Tuesday, January 27, 2009

Canada's Conservatives Hand Down Budget; Liberals Will Announce Position Tomorrow

Jim Flaherty, Canada's Minister of Finance, has handed down the long awaited budget. The Conservative government of Stephen Harper was nearly brought down late last year after Flaherty's initial economic statement did not include a stimulus package.

The budget dramatically increases spending on employment insurance, infrastructure projects and incentives for homeowners. It also introduces tax cuts. Consequently, Canada will be headed for a deficit for the first time in over a decade. The deficit for 2009-10 is projected to be $33.7 billion. Flaherty projects the Canadian government will be running deficits until 2014. I suspect the only thing conservative about this budget is how long the deficits will last as Flaherty has not ruled out further spending initiatives. This might be the worst decision Flaherty could make but it this decision is probably better than all the other options that were before him.

Both the NDP and the Bloc Quebecois have come out against the budget without even seeing it.
The Liberals under Michael Ignatieff, however, are hedging their bets. Ignatieff will state his position on the budget during a press conference scheduled for tomorrow.

Here's my prediction. I think Ignatieff is going to support the Tory budget. Yes, Ignatieff could bring the Conservative government down and possibly become Prime Minister. But the Governor General could opt to call for elections and who knows how they will turn out. They could bring about yet another minority government.

But assuming Governor General Jean asked Ignatieff to form a government why form a government now? After all, Ignatieff would then instantly inherit all the problems on the shoulders of Prime Minister Stephen Harper. Moreover, Ignatieff would be severely constrained by the NDP and Bloc Quebecois.

I think Ignatieff is going to bide his time. This isn't to say that he won't pull the trigger at a later date. But I think Ignatieff would rather go into an election where Canadians are so fed up with the Tories that they will elect a Liberal majority government than be in a situation where he heads up a minority government in which he would not only inherit economic headaches but would be at odds with his partners on key matters such as Canada's continued presence in Afghanistan. The War in Afghanistan could be further complicated should the Obama Administration pressure Canada to remain in Kandahar beyond July 2011. Would Ignatieff alienate Obama to appease the NDP and the Bloc? If he wants to stay in power then yes.

Make no mistake. Michael Ignatieff wants to be Canada's next Prime Minister. I think he will wait to do under more optimal conditions. Of course, the risk is that those optimal conditions might never arrive. If Ignatieff waits and if things do get worse under Harper and the Tories it could be argued that Ignatieff exacberated the situation by letting them remain in office.

As usual there are no easy answers.

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