Is Joe Oliver up to the task?
Joe Oliver, who took over as Canada's finance minister last month, has big shoes to fill. His predecessor, the late Jim Flaherty, who held office during most of the Harper Government's tenure, was highly regarded in international economic circles for his leadership in the aftermath of the 2008 financial crisis and the ensuing recession.
However, despite several attempts, which included tightening lending standards and encouraging the banks to not excessively cut interest rates, Flaherty was never fully able to get a handle on the bubble-like characteristics plaguing Canada's housing market.
How Oliver (who gave his first presentation as Finance Minister to the Montreal business community last week) tackles this issue will play a big role in defining his legacy.
An economy with "mo"
As Oliver says, he is taking the helm of an economy that has pretty good momentum: "Canada is showing the best economic performance of all G-7 nations. Since the start of 2006, our country has created more than 1.6 million new jobs."
In fact, since the Conservatives took office, Canadian families have seen a rise of more than 10 per cent in real after tax incomes and the net worth of Canadian households is up by more than 45 per cent. Canada also boasts the lowest net debt-to-GDP ratio of all G-7 governments.
One major reason the Canadian economy is doing so well is its ability to avoid the drastic declines in housing prices that hit the U.S., the U.K., Japan and many other western nations. Why that happened is up for debate. The Harper Government deserves some credit, however many structural factors were at play too.
For example, some credit Canada's solid banking sector, which the World Economic Forum rates as the world's best, for not going berserk lending to sub-prime clients (as their U.S. counterparts did). Others credit the country's rich natural resource base with stimulating continued job creation and foreign investor demand for local assets, including residential real estate.
However, others, particularly international observers (including Robert Schiller and Larry Summers, professors at Yale and Harvard respectively) warn this story may not have fully played itself out yet -- that house prices here may well tail off.
If that happens, Scotiabank economist Adrienne Warren says the impact will be felt "broadly" in sectors ranging from construction to retail and wholesale trade to finance, professional and technical services.
However, like his predecessor, Oliver will want to walk a fine line between not giving the impression that Canada's housing sector is overvalued, while hedging to curve any major excesses in order to limit the downside, just in case it is. How well he manages that balance will play a big role in determining whether the Tories will win the next election.
Previous Canadian prime ministers, such as Brian Mulroney and Jean Chretien, both lost control of their administrations after the finance ministers who supported them throughout most of their terms left (Mike Wilson and Paul Martin).
With that in mind, Prime Minister Stephen Harper is no doubt leading the group of Canadians who are crossing their fingers, hoping that Oliver can pick up the slack where Flaherty left off.
Peter Diekmeyer is Bankrate.ca's economics columnist. He can be reached at firstname.lastname@example.org