CANADA'S SHRINKING POLICY PRIORITIES FOR 2009

C O N F I D E N T I A L SECTION 01 OF 02 OTTAWA 001574

SIPDIS

E.O. 12958: DECL: 12/19/2018
TAGS: PGOV ECON PREL CA
SUBJECT: CANADA'S SHRINKING POLICY PRIORITIES FOR 2009

REF: A. OTTAWA 001

B. OTTAWA 1507

C. OTTAWA 1516

D. OTTAWA 1543

Classified By: DCM Terry Breese, reason 1.4 (d)


1. 1. (C) Summary. For the Canadian government, only
three true policy priorities remain for 2009: rescuing the
economy (or, more accurately, creating a public perception
that it is earnestly trying to do so); remaining in power in
face of new threats from the opposition parties; and,
building relationships with the new U.S. Administration.
While a host of other issues remain on the table -- notably,
the environment and energy policy, Afghanistan, Arctic
sovereignty, law and order, and Senate reform -- they will be
much more tangential to the government's concentration than
they were even a few months ago. End Summary.


2. (C) The government of Conservative Prime Minister
Stephen Harper enters 2009 with a much more modest and
focused policy agenda than it likely could have envisioned
only a few months ago, and markedly more barren than its
ambitious agenda one year ago (ref a). The realities of the
North American recession and international economic downturn
have begun to hit Canada hard. Rightly or wrongly, the
public perception is that the government has been too slow to
react, too conservative in its fiscal prudence, too
indifferent to the suffering of specific areas (Ontario,
Quebec) and industries (auto, forestry),and too busy playing
political games within the House of Commons (ref b) to
concentrate on effective policies that would help the
economy. The December 4 suspension of Parliament to avoid
the government's loss of a confidence vote (ref c)
contributed to a popular belief not only that the
Conservatives were playing fast and loose with Parliamentary
conventions but also were more interested in their own
survival than in trying to help an increasingly ailing
economy. The government's initial insistence on avoiding a
budget deficit, no matter what, contrasted sharply -- and
poorly with the public, although positively among most
economists -- with the news Canadians heard about the massive
U.S. Government bailouts and stimulus packages. Most of the
Canadian public does not indeed favor deficit spending
(having learned their lesson in the 1980s and 1990s),but
seems to believe now that these extraordinary challenges call
for unusual measures.


3. (C) IT'S THE ECONOMY, STUPID: PM Harper and Finance
Minister Flaherty have grudgingly begun to envision deficit
spending caused by a significant (by Canadian standards)
fiscal stimulus in 2009 of at least somewhere between C$20
and $30 billion, with a specific C$2-3 billion loan package
for the auto sector to complement the U.S. plan announced on
December 19. As it turns out, the economy has already
entered deficit territory due to lower government receipts.
Details of the stimulus package remain vague, and may not
become much clearer until the House of Commons resumes on
January 26 to hear a new "Speech from the Throne" and the
presentation of the 2009 budget. PM Harper used several
end-of-the-year interviews to try, with only mild success, to
project more empathy and compassion -- qualities with which
the public does not associate him. A mid-December meeting
between Flaherty and his provincial and territorial
counterparts marked an attempt to appear more inclusive and
consultative than has been the Conservative norm, as will a
similar mid-January meeting between the Prime Minister and
the provincial and territorial first ministers. The
likelihood of any new measures having much tangible impact on
Qlikelihood of any new measures having much tangible impact on
stimulating economic growth or fighting unemployment in the
near future is low, but what will be important to the
government is re-building an image of reliable, knowledgeable
competence, especially in contrast to the opposition parties.
At least for the first six months of the year, however, the
economic numbers are apt to worsen (the main reason the
Conservatives forced an early election in October),so key to
the government's agenda will be to create a public perception
that the government has been pro-active and prescient in its
efforts, leaving Canada poised for a softer landing and a
quicker recovery than in the U.S. This will probably happen
in any event, but the Conservatives will want to ensure that
they win credit for it as much as they can. Somewhat on the
flip side, the government is taking a large risk that its
likely fiscal package, which many economists consider an
over-stimulus, will bring high inflation in its wake about 18
months from now, for which the Conservatives could well take
the blame.


