February 12, 2008 / 12:15 AM / in 10 years

Budget set for Feb 26, could spark election

OTTAWA (Reuters) - The minority Conservative government will present its 2008-09 budget on February 26, a document that could trigger an election in mid-April.

<p>Canada's Finance Minister Jim Flaherty speaks to journalists following Question Period on Parliament Hill in Ottawa February 11, 2008. REUTERS/Chris Wattie</p>

After Finance Minister Jim Flaherty announced the budget date in Parliament on Monday afternoon, he took note of the uncertain times, and promised to stay out of deficit.

“In this budget, we will be doing what households and businesses do when things are uncertain: we will be acting in a responsible manner,” he said.

“So this is a time ... of limited economic growth where you have to have a solid hand on the tiller and you have to be very careful on the spending side and manage things well.”

The Conservative government, elected in January 2006 after more than 12 years of Liberal rule, has already warned that the budget will not contain big tax cuts or spending programs.

If the budget is not passed, the government will fall and there will be a federal election, most likely on April 14, although Prime Minister Stephen Harper could set it for some time after that.

Since Flaherty already unveiled C$60 billion ($60 billion) in tax cuts over five years last October, he said he would spend much of his time in this month’s budget recounting the accomplishments of the Conservatives’ two years in power.

“Canada is in the best position, really, of the G7 countries to go through what are more difficult economic times,” he said, speaking of the Group of Seven leading industrialized nations.

“That’s certainly what I heard this weekend from my colleagues in the G7. There’s some envy of the fact that we have such strong economic fundamentals in Canada.”

Canada is the only G7 member in fiscal surplus. Its jobless rate returned to a 33-year low of 5.8 percent in January and job creation ran at four times expectations. But Flaherty said the U.S. slowdown was bound to affect Canada.

Each of the three opposition parties has met with Flaherty to give their ideas for the budget, and one of their complaints is that he does not have much fiscal room left to stimulate the economy.

Flaherty’s response is that the government acted proactively, aware of a possible slowdown this year, with tax stimulus worth 1.4 percent of gross domestic product.

That compares with a stimulus of only 1 percent in the United States, and he said that was not yet actually delivered to U.S. taxpayers and consumers.

“Some of the (opposition) suggestions that were being made would simply put our country into deficit, and I‘m not going to be the finance minister that puts our country back into deficit,” he said.

“We’re going to run surpluses -- not like the Liberals... The ideas they gave me would run this country into deficit -- not just this coming year but the year after that and the year after that as well. I‘m not going to do that.”

Canada’s budget was balanced by the Liberal government of Prime Minister Jean Chretien in 1997-98 and the country has posted a surplus ever since.

Flaherty said there was room for some fiscal initiatives, but said that the budget is tight. He said the major cuts to business and sales taxes were already done, but implied some small personal income tax reductions might be expected.

The budget needs the support of one of the three opposition parties to be passed by the House of Commons. The smallest party, the New Democrats, voted against the last two budgets and are expected to do so again.

The separatist Bloc Quebecois has said it will vote for it only if the government agrees to a multibillion-dollar spending package -- something the Conservatives have said is out of the question.

That leaves the Liberals, who have been showing increasing impatience with keeping the Conservatives in power. However, Liberal leader Stephane Dion said on Monday they could vote for the budget if it contained investments in manufacturing, forestry, the environment and the fight against poverty, among other things.

($1=$1.00 Canadian)

Additional reporting by David Ljunggren and Frank Pingue; Editing by Rob Wilson

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