Flaherty’s legacy: Lower taxes, less spending

What Jim Flaherty leaves behind following his Tuesday resignation

One of Jim Flaherty’s last acts in the House of Commons was to mock the Liberal leader’s stance on the budget, but on the day Mr. Flaherty announced that he would no longer be the Finance Minister, Justin Trudeau was seeming to sound some agreement with Mr. Flaherty. “The federal government is taking in enough taxes,” Mr. Trudeau apparently told an audience in Kingston this afternoon.

Well, that’s not quite agreement—before departing, Mr. Flaherty had promised that the government would start taking in even less in taxes once the budget was balanced in 2015.

That the average family now apparently pays $3,400 less in taxes as result of actions taken since 2006 is one of this government’s prouder points (and tax freedom day comes earlier!). And, as my colleagues Paul Wells and Stephen Gordon have documented, in cutting the GST by two points and then embarking on billions in spending cuts, the government has been shrinking the available resources and size of the federal government (“disarming Ottawa” in combination with transfers to the provinces). And that might be Mr. Flaherty’s legacy—or at least his contribution to the larger debate on public governance and the conservative side’s winning streak on the tax debate. Particularly if the Liberals and New Democrats aren’t particularly keen to raise taxes or reverse the majority of cuts that have been made—the New Democrats have only allowed that they would raise the corporate tax rate and introduce a cap-and-trade system (though the revenues of the latter would apparently be targeted). In fact, adhering to the Conservative government’s line on spending might be necessary to ensure there are surpluses to be spent in the short term.

“Even the [parties] that may be critical of some of the tax changes we’ve made, when you ask them, so you don’t like the GST reduction, are you going to raise the GST by two points? They’ll say no,” notes Conservative MP James Rajotte. “One of the tests of any government or minister is often do their succeeding parties or governments or do the opposition parties or government adopt what you’ve done? … I would be surprised if any government or any political party proposed raising the GST. Same with tax-free savings account, registered disability savings plan, the working income tax benefit, these will be long-standing programs that Minister Flaherty put in place.”

Will there come a time when the federal government will have to seriously consider finding new revenue so that we might be able to deal with an array of national challenges? Maybe. (Or maybe that will be some other level of government’s problem.) Will the cuts that have been ordered prove durable and avoid inciting controversy or complaint? The Parliamentary Budget Officer would like to know, but we’ll have to see. The last budget boasted that “direct program expenses are expected to decrease as a percentage of GDP, reaching a historic low of 5.4 per cent of GDP in 2017–18” and as of right now, the Conservatives have successfully reduced taxes and spending without quite roiling the electorate and while forcing the other parties to explain why anything different should be pursued.

Losing Mr. Flaherty takes a veteran minister off the team—though we should perhaps be cautious about overstating his public capital—and tomorrow there’ll be a new finance minister (Joe Oliver?), but the basic approach (tabled each spring by Mr. Flaherty, but designed in partnership with the Prime Minister) will likely remain in place. That new finance minister might have to account for his predecessor’s publicly stated misgivings, but some form of income-splitting will be on offer in 2015, along with other tax cuts. And the opposition parties will then have to explain why they don’t want to take less of your money.