Whether the new government can make progress on its agenda — lowering taxes, extending child-care benefits, righting the fiscal imbalance, reducing the debt — will depend on how well it navigates the shoals of minority government. In other words, economic progress will turn on political acumen.

The Conservatives may be slipping into the driver’s seat of a car with a full tank of gas — something no new government has enjoyed in Canada since the 1960s. But it won’t mean much if the noisy passengers in the backseat don’t like the route, let alone the destination. Indeed, if the Opposition refuses to hand over the keys, no one is going anywhere except back to the polls.

Harper may be trained as an economist, but he will need all the instincts of a diplomat to survive here. He knows that moderation and compromise will win the day.

Accordingly, don’t expect revolutionary change or the usual conservative economic agenda, such as implementing deep tax cuts, abolishing regional and corporate subsidies, reinventing unemployment insurance or opening banking, telecommunications or the airlines to foreign ownership. These are conservative dogma, but they aren’t in favour now.

Nor will there be a comprehensive trade deal or any kind of “big idea” with the U.S., such as a customs or monetary union, which experts have advocated. Interesting, perhaps, but too risky for a fragile government looking for a majority in a country inclined to anti-Americanism these days.

Much as Harper and his philosophical co-religionists might want to retool the economy to make it more competitive, they don’t have any allies in Parliament. Most of the Liberals, New Democrats and the Bloc Québécois lean left of centre.

Nor will they cut government spending, a traditional Conservative promise. Actually, they are planning to increase spending, especially on national defence, which needs billions in new capital to replace antiquated equipment.

What changes the Conservatives offer will be incremental, which is not to say unimportant. Sometimes the government will win; other times, the Opposition will win. Most of the time, out of expediency, both sides will compromise. It’s the only way for a minority Parliament to work, especially one with only 21 seats separating the government and the official Opposition.

The first test of the new government’s legislative program will be to reduce the GST to 6% from 7% immediately, then to 5% over the life of its mandate. For the Conservatives, this is the ark and covenant, their most publicized, populist and popular commitment.

They may well reduce the GST as one of their first acts, through cabinet fiat, without waiting to bring down a budget in the spring. The second reduction will come within the next five years. No matter that cutting the GST is better politics than policy, Canadians will see the change, if it matters to them, every time they make a purchase.

Although the Liberals opposed the reduction in the GST in the campaign, they cannot easily fight it now. After all, they had promised to scrap the GST in 1993, and then reneged; former minister Sheila Copps even resigned her seat in the House of Commons (and was quickly re-elected), having promised to quit if the government did not follow through.

The Liberal campaign this time proposed income tax cuts, which it said would be fairer to low- and middle-income Canadians. So did the New Democrats. But both will be reluctant to bring down a new government with enough moral authority to deliver its keystone promise.

Cutting the GST by a point may have other consequences — fueling inflation, reducing federal tax revenue, giving provinces tax room to raise their own sales taxes — but the biggest may be political: extending the honeymoon new governments traditionally enjoy with voters, at least for a while.

The Conservatives also proposed another major tax measure: allowing Canadians to defer capital gains taxes on the sale of second homes and equities as long as the profits are reinvested within six months. The idea is to create liquidity in capital markets. This will also draw criticism from the Opposition.

Their other tax proposals are less contentious. These include eliminating the business surtax; dropping the business tax rate to 19% from 21% by 2010; raising the threshold of the small business tax rate to $400,000 from $300,000; exempting the first $500,000 of the value of a fishing property when transferred within a family.

@page_break@The Conservatives have proposed other populist measures, such as a $500 tax credit for children’s athletics, subsidized bus passes and, most important, a grant of $1,200 a year to parents of children under six. The Conservatives want to give money directly to parents for child care; the Liberals want a full-blown government program. These are philosophical differences.

Some of the Conservative proposals will fail in the debate over the next budget. As the New Democrats forced the Liberals to drop corporate tax breaks in the last minority government, they may get the Conservatives to do much the same. Once again, it will be a negotiation.

One of the costliest planks in the Conservative platform is addressing the fiscal imbalance, the demand by the provinces for a greater share of the revenue that Ottawa collects. This is one of Harper’s top priorities. It could cost Ottawa some $40 billion over five years, and critics warn it could kill a balanced budget.

But this is a minefield. Flush with cash, Harper may simply offer the provinces more money. An Albertan who mused about creating “firewalls” around the provinces, he is a devolutionist by instinct. It is unlikely that he will ask the provinces for anything in return.

If he is looking for a quid pro quo, however, he might ask the provinces to support the creation of a national securities commission. The Conservatives want one, but such a body would need provincial approval. Not surprisingly, the provinces have balked. When it comes to revisiting powers in the federation, they prefer to receive rather than to give.

Conservatives being conservative, the new government promises to deliver balanced budgets. Going into deficit is unimaginable to a party known for fiscal responsibility in a country that’s recorded eight consecutive balanced budgets. The Conservatives also promise to reduce the federal debt by $3 billion a year. With annual budgetary surpluses projected at $8 billion or more, this should not be difficult.

How much of their economic and fiscal plan will Parliament pass? It depends how hard the Opposition resists, knowing no one wants to be blamed for forcing an early election after two within 19 months.

This means that the new Conservative government may get much of what it needs and some of what it wants in the next Parliament. If it manages the economy prudently and responsibly, avoiding mistakes, history suggests it will win a majority in the next election, probably in 2008. IE



Andrew Cohen is a professor of journalism and international affairs at Carleton University.