This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 OTTAWA 001802 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT FOR EB/IFD, EB/OMA, WHA/EPSC, AND WHA/CAN 
STATE PASS FEDERAL RESERVE BANK FOR CHUGH 
STATE PASS SEC FOR JACOBS 
TREASURY FOR WILBUR MONROE AND DAVID NAGOSKI 
PARIS ALSO FOR USOECD 
 
E.O. 12958: N/A 
TAGS: EFIN EAID PGOV CA
SUBJECT: GOC LIKELY TO SURVIVE VOTE ON BUDGET BILLS 
 
REF: A. OTTAWA 1461 (PARALYSIS) 
     ¶B. OTTAWA 1371 (MELTDOWN) 
     ¶C. OTTAWA 640 (BUDGET) 
 
¶1. (U) Summary:  Barring a voting glitch that could bring 
down the government, Canada's basic budget measures are 
expected to receive final approval by the House of Commons 
tonight.  Members will vote late tonight on Bill C-43, the 
legislation implementing proposals in the February 23 budget 
(ref C) and on the C$187 billion Main Estimates, the 
nut-and-bolts funding for ongoing programs.  Both bills are 
confidence measures and a defeat would bring down Paul 
Martin's government.  Although there is no real opposition to 
either bill, the Conservatives do plan to call for votes 
challenging elements of the legislation and the vote count is 
close enough that an inadvertent absence could tip the 
balance. 
 
¶2.  (U) The House Finance Committee is still considering Bill 
C-48, which contains the C$4.5 billion in new spending that 
PM Martin promised to secure New Democratic Party (NDP) 
support in the May 19 confidence vote (refs A and B).  On 
June 9, the House Finance Committee suspended its initial 
hearing on C-48 after an acrimonious televised two-hour 
verbal brawl.  Hearings resumed June 13 and included an 
appearance by Finance Minister Ralph Goodale to defend the 
additional spending. That bill too is expected to clear 
Parliament before the scheduled recess on June 23.  The 
alliance between the Conservative Party and the Bloc 
Quebecois in the Finance Committee has ended, and the 
Liberal-NDP deal is expected to prevail.  Bill C-48 would 
more than double the amount of new money allocated to foreign 
aid in the next two years. 
 
The "Real" Budget is Proceeding Smoothly 
---------------------------------------- 
 
¶3.  (U) Implementing legislation for the 2005 budget, Bill 
C-43, was reported back to the House of Commons by the 
Finance Committee on June 7 for its third reading and final 
vote.  After approval by the House, the bill will be 
considered by the Senate (which is expected to approve it) 
and then receive Royal Assent. 
 
With some changes 
----------------- 
 
¶4. (U) There were substantive changes during deliberation by 
the Finance Committee, the first of which was a non-change. 
The Liberal's proposal to remove corporate tax cuts from the 
legislation, in keeping with its deal with the NDP, was 
rejected in committee.  The failure of the government's 
amendment means the tax provisions remain as originally 
tabled in March but the Liberals are expected to reintroduce 
the measure for a vote by the full house, which may result in 
the tax cuts being dropped. 
 
¶5. (SBU) The Conservative Party may have been too successful 
in removing some of the Kyoto implementation provisions.  The 
committee eliminated language that gave the Canadian 
Environmental Agency a stronger role in assessing and 
countering harmful emissions, but also eliminated the 
Greenhouse Gas Technology Investment Fund, instead of 
removing the intended target:  provisions for emissions 
trading with Russia.  This seems to bear out the observation 
of a budget expert who watched the proceedings and described 
most of the Conservative Party's proposed amendments as 
poorly crafted and so confusing that even the Conservative 
Finance critic appeared unsure about what some of them meant. 
 There may also be an opportunity to correct that mistake in 
tonight's vote by the full house. 
 
Votes on Two Budget Bills Tonight 
---------------------------------- 
 
¶6.  (SBU)  The 2005 budget bill, C-43, is scheduled for a 
vote by the House of Commons tonight, with several votes on 
specific provisions, including some of the Government 
amendments that were defeated in Committee.  The main 
estimates (which cover ongoing expenses such as salaries, 
fuel, and rent for government buildings) are also being voted 
on tonight.  Passage of the two bills will keep the GOC's 
budget process on schedule despite the political turmoil and 
uncertainty of the past months. 
 
¶7.  (SBU) Neither of these bills is controversial.  However, 
the Conservatives have said they plan to challenge some of 
the funding provisions, and any vote could create a problem 
should one or two key members of parliament be absent when 
the vote is called.  Comment:  We expect all parties to try 
to avoid a no-confidence vote that would lead to an election. 
 Polls currently favor the Liberal party, and the 
Conservatives would presumably be the big losers in a hot, 
summer election sparked by an otherwise popular budget. 
There was some added drama this afternoon, however, when 
Independent Pat O'Brien told CBC that he and an unnamed 
Liberal MP would be voting against the government this 
evening unless the PM gave them assurances that the same-sex 
marriage bill would not be tabled this term.  This will 
definitely make the evening's proceedings worth watching. 
End comment. 
 
