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What to expect from the budget

With the Tories preparing their plan for the recession and the Liberals weighing whether or not to oppose it, Brian Laghi took your questions

Globe and Mail Update

"Next week, the Harper government is going to introduce what a lot of people believe will be one of the most important budgets since the mid 1990s — and to be sure, it's critical for Mr. Harper's own survival and his minority goverment," The Globe's Ottawa bureau chief, Brian Laghi, says in this video preview of the Jan. 27 fiscal plan. "But perhaps what's been lost in all the tumult is just how this government will deal with the anxieties of Canadians as they deal with the current economic turmoil."

He predicts the government will try to spur spending and restore confidence through a combination of tax measures, such as credits for home rennovations and perhaps a cut to the GST, infrastructure spending, support for lending institions and employment assistance programs. Will it work, or will the opposition parties act on their threat to topple the minority Conservative government in favour of a coalition or another election?

Mr. Laghi says: "A lot of people in this town believe that Mr. Harper learned his lesson in December, that he's not going to surprise anybody, and that the Liberal opposition led by Mr. Ignatieff will eventually support this budget. That would be my bet, but one never knows. Mr. Harper has been provocative before; he surprised us all in early December and he might do so again."

For their part, the Conservatives have announced they will send the country into deficit to the tune of $64-billion over two years and conceded it will take up to five years before the books are balanced again. The Liberals, meanwhile, say Canada needs another election "like a hole in the head." And the Bloc Québécois maintains the deal struck, with their support, between the Liberals and New Democrats to form a coalition government is still viable.

With all this in mind, Mr. Laghi was online Friday to take your questions on the Harper government's budget and the political fate of those who crafted it and those who might oppose it. His responses appear in sequence below.

Mr. Laghi began his journalistic career 25 years ago as a reporter for a small daily newspaper in Fort McMurray, Alta., and also worked as a reporter in Saskatoon before moving to The Edmonton Journal, where he covered politics and served as that paper's legislative bureau chief.

He moved to The Globe and Mail in 1995, covering Alberta and the Arctic for the paper until 1998, when he moved to Ottawa.

Mr. Laghi spent much of the next six years covering the conservative movement in Canada and the merger of the Progressive Conservative Party and the Canadian Alliance. He became The Globe's bureau chief in Ottawa in October, 2004.

Editor's Note: editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Stephen Wicary, Brian, thanks for joining us to fill our readers in on next week's budget. To start off, can you offer your thoughts on yesterday's announcement by a government official that Canada will run a deficit of $64-billion over the next two years and not return to black ink for five years. Do those numbers surprise you? And what do you make of the decision to pre-emptively release them?

Brian Laghi, Ottawa bureau chief: Howdy Stephen. Great to be here again. The numbers don't entirely surprise me, and I think the federal government released them early to ensure some focus on the other aspects of the budget next week that they think will be positive — namely infrastructure spending, tax cuts and other benefits.

My guess is that the government probably didn't want to see a lead up of stories written over several days that made educated guesses about the size of  the deficit to come. Rip off the bandage in one fell swoop, so to speak. Finally, Mr. Harper pledged during the election campaign to avoid running a deficit. I'm sure the tactical thinking here was to get the bad news out of the way.

As far as the size of the figure goes,  I'm not surprised by it because I think the November economic update — which predicted a surplus of $100 million — was so vastly off that nobody believed it. Private sector forecasters have said we've been in deficit even without the stimulus package to come.

Jim Quinn writes: We will be right back where we were in 1993, if not worse, when Canada was described as a G7 country with Banana Republic finances. Interest rates will have to rise and when inflation takes off, as it will have to. We are likely to be in worse trouble than ever -- essentially stagflation. If there is any consolation it is likely that the United States and Britain will be in worse shape, which will make our hole that much more difficult to get out of.  I have two specific questions:

1. Isn't t all of this simply stopgap? Stripping away the rhetoric, governments are simply inducing credit and funds, in one way or another, in anticipation that citizens and institutions will spend with reckless abandon (a new car in every driveway and a new museum/gallery/arena in every town).

