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In his blue bastion, Flaherty finds a change of heart

From Saturday's Globe and Mail

WHITBY, ONT. — Jim Flaherty returned home this week to Whitby, ground zero for Canada's economic crisis.

Located on the edge of Ontario's auto-making heartland, Whitby is the kind of place where car dealers like Ray Richardson aren't usually ones to ask for government help.

“Sometimes when government gets into things, they come up with rules that don't make much sense,” he said, sitting in an office just off the showroom of Motorcity Saturn, where he is a general manager.

But with sales volume at the dealership 15 per cent lower than this time a year ago, Mr. Richardson is starting to view government intervention in a more positive light.

The crowd at a public meeting the federal Finance Minister held Thursday night sounded even more eager to see this small-c conservative town embrace big government.

At a Whitby United Church, 200 constituents packed a room to share their thoughts on what Mr. Flaherty should do in the budget he's preparing for release on Jan. 27.

They implored their MP to spend money on everything from fixing up the Port of Oshawa to breakfast programs for poor children.

A woman who identified herself as Patricia said she moved her family to Whitby after losing an automotive job in Windsor. She told Mr. Flaherty the employment insurance benefits don't allow her to adequately feed her children. “I look at you as a Santa Claus,” she said.

Only one called on the Finance Minister to hold the line and continue the country's unprecedented string of budget surpluses.

The financial crisis is prompting much soul-searching here – and none more so than by the man this community has elected to represent it five times at either Queen's Park in Toronto or the House of Commons in Ottawa: Mr. Flaherty.

The town hall meeting was a window on Canadians' reluctant retreat from the ideology of balanced budgets. It took some time for Mr. Flaherty himself to embrace the idea of spending tens of billions of dollars to reverse the first recession in almost two decades.

Now, like unapologetic fiscally conservative leaders in the United States, Germany and France, Mr. Flaherty finds himself in the unexpected position of having to explain to supporters that the economic philosophy they fought so hard to make mainstream won't cut it during an economic crisis.

It's a tough sell. The former Reform Party activists and veterans of Mike Harris's conservative revolution in Ontario that make up the government's caucus believe deeply that deficits are nothing but trouble, and even now, amid the worst economic meltdown since the Great Depression, they question the wisdom of spending more money than the government brings in.

“Party members will not like this,” said Monte Solberg, a minister in Mr. Harper's cabinet who quit politics ahead of last year's election. “Reformers, my heritage, do not like this.”

The member of Parliament for Whitby-Oshawa, like many of his 136,000 constituents, doesn't like it either.

Mr. Flaherty, who turned 58 last month, was a high-ranking lieutenant in Mr. Harris's Common Sense Revolution, and tried twice to lead the provincial Progressive Conservative Party. Mr. Flaherty brought that zeal for lower taxes, smaller debts and fewer regulations to Ottawa, where he's been in charge of the Finance Department since Mr. Harper upset the previous Liberal government in January, 2006.

In a short interview after hosting the town hall meeting, Mr. Flaherty chuckled when asked whether his plan to save the economy by plunging the country deep into deficit is a tough sell with members of his Conservative Party.

“With some, yes,” Mr. Flaherty conceded. “I had to go through the process too, which for me was coming to the recognition during 2008 that this was an extraordinary situation, that we have a synchronized global recession.”

Mr. Flaherty, who grew up in a family of Irish-Catholic Liberals in Montreal, became a conservative while a law student at Osgoode Hall in Toronto in the 1970s, deeply irritated by what he calls the “wasteful” spending of prime minister Pierre Trudeau's government.

Mr. Flaherty became a politician in 1995 after being driven to distraction by the economic management of Bob Rae, the former New Democratic Party premier who now faces Mr. Flaherty as a Liberal member of Parliament from Toronto.

Battling Canada's last recession, Mr. Rae ran up a deficit that peaked at $12.1-billion by 1993, which was about 4.5 per cent of the province's economy.

“He felt, like a lot of us, that we couldn't continue down that path,” said Dan Miles, a public relations consultant and Mr. Flaherty's former chief spokesman.

Now, Mr. Flaherty finds himself on a similar path to that of Mr. Rae.

Even as the skies over Canada's economy began to darken last spring, Mr. Flaherty vowed that he would not be the finance minister who tabled Canada's next budget deficit.

The global financial crisis forced both Mr. Flaherty and Mr. Harper to blink. They concede now that the deficit will be “substantial,” probably in the neighbourhood of $30-billion.

That would be the biggest shortfall since 1996 and about 3.6 per cent of Canada's gross domestic product at the time.

To be sure, that's not the fiscal crisis that drove Mr. Flaherty to seek election. But the risk – and the worry of many of the Conservative rank and file, and some economists – is that this is only the beginning.

What if the $800-billion (U.S.) stimulus program that Barack Obama intends to implement after he is inaugurated as president this month fails to revive the world's largest economy and Canada's biggest trading partner? If the recession persists, will Mr. Flaherty find it easier to go back to the spending well now that he's had that first drink?

The thing about deficit financing, especially when it's being done with something as abstract as “taxpayers' dollars,” is that it can be highly addictive, economists and former politicians say. There's also a risk that the prospect of big deficits will spook taxpayers, defeating the purpose of short-term measures meant to instill confidence and coax consumers to spend.

“People understand that a bill that isn't paid today is paid with interest tomorrow,” said Bill Robson, president of the Toronto-based C.D. Howe Institute. “It's critical that the federal government lays out a track to getting the debt back to where it is today so people can see when we are going to get out of this hole.”

That's exactly what Mr. Flaherty says he's going to do.

“We will show in the budget that we will come out of the deficit within a period of time once economic growth resumes,” he said in the interview. “One will see a lot of temporary spending in the budget.”

The government's initial reluctance to prepare an economic stimulus package led many economists to worry that Mr. Flaherty would put ideology ahead of the right policy to fight the recession.

Mr. Flaherty, who quotes both Sir John A. Macdonald and Robert Kennedy in his speeches, insists he's always been more pragmatic than ideological.

“What I say to my colleagues and what I say to Conservatives who get quite concerned about running deficits is that this is necessary,” Mr. Flaherty said. “These are extraordinary circumstances, that we would be blind to the needs of the country if we did not run a deficit now, but that we'll ensure that it's temporary.”

That message is getting through at the car lots and community gatherings in Whitby.

At the end of that 11/2-hour town hall meeting, during which Mr. Flaherty did little more than listen, those 200 constituents gave their MP a standing ovation.

“Thanks for having the courage to do this,” the last voter in line at the microphones said.

With a report from Gloria Galloway in Ottawa

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