QUESTION(S) OF THE WEEK

There is no doubt that Canada has been spoiled with Finance Ministers over the past 20 years. No matter what your political affiliation, it’s difficult to argue that our country would have been better off without Paul Martin or Jim Flaherty.With respect to Mr. Flaherty, he had always said that he would balance the budget before he even contemplated stepping down, and he has effectively done so when you consider that this year’s budget has a $3 billion contingency fund built in. Should investors be worried? We don’t believe so, and markets have not responded terribly to the news as we saw little movement as a result in both equity and fixed income markets. While it’s true the Canadian dollar has been falling since Flaherty’s resignation, we believe it is more of a result of Canadian monetary policy expectations and U.S. dollar strength following this week’s meeting of the Federal Reserve Open Markets Committee (FOMC).

With that said, we also believe Flaherty’s resignation is well timed on his part for three reasons: (1) as Mark Carney left Canada when sentiment on Canadian monetary policy was changing, Mr. Flaherty is bowing out when views on the Canadian economy are turning more negative, (2) on the issue of income splitting, Flaherty was likely to have a battle on his hands with his caucus and the Prime Minister which he likely would have lost, and (3) with just over a year until the next election, Mr. Flaherty’s influence on next year’s budget was likely to be minimized as the Prime Minister’s Office and the Conservative campaign will very likely be calling the "fiscal” shots.

Joe Oliver was a good choice as a replacement as the Prime Minister is not making any long term commitments to the post as Mr. Oliver is 73 years old, and likely does not have future Leadership aspirations.However, Oliver’s resume and previous experience on Bay Street will bring about a sense of continuity and stability, which is precisely what the Prime Minister needs going into the next election.

So, while Jim Flaherty did provide us with the largest deficit in Canadian history during the last recession, a necessary step to stimulate the economy back to health, he has also responsibly brought our national income statement back into balance. Let’s all hope that accomplishment is not wasted on election promises next year from all parties that we cannot afford.

By The RM Group at Richardson GMP Limited. Our Group can help you.

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Source: Richardson GMP Limited

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