2. Governments are about to pour money into trying to preserve a status quo; a status quo that embodies the worship of free markets; endorsement of greed, hence growing disparity between the relative rich and privileged (include the public sector in that) and the rest; and, up to now, a tacit acceptance of immorality (white collar crime not a priority, especially in Canada). Isn't a culture change required to achieve long term benefit?

Brian Laghi: Great questions.

Is this a stopgap? Hard to say, of course, until we see whether flooding the system with liquidity will actually get people spending. I'm not an economist, but psychologically, I can see how some Canadians might say to themselves that this is not the time to buy a new car or flat-screen television. It may well be that voters take their tax cuts and put them in their pocket. If that's the case, I'm not sure what the government's Plan B is.

On the question of culture change, I think you're making the same point, to some degree, that Barack Obama made at his inauguration, and that is that we probably all have to dust ourselves off and work a little harder, be a little more patient and maybe accept a little less. Your guess is as good as mine whether we're prepared to accept that kind of medicine, but I do think that tough times will force a cultural change of sorts. Maybe the three dollar designer coffees will become a thing of the past.

Henry Zimmer from Victoria writes: Do you think the budget will postpone or repeal the proposed distributions tax on income trusts to ensure that Canadians who hold them in RRSPs/RRIFs will be allowed to generate additional income?

Brian Laghi: Hi Henry. Anything's possible, but Mr. Flaherty went out on a real limb when he made the original announcement, and the finance department has been pretty clear that it doesn't intend to postpone or repeal the tax. It probably wouldn't be prudent to ignite another firestorm on this issue.

Jim Kelly from M'Chigeeng writes: Mr. Laghi, thank you for initiating this discussion with your video preview. Your words gave me pause for thought: 'But perhaps what's been lost in all the tumult is just how this government will deal with the anxieties of Canadians as they deal with the current economic turmoil.' Am I missing something?

Surely what has been lost in this tumult is that the Finance Minister who will deliver the budget is the same man who delivered a financial update only seven weeks ago that forecast a modest budget surplus. The partisan speech he gave at that time was in his capacity as Finance Minister. In the intervening weeks his party launched a paid media campaign to challenge the democratic credentials of other parties in the House.

Certainly, Canadians have anxieties about the current economy, but it seems to me 'what has been lost' is the grossly irresponsible actions of the government. Do you think that, like good children, we should just cozy up on Tuesday to listen to another fairy tale?

Brian Laghi: Hi Jim. You've got a good point and my colleagues and I plan to keep a very close watch to see whether the government tries to slip another poison pill into the budget that aims to force the opposition into a corner.

But I'm a lot less convinced that it will happen this time around because the government took such a public relations hit when Mr.  Flaherty and Mr. Harper tried it the first time. Remember, too, that the Conservatives have made a very big deal about consulting the electorate about the contents of the budget. If they were to insert an unpopular measure (ie. outlawing the civil service's right to strike, removing voter subsidies), their efforts to appear open and accessible would be made a hash of. They'd probably also be defeated, and wouldn't want to into an election campaign with that kind of an albatross around their neck.

Daniel Yang from Toronto writes: Dear Brian, thanks for taking the time to answer our questions. Clearly, the Harper government was asleep at the wheel forecasting surpluses until very recently and stressing the strengths of the Canadian economy to weather this downturn. It seems their economic management (combination of increased spending and tax cuts) has had an impact in exacerbating the swing to a deficit position. Is this likely to translate into a hit for the Conservatives and will Harper eventually be given the boot?

Brian Laghi: That's the $64,000 question. It is clear that the Harper government has taken a popularity hit in recent weeks. Polls have not only shown a narrowing popularity gap between the Liberals and the Conservatives, but also a deepening negative view of how Mr. Harper is doing his job.

