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 
------- 
¶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. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
DICKSON