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Viewing cable 07OTTAWA505, CANADA: NEW BUDGET COULD SPUR FEDERAL ELECTION
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| Reference ID | Created | Released | Classification | Origin |
|---|---|---|---|---|
| 07OTTAWA505 | 2007-03-16 20:21 | 2011-04-28 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Ottawa |
VZCZCXRO8126
OO RUEHGA RUEHHA RUEHIK RUEHQU RUEHVC RUEHYG
DE RUEHOT #0505/01 0752021
ZNR UUUUU ZZH
O 162021Z MAR 07
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5218
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RHEHNSC/WHITE HOUSE NSC WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
UNCLAS SECTION 01 OF 03 OTTAWA 000505
SIPDIS
SIPDIS
SENSITIVE
STATE PASS WHA/CAN
E.O. 12958: N/A
TAGS: PGOV PREL CA
SUBJECT: CANADA: NEW BUDGET COULD SPUR FEDERAL ELECTION
Summary
-------
¶1. (SBU) Canada's Conservative Government will deliver its
second federal budget on March 19. The budget vote, possibly
as early as the week of March 26, is an automatic confidence
vote that could determine the timing of the next federal
election. The budget will be seen as a sign of the Harper
Government,s intentions on election timing: as the
springboard into an early election or the basis of a more
polished platform for a fall vote, or even a 2008 election.
The release of the budget is the opening dance of an election
three-step of the federal budget, the Quebec provincial
election on March 26, and a possible spring election call.
Although the timing of the election is not yet a foregone
conclusion, until the matter is resolved the government will
be distracted and progress on major bilateral initiatives is
effectively on hold. End summary.
Confidence Motion
-----------------
¶2. (SBU) The House of Commons returns on March 19 for a
two-week sitting before it breaks for Easter. The Senate
returns on March 20. The federal 2007 budget will be the
centerpiece and the test of the Conservatives and the
opposition parties, willingness to go to the polls. A
maximum of four days are allotted to debate on the budget
motion with March 20 and 21 already slated for days one and
two of debate, and the remaining two days expected to be
allotted during the following week.
¶3. (SBU) The first of several votes on supplementary
estimates will also come on March 22, possibly providing an
early test of the mood of the opposition parties. As the
official opposition, in this case the Liberals, usually votes
against the budget on principle, the minority Conservative
Government will require the support of at least one of the
two smaller parties in the House of Commons. Current party
standings are: Conservatives 125, Liberals 101, Bloc 50, NDP
29, Independent one, vacant 2. So far, it appears no deal
has been reached in advance with any of the opposition
parties regarding the budget. Thus, even more than usual,
the budget will be a highly political document.
Winning Budget
--------------
¶4. (SBU) Government sources say that the budget has been
carefully calibrated to appeal to the opposition, but it has
also been crafted to win a second mandate. If it is
defeated, the budget will be the focus of what the
Conservatives hope will be a saleable, pragmatic package of
lower taxes, less intrusion into provincial jurisdiction,
more law and order, and improved national security. Policy
is likely to be secondary to the short-term expedient of
sealing a majority government for the Conservatives. Current
estimates suggest the Harper Government may have as much as
C$7-10 billion in surplus cash to divide between programs,
tax cuts and debt repayment in the 2007 budget.
¶5. (SBU) The Harper Government has already telegraphed
certain elements of the budget in advance: tax cuts,
income-splitting for seniors, plans to settle the so-called
federal-provincial "fiscal imbalance," increases to military
and health funding as outlined in last year,s budget,
spending on the environment and agriculture, debt repayment,
child care, and formalization of changes to taxation of
income trusts. Of these, most attention will be on taxes,
the fiscal imbalance, and the environment. The Conservatives
have floated a "tax-back guarantee" that would reinvest
Qhave floated a "tax-back guarantee" that would reinvest
interest savings from the national debt in personal tax cuts.
They may also raise the lowest tax threshold to provide
relief for the working poor and the middle class, and,
possibly, enrich child tax benefits aimed at lifting children
and low-income working families out of poverty. Also
possible is a cut in capital gains taxes on investments. The
tax cuts are likely to be announced with fanfare, but in
practical terms may not amount to more than C$200 per year
for the average taxpayer. Few changes are expected to
corporate taxes.
Provincial Play
---------------
¶6. (SBU) Settlement of the fiscal imbalance will address the
Prime Minister,s 2006 election promise to Quebec, which is
expected to be the primary beneficiary of the deal, and try
to buy peace with all the provinces through significant per
capita transfers for postsecondary education and
OTTAWA 00000505 002.2 OF 003
infrastructure as part of reform of the formula for
equalization. The deal is already a factor in the current
Quebec provincial election campaign that ends on March 26.
The incumbent federalist Liberal Party of Quebec under
provincial Premier Charest is using it to trumpet the rewards
of co-operative federalism and the benefits of remaining in
Canada.
¶7. (SBU) If the cash is enough to salvage the Quebec Liberal
Government, even a minority one, from an exceedingly tight
three-way race, the federal Conservatives also hope that the
deal would boost their own fortunes in the province. The
Conservatives will argue that they have delivered on their
commitment to recognize the fiscal imbalance and reduce and
realign the federal role in areas of provincial
responsibility. Mr. Harper captured ten seats in Quebec on
the strength of that pledge and hopes to get more support
from Quebeckers in his second bid to win a majority
government. However, current polls in Quebec suggest that
the province may well elect its first minority government
since 1878, a barometer of public opinion that could halt the
rush to a federal election.
