The biggest challenge facing 56-year-old Jim Flaherty, Canada’s new finance minister, will be tempering his hard-nosed ideological economic and political views during a minority government, say economists and political analysts.

“He’s probably the most conservative finance minister the country has seen in 35 years,” says Jason Clemens, an economist and director of fiscal studies at the Fraser Institute in Vancouver. “I can’t think of another finance minister who would have a record with as well-defined a set of economic principles as Flaherty does going into this job.”

That plays well to business. Bay Street gives a firm nod to the appointment of Flaherty, a lawyer and veteran of Ontario politics.

Clemens points to Flaherty’s policy-making, but also to Hansard to define Flaherty. “If you look back on his speeches, you’ll see that he has a record of being able to espouse conservative principles with reasoning,” says Clemens. “So it wasn’t just, ‘I believe in less government.’ Not simply that, but a clear delineation of the arguments. He’s principled and learned — and that’s why business likes him.”

Flaherty ran twice for the leadership of the Ontario Progressive Conservative party, losing first to Ernie Eves and second to John Tory, the current provincial Tory leader, who appointed him as provincial finance critic. Flaherty resigned to run for the federal Conservative Party in Whitby-Oshawa, the riding at the heart of the Ontario auto industry, which elected him to Parliament.

Flaherty, who lives with his second wife, Christine, and their 14-year-old triplet boys, gained notoriety when Ontario Premier Mike Harris appointed him provincial finance minister and deputy premier in February 2001, about eight months before Harris resigned. Flaherty, who had held two previous provincial cabinet positions, held the finance job in Ontario for less than a year but made an impact on those who were watching him.

Lower taxes

“There seemed to be a commitment to lower taxes, to try to improve efficiency of government,” says Paul Ferley, assistant chief economist at Bank of Montreal in Toronto. “In that regard, he seemed to be pushing toward privatization to improve efficiency.”

Today, he says, “There is concern that tax levels are too high to stay competitive. It’s important for the jurisdiction of Ontario to remain competitive with other states and provinces. Now that he’s federal finance minister, he’ll push those concepts for the country, as well.”

Clemens, like others, says that Flaherty tends toward supply-side economics and free-market capitalism.

In an ideal world, Flaherty would drop income taxes across the board. Canadians would have more money in their pockets to save, invest or spend where they see fit. That would also mean Canadians would have more money to pay for social services, which private enterprise would provide, giving consumers more choice.

This ideology can lead to some bold, but politically hot, policy ideas. For example, the education tax credit, a proposal that Flaherty developed as Ontario finance minister and later pushed as party leader hopeful, would have overhauled the education system in Ontario, notes Clemens. It offered Ontario taxpayers a $3,500 credit for each child attending independent schools outside the public system. The idea enraged many education policy-makers and the concept sank when the Conservatives were defeated in 1993.

Yet a finance minister can make a significant difference, especially with regards to tax policy, says Jack Mintz, president and chief executive officer of the CD Howe Institute in Toronto, who has worked with Flaherty professionally. “He has a strong view that government should not be intervening unless needed.” As a tax cutter under Eves’s stewardship, Flaherty showed that he tends more toward broadly based low tax rates, adds Mintz.

Some argue that Flaherty is at least partly responsible for the $6-billion deficit that the provincial PCs handed to the Liberals when they took the Ontario purse-strings in 2003.

For all his talk of conservative tax and fiscal policy, Flaherty has “a history of delivering some unpleasant surprises,” says Sanford Borins, professor of public management at the University of Toronto, referring to the provincial deficit.

Math under scrutiny

But Flaherty has made a firm commitment to balance the federal books. During the campaign, however, the Conservative’s math was under scrutiny, particularly the promises to cut the GST and introduce other income-tax cuts — with few details on program cuts.

@page_break@“You can’t just assume that you’re going to get revenue back when you cut taxes — and somehow the problem of balancing the books will disappear,” says Mintz. “Flaherty will probably be sanguine about this. The department of finance is fairly sophisticated and will give him good advice.”

In any case, Canadians probably won’t see the full force of Flaherty’s or, indeed, the Conservatives’ ideology, because they need to negotiate a minority government, says Barry Kay, associate professor of political science at Wilfrid Laurier University in Waterloo, Ont. “There’s no secret about the fact that Flaherty’s a fiscal conservative who believes in small government. What is more important is what is doable in the next year or two, until the next election.”

Although the Conservatives election platform had promised a capital gains roll-over exemption, it looks as though that may be the first item to disappear as the government forges alliances in Parliament to get the budget passed, notes Clemens.

Flaherty’s take on politics hasn’t always been subtle. He campaigned for the leadership of the provincial Tories on a social platform that included the option to jail the homeless on cold nights, which, he argued, would save their lives. (“It’s tough love,” he said.) He called his opponent, Eves, a pink-hued imitation of Liberal Leader (now Premier) Dalton McGuinty.

Mintz, who has advised Flaherty professionally on several occasions, says: “Over the years, Flaherty has become more political, certainly in the sense that you have to bring people over to your side.”

Jim Sanford, an economist for the Canadian Auto Workers, says he is “cautiously optimistic” about Flaherty as federal finance minister.

As Minister of Industry under Eves, in 2003, Flaherty brought together all three levels — government, industry and labour — to look for solutions for the flagging auto industry, he recalls. “He brought all the stakeholders together,” Sanford says. IE