January 31, 2011 / 8:38 PM / in 7 years

Ottawa says won't reverse tax cuts or seek election

<p>Bank of Canada Governor Mark Carney takes part in a news conference upon the release of the Monetary Policy Report in Ottawa January 19, 2011 REUTERS/Chris Wattie</p>

VAUGHAN, Ontario/OTTAWA (Reuters) - The Conservative government deflected opposition calls on Monday to reverse corporate tax cuts while vowing not to provoke a snap election over the next budget, due in March.

Opposition to the tax cuts has become the rallying cry of the main opposition party, the Liberals, but Finance Minister Jim Flaherty and a spokesman for Prime Minister Stephen Harper said they would not back down on that issue.

The election threat and sluggish job growth are expected to weigh on lawmakers as they descend on Ottawa for the resumption of Parliament on Monday after a six-week break.

“It’s dangerous to create uncertainty in a fragile business economic environment. ... We’re going to stay on our old tax plan,” Flaherty told reporters.

Parliament passed Conservative legislation in 2007 to lower the corporate tax rate to 15 percent in 2012 from 18 percent. The rate now stands at 16.5 percent.

Liberal leader Michael Ignatieff now says that with the big fiscal deficit and uncertain economic outlook following the recession, that money would be better spent on social programs. The party has conditioned its support for the budget on a concession by the Conservatives on business taxes.

The New Democratic Party is also against lowering corporate taxes and has made some other requests for the budget, while the separatist Bloc Quebecois wants a series of benefits for the French-speaking province.

Harper’s Conservatives were reelected in October 2008 with a minority government, meaning they need the support of one of the three opposition parties or a new election will be called.

Flaherty estimated the chances of an election at “50-50” but Harper does not want an election, a top aide said on Monday.

“The prime minister or the government will not in any way, shape or form call an election or provoke an election,” Harper’s spokesman Dimitri Soudas said. He cited, for example, a bill to combat human smuggling, which he said would not be a matter of confidence.

READY JUST IN CASE

Nonetheless, the prime minister has prepared for a possible vote by naming top campaign staff for the Conservative Party. He named his former chief of staff, Guy Giorno, as campaign chairman and confirmed Jenni Byrne as campaign manager. Byrne has served as director of political operations for the party.

Soudas listed as the government’s top three priorities for the new sitting of Parliament as jobs and growth, expanding free trade, and a further crackdown on crime.

The country pulled ahead of its G7 counterparts following a shallow 2009 recession, but the pace of growth has since slowed and businesses have been slow to invest and hire workers.

Data on Monday showed the economy had more zest at the end of 2010 than expected after a mid-year lull. The economy grew 0.4 percent in November, the fastest rate since last March.

The country’s C$60 billion ($60 billion), two-year stimulus program has boosted gross domestic product by 1.3 percentage points, annualized, per quarter since the second quarter of 2009, the government estimated in a report.

While all the output lost during a 2009 recession has been regained, the same is not yet true for employment.

Flaherty warned of “a challenge with respect to unemployment numbers” and urged private employers to show more confidence and hire workers.

($1 = $1.00 Canadian)

Additional reporting by Leah Schnurr and Howaida Sorour; Writing by Louise Egan; Editing by Frank McGurty

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