Canada's books are virtually balanced, allowing Finance Minister Jim Flaherty to step down with his head held high, but he leaves his successor with other pressing issues, including a frothy housing market and a securities industry that still lacks a true national regulator.
Mr. Flaherty fought in recent years to cool the country's hot housing market, worried that the overheating could lead to a major correction.
He also led the charge to replace the patchwork quilt of provincial securities bodies with a national overseer. Both campaigns are now missing their point man after Mr. Flaherty relinquished his cabinet position Tuesday.
His resignation means Canada is losing a Finance Minister who was listened to by the country's financial institutions and had the tenacity to take on tough economic issues.
"The Minister of Finance needs to be independent," Mr. Flaherty said on the sidelines of the annual meetings of the International Monetary Fund and World Bank in Washington last fall.
"Obviously, you're never totally independent because you are part of a government. But there needs to be a certain amount of courage – and the willingness not to be liked very much. I'm used to that," Mr. Flaherty added.
Most recently, he took responsibility for cooling Canada's housing market. In the face of concerns that house prices and consumer mortgage loads were rising too fast, Mr. Flaherty made tough decisions to cool the market from 2008 onward. His moves curtailed home sales and made it more difficult for buyers to obtain mortgages – two outcomes that were not necessarily popular among voters.
"These are the sort of policies that take political courage," said Craig Alexander, chief economist of Toronto-Dominion Bank.
Mr. Flaherty reined in Canada Mortgage and Housing Corp. and the mortgage insurance business. His rewriting of the rules governing that area mean that his successor will have more power over the mortgage insurance business than Mr. Flaherty did when he took over the portfolio.
Mr. Flaherty had the gumption to reverse course when necessary, even when it flew in the face of his party's political mantra or his personal beliefs. During the financial crisis, he oversaw a massive federal stimulus, something Prime Minister Stephen Harper originally opposed, and he chose to deploy hefty auto bailouts. As Ontario's Enterprise Minister in the early 2000s, he insisted the government would not pick winners and losers, but as federal Finance Minister he presided over a $13.7-billion contribution by the federal and Ontario governments to the bailouts of Chrysler LLC and General Motors Corp.
While Mr. Flaherty's departure was widely expected in the near future, according to people with knowledge of the party's inner workings, the sudden announcement caught many people off guard, especially since a balanced budget is so close. "I personally thought he'd stick around to at least bring down the 2015 budget and give it a 'mission accomplished,'" said BMO Nesbitt Burns chief economist Douglas Porter.
He departs having earned the respect of the financial community. "Jim Flaherty has been an outstanding Finance Minister for this country. He gets it, he understands how the marketplace operates and he is so committed," said TMX Group chief executive officer Tom Kloet.
"Jim Flaherty had an exceptional tenure as Canada's Minister of Finance, leaving our economy as one of the most robust and vibrant in the world," said Bank of Montreal CEO Bill Downe.
Most observers believe Ottawa will stick to the course he has set. Although the Finance Minister stepped down on the same day that the Bank of Canada cautioned Canadians to get used to slower growth, largely as a result of an aging population, economists say Canada's federal budget is still on track to be balanced and expect the federal government to keep to its existing fiscal policies.
"We'll never get a carbon copy of Mr. Flaherty, but I suspect whatever changes we see in the next year will be minimal," Mr. Porter said. "He's already set the course for this year, and arguably next year, with the 2014 budget. I doubt the government will stray from the underlying goal to balance the books next year."
The U.S. economy is also recovering at a fast clip, with gross domestic product growth that is expected to outpace Canada's this year. The resurgence of Canada's largest trading partner is likely to prop up the domestic economy, with or without Mr. Flaherty.
With files from reporters Greg Keenan and Boyd Erman