The resignation of Canada’s minister of finance, Jim Flaherty, on the heels of a budget that was all but balanced, sparks an immediate discussion of his legacy. Mr. Flaherty has been the only finance minister to serve in Stephen Harper’s cabinet and is one of the longest-serving finance ministers in Canadian history, behind only William Stevens Fielding, who served in the Laurier and King governments, and Paul Martin, who served in the Chrétien government.
Disentangling Mr. Flaherty’s legacy from that of the Conservative government’s generally is not a straightforward proposition. Despite being one of only a handful of individuals Mr. Harper seems to give fairly wide latitude, the portfolio is a central concern for any prime minister and so in many cases it is impossible to know how much control Mr. Flaherty had over a given policy.
It is also a record that was both overshadowed and shaped by the 2008 global recession. Two important dimensions that reflect the finance minister’s overall performance are crucial here: his economic stewardship during the crisis and how he dealt with the longer term repercussions, particularly debt/deficits and unemployment.
On the first of these, it is difficult to criticize the steady hand Mr. Flaherty demonstrated in the immediate aftermath of the recession. While he was fortunate to not have to deal with a major banking crisis that other countries suffered, the economic stimulus Mr. Flaherty brought in has generally been regarded as a pragmatic measure (some argued it was unnecessary, others felt more was needed, but there is a general consensus the budget measures brought in at the time were commendable).
Much more attention has focused on the record of deficits that followed both the recession and the decision to follow through on cuts to the GST. The government’s critics make a lot of noise about increases in the debt since 2008, and while the raw figures are high, Canada’s federal debt-to-GDP ratio remains quite low, both when compared to the levels it hit in the 1990s and to other G7 countries.
Still, the recession was only partially to blame for the size of the deficit. The decision to pursue the GST cuts was great politics but bad economic policy. Most economists agree the value-added tax is one of the most efficient revenue generators and is arguably the last tax the government should target for reduction. Given the move was a key part of the Conservatives’ 2006 election platform (and one that likely contributed to their winning government), in many respects the decision was well out of Mr. Flaherty’s hands.
It is even more murky to try to assess the finance minister’s performance when it comes to Canada’s employment numbers. We tend to give far too much credit – and lay far too much blame – on elected leaders when analyzing general economic performance. Governments can create better or worse conditions for the private sector to operate in, but in a globalized world they have much less control over the general state of the economy than we like to pretend.
More relevant, in my view, are a handful of budgetary policies enacted under Mr. Flaherty’s watch that reflect a more evidence-based approach to policy than the GST cut. First, the decision to raise the age of eligibility for Old Age Security from 65 to 67 (set to begin gradually in 2023) was – despite attracting a lot of criticism – sound policy based on the simple reality that people are living much longer than they used to. And while the OAS was not itself “unsustainable,” the move is prudent from the general perspective of ensuring our entire income security system remains sustainable in the face of an unprecedented demographic shift.
Second, the decision to install long-term, predictable and manageable increases to the Canada Health Transfer (funds transferred from the federal government to the provinces to help pay for health care) by tying growth to increases in GDP (with a floor of 3 percent) was also sound policy. This decision attracted intense criticism from provincial premiers, in part because it was made unilaterally and in part because they wanted to demand more money. But it was perfectly consistent with an “open federalism” approach to federal-provincial fiscal relations, and it has the laudable advantage of avoiding first ministers’ meetings where the federal government imposes conditions on areas of provincial authority.
Finally, even when not successful Mr. Flaherty was sometimes trying to achieve sensible reforms, such as his attempt to establish a national securities regulator (stymied, unfortunately, by the Supreme Court).
Each of these policies are debatable, but they at least have the virtue of being grounded in some evidence. Similarly, Mr. Flaherty’s recent statements cautioning against income splitting – which appear to warn against a policy his own party favours – are rooted in sober thinking about likely policy consequences (it is a policy that will cost a lot but benefit only certain people, and is probably regressive too).
Unfortunately, undercutting this fair-to-strong record on the policy side is Mr. Flaherty’s general approach to the budget process, which could only be more opaque if it were one of Frank Underwood’s schemes on “House of Cards.” As the finance minister has tackled the budget deficit with across-the-board spending cuts, it has been impossible to get reliable information on what was being cut. Compounding the problem has been the use of omnibus budget implementation bills, which have included a host of things not directly related to the budget, such as changes to environmental regulations and policies affecting First Nations.
Not even the parliamentary budget officer, a position created as part of broader “accountability” reforms, could obtain the information needed to see what programs were being affected by the government’s austerity measures. Rather than operating on the basic democratic principles of transparency, Mr. Flaherty attacked the PBO, Kevin Page, as exceeding his proper mandate.
This is a pronounced stain on a legacy that is otherwise up for legitimate debate. Whether the GST or corporate tax cuts were inappropriate or whether one ideologically favours or disapproves of the government’s efforts to reduce the size of government, we should all agree that Canadians deserve to know, with clarity, what the government is doing. While much of the focus on Flaherty has been his ability to return the budget to balance, the climate of obfuscation surrounding his budgets is a significant and lamentable background to everything else he accomplished.
Emmett Macfarlane is an assistant professor of political science at the University of Waterloo. You can follow him on Twitter @EmmMacfarlane
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