James Michael “Jim” Flaherty, lawyer, provincial and federal politician and cabinet minister (born 30 December 1949 in Lachine, QC; died 10 April 2014 in Ottawa, ON.) Jim Flaherty was a prominent figure among the doctrinaire conservatives who emerged in the 1990s, first as a cabinet minister in Ontario and then in Ottawa as federal finance minister. Flaherty tempered his fiscal conservatism to confront the deepest global recession since the Great Depression, spending heavily to replace private spending that was much reduced by the financial crisis of 2008–2009. Canada’s economy and banking system survived the crisis relatively well, earning Flaherty an international reputation as a competent policy maker.
Princeton and Osgoode Hall
Jim Flaherty was the sixth of eight children raised by Edwin and Mary (Harquail) Flaherty, natives of New Brunswick, who settled in the Montreal suburb of Lachine. The family was comfortable but not prosperous. Flaherty went to Princeton University in New Jersey on a hockey scholarship, graduating cum laude in 1970 with a Bachelor of Arts degree in sociology. He followed that with a law degree from York University’s Osgoode Hall Law School in 1973. Flaherty drove a taxi part-time and in the summers to help pay his Osgoode tuition.
Flaherty was called to the Ontario bar in 1975. He would practise for 20 years, specializing in litigating automobile accident claims. In 1994 he co-founded the Toronto-based firm that would become Flaherty Dow Elliot & McCarthy LLP, with a group of lawyers that included Christine Elliot, his wife. Flaherty, Elliot, and their triplet sons Galen, Quinn and John (born in 1991) settled in Whitby, ON, east of Toronto.
Flaherty spent much of his political career fighting against the notion that he was a conservative ideologue. “People think I have some grand political notion,” he told the Toronto Star in 2001. “I’m not an ideological person.” He grew up in a Liberal family and was nudged towards public service after hearing Robert Kennedy speak at Princeton. In the summer of 1968, at the age of 18, he knocked on doors for Pierre Trudeau. Flaherty’s enthusiasm for Trudeau didn’t last as he became dismayed by what he saw as the Liberal government’s profligacy.
Flaherty first tried to get elected to the Ontario legislature as a Progressive Conservative in 1990. He lost. Five years later, he tried again and was carried into Queen’s Park on the wave of support for Mike Harris’s “Common Sense Revolution.” By 1997, Flaherty was in cabinet as minister of labour and was promoted to attorney general two years later. In 2001, Harris appointed Flaherty finance minister and deputy premier.
Ideological or not, Flaherty aligned himself with the ascendant right wing of a party that traditionally had stuck closer to Ontario’s political centre. Flaherty demonstrated a taste for political theatre. As attorney general, he went in front of television cameras with a bucket and squeegee to promote his government’s crackdown on Toronto’s windshield washing panhandlers. When he campaigned against Ernie Eves to replace Harris as Progressive Conservative leader in 2002, Flaherty often was accompanied by a supporter in a Pink Panther costume, to emphasize Flaherty’s contention that Eves was a “pale pink imitation” of Liberal Leader Dalton McGuinty.
Flaherty campaigned on promises to sell public assets, ban teachers’ strikes and arrest the homeless, but he lost the leadership race to Eves. He remained in cabinet, but in a diminished role as minister of enterprise, innovation and opportunity. The Progressive Conservatives lost to the Liberals in October 2003 and Eves resigned as leader a year later. Flaherty again tried to convince Ontario Conservatives to elect him leader, but lost to John Tory, who campaigned as a moderate. Flaherty quit provincial politics in December 2005. His wife replaced him at Queen’s Park, winning a by-election in March 2006.
Flaherty was the most prominent member of a group of former Mike Harris cabinet ministers that went on to help Stephen Harper win a minority government in Ottawa in early 2006. The Parliamentary opposition was weak and Flaherty, who was named finance minister, took advantage of the situation by tabling a budget that used a fiscal surplus to cut corporate taxes and reduce the Goods and Services Tax to five per cent from seven per cent. The latter was especially controversial as the GST was an essential element of Canada’s streak of budget surpluses under previous Liberal governments led by Jean Chretien and Paul Martin. “Middle-class people don’t believe that governments reduce their taxes,” Flaherty told Report on Business in 2010. “But if you do it on a consumption tax, people see it. That, in part, restores faith in government.”
