Identifier
Created
Classification
Origin
05OTTAWA1802
2005-06-14 20:57:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ottawa
Cable title:  

GOC LIKELY TO SURVIVE VOTE ON BUDGET BILLS

Tags:  EFIN EAID PGOV CA 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 OTTAWA 001802 

SIPDIS

SENSITIVE

DEPARTMENT FOR EB/IFD, EB/OMA, WHA/EPSC, AND WHA/CAN
STATE PASS FEDERAL RESERVE BANK FOR CHUGH
STATE PASS SEC FOR JACOBS
TREASURY FOR WILBUR MONROE AND DAVID NAGOSKI
PARIS ALSO FOR USOECD

E.O. 12958: N/A
TAGS: EFIN EAID PGOV CA
SUBJECT: GOC LIKELY TO SURVIVE VOTE ON BUDGET BILLS

REF: A. OTTAWA 1461 (PARALYSIS)

B. OTTAWA 1371 (MELTDOWN)

C. OTTAWA 640 (BUDGET)

UNCLAS SECTION 01 OF 03 OTTAWA 001802

SIPDIS

SENSITIVE

DEPARTMENT FOR EB/IFD, EB/OMA, WHA/EPSC, AND WHA/CAN
STATE PASS FEDERAL RESERVE BANK FOR CHUGH
STATE PASS SEC FOR JACOBS
TREASURY FOR WILBUR MONROE AND DAVID NAGOSKI
PARIS ALSO FOR USOECD

E.O. 12958: N/A
TAGS: EFIN EAID PGOV CA
SUBJECT: GOC LIKELY TO SURVIVE VOTE ON BUDGET BILLS

REF: A. OTTAWA 1461 (PARALYSIS)

B. OTTAWA 1371 (MELTDOWN)

C. OTTAWA 640 (BUDGET)


1. (U) Summary: Barring a voting glitch that could bring
down the government, Canada's basic budget measures are
expected to receive final approval by the House of Commons
tonight. Members will vote late tonight on Bill C-43, the
legislation implementing proposals in the February 23 budget
(ref C) and on the C$187 billion Main Estimates, the
nut-and-bolts funding for ongoing programs. Both bills are
confidence measures and a defeat would bring down Paul
Martin's government. Although there is no real opposition to
either bill, the Conservatives do plan to call for votes
challenging elements of the legislation and the vote count is
close enough that an inadvertent absence could tip the
balance.


2. (U) The House Finance Committee is still considering Bill
C-48, which contains the C$4.5 billion in new spending that
PM Martin promised to secure New Democratic Party (NDP)
support in the May 19 confidence vote (refs A and B). On
June 9, the House Finance Committee suspended its initial
hearing on C-48 after an acrimonious televised two-hour
verbal brawl. Hearings resumed June 13 and included an
appearance by Finance Minister Ralph Goodale to defend the
additional spending. That bill too is expected to clear
Parliament before the scheduled recess on June 23. The
alliance between the Conservative Party and the Bloc
Quebecois in the Finance Committee has ended, and the
Liberal-NDP deal is expected to prevail. Bill C-48 would
more than double the amount of new money allocated to foreign
aid in the next two years.

The "Real" Budget is Proceeding Smoothly
--------------


3. (U) Implementing legislation for the 2005 budget, Bill
C-43, was reported back to the House of Commons by the
Finance Committee on June 7 for its third reading and final
vote. After approval by the House, the bill will be
considered by the Senate (which is expected to approve it)
and then receive Royal Assent.

With some changes
--------------


4. (U) There were substantive changes during deliberation by

the Finance Committee, the first of which was a non-change.
The Liberal's proposal to remove corporate tax cuts from the
legislation, in keeping with its deal with the NDP, was
rejected in committee. The failure of the government's
amendment means the tax provisions remain as originally
tabled in March but the Liberals are expected to reintroduce
the measure for a vote by the full house, which may result in
the tax cuts being dropped.


5. (SBU) The Conservative Party may have been too successful
in removing some of the Kyoto implementation provisions. The
committee eliminated language that gave the Canadian
Environmental Agency a stronger role in assessing and
countering harmful emissions, but also eliminated the
Greenhouse Gas Technology Investment Fund, instead of
removing the intended target: provisions for emissions
trading with Russia. This seems to bear out the observation
of a budget expert who watched the proceedings and described
most of the Conservative Party's proposed amendments as
poorly crafted and so confusing that even the Conservative
Finance critic appeared unsure about what some of them meant.
There may also be an opportunity to correct that mistake in
tonight's vote by the full house.

Votes on Two Budget Bills Tonight
--------------


6. (SBU) The 2005 budget bill, C-43, is scheduled for a
vote by the House of Commons tonight, with several votes on
specific provisions, including some of the Government
amendments that were defeated in Committee. The main
estimates (which cover ongoing expenses such as salaries,
fuel, and rent for government buildings) are also being voted
on tonight. Passage of the two bills will keep the GOC's
budget process on schedule despite the political turmoil and
uncertainty of the past months.


