Flaherty Mixed Fiscal Restraint With Streak of Mischief

Photographer: Cole Burston/Bloomberg

James "Jim" Flaherty, Canada's then finance minister, smiles while speaking during a press conference after releasing the 2014 Federal Budget on Parliament Hill in Ottawa, Canada, on Feb. 11, 2014. Close

James "Jim" Flaherty, Canada's then finance minister, smiles while speaking during a... Read More

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Photographer: Cole Burston/Bloomberg

James "Jim" Flaherty, Canada's then finance minister, smiles while speaking during a press conference after releasing the 2014 Federal Budget on Parliament Hill in Ottawa, Canada, on Feb. 11, 2014.

Stored somewhere in Jim Flaherty’s garage at his home near Toronto is a waffle costume his campaign used as a prop during its losing bid for the leadership of the Ontario Progressive Conservatives in 2002.

Canada’s former finance minister, who died suddenly yesterday at age 64, would dress campaign workers in the outfit to illustrate how his main opponent in that race, Ernie Eves, wasn’t decisive, a “serial waffler.”

The antics displayed the humor that Flaherty, one of the country’s longest-serving finance ministers, became well-known for in Ottawa.

“In the House as the news spread of Mr. Flaherty’s passing, there was just an incredible sense of common humanity and respect for an individual who gave his all in the service of his country,” Ralph Goodale, a member of the federal Liberal Party and former finance minister, told reporters in Ottawa. “There was an outpouring I think, of genuine affection and common unity. He always had that impish, almost leprechaun style of his Irish heritage.”

Beneath the Irish humor, was a devout fiscal conservative who wasn’t afraid to bring in one of the most far-reaching episodes of government activism since World War II to spare Canadians the brunt of the global economic crisis. That pragmatism helped earn Canada a reputation as a financial stability bastion -- and kept his government in power.

“I’m not a philosopher,” Flaherty said in a 2012 interview to discuss his record. “I’m an advocate of being pragmatic.”

Law Degree

Flaherty was born Dec. 30, 1949, in the Montreal suburb of Lachine. He studied at Princeton University on a hockey scholarship, and earned a law degree from York University’s Osgoode Hall Law School in Toronto. He would stay in the greater Toronto region the rest of his life, raising his family in Whitby, Ontario just east of Canada’s largest city.

“My partner and my friend Jim Flaherty has passed away,” Prime Minister Stephen Harper told reporters in Ottawa yesterday. “This comes as an unexpected and a terrible shock.”

Flaherty died “peacefully,” his wife Christine Elliott and triplet sons John, Galen and Quinn said in a statement. “We appreciate that he was so well supported in his public life by Canadians from coast to coast to coast and by his international colleagues.”

While the statement didn’t give a cause of death, the Canadian Broadcasting Corp. reported Flaherty suffered a heart attack, citing people it didn’t name. Emergency crews responded to a 911 call from Flaherty’s apartment at 12:27 p.m., and paramedics pronounced Flaherty dead on the scene, said Glenn Wasson of the Ottawa Police.

Provincial Start

Flaherty had been the only finance minister to serve in Harper’s cabinet since the Conservative government came to power in 2006. He stepped down from the post March 18 and was replaced by Joe Oliver.

His ascendancy from an insurance defense attorney to dean of Group of Seven finance ministers began with a failed run for the Ontario legislature in 1990.

Flaherty would run again and win election provincially in 1995 when Ontario voters returned the Progressive Conservatives to power under Mike Harris and held various cabinet positions, including provincial finance minister, but would fail twice to win the party leadership.

Sensing opportunity, he entered federal politics during the January 2006 elections that brought the Conservatives back to power for the first time in 13 years. One of the few Conservative lawmakers with any government experience at the time, Flaherty was appointed finance minister.

Squeegee Kids

He brought with him a reputation as a right-wing politician who, as Ontario attorney general, tried to stop youths washing car windshields at intersections for spare change. His 2002 leadership run included a pledge to put homeless people in jail.

It was a reputation he often seemed to encourage.

In parliamentary debates, he relished distinguishing himself as a deficit hawk, claiming the opposition parties were free-spenders who would lead the country to fiscal ruin.

“My wife, Christine, and I are blessed with triplet sons and I am not prepared to mortgage their future or any child’s future,” Flaherty told lawmakers in April 2006.

