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After 24 hours of peering into a yawning political abyss, the Harper government stepped back from the brink Saturday, dropping a plan to kill public subsidies for political parties.

"When it comes to the funding and subsidies that political parties get, we just don't think it's worth getting into an election on that issue," Transport Minister John Baird said in an interview.

"We won't be proceeding."

There were hints there could be further retreats in store to placate incensed opposition parties who've been plotting to replace the minority Tories with a coalition government since Finance Minister Jim Flaherty released his fall fiscal update Thursday.

A Conservative official said "the government will put more water into their wine" when Mr. Flaherty makes an announcement in Toronto on Sunday.

But the official said the announcement will not include any new economic stimulus — without which the opposition parties said they would not back off their threat to topple the government.

In a brief interview late Saturday, Mr. Flaherty said: "I'm not going to announce a budget."

On additional stimulus, he said: "We're going to do the homework that needs to be done but tomorrow I'll be able to say more on that."

The Tories' climb down came only a day after Prime Minister Stephen Harper's office sent an e-mail to Tory MPs calling for an all-out media blitz to sway public opinion in favour of the government's economic agenda and asserting "we are nonetheless prepared to return to the polls over this issue."

Opposition parties were enraged by Mr. Flaherty's failure to include any measures to stimulate the faltering economy in his update and apoplectic about a surprise move to end public subsidies for parties, which would financially cripple every party except the Tories.

A game of political chicken ensued, with Mr. Harper adamantly refusing to back down from the fiscal update and angrily denouncing opposition machinations to install a coalition government as illegitimate and undemocratic. His opponents were equally determined to scuttle the Tory regime just six weeks after the Oct. 14 federal election.

Despite Saturday's politically embarrassing climb down on the subsidy issue, the three opposition parties continued negotiating the details of a possible coalition and dismissed the reversal as meaningless.

"The prime minister is only focused on politics and political parties and he's not listening to Canadians who are saying loud and clear: 'It's the economy, stupid."' said Liberal finance critic Scott Brison.

"Until we see a real economic plan to help Canadians protect their savings and jobs during these tough times, we can't support a prime minister we don't trust."

New Democrat spokesman Brad Lavigne said: "This changes nothing because for the New Democrats, it was never about public financing."

Bloc Québecois Leader Gilles Duceppe echoed those sentiments.

"[Harper's] mistaken if he thinks we'll adopt his [economic] plan as is," Mr. Duceppe said.

"There's no question he's attacking the rights of women, the rights of unions, there's nothing for the manufacturing and forestry sectors. We no longer have confidence in Stephen Harper."

Indeed, there were signals from the opposition that the matter may have passed a point of no return and it could be too late for the government to avert defeat, no matter what it offers.

"I wouldn't say the train has left the station but it's gathering speed," said John McCallum, chair of a Liberal economic advisory committee.

"At this point, it's difficult to believe anything this government says. I mean, it's clear that they are desperate so no matter what they say, how can we believe it, given their past record?"

Before the government reversal, Mr. Brison said Mr. Harper had poisoned the atmosphere in Parliament beyond repair.

"I see virtually no possibility of Stephen Harper being able to earn back the trust of this Parliament."

Mr. Harper staved off an immediate showdown Friday by pushing back two critical votes on the fiscal update until Dec. 8.

Mr. Baird said the government included the subsidy-slashing measure in the update because it believes in "leadership by example" during the global economic crisis. He said the government is "disappointed that opposition parties don't share that view" but won't risk defeat over it.

Only a day earlier, Mr. Harper's chief of staff Guy Giorno sent out an e-mail that included talking points, scripts for Tory partisans to use on radio phone-in shows and a template for letters to newspaper editors. Party faithful were encouraged to "use every single tool and medium at our disposal" to spread the word that opposition parties are trying to usurp the government in a crass bid to protect their political "entitlements."

Saturday's sudden willingness to drop the issue suggests the Tory spin campaign was not going over well with the public. Liberals and New Democrats claimed they've been inundated with calls and e-mails supporting their stand against the government.

But Mr. Baird insisted there was no public backlash.

"I see no measurable public support for subsidies to political parties," he said.

Mr. Baird said he agrees there needs to be more economic stimulus but he argued the government has already done much on that score and will do more in the next budget, which may be presented in January, a month earlier than usual.

Mr. Giorno's message included very detailed scripts MPs are expected to follow while delivering radio interviews that include the following lines:

• We're not even two months removed from the last election, and a group of backroom politicians are going to pick who the Prime Minister is. Canadians didn't vote for this person. We don't even know who this person will be.
• Not a single voter voted for a Liberal-NDP coalition. Certainly not a single voter voted for the Liberals to form a coalition with the separatists in the Bloc.
• This is what bothers me the most. The Conservatives won the election. The Opposition keeps saying that the Conservatives have to respect the will of the voters that this is a minority and so on.
• …how about Liberals, NDP and Bloc respecting the will of the voters when they said "YOU LOSE".
• And what's this going to do to the economy. I'm sorry, I don't care how desperate the Liberals are — giving socialists (Jack Layton) and separatists (Gilles Duceppe) a veto over every decision in government — that is a recipe for total economic disaster.
• But how more phony could these guys be?
• I mean, I follow the news, virtually every single day you have Harper or Flaherty out there telegraphing exactly what they plan to do with the economy. And not once did you hear the Liberals, NDP or separatists talking about toppling the government in response.
• No — do you know what set this off. When Flaherty said he was going to take taxpayer-funded subsidies away from the opposition. Now there is a reason to try and overturn an election— because the Conservatives the audacity to say "Hey, it's a recession, maybe you should take your nose out of the trough."
• And I wish the media would be more clear on this point — the opposition aren't being singled out by this fact the Conservatives stand to lose the most money of all. The only difference is that Canadians are voluntarily giving money the Conservatives, so they don't need taxpayer handouts. The only reason the opposition would be hurt more is because nobody wants to donate to them. They should be putting their efforts towards fixing that problem.
• I don't want another election. But what I want even less is a surprise backroom Prime Minister whom I never even had the opportunity to vote for or against. What an insult to democracy.

A partial copy of the e-mail appears below.