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Flaherty's broken record on Canada's fiscal propriety is wearing thin

At times, Jim Flaherty likes playing the role of the Harper government's snarling attack dog. Remember that partisan rant he delivered in Ottawa last September, warning of economic cataclysm if the opposition dared trigger an election?

The Finance Minister is a lot more at ease, however, basking in the glow of Canada's recent economic successes.

When he visits Washington, D.C., this week, it's the self-congratulatory Mr. Flaherty who will take the podium. He plans to highlight Canada's "fiscal strength," business-friendly climate, sound banking system and Group of Seven-leading economy, according to a preview provided by the Woodrow Wilson International Center, where he is to speak on Wednesday.

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It's a speech he's delivered before - many times, in fact. And it's getting more than a little tired.

Yes, Canada survived the recession better than many other countries.

Bu it's not so much what the Conservative government did, or didn't do, that distinguished the country from the rest of the pack. Canadians generally managed better than the Americans and Europeans because the country entered the global financial meltdown with healthy government finances plus a banking and regulatory regime that generally discourages risky mortgage lending.

And besides, this story is at least two years old now. So maybe it's time for Mr. Flaherty to craft a new speech.

Of course, it suits the Harper government to keep talking about 2008 and 2009. There could be an election in the near future, and the drumbeat of happy talk is designed to keep opponents down.

But that was then. Here, we are in 2011. The stimulus cash is running out, the bills are coming due and the economy isn't exactly bursting out of the gate with a lot of momentum. Indeed, the economy was decelerating in the summer and fall of last year, and it begins 2011 more sluggish than the United States.

Mr. Flaherty might want to start focusing - and talking - about the challenges that lie ahead instead of resting on his laurels (Canadian Press Business Newsmaker of 2010 and Euromoney magazine's Finance Minister of the year).

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Here are few suggestions to spark some meaningful debate about the Canadian economy:

The high dollar: The muscular loonie is creating havoc for Canadian exporters, particularly manufacturers. For many businesses, adapting to a protracted era with a strong currency may mean producing a lot more things outside the country, rather than at home. That could keep unemployment stubbornly high in Central Canada for years to come and create a new Rust Belt.

The fiscal challenge: Mr. Flaherty talks a lot about fiscal austerity, but he overshot his deficit target in 2009-10 and, according to parliamentary budget watchdog Kevin Page, his future deficit-slashing plans are too murky to be trusted. The two largest provinces, Quebec and Ontario, also face tough fiscal paths that could cause a lingering drag on the national economy.

The oil sands: Canada is confronting significant environmental protests, particularly in the United States, which could limit the vast potential of this resource. The country must invest billions to make the whole business a lot greener with technologies such as carbon sequestration.

The productivity and innovation conundrum: Ottawa spends vast sums on research and development (roughly $7-billion a year), but all that cash isn't leveraging enough matching private investment. Canadian businesses spend half as much as their U.S. counterparts on R&D as a percentage of gross domestic product, and well below the OECD average. Narrowing the gap soon is crucial to Canada's future prosperity.

Consumer debt: Mr. Flaherty is still bragging about Canada's sound banks while Bank of Canada Governor Mark Carney is telling anyone who will listen that Canadians have rung up dangerous levels of mortgage debt. Both can't be true.

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Health care: The country needs an honest debate about how Ottawa and the provinces are going to pay for the kind of health care system that an aging society wants and needs. Expenditures are growing much faster than the tax dollars available to pay for it all, and something has to give.

Instead of patting himself on the back and basking in foreign adulation, some straight talk would serve Mr. Flaherty well. The sooner Canada confronts its challenges, the better off we'll all be.

Attack that, Mr. Flaherty.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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