New Finance Minister faces hard choices with 2015 budget surplus

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Joe Oliver faces tough decisions as Ottawa prepares for a budget surplus after at least six years of deficits – a challenge the new Finance Minister and Stephen Harper will face without key economic advisers who contributed to much of the government's success in hard times.

The Conservative government is forecasting a surplus of $6.4-billion next year – the first since 2007-08 – but divvying up this windfall will prove challenging because of second-guessing within the governing party over whether to proceed with a lucrative tax cut for families that particularly targets households with stay-at-home spouses.

Former finance minister Jim Flaherty, who resigned this week, dragged the income-splitting debate into the open shortly before he left.

Mr. Flaherty voiced misgivings about the fairness of a pledge that would eat up more than 40 per cent of the projected surplus.

In an interview hours after he was sworn in at Rideau Hall on Wednesday, Mr. Oliver took pains to emphasize that his appointment represents continuity in terms of the government's approach to economic matters. However, the former natural resources minister acknowledged that the debate over the coming year will be much different from the restraint-focused discussions of the past.

"It raises different policy issues. The obvious question is what does one do with the surplus and there are different approaches to that depending on where you are and that, I'm quite sure, will be part of the public debate," he told The Globe and Mail. "There will be people who will want to reduce the debt and others who will want to reduce taxes and others will want to increase expenditures and so that is going to be part of the national debate, but you know, our position is fairly clear."

Mr. Oliver isn't tipping his hand yet on how he will proceed with a controversial Conservative campaign pledge to allow parents to split income for tax relief.

"We're talking here about something that would come next year, so you know I can't get into all the detail. But we are going to be guided by our platform and this is a complex issue and I'm going to get into the details of it [later]," he said.

In a small federal cabinet shuffle Wednesday in Ottawa, Kenora MP Greg Rickford replaced Mr. Oliver as federal Natural Resources Minister. London, Ont., MP Ed Holder took over for Mr. Rickford as Minister of State for Science and Technology.

Mr. Oliver takes the helm at Finance after a heavy turnover in the bench strength of economic stewards in Ottawa. Over the past year, the government has shed pivotal members of the economic brain trust it once relied upon to talk to Canadian business and navigate choppy waters.

Last May, the Prime Minister lost his Bay Street whiz Nigel Wright when he resigned as chief of staff over a secret payment to Senator Mike Duffy. The following month, Mark Carney left as Bank of Canada governor and deputy governor Tiff Macklem is due to exit May 1.

Now the Conservative government has lost Jim Flaherty, the only finance minister it has ever had. There is also speculation in Ottawa that the deputy minister of finance, Michael Horgan, will soon retire.

"The supporting cast is just not what it used to be," one senior government source said in reference to the economic expertise of the senior ranks.

The appointment of Mr. Oliver – with his extensive Bay Street credentials – is reassuring to some who are concerned about the recent losses, of economic expertise in the senior ranks of the government, both on the political side and the public service side.

Within cabinet he's regarded as a star performer who has mastered the files assigned to him. Mr. Oliver's strident defence of Canada's oil patch has earned him headlines in recent years, but a colleague says Mr. Harper and other ministers were particularly impressed by the Toronto MP's 2011 cabinet presentation on selling the Candu business at Atomic Energy of Canada Ltd. and how he handled the unloading of an asset that had been a drain on the treasury.

Mr. Oliver has his work cut out for him with the income-splitting dilemma. An internal debate within the Conservative government has begun over the 2011 election pledge, a niche tax break that's been official Tory policy for more than eight years. According to the C.D. Howe Institute, 85 per cent of Canadian households would gain nothing from the measure.

Employment Minister Jason Kenney is one of several cabinet ministers, including Treasury Board President Tony Clement, who have made it clear they believe the Conservatives should make good on their promise.

The challenge for the Tories is reaching a consensus on how to proceed without alienating key supporters. Income splitting has symbolic significance for some Conservatives who are upset about what they consider a bias in the tax system against stay-at-home spouses.

Government sources have previously said the pledge could be trimmed to make it a less generous tax break or to modify it in other ways. Such a rewrite of the promise would mean the Tories would be fulfilling the spirit of the pledge, if not the letter of it.

Other remaining campaign promises that were contingent on balancing the books include a $275-million adult fitness tax credit, a $130-million promise to double the children's fitness tax credit and a $30-million pledge to double the amount Canadians can save each year in a tax-free savings account to $10,000.

Mr. Oliver says his brand of economic stewardship is the same as Mr. Flaherty's.

"I'm taking over from a very successful minister of finance who guided the country through a severe international financial crisis and emerged in better shape relative to other countries than we were before and I intend to maintain the low-tax policy of jobs and growth. That's at the core. That's the over-arching objective of the government and I intend to continue advancing that."