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There are four major parties in Canada. The Liberals are the centre party, Conservatives (formerly known as the Progressive Conservatives) are right-of-centre on most issues, and moderately right on others. The NDP are basically the left-wing party in Canada that was founded by farmers in the West; it's been through several incarnations since WWII, and more recently they've started moving closer to centre. The Bloc Quebecois are all over the place on issues, and are primarily concerned with separating from Canada; they don't run candidates outside of Quebec and can never hope to run the government. They're there just because.
Quite frankly, though, the Conservatives here suck and have always sucked, except for the dudes from a century ago that were all drunk and challenged each other to duels.
Here is why the Liberals have run Canada for about 75% of the last 130 years: the Conservatives, in their infinite wisdom, cut taxes but keep social programs going in order to make voters happy. Part of what defines Canada is our extensive social programs. This causes deficits that burden the country for the next 10 years. The Liberals then get voted in, drag us out of debt, create big surpluses and then the Conservatives get their act together, get elected, and ruin the surplus, and so on and so forth.
About a decade ago, the Reform Party was formed in the West because of complaints that the West was being ignored and there wasn't a party right-wing enough for a good balance. They later turned into the Canadian Alliance which completely bombed under Stockwell Day (his agenda was based to deeply in fundie Christianity, a lot of Canadians freaked out and the Alliance booted him out).
The PC's were decimated after the 80's and Mulroney, so they have merged with the Alliance Party to form the Conservative Party under Steven Harper. This has two effects: the right-wing vote is no longer split for the first time in about 15 years, and the
progressive conservative party of old doesn't exist anymore. The Conservative Party has moved squarely into the right now. A lot of conservative voters haven't realized this yet; the party that is running IS NOT the party that they are familiar with. Many former PC's, including Joe Clark, have attacked Steven Harper for having a hidden agenda (most likely based on religion, again). His proposed budget has $50 billion that seems to have just appeared out of no where. He's said publicly that because homosexuality isn't explicitly stated in the Charter of Rights and Freedoms (aka Canada's Constitution) it doesn't count as a protected right (as in, although it's bad to discriminate, if you discriminate against someone because they're gay, that's technically okay because it's not in the books). He keeps hedging on his stance on abortion.
The Liberal sponsorship scandal isn't that big of a deal, IMO. The money was going to Liberal-friendly companies in Quebec, which have basically supressed the whole separatist movement. Harper's main criticism of Martin is that the money was doled out while he was finance minister. The catch is, though, if it had been the Conservatives in power, that money would have been going to Conservative-friendly companies. Unfortunately, Martin isn't half the leader that Chretien was and isn't anywhere near as cool.
Regardless, we're probably heading towards a minority government, which means that we will be voting again in 18 months, statistically speaking. The NDP is trying to steal votes from the Liberals, the Liberals are trying to steal votes from the Conservatives who are still miffed at the party merger, and the Conservatives finally have a united front.
Interestingly, enough, though, even IF the Conservatives win more seats than the Liberals, as long as Martin is within 30 seats he still gets to be prime minister if the Conservatives do not have a majority. He is given the chance to form a coalition with one of the other parties first.