Eco-Appeal
----------
¶8. (SBU) New spending on the environment is also likely
calculated to appeal to the growing number of Canadians, and
Quebecers in particular, who identify the environment as a
key issue of concern. In the past few weeks, the Harper
Government announced almost $2 billion for green projects
under the rubrics ecoTrust to fund provincial projects to
reduce greenhouse gas emissions and air pollutants and
ecoEnergy focused on efficiency, conservation, and cleaner
energy and additional grants for mass transit to convince the
Canadian public of his government's "green credentials."
¶9. (SBU) If the Liberals are the only party to oppose the
budget, the confidence vote attached to it will be an
anti-climax. Only the Bloc has a clear bottom line, making
its support dependent on "significantly" addressing the
fiscal imbalance. Tax cuts for families and environmental
spending would also be sweeteners. Support for the Bloc in
Quebec remains well below its high of about 49% from the 2004
federal election and, if its provincial cousin the PQ does
poorly in the March 26 Quebec provincial election, the Bloc
will be even less tempted to provoke an election in which it
could lose seats.
¶10. (SBU) The NDP is a wild card. It has signaled that
action on climate change will be crucial to its support of a
budget, including eliminating tax breaks for energy
companies. Its budget wish-list also includes more funding
for postsecondary education, affordable housing and a C$10
per hour minimum wage. The New Democrats are being squeezed
by the Green Party on the left and by the Liberals on the
right, who have moved to the left in opposition and have made
the environment a major plank in their platform. Currently
at 13-15% in the polls, and losing ground the parties on its
left and right, the NDP has an incentive to find something in
the budget it can live with.
Pretexts Aplenty
----------------
¶11. (SBU) If the budget passes and proves popular among
voters, the Conservatives may still be tempted to call a snap
vote citing obstruction by the opposition. The PM and the
opposition leaders all say that they don,t want an election,
but Harper's Conservatives are acting as though they do. PM
Harper has used the current two-week parliamentary break to
QHarper has used the current two-week parliamentary break to
commit C$3.5 billion to eco-projects, transit, infrastructure
and farm credits across the country, contingent on passage of
the March 19 budget, in what seems to be a traditional
gesture of pre-election largesse.
¶12. (SBU) The Conservatives are visibly revving their
campaign engines. Their bill to introduce fixed election
terms would be only a momentary obstacle in the way. A
greater problem for the Conservatives would be the appearance
of opportunism. Polls suggest that the public has not tired
of minority government, although Canadians may be tired of
elections. There have been three federal elections in as
many years. The support level required for a majority
government is about 39%-40%, and neither the Conservatives
nor the Liberals are currently at this level. The
Conservatives are currently polling near the 36.3% the party
won in the January 23, 2006 federal election, with the
OTTAWA 00000505 003.2 OF 003
Liberals hovering at between 30% and 34%. The
Conservatives, Quebec polling numbers remain several points
below the party,s score in the 2006 election. However, if
conditions appeared ripe, Mr. Harper could well gamble that
he could change the mood once in a campaign and that his
party,s 2006 poll ceiling could become its new floor.
¶13. (SBU) If an election is called, all legislation
currently in progress in Parliament will die. However, much
of the Conservative Party's agenda, particularly its priority
justice bills, has already been effectively stalled by the
opposition parties. Of the 51 bills introduced by the Harper
government, only 16 have received Royal Assent. Ten of the
twelve justice bills that make up the government,s
tough-on-crime agenda have yet to be passed, including C-10
on mandatory minimum sentences for firearms offences, one of
the first justice bills to be introduced by the Harper
Government and the flagship legislation of its law and order
program. The bill was essentially gutted by the opposition
parties in February in committee. A continued stalemate on
this bill, and other anti-crime measures, could provide a
pretext for an election call in which the Conservatives could
tag the Liberals, particularly, as "soft on crime." For good
measure, the Conservatives could add "soft on terror" based
on the defeat on February 27 of Harper,s motion to extend
two sunset clauses of the Anti-Terrorist Act.
¶14. (SBU) Liberal leader Stphane Dion belatedly recognized
this political danger and on March 14 released a new
anti-crime platform that promises more money for new
prosecutors and judges, as well as for the RCMP to combat gun
crimes, organized crime, gangs and drug trafficking. The
package, however, has a cobbled-together feel and initial
media reaction has been skeptical.
¶15. (SBU) Another trigger could come over the environment
when C-30, the Clean Air Act, is reported out of committee on
March 31. The Conservatives have accused the Liberals of
delaying the bill. Confrontation with the Liberal Senate
over S-4, a bill setting fixed terms for senators, and C-16,
to allow for elections for Senate appointments, could also
provide a pretext.
Comment
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¶16. (SBU) The Harper government is putting in place the
conditions for an election, likely sooner rather than later.
Speculation revolves around a call sometime in April or early
May, or even sooner if the budget is defeated, requiring an
immediate dissolution of Parliament. Polls suggest that the
public is in a pre-shopping mood -- interested, but not
especially motivated to buy. The budget debate could change
that perception. In the upcoming Quebec election, voters
appear ready to replace a majority with a new minority
government, adding to the uncertainty. With respect to
United States priorities, election speculation is slowing
meaningful progress on important bilateral issues, including
IPR reform and, in the event of an election, all progress
will cease in the short-term. Moreover, until the question
of election timing is resolved, it will be difficult to make
significant headway with distracted Parliamentarians and
senior officials. That said, a majority Conservative
government would likely open new lanes of bilateral
cooperation that the Harper Govenrment has to date shied away
from due, in part, to its current minority status.
Qfrom due, in part, to its current minority status.
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