As rumours whirl on Parliament Hill about whether Jim Flaherty has delivered his last budget, it is worthwhile commenting on his legacy. So much of politics is about dealing with the hand that you have been dealt. When former British Prime Minister Harold Macmillan was asked why his was a one-term government, he replied ‘events, dear boy, events.’ Well, the events that Jim Flaherty faced in 2008, with the great recession, set a course that both he and Mr. Harper would have preferred not to have to follow. With deft fiscal and financial management, Jim Flaherty protected Canadians from longer-term financial disaster.
You will recall from the get go both Harper and Flaherty wanted to reduce taxes and pay down debt. Instead as part of a global response to dire market conditions, governments from the United States to China, and Britain to Canada primed their fiscal pumps, drove interest rates down and printed more money all in an attempt to stimulate some growth. The entire world is in much greater debt now than it would have been otherwise. In Canada’s case, we added about $150 billion to our debt. Clearly Flaherty chose a pragmatic policy response taken in light of the dire circumstances in which the global economy faced. Indeed, if the Conservatives had been in a majority government when the recession hit in 2008, I suspect, the size of the fiscal stimulus would have been much smaller.
Politicians are used to not receiving credit for their accomplishments and Flaherty has been treated no different than most. Immediately, upon slaying the deficit, some journalists were cynically pointing to his role in growing the debt. I recall at the time of the 2009 budget thinktanks like the Fraser Institute, journalists like Jeffery Simpson and Kevin Page all thought the government’s fiscal plan would fail to achieve a surplus. Indeed, some of these commentators felt that the government’s reduction in the GST from seven to five per cent would ensure that a structural deficit would remain in place for years. I didn’t see many of these and other critics giving Mr. Flaherty the credit that he is due in their post budget analysis this week.
What separates Flaherty from so many other finance ministers is his determination to bring the government back into a surplus position. While that was the intent of governments around the world, most have not shown the discipline to follow through. Too many have bowed under pressure to political demands, particularly if they have found that their government has relied on opposition support in minority parliaments. Thankfully, this is not an environment Mr. Flaherty had to work in after 2011. For all intent and purposes, the government is now in a balanced budget position and Flaherty, if he does leave later this year or before the next election, will bequeath to his successor a fiscal framework that will allow Mr. Harper and the Conservatives to get back to their original agenda. Whether that is income splitting targeted at families with more than one child or broader tax reform that rewards all Canadians for fiscal discipline, the next finance minister will owe his good fortune to the resilient Irish leprechaun who has now made a name for himself as the poster boy for fiscal prudence.
Authored by: Mike Coates