Flaherty mourns Haiti, mulls economic recovery

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Sun Media, Friday, January 15, 2010

Watching the television images of the Haitian disaster yesterday, Jim Flaherty observed: “Talk about a country that can’t bear the pain.”

Of what may be the worst natural disaster in the history of the Western Hemisphere, Flaherty was already looking beyond the relief to the rebuilding of a broken country. “This looks like a long-term rebuilding project,” he said. “We have lots of ways of being useful, including financing instruments.”

As for Canada’s immediate financial response — $5 million with the government also matching private donations dollar-for-dollar — that may just be the beginning of our assistance to a nation that has escaped slavery but not poverty and seems to know no end of misery.

Flaherty well understands that for Canadians, Haiti is not just a neighbour in the Americas, or even a country in which we have interests, but the homeland of 100,000 Canadians, including the Governor General, and residence of 6,000 Canadian development and aid workers. Haiti, in other words, is a sister country — family.

Flaherty was talking over lunch in the boardroom of his fourth-floor Centre Block office. Most of the hour-long conversation was about the walk-up to the March 4 budget, but Haiti was very much on his mind.

He was just back from the first leg of his listening tour, in Manitoba and Saskatchewan, and the obvious question was how he has been finding the mood of the country, compared to a year ago, in the steepest downturn since the end of the Second World War.

“People are much less anxious,” he said. “They’re more assured. It’s fair to say people are cautiously optimistic. Last year at this time, people were very nervous, and there was a high degree of uncertainty.”

A year ago, he added, “it was unclear how bad the job situation would get. I think people now feel that job numbers aren’t getting any worse.”

Which isn’t all the way too good, far from it. Canada’s unemployment rate was flat last month at 8.5%, with 2,500 fewer jobs, a statistically insignificant number except to those who lost their jobs. In the U.S., by far the largest market for our export-driven economy, unemployment is stuck at 10%, with 85,000 jobs lost in December.

We are in the middle of a jobless recovery. Flaherty’s job is to avoid a double-dip recession.

Which is why the discussion of the deficit — how much and for how long — is not his priority for the budget.

“What I’m hearing is, ‘make sure the economy recovers first,’ ” he said. “I don’t think people want us to start exit strategies before it’s clear we’re in a recovery.”

The current deficit of $56 billion is about 3% of GDP, as compared with the U.S. deficit of $1.8 trillion, or about 12% of GDP, usually the point where the international financial institutions show up and ask for the keys to the car.

Flaherty’s imperative is to make the case in his budget that the deficit is cyclical, not structural. He is aiming for “a balanced budget in the medium term,” which is to say by 2015, though he won’t say it out loud.

About half the deficit, as Flaherty notes, is in the $40-billion, two-year infrastructure program that will end this year.

Flaherty hopes to restrain the rate of growth of program spending to the growth rate of the economy, 2% to 3%, as he’s doing with transfer payments to the provinces. Before the recession, program spending grew by about 7%, twice as fast as the economy. With that, “and as long as we have reasonable economic growth,” he sees a balanced budget, not anytime soon, but in the foreseeable future.

Read his lips, no new taxes?

“We’re not going to increase taxes,” he says. Period, paragraph.

On the brighter side, he notes “it looks like Canada will lead the G7 in GDP growth” out of the recession.

Flaherty will have a chance to tell this story when he welcomes the G7 finance ministers and central bankers to a two-day meeting in Iqaluit. In February. Seriously. It was his idea. Officials recommended Ottawa, but Flaherty wanted to show colleagues the Canadian north. “We’ve told them not to wear ties,” he said. Suits without suits. They’ll meet the local community in the arena and be entertained by Inuit performers who will open the Vancouver Olympics. They’ll meet in front of a roaring fireplace.

And weather permitting, Flaherty says, “we’re going to go dog-sledding.”

That’ll be different.

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