Farewell Mr. Flaherty
John Ibbitson offers his thoughts on the political life and legacy of Canada’s former Finance Minister, Jim Flaherty.
Today, “Brand Canada” stands for a well-ordered financial sector, prudent fiscal and monetary policy, skilled management of the recent financial crisis, and rigorous approach to restoring a balanced national budget.
As Finance Minister from February 2006 to March 2014, Jim Flaherty played a starring role in building that brand, though he was by no means the only star. Whatever Canadians might think about Mr. Flaherty’s legacy, the world will remember him as the man who sat in Canada’s chair when we set an example for the world.
Soft power is a term used by wonks to describe the pursuit of foreign-policy goals through persuasion rather than force. Though Liberals love soft power and Conservatives scorn it, Mr. Flaherty was the public face of a singularly successful exercise in soft power: showing the world how a nation should manage its finances.
When Mr. Flaherty took on the job of finance minister, Canada had just ended a decade of painful but necessary retrenching and rebuilding. Liberal finance minister Paul Martin had wrestled a dangerous deficit to the ground, as had most provincial governments.
With that said, the spending taps were back wide open once again by the time the Conservatives came to power, and Mr. Flaherty kept them open, even as he cut major revenue sources by lowering the GST and the corporate tax rate.
Despite the tax cuts, when the panic of 2008 set in Ottawa had plenty of room to manoeuvre. Following the panic, Mr. Flaherty took the federal budget back into deficit, though it took the fear of defeat in Parliament to do so—principally via a stimulus program that the International Monetary Fund considered particularly well-managed.
Then in Toronto in 2010, Prime Minister Stephen Harper and other G-20 leaders agreed to turn off the stimulus tap. In Canada’s case, this meant a return to a balanced budget over five years—an exercise in fiscal discipline that many other nations failed to follow.
Indeed, Mr. Flaherty leaves with the budget balanced (it will probably be balanced this year and will certainly be in the black next year), the financial regulatory regime in good shape, and the public pension system sounder than in most other countries.
It was about more than Mr. Flaherty, of course. Canada’s notoriously conservative and uncompetitive banking culture served this country well in the wake of the crisis; the books of Canada’s Big Five were largely free of the funny financial instruments that caused banks in other countries to collapse or be taken over during the meltdown.
With these successes came various challenges. For example, provincial governments had to bear some of the burden of Ottawa’s restraint, and struggle still to get out from under, while still providing essential services in health, education, and infrastructure. And while Washington took the lead in rescuing the auto sector from collapse, Ottawa and Queen’s Park simply agreed to chip in their fair share rather than lead from the front. Moreover, it is the Liberals that posterity will credit for setting the conditions that Mr. Flaherty happily inherited. “The table was set long before [Mr. Flaherty] came along,” observed Don Drummond, the former chief economist of the Toronto Dominion Bank who served in the Finance Department in the 1990s.
But the story is, all in all, a happy one. As the Prime Minister likes to remind his counterparts at international conferences, the world needs more Canadian fiscal discipline. Mr. Flaherty may have inherited a healthy set of books thanks to Paul Martin, but he kept those books in good order in the face of a global economic crisis that brought various other governments around the world to their knees.
Not a bad run, Mr. Flaherty. Not a bad run at all.