When he faced off with Stephane Dion last October, the Liberals won its lowest percentage of the vote in any of Canada’s 40 general elections, and the prime minister now has twice as many seats as the main opposition Grits.

He’s now survived three years, with two election victories, the second margin building on the first. Though his poll numbers suffered as Canada slumped into official recession in early 2009 and Michael Ignatieff enjoyed a solid start to his tenure as leader of the Liberal Party, in recent surveys critical voting blocs–i.e., 45-to-65 year olds, a politically active group keenly aware of the economy and the markets–have drifted back to his camp.

Mr. Harper’s reversal on deficit spending–one that has stunned hard-core Conservatives–put him in position to do something to help Canadians through the most severe global downturn since the Great Depression. He’s now getting credit for a significant stimulus package.

The fact that Canada was in a solid position before the global financial and economic picture darkened suggests it could be among the first to recover. And corporate tax rates have come down under his watch. In fact, Tim Hortons (TSX: THI, NYSE: THI), which is currently based in Delaware, has filed to reorganize as a Canadian company to lower its tax rate. The coffee-and-doughnut king has 500 US stores but gets 90 percent of its revenue from its 3,000 locations in Canada. It’s coming home because, after the immediate costs of the reorganization are absorbed, its tax rate could initially be 2 or 3 percentage points lower than its current rate of 33 percent in the US. And that disparity is likely to widen.

From a long-term perspective, Harper is good for Canadian business and good for investors in Canada. He’s the top guy right now in a country that maintained active oversight of its financial system, didn’t succumb to the short-term allure of cheap and easy credit for homebuyers, and is cutting taxes. Should the economy pick up pace in the second half of the year, the prime minister will be in position to further increase his electoral margin.

He’s done well with Canada’s relationship with the US (under the Bush administration as well as the Obama administration), though his handling of relations with other critical nations, China, of greatest long-term consequence, has come up short. But after a series of face-to-face meetings among high-level officials, it appears Mr. Harper will soon meet with his Chinese counterpart. This illustrates his ability to grow into the job: He’s ceased the human rights lecturing and tacked to negotiating with the Chinese, who will be absolutely crucial to Canada’s economic future

The Recent Data

Polling since Ignatieff assumed the leadership of the party in December shows the Liberals have closed the gap on the Conservatives. But there’s no appetite right now–during a recession-marred summer–for a costly election, a reality that dawned on Mr. Ignatieff a little too late, it appears.

In an EKOS poll conducted for CBC News from June 17 to June 23, asked which party they would support if a federal election was held tomorrow, 34.8 percent of respondents said they would cast their ballots for Harper’s Tories, while 32.6 percent opted for Ignatieff’s Liberals. Liberal support drooped from the 33.5 percent support reported in a similar EKOS poll conducted the week prior, before the election threat.

The polling window ended six days after Ignatieff and Harper announced they had reached a deal to form a study panel to examine Canada’s Employment Insurance program over the summer in exchange for the Liberals’ support of the minority Conservative government in a House vote.

In the battleground province of Ontario, the Tories and Liberals are even-up at 38.2 percent, but previous polls suggested the Liberals were widening their lead in the province.

Ignatieff’s job approval rating also took a hit, with 37 percent of respondents disapproving of his performance, compared to 32 percent of respondents who approved. Meanwhile, Harper’s numbers improved slightly from last week, with 34 percent of respondents approving and 46 percent disapproving.

We’ll see whether Mr. Harper’s problem is that he lacks the type of mandate that would allow him to lead “the way he really wants to.” It may be that heading a minority government may prove a virtuous dilemma. Mr. Harper has to be an effective leader; to be effective he must compromise with a left-leaning party almost constantly.

Any national leader, of any partisan stripe, would, assuming (quite safely, it seems obvious) the normal amount of personal ambition like to channel this forced discipline into consolidating power. It looks as though the prime minister may pack the gear to accomplish the mission.

Perhaps it’s this grip that squeezed Mr. Harper into a non-ideological diagnosis of the situation facing his new US counterpart, but in recent days he’s re-recruiting those voters in Ontario and Quebec that fueled the first victory for Mr. Harper as the Tories’ leader. Once he gets a majority, it will be difficult to pull back from the political arrangements that allowed it to be.

