The Art of the Deal in Canada

Living in Toronto, the hot topic last Friday around the water cooler was what went down in the nation’s capital the day before. Most conversations I had with Canadian colleagues on Friday, other than the chit-chats about everyone’s plans for the Victoria Day long weekend, centered around Prime Minister Paul Martin, the budget vote’s slim victory, and what these events mean for the Canadian economy over the long term.

On Thursday, two budget votes took place in Canada’s House of Commons. Paul Martin and his Liberal Party were pleased to see the budget squeak by, winning both votes by a narrow margin (the second vote was won by a single vote).

You see, in Canadian government, if a budget is defeated, the vote is considered one of non-confidence in the government, which forces an election. Martin had pledged to step down if the vote didn’t go his way.

The ongoing sponsorship scandal in the Liberal Party (where a government auditor revealed that several marketing firms were paid large sums by the government for little or no work during the Quebec referendum in the 1990s) has been stirring the pot in Canadian government of late. Most House of Commons debates in recent weeks have been questioning the competence of the government rather than policy.

As of last week, it looked as though the budget wouldn’t get the go-ahead, as the Liberal’s minority government had been under rapid-fire criticism from the opposition. Fortunately for Martin and his Cabinet, the art of the deal worked wonders.

First, Martin made an agreement with the New Democratic Party and their leader Jack Layton (whom President Bush has called a bunch of “lefties”) to bring to vote a CDN$4.6- billion budget amendment that would see new spending over the next two years in foreign aid, cities, education, the environment, and housing, as well as a bit of a wait for corporate tax cuts. As part of the deal, Layton pledged not to vote against the Liberals until after the budget is finalized (which Martin hopes will be done before the Cabinet takes a summer holiday beginning on June 23).

And second, we saw the “Belinda Boom.” On Tuesday of last week, wealthy daughter of Magna Corporation’s Frank Stronach (whom we talked about in PROFIT CONFIDENTIAL recently) and business mogul in her own right, Belinda Stronach left the Conservative Party to join up with the Liberals. Her big business background and popularity was a big boost to the Liberal cause. Even the dollar edged up when she joined Martin and his colleagues.

In the eleventh hour, it was the independent votes of MPs Carolyn Parrish and Chuck Cadman that pushed the votes to the Liberal side, and secured Martin’s position for at least another six months. Speaker of the House, Peter Milliken, cast the final deciding vote.

The Canadian dollar edged up on the news, but many believe the long-term effects of the fiscal 2006 budget will be negative for the Canadian economy. The $4.6 billion in extra spending puts a balanced budget into question, and hoped-for tax breaks (especially for businesses) are now on hold. The new spending also raises speculation that Canadian interest rate hikes are on their way sooner rather than later, perhaps as early as July.

The results of the budget (if it is ultimately passed) may be positive for the checkbooks of individual Canadians over the short term, especially when it comes to social services, but in the long run the extra dollars being spent could hurt the Canadian economy.

What it comes down to is this: With the votes out of the way, hopefully the government of Canada can get back to business and focus on more important issues than petty politics, and Canadians across the country should enjoy the power of today’s Canadian dollar over the next little while, because who knows how long the strength will last.