Canada’s Flaherty, G-7 Finance Dean, Resigns From CabinetAndrew Mayeda and Theophilos Argitis
Jim Flaherty, one of Canada’s longest-serving finance ministers who helped the country stave off the worst of the global financial crisis, announced his resignation from cabinet to seek work in the private sector.
Faced with the global economic crisis, Flaherty implemented one of the most far-reaching episodes of Canadian government stimulus since World War II, relying on spending and state guarantees to the banking system to grow the economy. Flaherty spent his final years in office reversing those measures, pledging in his budget last month to return the nation’s finances to balance by 2015.
“Yesterday, I informed the Prime Minister that I am resigning from Cabinet,” Flaherty, 64, said in a statement e-mailed by his office. “This was a decision I made with my family earlier this year, as I will be returning to the private sector.” He didn’t say if he would remain a member of parliament.
A new finance minister will be named tomorrow, said a person familiar with the government’s plans who asked not to be identified because the announcement isn’t public. Flaherty has been the only finance chief that Prime Minister Stephen Harper has had since he came to power in 2006.
Natural Resources Minister Joe Oliver will replace Flaherty, CBC Radio reported, without saying where it obtained the information. Other potential successors include Industry Minister James Moore, Treasury Board President Tony Clement and Transport Minister Lisa Raitt, said Tim Powers, vice chairman for Ottawa-based lobbying and communications firm Summa Strategies.
“You need a senior minister, someone who can likely stay the course, somebody who can work with the prime minister and the markets will have confidence in,” Powers said.
Employment Minister Jason Kenney has performed well in two portfolios and would be considered a strong candidate, although Harper may not want to appoint a finance minister who, like the prime minister, represents Alberta, Powers said.
Harper may decide to keep Foreign Minister John Baird, another veteran minister, in his current portfolio, given the volatility of the situation in Ukraine, he said.
Flaherty’s departure comes amid recent controversy. In October at a private dinner in Washington, with Federal Reserve Chairman Ben S. Bernanke in attendance, he criticized U.S. monetary policy, describing quantitative easing as “the printing of money.”
He also told a business audience in Ottawa last month he doesn’t like the idea of income-splitting -- a policy that allows families to divide income to lower their tax burden -- even though it was a key plank of the Conservative Party’s agenda during the 2011 election campaign. Harper defended income splitting in the House of Commons a few days later, calling it “an excellent policy for Canadian families.”
In inflation-adjusted terms, Canada’s economy outperformed the G-7 average in all but one year under Flaherty, the longest serving Conservative finance minister.
That record of success allowed Flaherty, the dean of Group of Seven finance ministers, to increase his clout within global institutions. Canada has been co-leading a key working group in the Group of 20 and Carney was appointed to lead the Financial Stability Board in 2011, when he led Canada’s central bank.
“Flaherty demonstrated the flexibility required for a pretty serious fiscal conservative to implement a significant fiscal stimulus in 2009 and 2010,” said Christopher Ragan, an economics professor at McGill University in Montreal who has worked at the finance department and Bank of Canada during the past decade. The return to fiscal balance required “a combination of difficult decisions, and he should be applauded for his leadership.”
Flaherty should be credited for introducing fiscal stimulus measures to support the economy “when the world was unraveling,” said Murray Edwards, chairman of Canadian Natural Resources Ltd., Canada’s largest heavy oil producer.
“History will judge Minister Flaherty like it judged Paul Martin and Michael Wilson, recent finance ministers of stature,” Edwards said today in a telephone interview. “He did a good job of steering the ship of Canada, on its financial side, through both calm seas and challenging seas.”
Battling a rare skin disease that has taken a physical toll, Flaherty said today his decision isn’t related to his health issues.
Flaherty’s resignation means Canada has lost over the past year the top two economic policy makers who saw the country through the financial crisis. Former Bank of Canada Governor Mark Carney left June 1 to take over the Bank of England, and was replaced by Stephen Poloz. The country’s top banking regulator, Julie Dickson, was also appointed this month by the European Central Bank to a new panel overseeing euro zone lenders.
Flaherty’s resignation should have no effect on the Canadian dollar, which weakened earlier today when Poloz said he couldn’t rule out cutting interest rates if the economy worsened, said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, by phone from Toronto.
“I don’t think anyone’s too surprised that he’s stepping down,” Osborne said. “Generally speaking, we expect continuity in policy. The only thing the markets will be worried about is if there’s a step back from balanced budget projections or the intent to balance the budget by 2015.”
Flaherty, in an interview in 2012 to discuss his record, cited the development of the country’s “brand” as one of his most lasting legacies.
“The Canadian brand is strong. I don’t think it’s ever been stronger in my lifetime,” Flaherty said in the interview in Tokyo, on the sidelines of International Monetary Fund meetings. “It means we’re influential in the G-7, in the G-20.”
Yet, as global crisis turned to recovery, Canada has been losing favor. Record trade deficits and debt-saddled consumers have ended Canada’s reign as the Group of Seven’s economic darling, triggering an 8.2 percent slide in the Canadian dollar in the past year. The International Monetary Fund is forecasting Canada’s economy will expand 2.2 percent this year, trailing both the U.S. and U.K. among Group of Seven countries.
Even as the country largely escaped the financial crisis, Canada has seen the size of its economy eclipsed by Brazil and Russia since 2006, falling to 11th in the world, according to International Monetary Fund data.
Flaherty spent his last years in office focusing on his fiscal record, pledging to end a run of deficits that may reach a cumulative C$160 billion by 2015. Aside from the fiscal challenge, Canada faces some deeper economic issues, such as the run-up in household debt that has fueled a surge in home prices, which will be up to the next finance minister to solve.