Mr. Harper, who in two recent appearances on Fox Business with Neil Cavuto and CNBC with Larry Kudlow sounded simply Keynesian in defending the Obama administration’s efforts to revitalize the American economy, put together a fiscal stimulus package that even progressive Liberals could support.

Once a deficit hawk, Mr. Harper has engineered a federal spending orgy necessitated by deteriorating economic conditions that will take Canada into its first budget shortfall in more than a decade. Much of this money will go to preserving some sort of automobile industry in Ontario. They’ve been making cars in Canada as long as they’ve been making them in the US; in fact, the sector is more important to the Canadian economy than it is to the American.

Mr. Ignatieff’s recent bout of Dionitis made Mr. Harper look like the adult. The new Liberal leader had been enjoying a nice honeymoon; his personal numbers bested Mr. Harper’s, his party caught and passed the Conservatives in the national horse race, and the Liberals picked up the fund-raising pace.

During his mid-June fever, Ignatieff made four demands of the prime minister. He wanted to know how and where stimulus funds were being spent, and he wanted to know what the minority government was doing about Canada’s diminishing store of medical isotopes. And with as much conviction at first as contradiction, he also demanded that Harper describe how and when he’ll balance the budget and that the government change EI to let newly unemployed workers who put in 45 days on the job collect full insurance benefits. The Liberals were before stimulus before they were against it before they were for it. Again.

For five days, the possibility of a snap summer election gobbled up space in newsprint and on the web. And then, as Paul Wells of Maclean’s put it, “Ignatieff made the first bold move of his charmed tenure as Liberal leader–and flinched.” The two leaders met and reached an agreement: A blue-ribbon commission would be formed to study the EI issue. Ignatieff went 1-for-4, the one hit a Texas leaguer.

Mr. Ignatieff will have a chance to score when the panel reports its findings in September, when Parliament reconvenes. By then Mr. Harper will have spent a lot of time doing stuff like opening new museums celebrating Canada’s heritage (read: pumping federal stimulus dollars into local economies), making high-profile speeches on Canada Day, and drawing excited coverage of possible preparations to finally meet with his Chinese counterpart.

At this point, Canadians are content to let Mr. Harper remain in the saddle.

In his recent US financial television appearances, Harper has explained, in a manner that belies attempts to cast him as an ideologue, why circumstances dictate certain federal efforts and how Canada was able to cut tax rates–intimating that the US did so irresponsibly. He’s also made clear that Canada’s financial system works because it’s subject to “a strong system of regulation, and activist regulators, who go and meet with the sector.”

As for restrictions on oil sands importation in the US, he’s forcefully acknowledged the fact of and the need to address carbon emissions; and he makes the defining point that the US basically has to use the stuff.

The economic strength of the country is no longer Ontario or the east, as even his top challenger acknowledges. “It’s a fact that a political party that doesn’t shift west where the center of gravity is going does not have a future,” said Ignatieff in a recent interview.

“I think sometimes we tried to establish our environmental bona fides by running against the oil sands,” he continued. “And I just think: This is a national industry. It’s pumping something like CAD8 billion into the federal treasury. So it’s slightly bad faith to beat the goose that lays the golden egg over the head with a stick. The goose is a little messy. The goose needs to be cleaned up. The goose needs to make better use of the yard, but let’s make this a sustainable industry that all Canadians can be proud of.”

A disadvantaged Ignatieff has to peel off some votes somewhere besides Vancouver out west. He’s had to concede oil sands are critical to the economy. And the Conservatives ran ads during this latest stupid-election-threat-stunt-that-went-nowhere raising the fact that he spent 35 years outside the country–in England and at Harvard, so he’s an effete intellectual who doesn’t get the cowboys. Ignatieff’s numbers have since gone down; dirty ad or no, the message worked.

Mr. Harper has left himself open to attack many times, but the Liberals, first Dion, now Ignatieff, have been too clumsy to strike a meaningful blow.

In the 20th century, the Grits earned the title of Canada’s “natural governing party.” Stephen Harper’s combination of ruthless politics and savvy policymaking appear to be working for Canadians, so much so that he and the Tories could wrest the mythical crown in the 21st century.

David Dittman is associate editor of Canadian Edge.