The Conservative government had one eye on the opposition and one eye on voters as it introduced its budget in Ottawa on Monday.

Finance Minister Jim Flaherty delivers his budget speech in the House of Commons on Parliament Hill in Ottawa on Monday.
(Tom Hanson/Canadian Press)

Finance Minister Jim Flaherty promised more money for the provinces and territories, incentives for environmental initiatives and a string of small personal financial breaks for Canadians.

Flaherty, presenting his second budget for Prime Minister Stephen Harper's minority government, needs to win the support of at least one opposition party for the budget to pass and for the government to stay in power.

The Bloc Québécois has indicated it will back Flaherty's fiscal plan, which means the budget probably won't trigger an election.

Flaherty's budget is filled with personal income tax measures aimed at pleasing the electorate, especially middle-class voters, should an election be called. They include:

• A new $2,000 tax credit for each child under 18 years old. The maximum benefit under the plan will be $310 per child.
• A Working Income Tax Benefit of up to $500 a year per low-income individual or $1,000 per family to help reduce the number of people using welfare.
• Increased tax credits for Canadians whose spouses earn little or no income, ending the so-called "marriage penalty."

"That's money families can use to buy new shoes or clothes for their children," Flaherty said in his address. "Or save for a new computer."

Provinces benefit from new money

One of Flaherty's chief proposals is an extra $1.5 billion for the upcoming fiscal year aimed at correcting the so-called "fiscal imbalance" — the claim that the provinces are not getting their fair share of the money Ottawa collects.

Quebec, which goes to the polls in a provincial election on March 26, would get the bulk of the new money, roughly $698 million. Saskatchewan would follow with an extra $226 million, meaning that it would get the most per provincial resident, at $230.

"We are keeping our commitments to equalization," Flaherty said in his budget speech.

"Our taxes are lower. Our budget is balanced. In looking to the future, we take inspiration from our country's magnificent past."

Liberals, NDP won't back budget

Moments after Flaherty began his address to the Commons, the opposition Liberals and NDP said they would not support the budget. 

"It's a bad budget," Liberal Leader Stéphane Dion told CBC News. Dion cited what he called the plan's failure to address needs for families, health care, child care and students. "I've never seen a government do so little with so much, and that's why we can't support such a budget."

"If this budget stands, what will happen is the prosperity gap will continue to widen," NDP Leader Jack Layton told CBC News outside the House of Commons following Flaherty's presentation.

But with Bloc support, the Conservative government will get enough votes to pass the budget.

As a money bill, the budget is considered a confidence motion. Failure to win passage of the budget would spell the end of the 14-month-old minority government and spring another election.

Even if the budget passes, the government is still free to ask the Governor General to dissolve Parliament and call an election.

'Tax-back' pledge offered

Flaherty's budget also included a "tax-back guarantee" — a plan to legislate the return of money the government saves in interest payments on the federal debt to individual Canadians, in the form of personal income-tax reductions.

The government said it will return $1.1 billion this way in 2007-08 and another $1.3 billion the following fiscal year.

The budget also includes a change to when people must convert registered retirement savings plans (RRSPs) or registered pension plans (RPPs) into registered retirement income funds (RRIFs). The conversion will now be made when the holder turns 71, up from the current limit of 69 years.

Flaherty's latest projections estimate that Ottawa will pay down $9.2 billion of the federal debt in 2006-07.

The government surplus is expected to shrink over the next two years, falling to about $300 million for 2007-08, and to zero the following year. That's after putting aside $3 billion each year to reduce the accumulated debt.

Environmental plan aimed at getting support

Flaherty's budget also includes several environmental initiatives that may have been designed to help win the support of opposition parties to get the budget passed in the House of Commons.

The Conservatives introduced plans for rebates of up $2,000 from the government on the purchase of new fuel-efficient vehicles and a levy on gas guzzlers.

For example, the buyer of a 2007 Toyota Prius or a Honda Civic Hybrid could get $2,000. Both of those vehicles consume 4.5 litres of fuel or less per 100 kilometres driven, according to Natural Resources Canada's fuel consumption guide.

At the other end of the spectrum, new passenger vehicles that consume more than 13 litres of fuel per 100 kilometres will be hit with a $1,000 levy. Trucks will be exempt. The rate of the levy will rise to $4,000 on vehicles with fuel consumption ratings of 16 litres per 100 kilometres or higher.

The rebate plan will cost the government about $160 million over the next two years, while Ottawa expects to collect $215 million from the levy over those years.

As with any budget, some items that were spoken about earlier were not included. For example, this year's budget does not include broad-based income splitting, something that Flaherty did not explicitly rule out in the weeks leading up to budget day.

However, pension income splitting for seniors that was announced on Oct. 31 at the same time as the Conservatives' tax on income trusts was included in the budget.