Stephen Harper has lost a big part of his political brand. Jim Flaherty was his symbol for a credible resolve to steer public finances through rough waters.
Mr. Flaherty is the person who held responsibility for Canada's public finances as crisis hit in 2008, and when Ottawa poured out stimulus money, he was the figure who projected determination that the flow of red ink would one day be stanched.
Until Tuesday morning, Mr. Harper has had only one finance minister, and Mr. Flaherty's tenure was marked mostly by the steady straight line he walked toward a balanced budget after a roller-coaster ride for the economy and public finances. The budget is almost balanced, but for some accounting cushions, and Canada's debt level is low compared to most Western nations – after a period when the budget essentially went from surplus, to a $56-billion deficit, and back to balance in seven years.
There are criticisms that will linger after he leaves: His NDP and Liberal critics say he pushed postcrisis austerity too far, stunting growth and hurting the vulnerable; provinces smart at the flatter growth trajectory for health-care transfers he dictated to them. And some seniors still bristle at his early decision to break a Tory promise and impose a new tax on income trusts.
But after eight years in office, the man who came to Ottawa with a reputation as an axe-wielding, ideologically driven fiscal conservative leaves with a reputation for reassurance. He brought expectations of cut, but left with a perception of calm.
"What he'll be remembered for is being a fairly calm hand on the tiller in the 2008-2009 period," said Doug Porter, chief economist with BMO Nesbitt Burns Inc.
That's a piece of political magic that Mr. Harper won't easily replace. Finance ministers take advice from officials and direction from prime ministers, but if they gain an aura that reassures markets and voters it's an asset that's difficult to quickly reproduce. For the Conservatives, Mr. Flaherty was a symbol to voters that public finances would be safe, and taxes wouldn't go up.
Much of Mr. Flaherty's reputation was thrust on him by events – the financial crisis of 2008-09 and the massive stimulus-spending package he reluctantly accepted. He had to merge his instincts as a fiscal manager with the requirements of electoral politics. He was not, Mr. Porter noted, a finance minister who radically restructured public finances the way Paul Martin did in the 1990s. He was instead someone who, in broad terms, responded appropriately to a crisis, Mr. Porter said.
His record was not all calm and resolve. One of his first major steps was to backtrack on a Tory promise not to impose new taxes on income trusts, an unpopular move that hit a rapidly expanding, tax-sheltering investment vehicle then favoured by many seniors. He was accused of betrayal.
And, despite a reputation for restraint, his first two budgets increased spending far more rapidly than inflation, as the minority Conservatives advanced their own priorities, like increasing military spending, but feared that too many cuts elsewhere might jeopardize their political survival. The government cut taxes, including the GST, but had a penchant for "boutique" cuts targeted at certain voting blocks rather than broader growth-driving measures, Mr. Porter said.
But Mr. Flaherty is, and was, a fiscal conservative. His instincts for restraint, in fact, flirted with danger. As the financial crisis mushroomed into recession in 2008, he, like Mr. Harper, resisted calls to spend – which nearly caused the government to fall at the hands of a hastily cobbled Liberal-NDP coalition, until the Conservatives relented and opened the taps for massive stimulus spending, sending the annual deficit rocketing to $56-billion.
"They just decided that discretion was the better part of valour," said Brian Lee Crowley, the managing director of the MacDonald-Laurier Institute, who was a visiting scholar in the Finance Department in 2008. But though the government took credit for stimulus spending to boost the economy, Mr. Flaherty remained deeply reluctant.
"He was dragged by events that he could not control into running deficits," Mr. Crowley said. "He didn't like that."
But the crisis and its aftermath sealed Mr. Flaherty's reputation as a steady hand in a crisis. The stimulus was withdrawn at a reasonable pace. "The choices made were broadly appropriate," Mr. Porter said. Mr. Flaherty intervened four times, starting in 2008, to cool the housing market and guard against a bubble, Mr. Porter noted. His fiscal-conservative instincts kicked in as the crisis receded, and Mr. Flaherty convinced Canadians, and the markets, that the budget would be gradually, but relentlessly, balanced.
Mr. Flaherty would probably point to other measures as parts of his legacy, Mr. Crowley said, like the Working Income Tax Benefit, a refundable tax credit on working income, and tax breaks for savings plans for children with disabilities – a policy that Mr. Flaherty, who has a son with a disability, took to heart. He was proud of his role in building some of the postcrisis stability architecture for financial institutions, Mr. Crowley said.
His transition from ideologically driven political fighter to reassuring figure was perhaps an evolution that led him out of politics. In recent years, some say, he showed declining interest in the nuts and bolts of domestic finance, and more passion for the international-finance aspects of the job. He was one of the most senior finance ministers, and liked the role.
"He moved into a kind of elder statesman role," Mr. Crowley said.
Mr. Flaherty's evolution into a symbol of fiscal steadiness also proved to be a political asset for Mr. Harper – one that he will miss.