Prime Minister Stephen Harper has pushed back a non-confidence vote by one week to avoid an immediate political showdown between the government and the opposition parties.
The move caps a dramatic day as the opposition parties threatened to bring down the Tories and form an unprecedented coalition.
Harper cancelled Monday's scheduled opposition day where the Liberals were expected to table a non-confidence motion. He also cancelled a ways-and-means motion scheduled for Monday night, which also gave the opposition the opportunity to bring down the government.
"While we have been working on the economy, the opposition is working on back room deal to reverse the results of the election," Harper said at a news conference.
Harper appealed to Canadians to make their opinion on the matter known to their MPs.
"They want to take power, rather than earn it," Harper said of the proposed coalition. "The opposition is in its right to bring down the government, but (Liberal Leader) Stephane Dion does not have the right to take power without an election."
Harper said that Canadians gave his party a strong mandate to govern amide the worst economic crisis in a generation.
Sources have said that the coalition government would be led by Dion, even though the Liberals have a leadership convention set for May 2.
The Liberals responded right away to Harper's comments as finance critic John McCallum said his party wanted to replace the government because they failed to offer an economic stimulus package.
McCallum also took time to assure Canada's financial sector that a Liberal-led coalition would safeguard the economy.
"The prime minister is buying time and is hoping the opposition parties' negotiations break down," CTV's chief parliamentary correspondent Craig Oliver told CTV Newsnet.
But Oliver said that the move could backfire as it gives the opposition more time to fine tune their plans, particularly over who would lead a coalition government. There have been reports of much opposition to Dion in the negotiations.
CTV's Mike Duffy noted that both heavyweight Liberal leadership hopefuls, Bob Rae and Michael Ignatieff, have remained neutral in their comments about a possible coalition government.
The political crisis was sparked by the Finance Minister Jim Flaherty's economic update, which the opposition criticized, saying it lacked a stimulus package needed for the economy.
Coalition negotiations
CTV's Ottawa bureau chief Robert Fife broke the news on Friday morning that former Liberal prime minister Jean Chretien and former NDP leader Ed Broadbent were meeting to discuss toppling the government and forming a coalition.
If the opposition parties can agree to a "viable Liberal-NDP coalition with the support of the Bloc Quebecois" then there is a very strong likelihood that they might try to defeat the government,' Fife reported on Friday afternoon.
The Liberal motion, which has the approval of the NDP and Bloc Quebecois, reads:
"In light of the government's failure to recognize the seriousness of Canada's economic situation and its failure in particular to present any credible plan to stimulate the Canadian economy and to help workers and businesses in hard-pressed sectors such as manufacturing, the automotive industry and forestry, this House has lost confidence in this government and is of the opinion that a viable alternative government can be formed within the present House of Commons."
Coalition talks are expected to go on through the weekend.
News of the motion broke as Conservatives backed away from including a thorny plan to slash public funding for political parties in a confidence vote on the fall fiscal update.
"Negotiations are still going on. ... It changes every hour, I'm starting to wonder if this is going to be serious now given the fact that the political financing thing was the fuse that started it all is being pulled out of the ways and means," Fife said.
Now it's "unlikely they are going to defeat the government on a ways and means motion because of the effect it would have on seniors," Fife said.
The fiscal update included a measure to reduce the minimum withdrawal amount from Registered Retirement Income Funds by 25 per cent, to help seniors access those funds in more manageable amounts.
Kory Teneycke, communications director for Prime Minister Stephen Harper, confirmed Friday that the controversial funding measure won't be included in the bill coming before Parliament on Monday.
"The vote that will be taking place on the ways and means motion on Monday actually does not contain changes to the political subsidy," he told CTV Newsnet, noting it would come forward in a separate bill.
However, he insisted the Conservatives were still "moving forward" with the fiscal update unveiled Thursday.
"We're moving forward, we're focused on the economy and we're not anticipating changing our agenda," Teneycke told CTV Newsnet.
He said the opposition parties' steps towards forming a coalition, less than two months after the federal election, is "an appalling affront to democracy."
"What we're hearing now with respect to a possible coalition government is really quite unprecedented," Teneycke said. "We have opposition parties -- the Liberal party that received its smallest percentage of votes since Confederation -- that is aiming to take power through the back door along with the separatists and the NDP."
Party stalwarts brokering deal
The urgent and high-level negotiations between the opposition parties began Thursday night after the Liberals and NDP -- along with the Bloc Quebecois -- rejected Flaherty's economic update.
"Under this deal the Liberals would form the government, the NDP would sit in it with cabinet seats and the Bloc Quebecois would support this new NDP-Liberal coalition from outside the government," said Fife.
As a confidence measure, the Conservatives' bill must pass when it comes to the House of Commons on Monday, or the government will fall. In that case, the opposition parties would have to meet with Gov. Gen. Michaelle Jean and convince her they had solid footing to form a coalition.
Jean is currently in Europe, but the chief justice of the Supreme Court of Canada could act on her behalf.
"Unless the prime minister backs down, the government will be defeated, the opposition will form a pact, they will go to the Governor General and they will say that rather than call an election, the Liberals should be given an opportunity to win the confidence of the House of Commons," Fife said.
"It seems very unlikely the Governor General could refuse that request because there will be a formal deal."
As he arrived at Parliament Hill on Friday, Broadbent told Fife it's no secret there's a good possibility the government will fall.
"It's a very uncertain situation right now that the Tories have brought on themselves with their economic statement," Broadbent said.
"I heard from the business community this morning, and they're unhappy with it, all the opposition parties are unhappy with it, so there's no question serious discussions are going on, but that's all I can say."
Flaherty not backing down
Earlier Friday, Finance Minister Jim Flaherty said the fiscal update is a cautious and responsible approach to the economy during an uncertain financial period -- and the onus is on the opposition to support it.
The plan also predicts Ottawa would post a small surplus of about $100 million this year.
"We've put forward our financial plan in a time of economic slowdown, at a time when many Canadians are losing their jobs and we're asking the politicians, the public servants and the political parties to take a haircut, to be part of the restraint that we need in the Canadian economy now and we hope they will do that," Flaherty told Canada AM.
"That is the government's plan. If the bill is defeated, the government is defeated."
Flaherty said the opposition parties should exercise some "sober second thought" before voting down the bill and toppling the government.
He said the government was elected by the Canadian people and given a mandate to run the economy. He also cautioned the parties against "feathering their own nest" at a time when many Canadians do not have the job security that politicians enjoy.
Stephen Scott, a constitutional law professor with McGill University told CTV Newsnet that the Tories should consider being more flexible, especially on an economic stimulus package.
"There is a great deal of public sentiment that some measures of stimulus are required," he said. "Mr. Flaherty has sounded a pretty hard line and I think the opposition are likely to be able to carry a motion of non-confidence . . . unless the government shows itself to just be a little more flexible."
