Jim Flaherty: Buoyant because of sound finances

Jim Flaherty, Canada’s finance minister, has spent little time in his Ottawa office during the past month.

Instead, he has criss-crossed the country drumming up support for the ruling Conservative Party ahead of a general election on October 14. Mr Flaherty recalls having one phone conversation with the governor of the Bank of Canada from a town in Manitoba.

The Canadian finance chief has less to worry about than his counterparts in other countries. While he acknowledged in an interview with the Financial Times that “Canada is not an island”, he said that domestic banks and insurers were well capitalised and the financial system was sound.

“We’re on track in our federal budget in spite of the slowdown globally,” he added. Furthermore, the Bank of Canada “has significant room to move in terms of monetary policy”.

Mr Flaherty and his Liberal predecessors have an unrivalled record among industrialised countries of producing balanced budgets each year for a decade. Soaring oil and other commodity prices have sharply lifted tax revenues in recent years.

Bill Robson, chief executive of the CD Howe Institute, a Toronto think-tank, praises Mr Flaherty’s ambitious plan to cut corporate income taxes over the next four years to the lowest among G7 countries.

But Mr Robson also singles out two black marks on Mr Flaherty’s record: run­away government spending, and two cuts in the goods and services tax, bringing it down from 7 to 5 per cent.

The latter was part of the Conservatives’ platform in the campaign that brought them to office in early 2006.

The 58-year-old Mr Flaherty, who attended Princeton University after winning an ice-hockey scholarship and went on to practise law, is member of parliament for Oshawa, a town east of Toronto that is home to a big General Motors plant.

His wife represents the area in the Ontario provincial legislature.

The election campaign has brought an uncomfortable reminder of one of the most contentious issues the minister has faced while in office.

His Liberal opponent, Brent Fullard, is a former investment banker who has become an outspoken crusader against Mr Flaherty’s October 2006 decision to clamp down on income trusts, a hugely popular investment vehicle.

The trust structure enabled companies to pay out a large chunk – and in many cases, all – of their operating income to shareholders. Unit holders benefited from high dividend yields, but the federal government and provinces forfeited an ever-growing slice of tax revenues.

It would be a surprise if Mr Flaherty did not retain his seat on October 14. But speculation has surfaced that he may be assigned a different portfolio when he returns to Ottawa.

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