When Jim Flaherty phoned Manulife on Monday and expressly told them to lower their rates – and they did – it caused a huge ruckus around the country. After all, what right did the Finance Minister have to tell banks how to do business? Many felt that expressing concern through the media the way he has been was enough; but actually contacting them to “express displeasure” (his words, not ours) went far past stepping the line. When the House of Commons met yesterday, it was clear that this was the mentality there too. And that even some in the Conservative cabinet thought the Minister had gone too far.
It was Small Business Minister, Maxime Bernier, that stood up in the House yesterday to express concern over what Flaherty had done.
“I’ts the market,” he stated. “It’s supply and demand that decides the prices. It is the case for interest rates, it is the case for other products, too.”
Even though many in the house most likely agreed with Bernier, it also caused some confusion. Here was one Conservative, clearly stating it was the government’s business by putting in phone calls to banks. Then there was this other Conservative, standing up and saying that the market has to sort itself out in many cases. And the opposition was quick to jump on the confusion the Conservative government had brought to the House.
“Which minister has the prime minister’s confidence?” asked NDP Leader Thomas Mulcair. “The minister of small business, or the minister of finance?”
Prime Minister Stephen Harper refused to take sides, but he did lean towards the side of defending Flaherty.
“The fact is that mortgage rates are lower than they’ve ever been before in Canadian history under our government,” Harper told the House. “At the same time, we want to ensure that mortgages remain affordable and stable and that the market stays stable and affordable in the long run for Canadian families.”
Bob Rae, interim Liberal leader, also had harsh comments for Flaherty after the House broke, but he chose to take his comments to the press waiting outside. There he told them that Flaherty didn’t just overstep his bounds, he actually violated the Competition Act. That Act states that the government may not interfere to dissuade competition between businesses – and that includes banks. Rae also told reporters that he thought Flaherty was only trying to increase costs for those Canadians looking to buy a home.
“It sounds to me like that’s what he’s doing,” Rae said. “We either have a competitive mortgage market or we do not. And it’s clear to me that Mr. Flaherty would prefer to have a cartel where, he and his officials are setting the interest rates for every mortgage in this country.”
Rae continued on to say that while having concern over the affordability of housing for Canadians is reasonable, worrying about interest rates – and especially forcing them to go higher – is not the way to do it.
“Credit worthiness is a legitimate concern of everyone. In saying, should we be lending money to Mr. or Mrs. X because either they have too much debt or they don’t have enough income (to pay it back,” he continued.
“But the quid pro quo for that is to say the government should keep its hands off, should keep its mitts away from telling…any financial institution what price they should be charging for the products they’re offering. That has nothing to do with creditworthiness.”
But, when Mr. Flaherty went to a Roots factory in Toronto yesterday for his annual purchase of budget-day shoes, he defended his actions.
“Our concern, my concern for a number of years, is with very low interest rates that people can afford their mortgages when interest rates go up,” he said. “It’s a concern for Canadians that they’re careful and that they don’t assume that very low interest rates, like we have now, will continue indefinitely, because they won’t.”
But, with all due respect, is this really the Minister of Finance’s business? Yes, we’ve shown we can be a tad irresponsible with debt, with our household debt levels nearing 164%. But we are still adults. We should still be trusted to make responsible decisions and if we don’t, we will ultimately be the ones paying the price. It’s understandable that Flaherty wants to control the market, and not let us get in over our heads, but didn’t he do that when he tightened the mortgage rules – all four times in the last four years?
Housing affordability in Canada is becoming an issue; and a big one in the most major urban centres. But chasing interest rates on an upward slope is not the way to solve the problem.
And then there’s always the argument that if Flaherty is really concerned about Canadians not being able to afford mortgages, maybe he should consider how much the Crown organization CMHC is backing many of the mortgages on the market. And that is essentially taxpayer’s money that’s at stake should Canadian borrowers default on those mortgages. Flaherty did tighten the rules on those CMHC-backed mortgages, and with all the outcry over the shorter amortization periods placed on them, you’d think that would have been enough. For now, at least. Instead, he’s caused even more outrage – this time with people in his own Cabinet – and undoubtedly the taxpayers he’s relying on to vote the Conservatives back in.