Federal Finance Minister Jim Flaherty Prepares Budget

Federal Finance Minister Jim Flaherty Prepares Budget

So, Jim Flaherty, how are you responding to hints from the opposition leaders that they might bring down the Harper government before you get to deliver your next federal budget?

"We're going faster," the impish finance minister says in an interview at the federal government's Ontario regional office, atop an office tower in Toronto's financial district. "I suppose I could talk around that, but of course we're going faster. I believe in options too."

And so the game of cat and mouse that will define the new year in federal politics begins. In a world of near-certain surpluses, Budget Day is a powerful political tool for the governing party. Opposition parties wouldn't mind depriving Stephen HARPER's Conservatives of that tool by defeating the government and sending the whole country into yet another election. So the budget-making process, which took three months after Flaherty was sworn in as finance minister in February, is being substantially accelerated this time.

He won't say how much. "We will be sure that we're ready for a budget when it has to be delivered," he said, his dark eyes glinting.

They glint a lot. In less than a year, Flaherty, a former Ontario finance minister who looks like an Irish cop from central casting, has already staked out a reputation as one of the Harper government's few happy warriors: a formidable Question Period jouster with a ready laugh, a sharp tongue and considerable autonomy in a government notorious for Harper's tendency to run it from the centre.

He will need his sense of humour in the months ahead. His second budget, normally a February document but now slated for who-knows-when, will have to ring a lot of bells: continue to deepen Tory tax cuts; begin to flesh out a new science and technology agenda that has Flaherty unusually excited as he discusses it; and address the so-called "fiscal imbalance" between Ottawa and the provinces through reforms to transfer programs, taxation and equalization.

Trouble will come, not only from Stéphane DION and Jack LAYTON in the House, but from provincial governments across Canada. Already Saskatchewan Premier Lorne CALVERT and his Newfoundland counterpart, Danny WILLIAMS, are teaming up to complain that Harper and Flaherty seem ready to abandon a Tory campaign commitment to get non-renewable natural resource revenues out of the equalization funding formula.

Flaherty is mum on the changes he'll bring to equalization, but he's pretty lighthearted about Calvert's and Williams's concerns. Premiers disagree about equalization? "I think that was inevitable. You know, there's strengths and weaknesses among the political leadership in various parts of Canada. And I won't name names, but there are some ministers of finance that really do have a broader perspective than others."

As for Calvert and Williams, Flaherty figures they'll have trouble persuading their fellow premiers, let alone Ottawa, that equalization should be enriched in the particular way they want. "There isn't going to be agreement. And if Premier Williams and Premier Calvert can accomplish agreement on it, more power to them. Good luck."

So much for equalization. How about the fiscal imbalance? Flaherty is quick to volunteer that his is "the first federal government in Canadian history to acknowledge" the existence of a fiscal imbalance. He pauses a beat. Then: "There's a good deal of debate about how large it is, you know." This observation draws gales of laughter from its author.

"Look. The fiscal imbalance is about the federal government being in substantial surplus and the provinces having to deliver social services, including health care, and being impecunious. Well, now that there's a health accord - which there wasn't when I was finance minister in Ontario - now that that's there, with a six per cent annual increment, and its predictable long-term funding to 2014, that takes an incredible burden off provincial treasurers."

Flaherty is much more eager to sing the merits of the health accord than to acknowledge that it was introduced by Paul MARTIN's government in 2004, and that it was already in place when the Tories ran on a promise to "fix" the imbalance at the end of 2005. So much of the Tory solution is to remind people of the Liberal spending plan.

Much of the rest consists of reminding people that the provinces' cupboards aren't as bare as one might think. "The provincial governments are all in surplus except Ontario." And when that province's treasurer, Greg Sorbara, complained about his budget deficit, Flaherty says, "I reminded him that his auditor general in Ontario said he went on a spending spree of $1.6 billion in March, emulating the former Liberals in Ottawa. And if he had not done that he would not have gone into deficit."

The last piece of the fiscal-balance puzzle seems to be some kind of increased federal transfer to the provinces. An unconditional transfer of cash or tax points - a blank cheque to the provinces? "No. I don't see that." Instead, Flaherty talks about two more targeted areas. First, increased federal payments to the provinces for infrastructure. Second - and here again, for a partisan fire-breather Flaherty doesn't sound all that different from his Liberal predecessors - "making sure we properly fund post-secondary education, skills training, research and development, and innovation. That's the key."

Flaherty and Industry Minister Maxime Bernier have been running a science and technology review. Flaherty is leery about revealing the answers they've found, but they have been asking a lot of questions. "Should we be transferring money to graduate students directly, for example, or should we be transferring money to the universities directly, letting them allocate the money? One of the arguments that I think is quite compelling is, if you've got a good strong student in Halifax who wants to go to the best program in the country that happens to be located at the University of British Columbia, we should encourage them to go."

That sounds like an argument for putting money in students' hands, not universities'.

"It won't surprise you to hear that's my inclination. I'm in favour of choice and opportunity for people."

Flaherty also wants to improve federal assistance to Canada's community colleges so they can do more applied research and train a generation of skilled technicians. Does that mean the presidents of McGill, the University of Toronto and the University of British Columbia should start to worry the party's over?

"I wouldn't worry that the party's over. There might be more folks at the party."

Maclean's January 1, 2007