Liberal Party leader Michael Ignatieff has announced that the Liberals will not support a Conservative budget next week if it includes tax cuts.
"This budget has three simple tests that it must pass," Ignatieff told Liberal MPs and Senators. "Will it protect the most vulnerable? Will it save jobs? And most important of all, will it create the jobs of tomorrow?"
As they position themselves in advance of the budget, the Liberals argue that, while they generally favour income-tax cuts, it's the wrong approach during the recession.
"We don't want to see the Prime Minister come up with the kind of broad-based tax cuts that put Canada in a permanent, structural deficit once we recover from this (recession)," Liberal finance critic Scott Brison (Kings-Hants) told CTV yesterday as his party gathered in Ottawa for the caucus meeting.
The argument, shared by the Big City Mayors Caucus, is that any additional consumer money from tax cuts will go into savings, not spending.
As evidence for this the Liberals note the failure of US President George W. Bush's tax cuts last year to circulate more money in the economy.
Instead, the Liberals argue, the government should stimulate the economy through urban renewal projects, increases to Employment Insurance payments, more funds for skills training, and more money for affordable housing.
This appears destined for a collision course with the Conservative budget, which is expected to feature tax cuts prominently.
The $30 million question, if the Liberals vote down the budget, is what will happen next.
The Liberal-NDP coalition supported by the Bloc Quebecois that was established last November to form a government after voting down the new Harper government has not been disbanded, despite the fact that Harper managed to avoid a vote of non-confidence by proroguing Parliament until January 27.
However, the coalition has proven widely unpopular outside of Quebec. This may be due to widespread public misunderstanding about how the Parliamentary system works, but it could also be due to public disapproval of former Liberal leader Stéphane Dion, who led the Liberals to an historically poor showing in last October's federal election.
With growing public fear about the global economic crisis and Dion's replacement with Ignatieff, public sentiment toward a coalition government may improve, especially as the Conservatives are vulnerable to the criticism that they have failed to respond in an adequate or timely way to the recession.
At the same time, public approval for the Liberal Party itself improved some eight percent after Ignatieff was appointed leader, and the Liberals are now statistically tied with the Conservatives.
As a result, the Liberals may decide that their chances of electoral victory are better if they disband the coalition and run as a single party.
Working against this strategy is the fact that the Liberal Party is still broke from the previous election. It's hard to see how they could afford to run another election right away.
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