Flaherty, who's now 60, certainly has his biases, but they might be best described as revealing an old-school emphasis on personal responsibility rather than the almost religious faith in the markets and antipathy to the state that mark the modern Canadian Conservative. Flaherty campaigned for Pierre Trudeau in 1968, but says Trudeau's disregard for the burden his massive spending programs would put on future generations drove him to the Conservatives. Self-discipline and hard work are his core values, rooted in his own experience.
Flaherty delivered papers as a boy, using the money to buy his first pair of decent skates. The investment paid off because Flaherty, a diminutive centre on the team at Jesuit-run Loyola High School, caught the attention of a scout from Princeton University. "He was great in the corners," recalls L. Ian MacDonald, who was the team's equipment manager (and later a speechwriter for Brian Mulroney). "You didn't get between Jim and the net." Flaherty ended up with an Ivy League scholarship, albeit one that required him to keep up his grades and take a part-time job at the university. Flaherty bussed tables and graduated (in sociology) cum laude. He paid for his law degree at Toronto's Osgoode Hall by driving a taxi, and was called to the Ontario bar in 1975.
Flaherty told the Empire Club in 2002 that he learned a lot at Princeton and Osgoode, but that he sometimes thinks he learned more playing hockey, bussing tables and behind the wheel of a cab. That sentiment hasn't left him. Some parents send their teenaged children on vacations abroad to understand the world. Flaherty is pushing his sons to experience life the same way he did.
"I'm trying to get my sons, who have summer jobs, thank God, to appreciate that you have to go out and make your own way and earn money and do some jobs that are menial," says Flaherty, who, with Christine Elliott (his successor as MPP for Whitby), has triplet 19-year-olds. "There's nothing wrong with that. Any job is a good job as long as you are getting paid for it and you aren't stealing from anybody."
There's a joke shared among the chattering class that the only economist in Canada who thought cutting the GST was a good idea is Stephen Harper.
If Jim Flaherty ever is granted admittance to the Canadian pantheon of finance ministers, it won't be on the basis of his first couple of years in the job. The greatest policy makers rise above partisan politics and bring their constituents around to wisest choices. In getting behind Stephen Harper's election promise to cut the goods and services tax, from 7% to 6% and finally 5%, Flaherty failed that test. By robbing the treasury to provide a populist sop, the decision put politics ahead of economics and created the impression that the Member of Parliament from Whitby-Oshawa, master of suburbia that he might be, was out of his league as steward of a $1.3-trillion economy.
Then, in 2006, Flaherty's killing of income trusts wiped out more than $20 billion in stock market value overnight. Although the move was probably necessary to preserve tax revenues, it released a tsunami of vituperation from a business community that was none too happy to have the punch bowl taken away just as the party was getting started. "He is the most criticized finance minister for years and years," Bill Holland, CEO of what was then CI Financial Income Fund, summarized in 2007.
Then, more spectacularly than many of his peers, Flaherty failed to see the recession coming. In the spring of 2008, he was boasting that Canada would avoid a deficit, not just that year but every year as long as he was in charge. "Our budget is balanced and I assure you it will remain balanced," Flaherty told a New York audience that April. Even at the end of November, more than two months after the collapse of Lehman Brothers, he presented an economic statement that forecast a balanced budget. The claim was so ludicrous that it nearly brought down the government.
Yet of all these missteps, it's the GST cut that still rankles Flaherty's critics the most, because it gets at a deep philosophical difference. There's a joke shared among the chattering class that the only economist in Canada who thought cutting the GST was a good idea is Stephen Harper. "The GST [cut]clearly was a mistake," says Douglas Peters, the former Toronto-Dominion Bank chief economist who was junior finance minister in Jean Chrétien's Liberal government, which infamously reneged on its promise to abolish the tax. "That was a typically conservative measure to ensure anyone who follows won't have money to spend. Someone some day is going to have to raise that tax or we're never going to have a balanced budget."