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The Harper government dodged defeat Tuesday despite a parsimonious budget worth only $6-billion over three years – one that offered Canadians a new tax shelter for savings and a smattering of aid for struggling manufacturers and auto plants.

Despite the budget's lack of significant tax or spending measures, Liberal Leader Stéphane Dion immediately announced his 94-member caucus won't trigger an election by voting against it.

The budget is the smallest in 11 years – since Ottawa balanced its books – and represents a deliberate decision by the Tories to restrain spending rather than break open the kitty to meet a cacophony of demands for help as Canada's economy slows.

For example, the Tories could have spent a budget surplus that's swelled to $10.2-billion for the fiscal year ending March 31, but instead announced they'll use all of it to pay down federal debt.

To a large extent, the Tories are cash-starved by design: Last fall they used up most of the surplus on $14.7-billion of annual tax cuts. It was a move designed to deny opposition parties fiscal room with which to plan campaign promises for a possible 2008 election.

Finance Minister Jim Flaherty defended last fall's hefty tax cuts in the face of opposition criticism that the reductions – including cutting the goods and services tax – went too far.

“Some say we should not have provided tax relief for individuals, families, workers and seniors. They call it ‘blowing the surplus,'” he said. “Well … it takes a certain kind of Ottawa politician to view giving people their hard-earned money back as ‘blowing the surplus.'”

In this new cash-constrained environment, spending rises only 3.4 per cent next year, a dramatic shift after the first two years of Tory budgets expanded federal program spending by 14.8 per cent.

But even as they plead penury, the Tories loaded what they bet was enough spending in the budget that they could run an election on it if necessary.

The budget sprinkles cash across a range of groups from seniors to students, infrastructure-starved cities, police and veterans – spending designed to inoculate the Tories from public criticism that they did nothing as economic turbulence hit Canada.

Tory strategists are betting this fiscally prudent middle path will strengthen their appeal to what they call “Conservative-Liberal vote switcher” electors – particularly those in suburbs around Toronto, Montreal and Vancouver, where the Conservatives want to gain seats.

These voters are fiscally conservative and cherish a tough no-deficit policy in Ottawa, strategists say, but they also want to see the government make incremental progress rather than “big splashy” efforts on other spending priorities.

The budget also courted urban voters by making permanent a transfer of the federal gas tax to cities after 2013-2014, a measure that will cost Ottawa $2-billion in annual revenue after that point.

Still, the Tories had little to offer for the biggest trouble spots in the economy: the faltering manufacturing and auto sectors, hit hard by the strengthened Canadian dollar and the U.S. economic slowdown.

The budget offers the auto industry $250-million spread over five years to support research projects that develop greener, more fuel-efficient vehicles. It also extends a temporary tax break for manufacturers at a cost of $1-billion over three years, but offers nothing for firms losing money.

Even this modest new spending is taking Ottawa closer to a deficit than it's been since the late 1990s – at least on paper. The Conservatives used up all surplus cash for the next two years and are even cutting into cash set aside for debt reduction to fund new measures over that period.

But, as always seems to be the case, the federal Finance Department has socked away extra cash that could help the Tories avoid going into the red. For instance, government sources say they expect to reap between $1.5-billion and $2-billion this year from a federal auction of radio frequencies to cellphone carriers – money that isn't included in projections.

The centrepiece of this minimalist budget is the new tax shelter for savings and investment, the Tax Free Savings Account. It represents the Tories' attempt to make up for the fact they have not delivered on a poorly drafted 2006 election promise for a tax break on capital gains that would have immediately cost Ottawa billions of dollars annually.

This measure will let Canadians contribute $5,000 a year to an account in which they can save or invest funds for any purpose tax-free.

The Tories have also taken care in the budget to look after their traditional base, with extra cash for the military, veterans, police and seniors.

In fact, seniors – a vote-rich group – are among the biggest winners. Finance officials say they expect half the beneficiaries of this new savings account will be seniors sheltering retirement funds from tax. What makes it especially attractive for seniors is that withdrawals will not cause clawbacks of federal income-tested benefits.

Costing only $385-million a year by 2012-13, this account is a far cheaper alternative for the cash-trapped Tories than their abandoned capital gains pledge, which would have given Canadians a break on profit from the sale of everything from stocks to cottages but cost Ottawa dearly.

Manufacturers jeered the budget, saying Ottawa failed to deliver help they need.

“There's nothing in this budget that would give me any confidence we will not see at least another 100,000 job losses in manufacturing this year,” Canadian Manufacturers & Exporters head Jay Myers said.

As expected, the Bloc Québécois and the New Democratic Party said they will oppose the budget.

Highlights include:

• $500-million for investment in public transit.
• A $2-billion fund for infrastructure investment will be made permanent.
• $250-million over five years to help the automotive industry develop more environmentally friendly vehicles.
• $350-million for a Canada Student Grant Program.
• $90-million for older workers hurt by factory closures.
• $300-million to for nuclear energy.
• $330-million over two years to improve access to safe drinking water for First Nations.

Mr. Flaherty also announced a series of border and security initiatives, including $400-million to encourage provinces to recruit 2,500 police officers. The Communications Security Establishment will get $43-million to buy new surveillance gear, and Canada Border Services will get a boost of $75-million. The government also said it will aim to introduce electronic passports in 2011.

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