The Harper government is expected to announce tax cuts and new spending Monday in a budget that has been sparking rumours that a federal election could be just around the corner. 

The budget's centrepiece is expected to be a resolution of what is often called the fiscal imbalance between Ottawa and the provinces. The new measures are expected to provide provinces and territories up to $3.5 billion in additional annual transfers to help them pay for health care, post-secondary education and infrastructure.

Federal Finance Minister Jim Flaherty helps his 16-year-old son John try on a new pair of skates at a sporting goods store in Whitby, Ont. on Sunday.
(Frank Gunn/Canadian Press)

"We're going to resolve once and for all this continuing problem we've had, this bickering between governments in Canada about fiscal imbalance," Finance Minister Jim Flaherty said Sunday. "We're going to restore fiscal balance on a principled long-term predictable basis in Canada."

The finance minister is also expected to introduce tax cuts and credits totalling about $3 billion that would give each taxpayer about $200 a year.

Specifically, Flaherty is expected to offer:

• An annual tax-back guarantee worth about $800 million realized from interest savings from paying down the debt.
• A capital gains tax reduction on investments.
• A low-income tax credit to encourage Canadians to move to work from welfare.
• Income splitting for seniors.
• A broad-based income tax cut for individuals.

It's not expected that there will be any new personal income taxes in the budget, which will be tabled at 4 p.m. ET on Monday.

The remainder of the projected $8 billion planning surplus is expected to go to energy conservation initiatives, such as rebates for hybrid vehicle purchases, post-secondary education, the child tax benefit, a new approach to research and development emphasizing applied science, and the military.

Skates not shoes

While shopping for a pair of skates for his son in his hometown of Whitby, Ont., Flaherty told reporters on Sunday opposition parties will find it tough to vote against the new budget. Flaherty opted for skates, rather than the traditional pair of new shoes that finance ministers buy when they introduce a budget.

The minister said that while the opposition should be able to support the budget, the Conservatives have a minority government, so other parties control whether there will be an election.

"We're ready for an election if the opposition parties want one," Flaherty said. "I don't hear a lot of demand for an election, but it's really up to them.

"I hope the opposition parties will put the interests of Canadian families ahead of their own self-interest," he added.

Opposition:  we don't want polls

Opposition leader Stéphane Dion told CBC News he doesn't want an election.

"I hope the budget will be everything the last budget wasn't," he said, adding that the 2006 budget was unfair for ordinary Canadians, and cut environmental programs.

"We hope the next budget — the budget of tomorrow — will be good for Canadians, enough that we may support it," Dion said.

NDP finance critic Judy Wasylycia-Leis told CBC News that "it'll be very hard for us to support the budget" if it isn't progressive, if it doesn't address the prosperity gap between the rich and poor, and if it doesn't invest in education and child care, among other things.

"We're hoping that somehow we can keep Parliament working for all Canadians," she said.

But all parties, including the Conservatives, have been preparing for an election. Prime Minister Harper told party faithful in Toronto on Saturday that an election could come "at any time."

Close attention in Quebec

The budget is expected to attract particular interest in Quebec, which is in the final week of a provincial election campaign. Political analysts say Liberal Leader Jean Charest has the most to gain from a federal budget that is seen to address the fiscal imbalance issue.

The Parti Québécois has long made much of the perceived mismatch between what Quebec sends to Ottawa in taxes, and what it receives in federal programs.

McGill University political scientist Antonia Maioni told CBC Newsworld that Charest has been underperforming on the campaign trail and will look forward to a boost from the Harper government's budget. 

Maioni says PQ Leader André Boisclair will make much of the fact that Charest is beholden to Ottawa to resolve issues that are important to Quebec, underlining the need for sovereignty.

Quebecers go to the polls Monday, March 26.