Jim Flaherty: Will he stay or will he go? - Financial Post

He wants to go out with a balanced budget, but it?s going to be difficult to see how he?s going to pull that off

OTTAWA ? A steady hand for the ruling Conservatives and the only finance minister they?ve known, Jim Flaherty will play an important role in an upcoming cabinet shuffle and future of the Harper government.

Prime Minister Stephen Harper will use the shuffle in the coming days to inject new blood into cabinet and put a fresh face on his government heading into the next election, expected in 2015.

Many of the cabinet dominoes will fall around Flaherty, depending on whether he remains in politics, continues on as finance minister or is shuffled to a new portfolio.

Despite his battle with a rare skin disease and potential to make significantly more money in the private sector, Flaherty has said he wants to stay on as finance minister until he balances the budget, something the government has vowed to do by the 2015 election campaign.

Flaherty?s more than seven years on the job amid a global economic crisis make him one of the most important finance ministers of the last half century, say some political observers, but others argue his track record is lacklustre and marked by some unflattering financial legacies.

Should the 63-year-old Flaherty leave federal politics, Harper would have a huge hole to fill in arguably his most important cabinet post.

He got stronger as the years went by. He started off rocky

The Whitby-Oshawa MP is the longest-serving finance minister in the G8, well liked by MPs on both sides of the House of Commons and is the government?s senior minister for the Greater Toronto Area.

If Flaherty remains an MP but is shuffled to a different portfolio, it would almost certainly be another high-profile posting, further complicating the cabinet shakeup.

Staying on as finance minister also has its pitfalls, as the economic recovery remains sluggish and the government tries to eliminate by 2015 a deficit estimated at $18.7 billion.

?From everything he says, he wants to go out with a balanced budget, but it?s going to be difficult to see how he?s going to pull that off (if he remains in finance),? said Mike Moffatt, a business and economics professor at Western University?s Ivey Business School.

Known for his characteristic green neckties to celebrate his Irish roots, Flaherty has spent much of his time as minister trying to pull federal finances out of the red and back into the black following a global economic downturn.

He has presided over the Canadian economy during the largest crisis since the Great Depression, helped manage a spending splurge from the stimulus program, and then was forced to slash billions in expenditures in an effort to balance the books.

Flaherty has not been shy to intervene in the Canadian economy, loosening mortgage lending rules before being forced to retreat and tighten them multiple times to avert any potential housing market meltdown in Canada.

He has repeatedly warned Canadians about the risks of spending too much and saving too little, and broke a key Conservative campaign promise not to tax income trusts.

Flaherty has been ?a very sound and competent finance minister,? argues Ian Lee, assistant professor at Carleton University?s Sprott School of Business in Ottawa and a former banker.

Lee believes Flaherty has been one of the top three finance ministers over the last 50 years, behind Michael Wilson and Paul Martin, but does not have any huge legacy projects.

?He got stronger as the years went by. He started off rocky,? Lee said.

Flaherty stepped into the portfolio and fulfilled Harper?s campaign promise to cut the GST from 7% to 6%, and then down to five.

But trimming the goods and services tax ? while politically popular ? has made balancing the books even more challenging, with the two-percentage-point cut in the tax eroding upwards of $14 billion annually from federal coffers.

?Cutting the GST was a big mistake and should be discussed as part of his negative legacy,? Lee added.

One of Flaherty?s greater achievements so far, he argued, was helping restructure the Canadian economy using the budget, including retooling Old Age Security, reforming employment insurance and encouraging labour mobility.

But Nelson Wiseman, political scientist at the University of Toronto, says he?s a bit baffled by the ?so-called great reputation? Flaherty has earned, saying he has few remarkable achievements and his decisions have helped drive Canada back into deficit.

?I don?t really see what he has done that has been so laudable,? Wiseman said.

Canada?s finance minister following the cabinet shuffle, be it Flaherty or someone else, will still be heavily influenced by the prime minister and guided by the technical expertise of federal bureaucrats, he said.

?It will be a continuation of what?s going on. It isn?t going to be any revolution,? Wiseman said.

Moffatt believes Flaherty?s time as finance minister may be remembered for a federal deficit that will be difficult to eliminate over the next few years.

The lost revenue from the GST cut and growth in spending even before the economic crisis contributed to the problem, he said.

?Now we?ve got this structural deficit; I would say that?s, in my view, the biggest change over the last seven years,? Moffatt said.

Canada emerged from the global economic crisis better than most countries, he said, but it had more to do with a strong banking system and lack of a housing bubble.

?I don?t think Flaherty performed badly by any sort of measure, but it?s hard to give him too much credit for those items that are mostly out of his control,? Moffatt said.

Lee, however, says it?s ?so unfair to nail him for the deficit? because the G20 collectively agreed the world was falling off a financial cliff and swift action was needed.

Under Flaherty?s watch, the lengths of mortgage terms ratcheted up to 40 years from the traditional 25 years.

But he stepped in and reversed those moves, tightening Canada?s mortgage insurance rules four times since the economic downturn in an effort to cool an overheated housing market and deter consumers from compiling too much debt.

Moffatt says loosening the mortgage rules ?was a mistake? but Flaherty deserves credit for reversing those changes.

Flaherty shocked Canadian investors in the fall of 2006 when he announced the federal government would tax income trusts ? which broke an campaign promise made by Harper.

Lee believes Flaherty made the right call on income trusts, noting the government was ?just hemorrhaging billions and billions (of dollars).?

One of Flaherty?s major missions was to transition to a single national regulator for securities such as stocks, bonds and other investments ? an unsuccessful battle to date.

The Supreme Court of Canada ruled in late 2011 that Ottawa?s proposed legislation to form a national securities regulator was unconstitutional, although the top court agreed the federal government does, indeed, have some oversight of securities regulation.

The government, however, served notice in the 2013 budget that it will again push ahead in its attempt to create a common national securities regulator, with or without the support of all the provinces.

?That has been a problem this government has had in general, is getting provincial buy-in on almost anything,? Moffatt said.

Source: http://business.financialpost.com/2013/07/11/jim-flaherty-will-he-stay-or-will-he-go/

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