These are not heartening things for the Conservatives as the country prepares to go into a recession. Typically speaking, governments are almost always punished at the polls when the economy goes awry, even when their judged to have done everything right. I think this is why the Harper government called the election last fall, feeling they could get a majority before the economic diffiulties really set in. Alas, the hoped-for majority didn't materialize, and it wouldn't surprise me to see Mr. Ignatieff and other opposition parties bring down the government as the economy hits the rocks.

Derek Debolt from Edmonton writes: Here is a question. Why do politicians all think they should be in the business of job creation? Why don't they work at making it easier for businesses to create jobs, instead of promising to stimulate the economy by building roads and bridges? Unless I'm in the trades, this isn't going to help most of the workers across the country.

Brian Laghi: While you're right — government will attempt to create jobs in this budget — I'd also keep a close watch on what kind of entitlements Mr. Harper parcels out for those who can't get work. Despite protests of some government members over extending EI benefits, offering more help on this front may be too hard to resist. The real political problem for the Tories, it seems to me, will hit home as Canadians lose work, causing a rise in anxiety and a fear that they may be next.

Lorraine Doyle from Richmond Hill writes: Our faith in economic experts has been shaken by recent events that seem to have taken them by surprise and spiraled out of their control. Governments obviously need to consult outside their traditional circles for advice. I am very concerned that Mr. Harper has surrounded himself with members of Mike Harris's team. They did not work for Ontario, and I can't imagine their tired strategies, based on a rigid ideology, working for Canada. Can Mr. Harper be persuaded to seriously look at a wide range of opinions, at imaginative solutions, at the opinions of experts from a variety of fields, some of whom will disagree with him?

Brian Laghi: I think you've hit the nail on the head of the problem facing Mr. Harper. As an ideological conservative who is sometimes seen as rigid, many Canadians don't think that he believes in some of the traditional interventionist answers that buffer Canadians from the difficulties inherent in losing a job, their home, or being forced to stand by while their kids have trouble going to university. Conversely, when Mr. Harper and his team do adopt such strategies, they risk being seen as dishonest and untrue to themselves. Canadians may figure it's better to vote for real interventionists (Liberals, New Democrats) than to pretend ones.

One more point. When Mr. Harper does start to spend money, he risks demotivating his own supporters, who may no longer think he's the real conservative deal.

Heather Cameron from Penticton writes: We wouldn't need such a large deficit if Harper hadn't cut the GST. Why is this link not being made?  If I recall there was advice not to cut the GST, but he did it to 'buy votes.'  How has the lack of GST revenues played out in terms of current situation? Are we going into a bigger deficit because of this opportunistic decision by the government, or did the GST cut help reduce the pain over the last year or so?

Brian Laghi: Depends on who you ask. Some Tories I've spoken to believe the GST cut actually stimulated the economy in early 2008,  contributing to economic growth because Canadians bought more goods and services. Politically, however, the government will have trouble making this case, as the deficit balloons. Opposition politicians will argue that there's no free lunch, and that will seem logical to voters who think the government tried to buy them off.

Stephen Wicary, That's about all the time we have. Thanks, as always, to our readers for their questions and to you, Brian, for your answers. One last topic: With the Liberal Party returning to some sense of discipline and order, and with Mr. Ignatieff announcing a lean new shadow cabinet yesterday, how do you think the Conservatives will fare on the floor of the House as the budget debate begins?

Brian Laghi: I expect that the Tories will take a very conciliatory attitude on the floor of the House because the public does not want to see shenanigans from their elected officials while Rome burns. I think the Liberals will probably ape this behaviour for a short period of time, for the same reason.

But as the recession starts to bite, the Liberals will aim an increasing amount of blame at the Tories. Remember that job losses, while serious, have not really begun to rocket just yet. When they do, Liberals will have little choice but to attack the Tories and argue that they are simply representing the dispossessed. This will soon start to eat into the Conservative efforts to woo and maintain lower and middle-class workers, who make up the core of Tory support.

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