On Halloween, 2006, Flaherty reneged on a campaign promise and closed a tax loophole that allowed corporations to convert to income trusts. The move wiped out $20-billion in market value the next day as investors dumped the shares of companies that had sought to profit from the tax maneuver. The change was widely seen as good for the country, but it earned Flaherty lasting scorn from investors who lost money because of it. He received death threats and was given police protection for a time.
2008 Financial Crisis
The turbulence was only beginning. The U.S. housing market collapsed in 2007, triggering a series of events that led to a global financial crisis in the autumn of 2008. In October, Flaherty attended a meeting of finance ministers and central bank governors from the Group of Seven countries in Washington, at which the U.S., Japan, Germany, the United Kingdom, France, Italy and Canada pledged to do whatever necessary to prop up the international financial system. The G7 got the backing of the larger Group of 20 nations, and in November, the G20 leaders met and agreed to implement fiscal stimulus measures worth two per cent of gross domestic product to slow the deepening recession.
The promise was pure Keynesian economics; an approach Harper and Flaherty had spent their careers fighting against. Their commitment to the G20 pledge was called into question when Flaherty released a budget update in November that predicted a dubious surplus, and proposed removing federal subsidies for political parties. The latter measure was a direct political attack on the opposition, which depended on subsidies to a greater degree than the Conservatives. The Liberals, Bloc Quebecois and New Democratic Party responded by working together to unseat Harper, a move the prime minister blocked by proroguing, or ending the current sitting, of Parliament.
Flaherty presented a new budget in January, the earliest annual budget in Canadian history. The global recession had worsened since the previous autumn. Flaherty’s budget pledged $40-billion in stimulus measures, exceeding the G20’s spending target. The deficit ballooned to $55.6-billion in 2010, compared with a surplus of more than $4-billion in 2006. Flaherty, who had made a virtue of fiscal prudence, insisted that federal money be spent quickly, because the goal was to reverse the recession by flooding the economy with cash. Canada’s recession was short and shallow compared with those of its peers. Flaherty was named Finance Minister of the Year by Euromoney magazine in 2009.
Balanced Budget Sought
Flaherty won his third election in the federal riding of Whitby-Oshawa on 2 May, 2011 and Harper won his first majority in the House of Commons. Canada’s economy was growing faster than any other among the G7 industrialized nations. Flaherty said the need for aggressive stimulus had passed and that he would steadily return the federal budget to surplus and resume paying off debt.
By 2014, however, the economy was slowing somewhat. With interest rates at historic lows, taking on more debt to finance stimulus measures would have been affordable. Yet Flaherty was unwavering in his commitment to a balanced budget, accepting only limited increases to infrastructure spending, arguing that erasing the deficit was the best thing he could do to restore confidence in the economy. When Flaherty resigned from cabinet in early 2014, a fiscal surplus was on the horizon. The Parliamentary Budget Officer forecast a deficit of $500-million in the fiscal year ending in September 2015 and a surplus of almost $8-billion the following fiscal year.
TFSAs and Other Measures
The Flaherty era in Ottawa was defined by tax cuts, a global financial crisis that forced a big fiscal deficit, and an expected return to surplus. But Flaherty also tackled smaller issues that were less likely to generate headlines.
Flaherty was an advocate of the disabled — one of his sons, John, has encephalitis, a swelling of the brain caused by infection. In 2007 Flaherty used the federal budget to create the Registered Disability Savings Plan, which allows parents to accumulate savings for disabled children that can be spent later without incurring taxes. The following year, Flaherty created Tax Free Savings Accounts, which allow Canadians to earn tax-free investment income on annual maximum contributions of $5,000. Recognizing the threat of a U.S.-style housing bust in Canada, Flaherty took steps to make it more difficult to obtain government-insured mortgages. He also pushed for a national securities regulator even after the Supreme Court of Canada ruled against the federal government’s contention that it had the authority to impose a regulator on the provinces.
Flaherty’s final year in office was a difficult one. He announced early in 2013 that he had bullous pemphigoid, an acute autoimmune skin disease that was painful and required steroid treatment. Flaherty insisted his health had nothing to do with his decision to retire from politics in March 2014. He said he had served long enough and would seek opportunities in the private sector.
His sudden death in Ottawa 23 days later shocked Canada’s political class. Harper ordered a state funeral for Flaherty that was held on 16 April at St. James Cathedral in Toronto. In his eulogy, Harper recalled the day Flaherty resigned. “I told Jim that he had truly been over these eight years, in my judgement, the best finance minister in the world, if not indeed the best in our history.”