From 1995 until 2005 he was the Member of Provincial Parliament for Whitby—Ajax, representing the Progressive Conservative Party. He was previously a senior cabinet minister in the government of Mike Harris, and has sought the leadership of the Ontario Progressive Conservatives on two occasions.
Flaherty won the riding of Whitby—Oshawa in the federal election held January 23, 2006 as a member of the Conservative Party of Canada beating Liberal incumbent Judi Longfield by nearly 4000 votes. Flaherty's wife Christine Elliott is currently representing Whitby-Oshawa in the Ontario Legislature.
He first ran for the Ontario legislature in the provincial election of 1990, finishing third against New Democrat Drummond White and Liberal Allan Furlong in the riding of Durham Centre. He ran again in the 1995 election, defeating Furlong and White during a significant regional shift in favour of his party.
Flaherty was easily re-elected in the 1999 election in the redistributed riding of Whitby--Ajax, and was named Attorney General with responsibility for Native Affairs on June 17, 1999. On February 8, 2001, he was promoted to Minister of Finance and Deputy Premier. It was during this period that Flaherty became identified as one of the most right-wing figures in the Harris administration. He was a key promoter of tax credits for parents sending their children to private and denominational schools, which the Tories had campaigned against in 1999. Minister of Education Janet Ecker did not support this policy change, and there are reports that she considered leaving cabinet after its announcement.
Flaherty ran to succeed Harris in the 2002 PC leadership election, but lost to frontrunner Ernie Eves, his predecessor as Finance Minister. Flaherty's campaign featured attacks on Eves, calling him a "serial waffler" and a "pale, pink imitation of Dalton McGuinty."
Flaherty's leadership campaign focused on "law and order" themes, and one of his proposals was to make homelessness illegal. Flaherty's plan was to have special constables encourage homeless persons to seek out shelters or hospitals. He argued that his policy would save the lives of homeless persons; leadership rival Elizabeth Witmer and other critics described it as callous, and ineffective against the root causes of homelessness.
Flaherty also promised to implement further tax cuts, carry through with plans to create a tax credit for parents sending their children to private school, and privatizing the Liquor Control Board of Ontario. Flaherty also emerged as a social conservative in this campaign, distinguished by his vocal stance against abortion, and his association with pro-life groups.
On April 15, 2002, Eves appointed him to the less-prominent position of Minister of Enterprise, Opportunity and Innovation. He retained this position until the Tories were defeated in the provincial election of 2003. Flaherty himself was re-elected, though by a sharply reduced margin.
Following the defeat of the Conservatives, Eves announced that he would resign as leader in 2004. Flaherty declared himself a candidate to succeed him, but was defeated by John Tory by a margin of 54% to 46% on the second ballot of the PC leadership election held on September 18, 2004. His supporters included former cabinet ministers John Baird, Tim Hudak and Norm Sterling.
Flaherty's 2004 leadership campaign was similar to that of 2002. He again emphasized right-wing themes, including further tax cuts and greater privatization. He also promised to create EXCEL scholarships, wherein students attaining high grades in high school would have half their university tuition paid by the government.
Until 2005, Flaherty served as finance critic in John Tory's shadow cabinet.
In December 2005, the minority Liberal government collapsed, and the 2006 general election was called. Flaherty resigned his seat in the Ontario legislature to run for the Conservative Party of Canada in the riding of Whitby—Oshawa, unseating incumbent Judi Longfield.
Flaherty's wife, Christine Elliott, won Flaherty's former provincial seat in a by-election, defeating Longfield who was running as the provincial Liberal candidate. This marked the first time in Canadian history that a husband and wife have simultaneously represented the same electoral district at two different levels of government.
There had been an increasing number of corporations converting to income trusts which would result in them paying lowered taxes; Flaherty argued that income trusts would cost the government hundreds of millions in lost revenue and shift the burden onto ordinary people. The Canadian Association of Income Trust Investors have argued that foreign takeovers of Canadian Income trusts have had the opposite effect and caused decrease in Federal Government tax revenues.
Diane Francis, editor-at-large for the National Post, urged that the rule changes be recanted, arguing that there were flaws in the policy which hurt ordinary, hard-working Canadian investors. Francis pointed out that the root of the problem is that the decision was based on analysis by federal officials who regard RRSPs and pensions as tax "exempts" even though they are merely deferral mechanisms. So the tax leakage analysis numbers incorrect when it comes to taxes paid by Canadian income trust unitholders.
Special hearings by the Finance Committee commenced January 30, 2007. John McCallum, the Liberal Finance critic has called on Minister Flaherty to explain the reasoning behind the change in Income Trust Tax policy. McCallum said "Your first problem is that having lured hundreds of thousands of ordinary Canadians into income trusts by promising not to raise taxes you then cut them off at the knees. The Conservatives have the support of Jack Layton and the NDP on this issue.