4. (C) STAYING ALIVE: While prorogation of Parliament (as
well as the holiday season) gave the political scene a
cooling off period of sorts, the minority government will
remain very much obsessed with holding onto power in the new
year. It now faces an Official Opposition Liberal Party with

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a new and markedly more dynamic leader, Michael Ignatieff
(ref d). The Liberals retain the option of bringing down the
government on any confidence vote (including those on the
Throne Speech and the budget early in the new session) and
forming a coalition government with the New Democratic Party
supported by the Bloc Quebecois (although this would probably
not be Ignatieff's preferred option). Some Conservatives,
including possibly PM Harper himself, may calculate that
again forcing an early election would be preferable to seeing
the Liberals rebound progressively under Ignatieff's
leadership, or to letting the opposition choose the most
advantageous timing and issue for bringing down the
government on a vote of confidence. PM Harper has refused to
rule out again pushing for an end to public financing for
political parties (which would effectively cripple the three
main opposition parties). Should he decide to opt for an
early election in hopes of perhaps picking up a majority
(still very much of a long-shot prospect),insertion of this
plan in the 2009 budget would probably be as poisonous as it
was in the Fall Economic and Fiscal Statement (the confidence
vote in December that the government dodged by suspension).
The risk of such a strategy is that the public would probably
be disgusted by the prospect of yet another election so soon
after the October 14 election, and, even more, by what would
appear to be petty political partisanship instead of
responsible politics and leadership at a time of economic
troubles. Most probably, the government will maintain a
conciliatory course of dialogue with the opposition on the
budget, will avoid inflammatory provisions, and will survive
upcoming confidence votes, coasting in office until perhaps
fall 2009.


5. (C) NEW NEIGHBOR: In the best of times, successful
relations with the U.S. remain of paramount importance to
Canada's national interests, including its economy, national
security, and role on the world stage. This will be even
more true in what are becoming worsening economic times.
Getting to know the new Administration will be essential to
the Harper government, although the Prime Minister has
reportedly let it be known that Cabinet members should not
meet their incoming counterparts until he has met the new
President (the same guidance PM Harper laid down when he
assumed office in 2006). President-elect Obama's
overwhelming popularity among the Canadian public may make
forging close relations with the new Administration
politically easier for PM Harper. The government will
quickly begin to push the new Administration to ease or even
reverse U.S. policies that Canadians believe have led to a
"thickening of the border" as well as to avoid creeping
protectionism that many Canadians believe the Democrats may
pursue with their control of both the White House and
Congress, especially in tough economic times. There are
widespread expectations that the government will move quickly
to mark a new bilateral era by naming a new Ambassador to
replace Michael Wilson, with the names of former Foreign
Ministers John Manley and David Emerson popping up most
often.


6. (C) AND ALL THE OTHER STUFF: The business of government
will continue as always, with different Cabinet Ministers and
federal departments continuing to push their own mandates,
including important issues such as protecting the
environment, alleviating climate change, asserting Arctic
sovereignty, promoting military modernization, maintaining
Canada's military commitment to Afghanistan through 2011 (but
QCanada's military commitment to Afghanistan through 2011 (but
not beyond),seeking tougher anti-crime legislation,
improving intellectual property rights protection, helping
Canadian farmers, placating Quebec would-be separatists,
making the Senate more democratic, and playing a constructive
role in the UN, G-8, NATO, OECD, OAS, APEC, ASEAN Regional
Forum, and other international fora, as well as in priority
assistance countries of Afghanistan, Haiti, and Sudan. One
area in which the government will be forced to make near-term
decisions is the energy and forestry sectors, which will be
agitating for governmental support if oil prices stay low and
environmental pressures increase on the energy side, and if
the timber industry continues to be hard hit by a host of
factors. Budget realities, however, will increasingly limit
the government's options even in these areas. Canada may end
up scaling back some of its more ambitious plans, including
perhaps the creation of a new democracy promotion agenda.
The government's legislative agenda will likely remain
bare-bones, as the government and Parliament concentrate
instead primarily on economic measures and policies.

Visit Canada,s Economy and Environment Forum at
http://www.intelink.gov/communities/state/can ada

WILKINS