Former Finance Minister Jim Flaherty passed away unexpectedly this Thursday, April 10, at the age of 64. His passing comes only eight weeks after his resignation from government, and marks the end of an era as he has been one of the most influential people behind Canada’s economic development.
“Canadians owe Jim Flaherty a great debt of gratitude as one of Canada’s longest serving and most successful Ministers of Finance, for it was under his wise and steady leadership during the worst recession since the Depression, that Canada escaped the far more devastating impact experienced by the US, UK and Europe,” says Dr. Ian Lee, who worked with Flaherty at the 2009 and 2010 Pre Budget Consultations.
We have written about Flaherty’s impact on the economy and mortgage market many times on Money Wise. Here, we pay our respects with a retrospective of his accomplishments and career as one of the longest-acting finance ministers in Canadian history.
A Lifetime of Service
A former MPP for Whitby-Ajax, Flaherty was first elected to public office in 2006 and held his post as Finance Minister until March 18 – the longest anyone has served in the position. In addition, he also served as Governor to the World Bank and International Monetary Fund, Minister of Labour, Attorney General and Deputy Premier.
During his service, Flaherty introduced a number of initiatives and products that have shaped Canada’s fiscal outlook. They include:
Tax Cuts: Flaherty is responsible for cutting GST to 5 per cent from 7 per cent, and for shaving corporate taxes from 22 per cent to 15 per cent – the lowest level among the G7. Throughout his tenure other Canadian taxes were lowered a collective 160 times.
Introduction of the Tax-Free Savings Account: Flaherty brought this tax-free savings and investing vehicle to Canadians in 2009 as part of incentives to promote saving behaviour. The account allows up to $5,500 to be contributed annually, and funds can be further invested without further taxation on earnings. Account holders can withdraw their funds at any time for any reason, making the accounts an attractive alternative to RRSPs and a popular method for saving for a home purchase.
Discontinuation of the Penny: Flaherty ceased production of pennies in 2012, as production was incurring a loss; the little copper coins cost 1.6 cents each to make.
Changes to the Mortgage Market: Anyone who has bought a home over the past seven years has likely felt Flaherty’s impact; in efforts to stem household debt levels and cool housing price inflation, he introduced four rounds of qualifying restrictions between 2008 and 2012.
These changes included chopping the maximum amortization from 40 years to 25, lowering the qualifying loan-to-value ratio for refinances from 95 per cent to 80 per cent, making default insurance mandatory for anyone paying less than 20 per cent down, and establishing 5 per cent as the minimum down payment amount.
While these changes drew criticism as unnecessary or even dangerous from some industry pundits, Flaherty stood by his decision to “[take] action on four separate occasions to protect Canada’s housing market.”
Perhaps most infamously, Flaherty is known for chiding banks’ discounting behaviour during last summer’s mortgage wars. His office made a number of phone calls to lenders such as BMO and Manulife, for introducing what he viewed as irresponsibly low mortgage rates.
An End to the Deficit: One of Flaherty’s final legacies was tabling the budget to eliminate Canada’s $53-billion deficit in time for the 2015 election. In his resignation letter, Flaherty stated, “My goal was always to get Canada back on track to a balanced budget after the large deficit we agreed was necessary in Budget 2009 to combat the Great Recession and protect Canadian jobs. As outlined in Budget 2014, I followed through on that commitment. There is no doubt that Canada’s budget will be balanced in 2015. Canada’s fiscal position is the envy of the developed world. All Canadians can be proud of the country’s performance.”
A Guiding Beacon Through The Financial Crisis
Perhaps one of Flaherty’s greatest achievements was helming Canada’s economic wheel during the 2008 recession; It was at his insistence the G7 was re-established with a five-point plan for recovery, and he contradicted his own conservative spending principals to help pump $40 billion-worth of stimulus back into the economy.
“Large, old established banks were failing in the US and Europe while our banks and our financial system experienced relatively unscathed,” says Lee.
When credit crunched up in the U.S. and Europe, he advised Ottawa to buy up billions of dollars worth of CMHC-insured mortgages – a move that kept funds liquid and banks solvent, when bailouts prevailed south of the border.
His guidance resounded worldwide, as he counselled the U.S. government through the bailout of banks, and criticized the EU’s handling of the economic crisis.
Stated Flaherty upon leaving office in March: “I am proud of the work I have done to help manage the deepest economic challenge to face Canada since the depression of the 1930s and ensure Canada emerged stronger and as a recognized economic leader on the international stage.”
“On a personal note, Jim Flaherty was a very down to earth Canadian who understood and connected with people,” states Lee. “[He] was the quintessential Canadian who represented what is best and good about Canada.”