Canada’s Opposition Threatens to Defeat Harper on Spending Cuts

By Theophilos Argitis and Alexandre Deslongchamps

Nov. 28 (Bloomberg) -- Canada’s opposition parties vowed to fight Prime Minister Stephen Harper’s plan to cut spending and limit public servants’ pay and right to strike, threatening to bring down the minority Conservative Party government.

Finance Minister Jim Flaherty yesterday said he would end direct state funding to political parties and cap wage gains for public servants, who also would lose the ability to walk off the job over compensation through 2011, saying the measures are needed to help shore up the country’s finances. The moves would allow Canada to stay in surplus, Flaherty said.

All three opposition parties said they’ll vote against the plan unless the government makes changes and adds an immediate stimulus package. Failure to win lawmaker backing could bring down the Conservatives less than six weeks after the party won re-election, which would make Harper’s current administration the shortest-lived government in Canadian history.

“We ask the prime minister to reconsider it because Canadians don’t want an election,” Liberal Party Leader Stephane Dion, who heads the biggest opposition bloc in Parliament, told reporters yesterday.

Harper’s Conservatives went into Oct. 14 elections with 127 seats and increased their total to 143, still short of the 155 needed for the majority required to control the legislative agenda. The government needs support of at least one other party to pass legislation and for a year before last month’s vote relied on the Liberals to pass laws and remain in power.

Another Election?

The prime minister, 49, may water down some of his proposals rather than go to the polls again, said Barry Kay, a political science professor at Wilfrid Laurier University in Waterloo, Ontario.

“I’m really not sure the Conservatives will really want an election,” Kay said. “I wouldn’t be surprised if that ultimately gets pulled,” he said, referring to the measure ending public financing for political parties.

Another option would be for the opposition blocs to band together and try to form a coalition government. Such a move would require the backing of the country’s ceremonial head of state, Governor General Michaelle Jean.

Harper may have bet the Liberals, on the brink of a campaign to replace Dion, 52, and short of funds, would be reluctant to vote against the government’s spending plan, said Kathy Brock, a political scientist at Queen’s University in Kingston, Ontario.

“It looks like they are deliberately putting the opposition in a very tough position,” Brock said.

Deficit Timing

Without the proposed measures, Canada would post a deficit of C$5.9 billion ($4.8 billion) next year and C$3.4 billion the year after, Flaherty said. Gross domestic product will contract 1 percent in the fourth quarter and 0.4 percent in the first quarter of 2009, the technical definition of a recession.

The spending cuts would allow the government to post a surplus of C$800 million for the current 2008-09 fiscal year, down from an earlier forecast of C$2.3 billion, and C$100 million in each of the next two fiscal years, down from C$1.3 billion and C$3.1 billion respectively, according to the plan.

“We cannot ask Canadians to tighten their belts during tougher times without looking in the mirror,” Flaherty told lawmakers yesterday after introducing his plan to Parliament.

The economy is sputtering amid slumping shipments of cars and lumber to the U.S., Canada’s largest trading partner, and as lower prices for exported commodities such as oil and wheat erode revenue. Flaherty reduced his economic growth projections for the next two years, predicting an expansion of 0.6 percent this year and 0.3 percent in 2009.

In his 2008 budget, released Feb. 26, he had predicted growth of 1.7 percent this year and 2.4 percent in 2009.

Vote Subsidy

Flaherty’s measures include eliminating a C$1.95 subsidy to federal political parties for every vote received in national elections. The move would be a blow to all three opposition parties that have seats in Parliament, which rely more on state funding than the Conservatives.

“It’s an attack on democracy and does nothing for the economy,” Jack Layton, leader of the New Democratic Party, told reporters.

Opposition blocs also have been calling for immediate aid to ailing industries, particularly support for automakers. Car manufacturers and parts suppliers in Canada are struggling as U.S. sales slump amid waning consumer confidence.

Flaherty said the government may outline additional plans to stimulate growth, a move he said might end up bringing the federal budget into deficit for the first time since 1996-97.

“In the weeks ahead, we will determine the extent to which we inject additional stimulus to our economy,” Flaherty said. “These actions, or a further deterioration in global economic conditions, could result in a deficit.”

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.