I think may be right about a federal election this year. Even if the Liberals support the budget, Mr. Harper will be aggressive in parliament proportional to the Conservative poll numbers. Eventually he will introduce a confidence measure with a poison pill, and the government will fall. The further in the future, the less likely the Governor General will look for a coalition. That leaves the only way to avoid an election in the next 18 months is the Lib/NDP coalition real soon now. But at what cost to the Liberals?
Three things could happen:
1. Liberals support the budget. I agree with Ms. Hébert, it looks like the very things the Liberals are calling for such as infrastructure, spending rather than tax cuts and some love for EI may be omitted from the budget. Instead I expect tax cuts, which I personally oppose (I prefer the CCPA plan). It would be very difficult to express confidence in a budget which proposes the opposite of your position, and also difficult to have people believe your confidence is sincere.
2. A coalition forms. The GG calls Iggy and asks if he can govern. If he refuses, an election is the only option left (see #3 below). If a coalition takes power, they'll face unrelenting criticsm of how their spending failed to create anything but a bigger deficit. The newly-jobless will soon wonder if maybe corporate tax cuts might have created more jobs. The Liberal spin could be "it was either this, or an election - the GG perfered the coalition, it was her call not mine".
3. An election is called, and it's blamed on the Liberals by the Conservatives (for defeating confidence - and that NO budget could've satisfied the power-hungry opposition) and the opposition (for not pushing the coalition). I can't find any polls for 2009 yet, but I wonder if Iggy as leader has changed the numbers much yet. I expect some anti-Dion votes to return, and possibly some soft Conservative votes to choose Mr. Iggy over Mr. Harper. I think the best Liberal spin on this would be "it was either a coalition or an election, confidence was not possible - it was the Conservatives who forced this election, and at the worst time".
3a. Liberal minority. Iggy seems to be doing better in Quebec, and the spending vs. tax cut battle could shift some Ontario power to the Liberals. They could probably govern with a minority better than the Conservatives. 'Nuff said.
3b. Conservative minority. Another waste of election money while the economy continues on its laissez-faire path. However, Conservatives would have to take the blame (or credit) for economic conditions - it would be hard to blame the opposition in this case (but they would anyway, for the interruption).
3c. Conservative majority. AHHHHHHHHHHHHHHHH! My minds eye is blind. Fortunately, I think this is least likely of #3.
I think #1 is least likely, but that's for Mr. Harper to decide. If he governs like he has a minority, he could introduce an acceptable budget. I won't hold my breath. What's in it for Mr. Harper? Another dysfunctional minority and less Liberal support than before (I hope). If he believes there is no solution for the economy and he'll take the blame for it anyway, he might as well try to get some things done that fit with his ideology and ignore the economy (but don't make it so obvious this time).
Of #2 and #3, it's too hard for me to say. But these are the choices for Mr. Iggy. If he thinks he can win a minority after considering the impact of triggering another election, that might be his best outcome - but the risks are #3b and #3c (ACK!). Otherwise, I expect #2.
(BTW, I just can't resist typing 'Iggy', and now I type 'Mr. Iggy'. The shorthand is literally irresistible)