Prime Minister Stephen Harper told Conservative members on Saturday that an election call could come without warning.

That suggests that when Finance Minister Jim Flaherty stands to deliver his second budget Monday afternoon one eye will be on his speech and the other on the next election.

The prime minister said the budget will include a “tax-back guarantee” for Canadians in which the federal government, as it pays down its national debt, will be required to use its interest savings to cut personal income taxes.

Monday’s budget will also likely include billions in tax breaks and billions in new spending, along with increases in transfers to the provinces.

The government has indicated that a Working Income Tax Benefit — first promised in last fall’s economic statement — will be unveiled this time. The benefit would give lower-income earners a tax credit they can apply to their earned income, effectively giving them more take-home pay and encouraging them to work.

Ottawa has also signalled a reduction in the capital gains tax.

During the election campaign last year, Harper proposed that capital gains not be taxed if the gains were re-invested within six months. That measure was not in Flaherty’s first budget, but some version of it is widely expected this time.

Big cuts in corporate taxes are not expected.

Flaherty will have plenty of available cash to play with this time around. The finance department said last month that the federal surplus had hit $7.3 billion for the first nine months of the fiscal year. Observers say the final surplus could exceed $9 billion.


One of the biggest spending items falls under the general term “restoring the fiscal balance”. That means anywhere from $1 billion to $3 billion in extra transfers and bigger equalization payments to the provinces, which have long complained that Ottawa has shortchanged them.

Another $3.5 billion in new spending has recently been announced in the areas of climate change, public transit, and aid for farmers.