The Prime Minister has said the package could be worth as much as CAD30 billion (USD25 billion), about 2 percent of Canada’s GDP, which puts him in line with other Group of Seven leaders. The minority Conservative proposal will include measures to encourage lending, to both businesses and consumers, tax cuts to put money in the hands of people who will spend it and to encourage manufacturing activity, and massive investment in infrastructure projects with the goal of stemming job losses.

President-elect Barack Obama’s estimated two-year USD700 billion spending and tax cut package works out to about 2.5 percent of US GDP. China’s planned USD586 billion stimulus equals about 6 percent of its GDP. Germany’s conservative and Britain’s Labor governments are each proposing packages equivalent to about 1 percent of their respective national outputs.

The goal of government largesse–Canada’s, the US, China, and countless other nations, developed and emerging–is to spur demand. But how to structure such plans is a tough nut the North American leaders are trying to crack; Harper has already confronted hostility from Parliament to his handling of the economy, and Obama’s ambition to sign a stimulus bill in the earliest stages of his presidency has met with objections from both sides of the Congressional aisle.

>Obama may have to wait until mid-February, but Harper is now fighting for his survival because of opposition response to his Nov. 27, 2008, economic update.

The Liberals–aghast at the government’s failure to present a stimulus package, angered by proposals to change campaign finance law to the detriment of the three non-governing parties–signed a deal with the New Democratic Party (NDP) and the Bloc Quebecois that could have meant the immediate end of his ministership.

Harper prorogued Parliament–basically, he called a timeout–rather than face a confidence vote on the mini-budget. Shortly thereafter Stephen Dion became the first Liberal leader not to become prime minister, his last, desperate attempt at the brass ring hastening a departure announced after the October 12 election.

Into that breach steps new Liberal leader Michael Ignatieff. He hasn’t abandoned the Liberal-NDP coalition, but he has taken a less hawkish stance on defeating Harper. Ignatieff is in no rush to defeat the minority Conservatives and force an election–he’s said he can’t know whether he’ll oppose the budget until he sees it.

Harper has held “businesslike” talks with Ignatieff, as well as consultations with provincial leaders on matters such as infrastructure. He needs the support of at least one other political party to pass the budget, and he doesn’t want to go to the polls again.

Ignatieff favors a familiar litany of stimulus tidbits: an overhaul Employment Insurance to ensure the unemployed receive benefits in less than the usual 40 days; unspecified millions spent on “shovel-ready” infrastructure projects; permanent tax cuts for medium-and low-income Canadians to rapidly boost their purchasing power; retraining for unemployed workers.

One interesting demand he made of Harper during their mid-December sit-down was to reduce the number of confidence votes in the House of Commons. Harper labeled relatively trivial votes–compared to this budget, for example, which the Conservatives have described as one of the most important, ever–matters of confidence in a numbingly consistent, lukewarm and one-way battle with Dion.

Harper, like Larry Holmes used the jab, wore down the outmatched ex-Liberal leader, who never had the political muscle to take it to the voters. Harper was therefore able to govern as if he led a majority. An unnamed Conservative official told the Canadian Press that the government would abandon the tactic going forward on account of the seriousness of the economic crisis and the concomitant expectations by Canadians that elected officials address it.

Harper, his ministers and federal officials have been feverishly meeting with their provincial counterparts, opposition leaders, business leaders, aboriginal leaders and economists, with more meetings to come before the budget is released. This is a minority government desperate to survive, desperate enough to follow through on Harper’s promise to include in the new budget the type of major stimulus measures the opposition parties demand.

Ignatieff’s dilemma: If he votes in favor of the Harper budget, he risks not only losing left-wing support to the NDP but also being cast in the same light as the punchless, useless Dion.

But Ignatieff recently issued the following warning on CTV’s Question Period: “It is extremely important for Mr. Harper to understand that if he doesn’t produce a budget that is in the national interest of Canada, he’s going to lose a vote of confidence at the end of January.”

When Harper decided to make vote after vote in Parliament a confidence motion, the Liberals and Dion were damaged. They rolled over time after time, often abstaining, which contributed to the image of Dion as “not a leader.” To many voters, Dion and the Liberals abdicated their role as official opposition.

