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Liberal Leader Michael Ignatieff has given a sharp warning to Prime Minister Stephen Harper: Deliver a budget that opposition parties can support next month or be prepared to lose a vote of confidence.

Though the new Liberal Leader is widely seen as wanting to avoid such a showdown, he said Mr. Harper has failed to demonstrate effective leadership in the face of a worsening economic crisis, and the January budget represents a crucial test.

“I think it is extremely important for Mr. Harper to understand that if he doesn't produce a budget that is in the national interest of Canada he's going to lose a vote of confidence at the end of January,” Mr. Ignatieff said in an interview on CTV's Question Period that aired Sunday.“He has to understand that, and he has to understand this is a credible threat.”

Mr. Ignatieff took over as Liberal chief this month after Stéphane Dion agreed to a widely unpopular coalition with the New Democratic Party – with the promised support of the Bloc Québécois – to unseat the Conservatives. The ensuing backlash forced Mr. Dion to move up his planned departure from May.

However, Mr. Ignatieff said the coalition is alive and prepared to govern if Mr. Harper fails to deliver a budget that provides adequate relief to Canadians hurt by the recession, and incentives for business to invest in the economy.

Mr. Harper and Finance Minister Jim Flaherty have signalled the budget – to be delivered on Jan. 27 – will provide billions of dollars in stimulus spending, particularly on infrastructure, and will drive the federal budget deep into deficit.

The Conservative government moved 10 days ago to provide $4-billion in loans to ailing auto makers General Motors Corp. and Chrysler LLC to protect jobs in Canada after opposition MPs criticized the government for moving too slowly on the auto bailout. It has also provided $25-billion to buy mortgages from Canadian banks to free up more credit.

But Mr. Ignatieff said Mr. Harper has been slow to react after spending much of the fall playing down the seriousness of the recession.

“They've not shown economic leadership up to this point,” he said. “The budget is their last shot, their last chance, and I think Canadians are entitled to have an alternative government, a coalition government, ready to take their place if they fail this last chance to get economic leadership right.”

Mr. Ignatieff – who appeared cool to the coalition when it was announced in late November – is widely expected not to defeat the government on the budget but to maintain pressure, take credit for popular actions and seek an opportunity later in 2009 to force an election.

NDP Leader Jack Layton said his party has lost confidence and trust in Mr. Harper, and believes the country would be better served by a Liberal-NDP coalition government. He acknowledged the plan to bring down the Harper government had meant a storm of opposition in the country but added that such cross-party co-operation provides good government in Europe.

“If you look at Europe, it makes for very good public policy,” he told CTV's Question Period. “These are the countries that are the furthest advanced on strong economic policies and environmental policies.”

Mr. Layton said Canadians are tired of bitterly partisan politics, and that a coalition could prove saleable over the long term.