531]
The Conservatives came to power in early 2006 on a platform of cleaning up Ottawa after accountability scandals that tarnished the reputation of the previous Liberal government.
But last week, police were asked to probe allegations of misconduct by a former top Harper aide, and last month, four Conservative officials were charged with violating financing rules during the 2006 election campaign.
This week, a parliamentary committee slapped the government with the first contempt ruling in Canada's history, ruling that Ottawa had hidden the full costs of a spending program.
Harper's Conservatives have never won more than a minority government, and they stayed in power as opposition parties took turns to prop them up.
But this time the opposition is united, confident it can take advantage of the ethical problems and dislike of a federal budget that the government submitted on Tuesday. The budget fell far short of what was needed ensure a lasting recovery from recession, opposition parties say.
The Conservatives, who insist nobody wants an election now, will portray themselves as the best managers of Canadian economy, and Harper on Wednesday accused the opposition parties of threatening the economic recovery.
"Our economy is not a political game. The global recovery is still fragile," he told reporters.
The Conservatives and Liberals are both committed to cutting a budget deficit which hit a record C$55.6 billion ($56.7 billion) last year as the government spent freely to stimulate the economy.
It's a huge deficit for Canada, but tiny compared to the $1.645 trillion U.S. shortfall the United States faces in 2011. Planned austerity measures are far less severe than those planned by the British coalition government, for example.
The Liberals say they will scrap C$6 billion in planned corporate tax cuts, cancel an deal to buy C$9 billion worth of fighter jets from Lockheed Martin (LMT.N) and boost social spending for vulnerable Canadians if they win.
The Conservatives will push ahead with a program of tax cuts and small-scale spending program. They say the budget will be in balance by 2015-16, although the Liberals dispute that.
Ignatieff said it was "hilarious" that Harper was trying to persuade Canadians they could not have an election because it will destabilize the economy. "We will fight them on the economy, and we will win on the economy," he said.
Ignatieff skirted questions on whether he might form a coalition with the left-leaning New Democrats after an election. The two parties agreed in late 2008 to work with the separatist Bloc Quebecois to bring down Harper, who only escaped by having Parliament suspended.
The Conservatives have consistently said the three opposition parties will seek to form a coalition.
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