Ignatieff must avoid such a fate if he’s to avoid becoming the second Liberal leader not to be Prime Minister. NDP support for the budget would give Ignatieff all the cover he needs; there would be no threat from the left. If Harper delivers more than his critics expect, as he did in announcing a larger aid package for Detroit’s automakers than anticipated last month, Ignatieff can claim the Prime Minister met his demands.

That will, however, require Harper offering substantial government intervention to stimulate the economy. Harper won a stronger minority in October’s election, but he still needs the support of at least one opposition party. He doesn’t want to go the polls again anytime soon, certainly not after failing on a matter–“stimulus”–with such broad, though highly unspecific, public support.

He’ll approach CAD30 billion because all he has to lose is power. And power is everything in politics.

That, however, is the barrel facing Ignatieff: He can’t be the tomato can Dion was, though neither will he do himself a long-term political favor by rejecting a big-loonie spending package that’s likely to benefit a lot of Canadian voters.

Harper doesn’t want to fall with this budget, which means it’s likely the spending package will err on the generous side. And, though he risks looking weak, Ignatieff can’t stand in the way now and hope to have a chance at building his standing with the Canadian electorate.

If Harper is finessing the integrity of the casing, Finance Minister Jim Flaherty’s labors have focused on the meatier aspects of the sausage-making. What’s likely to capture the attention and support of voters is the raw dollar figure, not specific policy prescriptions.

By the time Parliament reconvenes and the minority Conservative government floats its 2009-10 budget, Flaherty will have traversed much of the Great White North and surveyed every conceivable interest in an effort to determine the best way to address the economy.

Flaherty has identified access to credit by businesses and consumers as the No. 1 concern during his consultations. As part of its rescue package for Detroit-based auto makers announced last month, Ottawa said it would introduce “a new facility” to improve the accessibility of car loans and dealer financing, with details forthcoming in the budget.

The US government has already agreed to extend loans to investors to repurchase consumer loans for autos, credit cards and post-secondary education from banks and financing companies in an effort to loosen lending. Canada will likely address the auto sector’s credit woes as part of a similarly broad push to ease credit.

One option would be similar to the government’s CAD25 billion effort in the fall to promote bank lending by purchasing insured mortgage-backed securities from the banks. Ottawa would repurchase car loans, leases and asset-backed dealer loans from banks and auto-related financing companies like General Motors Acceptance Corp. Those purchases would provide additional liquidity for the financial institutions to boost lending and leasing to consumers, as well as dealer financing.

The second wave of corporate income tax cuts introduced in the 2007 Economic Statement came into effect Jan. 1, cutting the rate by half a percentage point to 19 percent. The federal government has been whittling away at reducing the corporate income tax rate to 15 percent by 2012 from 22 percent in 2007. The government is likely to speed up the timeline to 15 percent. A partial refund on the dividend tax credit is just the measure needed to stimulate the economy. Of course, that would help high income investors and owners of income trusts.

Concerns about their jobs might force some consumers to pocket rather than spend any income tax reduction. Eliminating the 5 percent federal goods and services tax for one year on big consumer items such as autos, furniture and appliances is another measure that would help Canadian manufacturers.

And cutting marginal income tax rates for lower income Canadians would provide some stimulus in the short term because they tend to spend a larger share of any kind of income tax savings than those at the higher end. Ignatieff will also push for an extension of employment insurance benefits to help those already impacted by contracting economic activity.

Flaherty–and Harper, too–has met with provincial leaders to discuss targeted spending on roads, bridges and other big-ticket projects; a massive infusion of infrastructure spending is emerging as another central plank of Ottawa’s economic recovery plan.

The federal government has pledged to accelerate CAD6 billion already set aside for 2009 for infrastructure spending, but that number will likely grow as Harper courts support from Ignatieff, who has identified shovel-ready projects as a priority.

Transport Minister John Baird, the minority government’s top voice on infrastructure, has said massive spending on roads, bridges and other big-ticket projects could help Canada weather the downturn—strategic investments will not only help create jobs but will allow Canada to capitalize on the relative strength it brought to this period of uncertainty and emerge earlier and healthier than other industrialized nations.