(Corrects lead to say that budget is due in March, not
March 1 Canada's federal budget is due in
March, and it is unclear if opposition parties or the
Conservative government will use the event to force an
election. Both sides say Canada does not want an election, but
they have still stepped up the campaign-style rhetoric.
The Conservatives have only a minority of seats in the
House of Commons and need support of at least one opposition
party to pass legislation and stay in power.
Minority governments have rarely lasted more than two years
in Canada, although the Conservatives have been in power with
two successive minorities since early 2006, thanks to
opposition support on matters of confidence like budget votes.
Polls show the Conservatives maintaining their lead over
the main opposition Liberals. But the party does not have the
support needed to win a majority government. [ID:nN23191452]
The Conservatives say they do not want an election, but
will not back down on a C$6 billion ($6 billion) cut in
corporate taxes that has drawn fire from the Liberal and New
Democratic parties. [ID:nN16284467]
Many observers see the left-leaning New Democrats as the
party most likely to help the Conservatives pass the budget and
avoid an election. Prime Minister Stephen Harper and NDP leader
Jack Layton met in February.[ID:nN21237594] [ID:nN18115942]
Finance Minister Jim Flaherty has said he could juggle
budget spending to accommodate worthwhile opposition demands, a
signal that a snap election may be averted. [ID:nN19131248]
The government also faces a tricky political decision on
the London Stock Exchange's (LSE.L) proposed takeover of TMX
Group (X.TO), which run's Canada's main stock exchange. The
deal has raised concern in Ontario and Quebec, and some
investors fear domestic political concerns will push Canada to
block the deal. [ID:nN15122840] [ID:nN22287846]
Things to watch for:
- Will the opposition parties unite to bring down the
government over the budget, triggering an election?
- Will Harper strike a deal with one of the smaller
opposition parties to stay in power? If so, will concessions
irritate his power base within the Conservative Party and
weaken his position?
- If the Conservatives win the most seats in the next
election, but fall short of a majority, will the opposition
parties seek to team up to replace them?
- How will Canada weigh politics and finances in
considering takeover of Toronto Stock Exchange?
THE ECONOMY AND RECOVERY
The Canadian economy is mostly stronger than the U.S. one,
but it is under pressure from the strong Canadian dollar and
weak U.S. demand. Fourth-quarter GDP grew at an annualized rate
of 3.3 percent, beating market and central bank forecasts.
A surge in exports despite the strong currency helped cut
the fourth quarter current account deficit from a record level.
[ID:nN28244157]. Bank of Canada Governor Mark Carney had said
earlier that he was concerned about the level. [ID:nN27191953]
Central bank and federal officials have both expressed
concern about personal debt levels and the government is
tightening mortgage rules. [ID:nN17274705]
The Bank of Canada has also warned that the era of cheap
money is bound to end.[ID:nN13209829] [ID:nN19226898]
Things to watch for:
- How strong is the U.S. recovery? The United States takes
almost three-quarters of Canadian exports.
- Will Canadian business investment rise as federal
stimulus spending runs out as scheduled in May?
- When will the Bank of Canada start raising rates again?
- How might the government rein in the deficit?
RISKS IN THE PROVINCES
British Columbia has a new premier, Christy Clark, who ran
as an "outsider" to win the Liberal Party leadership. She faces
a major test later this year when B.C. voters decide whether to
scrap a controversial sales tax deal that underpins the
province's budget. [ID:nN26186986] [ID:nN15231263]
A leadership race is also under way in oil-rich Alberta,
where Premier Ed Stelmach is stepping down just three years
after winning the largest majority in the province's history.
Alberta newest budget projects a falling deficit.
In Quebec, which has struggled for decades with the issue
of separation from Canada, the pro-independence Parti Quebecois
has a wide lead in provincial opinion polls. Liberal Premier
Jean Charest is fighting several scandals, and it is unclear if
he will get any boost from an inquiry that cleared the party of
allegations of improper involvement in judicial appointments.
Ontario faces a provincial election in October, and the
Conservatives are ahead of the ruling Liberals in the polls. A
new government could change Ontario's green energy policies,
among the most ambitious in North America. [ID:nN12187243]
(Reporting Allan Dowd; editing by Janet Guttsman)