7. (SBU) Neither of these bills is controversial. However,
the Conservatives have said they plan to challenge some of
the funding provisions, and any vote could create a problem
should one or two key members of parliament be absent when
the vote is called. Comment: We expect all parties to try
to avoid a no-confidence vote that would lead to an election.
Polls currently favor the Liberal party, and the
Conservatives would presumably be the big losers in a hot,
summer election sparked by an otherwise popular budget.
There was some added drama this afternoon, however, when
Independent Pat O'Brien told CBC that he and an unnamed
Liberal MP would be voting against the government this
evening unless the PM gave them assurances that the same-sex
marriage bill would not be tabled this term. This will
definitely make the evening's proceedings worth watching.
End comment.

The "Pork" is a Little Harder to Digest
--------------


8. (SBU) In a desperate (and apparently successful) effort
to save his government, Prime Minister Martin embarked on a
spending spree in May, capped by a promise to the NDP to drop
some corporate tax cuts and boost spending on NDP priorities
by C$4.5 billion (US$3.6 billion) over two fiscal years.
Provisions include additional spending of C$1.5 billion on
post-secondary education, C$1 billion for foreign aid, C$1.6
billion for low-income housing and C$0.9 billion for
environment-friendly measures to boost municipal public
transport and energy efficiency for low-income homeowners.
Bill C-48, which honors that promise, is on a rocky route
through the Finance Committee.


9. (SBU) The initial House Finance Committee hearing on
C-48, slammed to a halt on June 9 after two hours of
acrimonious televised verbal scuffling and a terse statement
from one of eight witnesses. An in-camera meeting was
convened to look into the conduct of the Committee Clerk and
"the discrepancy in how some of the witnesses were
contacted." Hearings resumed Monday, June 13 with Finance
Minister Ralph Goodale appearing to defend the additional
spending.


10. (SBU) One participant told us that the quickly-drafted
(two-page long) C-48 has fundamental problems besides fiscal
imprudence, saying it is bad legislation that does not
contain the usual parliamentary guidance on how funds should
be spent. It was "thrown together" and gives Cabinet
ministers tremendous discretion. Normally such language
would be refined in committee to require more accountability,
but given the atmosphere now, that seems unlikely.


11. (SBU) Finance Minister Goodale repeatedly stressed that
the spending provisions of C-48 take effect only if there is
an adequate fiscal surplus. Neither the Liberals nor the NDP
will consider deficit spending. He pointed out that the
spending is consistent with the fiscal framework in his
original budget and comes to just over 1% of total government
spending and 0.2% of GDP. Government spending as share of
GDP will remain near 12%. He noted that interest rates have
dropped and the stock market has risen since the spending
measures were announced, seeming to counter Opposition claims
that the government had abandoned fiscal prudence and was
leading the country on a path to economic ruin.


12. (SBU) Comment: The additional spending on foreign aid,
C$500 million over the next two years, is a healthy boost to
the C$468 million already budgeted for 2005-07. Although he
suggested that the additional spending on foreign aid could
help meet Canada's G-7 commitment to debt relief, that
proposal was funded in the original budget (C-43). The money
is fungible and could provide flexibility for any
announcement on aid at Gleneagles or to fund other
development priorities. End comment.

Money is not a problem
--------------


13. (SBU) This year's budget surplus for FY2004-05 is
forecast at C$9.8 billion, even larger than last year's C$9
billion. About C$2.5 billion in new initiatives proposed in
the March 2005 budget and some year-end accounting
adjustments have yet to be booked. Although the Department
of Finance is taking a cautious approach, noting that "it is
too early to determine whether the budgetary surplus will be
greater than the C$3 billion projected for the 2004-05 in the
2005 budget," it seems likely that there will be ample funds
over the next two years to cover the promises in C-48. The
government has said it is confident it can pay for the extra
promises and still maintain its commitment to reduce the debt
as a percent of GDP (ref C).

Both Bills are Expected to Pass
--------------


14. (U) On June 8, the Prime Minister identified C-43 and
C-48 as the only priority legislation that must pass before
Parliament's summer recess now scheduled for June 23. There
is no real opposition to C-43 and its passage will ensure
continued smooth functioning of government programs. The
bottom line is that the advocates of passing the bills have
more momentum than do the opponents.


15. (SBU) The NDP will pull out all the stops to ensure
passage of C-48, which contains funding for NDP priorities
and confirms the party's status as a player in Parliament.
There are signs that Quebec, which benefits from the
subsidized housing provisions of C-48, has instructed the BQ
to let it through with wording that refers to provincial
jurisdiction, thus rupturing the alliance between the
Conservative Party and the Bloc Quebecois that brought about
the confidence vote last month. (Relations between the BQ
and the Conservative finance committee members on June 9 were
described as "fractious," their usual state.)


16. (SBU) Comment: The Conservatives are putting up a good
fight but they have a weak hand. As Goodale pointed out, all
three Opposition leaders wrote to him requesting an increase
in foreign aid. The other spending is for popular programs,
is consistent with the Liberal's budget priorities, and
avoids deficit spending while continuing debt repayment. If
there is a surplus, all of the Opposition parties have
expressed a preference for "managing" it, that is deciding
how to spend it rather than having it automatically dedicated
to debt reduction, as is the case now. End Comment.



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