The "Pork" is a Little Harder to Digest 
--------------------------------------- 
 
¶8.  (SBU)  In a desperate (and apparently successful) effort 
to save his government, Prime Minister Martin embarked on a 
spending spree in May, capped by a promise to the NDP to drop 
some corporate tax cuts and boost spending on NDP priorities 
by C$4.5 billion (US$3.6 billion) over two fiscal years. 
Provisions include additional spending of C$1.5 billion on 
post-secondary education, C$1 billion for foreign aid, C$1.6 
billion for low-income housing and C$0.9 billion for 
environment-friendly measures to boost municipal public 
transport and energy efficiency for low-income homeowners. 
Bill C-48, which honors that promise, is on a rocky route 
through the Finance Committee. 
 
¶9.  (SBU) The initial House Finance Committee hearing on 
C-48, slammed to a halt on June 9 after two hours of 
acrimonious televised verbal scuffling and a terse statement 
from one of eight witnesses.  An in-camera meeting was 
convened to look into the conduct of the Committee Clerk and 
"the discrepancy in how some of the witnesses were 
contacted."  Hearings resumed Monday, June 13 with Finance 
Minister Ralph Goodale appearing to defend the additional 
spending. 
 
¶10.  (SBU) One participant told us that the quickly-drafted 
(two-page long) C-48 has fundamental problems besides fiscal 
imprudence, saying it is bad legislation that does not 
contain the usual parliamentary guidance on how funds should 
be spent.  It was "thrown together" and gives Cabinet 
ministers tremendous discretion.  Normally such language 
would be refined in committee to require more accountability, 
but given the atmosphere now, that seems unlikely. 
 
¶11.  (SBU)  Finance Minister Goodale repeatedly stressed that 
the spending provisions of C-48 take effect only if there is 
an adequate fiscal surplus.  Neither the Liberals nor the NDP 
will consider deficit spending.  He pointed out that the 
spending is consistent with the fiscal framework in his 
original budget and comes to just over 1% of total government 
spending and 0.2% of GDP.   Government spending as share of 
GDP will remain near 12%.  He noted that interest rates have 
dropped and the stock market has risen since the spending 
measures were announced, seeming to counter Opposition claims 
that the government had abandoned fiscal prudence and was 
leading the country on a path to economic ruin. 
 
¶12.  (SBU) Comment:  The additional spending on foreign aid, 
C$500 million over the next two years, is a healthy boost to 
the C$468 million already budgeted for 2005-07. Although he 
suggested that the additional spending on foreign aid could 
help meet Canada's G-7 commitment to debt relief, that 
proposal was funded in the original budget (C-43).  The money 
is fungible and could provide flexibility for any 
announcement on aid at Gleneagles or to fund other 
development priorities.  End comment. 
 
Money is not a problem 
---------------------- 
 
¶13.  (SBU) This year's budget surplus for FY2004-05 is 
forecast at C$9.8 billion, even larger than last year's C$9 
billion.  About C$2.5 billion in new initiatives proposed in 
the March 2005 budget and some year-end accounting 
adjustments have yet to be booked.   Although the Department 
of Finance is taking a cautious approach, noting that "it is 
too early to determine whether the budgetary surplus will be 
greater than the C$3 billion projected for the 2004-05 in the 
2005 budget," it seems likely that there will be ample funds 
over the next two years to cover the promises in C-48.  The 
government has said it is confident it can pay for the extra 
promises and still maintain its commitment to reduce the debt 
as a percent of GDP (ref C). 
 
Both Bills are Expected to Pass 
------------------------------------- 
 
¶14.  (U)  On June 8, the Prime Minister identified C-43 and 
C-48 as the only priority legislation that must pass before 
Parliament's summer recess now scheduled for June 23.  There 
is no real opposition to C-43 and its passage will ensure 
continued smooth functioning of government programs.  The 
bottom line is that the advocates of passing the bills have 
more momentum than do the opponents. 
 
¶15.  (SBU)  The NDP will pull out all the stops to ensure 
passage of C-48, which contains funding for NDP priorities 
and confirms the party's status as a player in Parliament. 
There are signs that Quebec, which benefits from the 
subsidized housing provisions of C-48, has instructed the BQ 
to let it through with wording that refers to provincial 
jurisdiction, thus rupturing the alliance between the 
Conservative Party and the Bloc Quebecois that brought about 
the confidence vote last month.  (Relations between the BQ 
and the Conservative finance committee members on June 9 were 
described as "fractious," their usual state.) 
 
¶16. (SBU) Comment:  The Conservatives are putting up a good 
fight but they have a weak hand.  As Goodale pointed out, all 
three Opposition leaders wrote to him requesting an increase 
in foreign aid.  The other spending is for popular programs, 
is consistent with the Liberal's budget priorities, and 
avoids deficit spending while continuing debt repayment.  If 
there is a surplus, all of the Opposition parties have 
expressed a preference for "managing" it, that is deciding 
how to spend it rather than having it automatically dedicated 
to debt reduction, as is the case now.  End Comment. 
 
 
 
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DICKSON