Accused of behaving even worse than a “raving socialist finance minister” during one exchange in Parliament in his first year on the job, Flaherty quipped: “I insist that the member opposite apologize. I have family; I have children. This cuts to the bone.”

Pragmatism, Populism

One of Flaherty’s sons has a mental disability and in 2007, Flaherty introduced the Registered Disability Savings Plan, designed to help parents put away money for their disabled children to have long-term financial security.

“I greatly admired his passion for improving the lives of Canadians, especially his advocacy on behalf of the disabled,” Ed Clark, chief executive officer of Toronto-Dominon Bank said yesterday in a statement.

For most of his tenure, keeping his government in power had been Flaherty’s main preoccupation, and pragmatism and populism the two recurring themes. When the Conservatives returned to power in 2006 they lacked a majority in Parliament to pass legislation.

Flaherty’s immediate tasks included fulfilling campaign pledges, winning opposition backing for legislation, avoiding conflicts with provincial leaders, and growing his party’s popular support.

Chrysler Stake

He doled out tiny credits and deductions that complicated the tax code, chose to reduce the country’s unpopular sales taxes instead of lowering more costly personal income taxes thereby discouraging savings and investment and fanning consumer spending, and increased regulations to bolster consumer protection that boosted costs for business.

To fend off the global recession in 2009, he abandoned conservative dogma altogether for Keynesian spending that he had criticized in his first years as finance minister, as opposition parties threatened to take power.

His government acquired a stake in Chrysler Group LLC, ran record deficits, bought mortgages, and deepened business access to subsidies -- using whatever tools available to keep the economy afloat and his party in power.

Flaherty had no regrets for the ideological about-face.

“If we have to do it again we’d do it again,” he said in the 2012 interview. “I guess that’s Keynesian.”

It worked for Flaherty, both economically and politically.

Canada’s economy grew 56 percent in U.S. dollar terms between 2005 and 2012, equal to $655 billion in additional annual production, compared with an average 28 percent among 35 advanced economies tracked by the International Monetary Fund, and 23 percent for the other six G-7 countries.

Restoring Credibility

In inflation-adjusted terms, Canada’s economy has outperformed the G-7 average in all but one year under Flaherty.

In 2011, the Conservatives were rewarded with a majority, ending five years of minority government for Harper.

Flaherty spent his last years in office seeking to restore his credibility as a fiscal conservative in part to finance an ambitious tax cut agenda that, along with staving off the global economic crisis, may be his most significant achievement. Flaherty cites cuts that have reduced the federal government’s tax take to its lowest in more than 50 years as evidence of his conservative credentials.

“Smaller government is better I still believe that,” Flaherty said. The tax cuts “will limit revenue growth for government which in my view is a good thing because it causes discipline in government.”

Surplus Ahead

The government is also on its way to returning to surplus. Flaherty’s budget plan released in February forecasts almost C$45 billion ($41 billion) in surpluses over four years starting in 2015.

“He stuck to his guns after the financial crisis to whittle down the deficit,” James Dutkiewicz, head of fixed-income at Sentry Investments Inc. which oversees C$14 billion, said by phone from Toronto.

Flaherty also took pride in Canada’s growing influence in institutions such as the Group of 20. Officials attending a meeting of the group in Washington this week paid tribute to Flaherty yesterday, including Australian Treasurer Joe Hockey, Oliver and Bank of England Governor Mark Carney.

“Jim Flaherty played a central role when the G20 came of age in Washington in 2008, and when it forged its greatest contributions in London 2009 and Toronto 2010,” Mark Carney, a former Bank of Canada Governor, said. “He was a true believer in multilateralism, leading, urging, cajoling the members around the table to pursue policies that would promote strong, sustainable and balanced growth for all.”

Survival Matters

Flaherty’s relationship with Harper was forged during two minority administrations, from 2006 through the 2011 election. His tenure ended last month amid clashes with his own government on tax policy and as he struggled to overcome a debilitating skin disease. He died 23 days after stepping down.

“He literally worked up to his dying day for the people of Canada,” Tom Caldwell, CEO of Caldwell Securities Ltd., said in an interview. “His legacy is that Canada worked its way through the greatest crisis period, stood tall and was a star performer in the world. He helped establish Canada as the Switzerland of the north.”

In a 2012 interview to discuss his record, Flaherty said that longevity is a necessary condition if a government wants to be influential.

“Survival matters,” Flaherty said. “We’ve made it. We’re still there. We’re still the government.”

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net Jacqueline Thorpe

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