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Canada's Finance Minister Jim Flaherty listens to a question during a news conference in Ottawa March 1, 2013. The slowing Canadian economy means the government will have lower revenues than it initially forecast as it draws up the next budget, which is due soon, Flaherty said on Friday. (CHRIS WATTIE/REUTERS)
Canada's Finance Minister Jim Flaherty listens to a question during a news conference in Ottawa March 1, 2013. The slowing Canadian economy means the government will have lower revenues than it initially forecast as it draws up the next budget, which is due soon, Flaherty said on Friday. (CHRIS WATTIE/REUTERS)

Will the next federal budget be Flaherty's last? Add to ...

Jim Flaherty insists he’ll stick around until the deficit is gone.

The problem is that few people believe him.

Speculation is rife around Ottawa that Mr. Flaherty, 63, is looking for a graceful exit after 18 years in federal and provincial politics – the past seven as Canada’s Finance Minister.

That means the next federal budget, expected at the end of this month, may well be his last, and a final chance to cement his legacy.

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The combination of the hectic travel schedule, a high-pressure portfolio and his recent admission that he’s on powerful drugs to treat a rare skin condition have apparently taken their toll. Mr. Flaherty no longer has the demeanour of a man digging in for another two years of tough deficit slogging.

If he leaves this year, he won’t be the guy who tamed the deficit. He missed his deficit target last year and the deficit grew.

And he won’t be remembered as one of the transformative finance ministers of the past few decades. Think about Michael Wilson, who tilted the tax burden to consumers with the introduction of the goods and services tax, or Paul Martin, who spared Canada from debt default and ensured there would be a Canada Pension Plan for future generations.

Rather, Mr. Flaherty has made his mark as a pragmatist in tough economic times – a fiscal conservative who grudgingly became a Big Government Keynesian.

“He has shown an important amount of flexibility,” argued McGill University economist Chris Ragan, who worked for Mr. Flaherty as a visiting economist in 2009 and 2010.

Critics have faulted Mr. Flaherty for being in denial as the financial crisis worsened in 2008. And then again in 2010, when he preached fiscal austerity to the Group of Seven just before much of Europe slipped back into recession.

Mr. Ragan sees it differently. He said Mr. Flaherty quickly shifted gears as facts changed, getting massive stimulus money out the door fast as the recession hit.

“He showed himself to be very Keynesian,” he pointed out.

It wasn’t his only policy flip-flop. After initially loosening mortgage rules, Mr. Flaherty switched gears and clamped down several times to cool excessive borrowing in the overheated real-estate market.

He also gets only partial marks for confronting the economics of an aging population. He raised the eligibility age for Old Age Security by two years. But he backed off a more ambitious plan to keep millions of retirees out of poverty by expanding the CPP, and he dumped a greater share of soaring health-care costs on the provinces.

Mr. Flaherty faces another spend-or-cut dilemma with this budget. Scott Clark, who worked for both Mr. Wilson and Mr. Martin as a top finance official in the 1990s, says Mr. Flaherty is ideologically bent on eliminating the deficit when key parts of the economy need propping up.

“What you have is a government that’s caught in its own headlights,” said Mr. Clark, a former deputy finance minister. “The economy is struggling rather seriously . . . They are going to need to step in and provide a little support to this economy.”

A combination of external events and the tight grip of Prime Minister Stephen Harper means Mr. Flaherty has enjoyed far less independence than many of his predecessors, Mr. Clark said.

“Flaherty has had his legacy imposed on him,” Mr. Clark said. “I’m not sure he’s been able to be an independent finance minister where he actually was running the budget or economic policy. Central command has basically been pulling his leash.”

There is still a lot left for Mr. Flaherty to do, beyond the deficit. There is the unfulfilled dream of a national securities regulator. Canada is also saddled with an inefficient and excessively complex tax regime that’s too reliant on income taxes (made worse when the Conservatives slashed the GST).

All that may now have to wait for a successor.

Follow on Twitter: @barriemckenna

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