Ladies and gentlemen of Bay Street, you have been the victims of a clever fraud. You believed, back in the winter of 2006, when your hearts were aflutter and your cheeks rosy with hope—or was that frostbite?—that you had finally placed some friends in high places in Ottawa. The electorate turned and, after a mere 12-year interregnum of Liberal rule, voted the Conservatives back into power, cleansed of the sins of Brian Whatshisname.
About time, you said. Out with the old, in with the new! Out with the political thug from Shawinigan, the dithering rich boy completing Daddy's unfulfilled dream to be prime minister, the knee-jerk America-haters and closet socialists and economic illiterates populating the Grit caucus. In with Stephen Harper, a bona fide conservative economist and the first occupant of 24 Sussex Drive to have avoided law school since Lester Pearson; with David Emerson, the former CEO of a big forestry company, as International Trade Minister; with Maxime Bernier in the Industry portfolio, a man who so loathes government intervention, he does everything but advocate the abolition of speed limits.
Best of all, that starting lineup brought in James Michael Flaherty, a Nathan Lane look-alike and political child of the Mike Harris Revolution in Ontario. No bleeding-heart Red Tory, this guy: As the province's Attorney-General, he was the one who banned squeegee kids and threatened jail terms for drug addicts who threw their used syringes in public places. That stint earned him a promotion in 2001 to Deputy Premier and Finance Minister, the second most important man at Queen's Park. From there he launched a campaign to become the provincial Tory leader the next year. His slogan? "The right stuff."
The bid failed, but not before Flaherty had cemented his reputation as one of the most hardline conservative politicians the province had seen in a generation—most infamously with his proposal to create special constables to round up homeless people and remove them from the streets. Bay Street could take or leave the law-and-order shtick; what really appealed to them was the Flaherty fetish for tax cuts and spending cuts. Jim Flaherty's Ontario, as the man himself once said, would "welcome the free but not the freeloaders." And as Harper's new hatchet man in Finance, he would surely take the same approach to Liberal Ottawa, the Capital of Fat.
It was a relationship that couldn't go sour, except that it went sour almost right away. A funny thing happened on the road from Whitby to Ottawa: Rather than bow to the business agenda, Flaherty shunned it, almost to the point of sounding like a Tommy Douglas devotee. Instead of embracing the suits, Flaherty took pains to appear suspicious of them. Here's the Finance Minister last spring, shortly before his second budget: "I don't owe anything to Bay Street and Bay Street doesn't owe anything to me, either." Here he is again in early August, in an interview with this magazine: "I do expect mutual respect in this sense: I'm the Minister of Finance for the entire country—and Bay Street isn't Canada, it's part of Canada...I think some players on Bay Street are sometimes myopic."
As a political stance, it's understandable, even smart, since few votes are won by kowtowing to Rosedale investment bankers who buy themselves Aston Martins for Christmas. But then Flaherty delivered on the rhetoric with a populist budget that jacked up spending, placed new taxes on fuel hogs, gave away billions in new money to the provinces, offered little in the way of corporate income tax cuts and—with apparently little understanding of what he was doing—blindsided business by threatening to take away a tax deduction frequently used by companies to help them expand internationally.
The latter move was cloaked in the guise of cracking down on corporate tax cheats. Suddenly, they were the freeloaders in Flaherty's viewfinder: "The free ride is over. Everyone's going to pay their fair share," he declared in his budget speech. That same kind of posturing accompanied his shocking decision, less than five months earlier, to break the Conservatives' election promise not to touch income trusts. Flaherty didn't affect the $200-billion income trust market with his Halloween surprise so much as he smashed it to smithereens—essentially banning new trusts (including those in the works at Telus and BCE) and putting a punitive tax on existing ones as of 2011. The changes sent the TSX Composite skittering to a 294-point loss the next day and choked off the most important source of corporate finance activity of the past five years.
