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CORRECTED - FACTBOX-Key political risks to watch in Canada
March 1, 2011 / 4:37 PM / 7 years ago

CORRECTED - FACTBOX-Key political risks to watch in Canada

(Corrects lead to say that budget is due in March, not election)

March 1 (Reuters) - 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.

MINORITY GOVERNMENT

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] [ID:nN15221666] [ID:nN14120669]

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] [ID:nN23123324]

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. [ID:nN28244249]

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. [ID:nN24300949] [ID:nN27282961]

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. [ID:nN19249972]

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)

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