On February 28 2007 the House of Commons Standing Committee on Finance released their report Taxing Income Trusts: Reconcilable or Irreconcilable differences? recommending a reduction of the proposed tax to 10% from 31.5%.
In a July 9 2007 interview on Business News Network, former Conservative Alberta Premier Ralph Klein criticized PM Stephen Harper and Jim Flaherty for their mishandling of the Income Trust issue and for not keeping their word on Income Trust taxation. The only thing a politician has is his word.] According to the Canadian Association of Income Trust Investors the change in tax rules cost investors $35 billion dollars in market value. Stephen Harper specifically promised "not to raid Senior's nest eggs" during the 2006 Federal Election.
On August 21, 2008 Brent Fullard, President of the Canadian Association of Income Trust Investors challenged Flaherty to debate supposed tax leakage associated with income trusts. Fullard was responding to a comment attributed to a Flaherty spokesperson in April, 2008, as quoted in the Hill Times: "I don't think Jim's losing any sleep over it. As a matter of fact, I'm sure of it. I'm sure he'd love to go a couple of rounds with these CAITI guys in a debate situation." Fullard announced he would put up $50,000, payable to his favorite charity. Given the Minister's "current crusade on financial literacy," Fullard believed a suitable charitable cause would be a scholarship for business education. "By doing this we could help repair the damage caused by the Minister's statement that Ontario is the last place to invest. Flaherty has turned down the request. "The tax fairness plan is law. The Minister made his position clear before the finance committee and there is no need for further debate," according to his press spokesperson.
Flaherty responded to a report from the Federation of Canadian Municipalities that suggested that cities had an infrastructure deficit of $123 billion and the federal government should step up with some cash with the suggestion cities should stop “whining” and repair their own crumbling infrastructure.
Calgary Mayor Dave Bronconnier claims Flaherty sidestepped responsibility for billions in infrastructure dollars being sought, when Flaherty advised municipalities to “do their job” because the feds are “not in the pothole business.” “Let’s get on with the job and stop complaining about it and do their job,” Flaherty continued, noting the Building Canada fund will inject $33 billion into cities to help deal with the infrastructure crunch. However Bronconnier said the plan is merely a “repackaging” of a number of pre-existing funding arrangements.
Mississauga Mayor Hazel McCallion went further by issuing a challenge to Flaherty to publicly debate the need for permanent federal funding for the repair and upkeep of municipal roads and bridges. McCallion said “Flaherty has stated in the media that some of the municipalities have not kept up with infrastructure and did not establish adequate reserves. Well, I can tell him that he is dead wrong. The facts are that Mississauga has carefully set aside reserves for infrastructure for years.” McCallion noted that cities are trying to maintain 58 per cent of public infrastructure with eight cents of every tax dollar. Flaherty did not accept Hazel McCallion's offer to debate.
Despite Treasury Board rules requiring a bidding process for contracts of $25,000 or more, Flaherty admitted his office broke government contracting rules in hiring Hugh MacPhie to help write the 2007 budget speech and provide advice on how to sell the document. MacPhie, who had written speeches for former Ontario Tory premier Mike Harris, was awarded the $122,000 contract without tender by Flaherty's office. On February 7, 2008 Liberal Finance Critic John McCallum formally called on Auditor General Sheila Fraser to conduct an audit into the untendered contract awarded by Minister of Finance Jim Flaherty to speechwriter Hugh MacPhie for work done in advance of the 2007 Budget.
The Toronto Star alleged several people who supported Flaherty when he was an Ontario cabinet minister or who supported his two failed bids to lead the Ontario Tories were awarded employment contracts or given appointments. The employment contracts awarded were under the $25,000 Treasury Board contract bidding limit. Bronwen Evans received a $24,877.50 contract to write speeches for Flaherty from June 2006 until last February. David Curtain, who worked on Flaherty's Ontario leadership campaign, received $24,877.50 to write the finance minister's first budget speech. Curtain was also paid $3,350 to write a keynote address earlier in 2008 for Flaherty. Lawyer James Love, who donated $63,000 to Flaherty over two leadership campaigns, was appointed to the Royal Canadian Mint. Another Flaherty donor, Carol Hansell, was appointed to the board of directors of the Bank of Canada in October 2006. Toronto family law lawyer Sara Beth Mintz, an Ontario Progressive Conservative Party vice-president, received $24,900 for budget "analysis, assessment and advice." MacPhie also got another contract for $24,645 for work done on Advantage Canada, a long-term, national economic plan. Opposition parties say they are suspicious that contracts are coming in just under $25,000 in order to give business to Flaherty's friends and supporters.
On May 13, 2008 Flaherty appeared before the Public Accounts committee, facing questions about multiple sole-sourced contracts worth more than $300,000 that were given by the government. The finance minister says he was unaware his former chief of staff broke government rules in handing a well-connected Tory an untendered contract to write the 2007 budget speech.