Finance Minister Jim Flaherty Register file photo.

Flaherty sends signal income-splitting promise may be shaky

  • February 18, 2014

OTTAWA - Negative remarks from Finance Minister Jim Flaherty have social conservative groups concerned the Tories might abandon a key promise in their 2011 election campaign to allow income splitting for families.

“It seems clear there’s some sort of issue within the party, so I’m concerned about it,” said Institute of Marriage and Family Canada executive director Andrea Mrozek. She called the public disagreement among cabinet ministers a “mini-fiasco.”

But the wider debate reflected among think tanks is taking place inside the Tory cabinet.

On Feb. 12, the day after presenting Budget 2014 that projected a surplus for next year, Flaherty told a CBC journalist he thought income splitting “needs a long, hard analytical look.” Employment Minister Jason Kenney, however, defended the campaign promise.

The internal wrangling made income splitting a Question Period topic. Flaherty said he was committed to “greater tax relief for Canadians,” without spelling out how.

Income splitting, or income sharing, would allow a higher-income spouse to share their income for tax purposes with a lower income or no income partner. The Conservatives have already brought in income sharing for pensioners, and had promised income splitting of up to $50,000 after the budget is balanced. Presently, if there are two families with an overall income of $100,000, the family with two income earners making $50,000 each a year pays several thousand less in taxes each year than a one-income family earning that amount.

“It’s unfathomable to think they are going to back away entirely from the promise,” said Cardus co-founder and vice president Ray Pennings. “They made a clear commitment to a lot of people who voted for them in expectation of that commitment. I think there would be consequences.”

“If they fail to keep this promise, there’s little doubt in my mind they are not going to win the election,” said Mrozek.
But Citizens for Public Justice (CPJ), a social justice think tank, welcomes the debate.

“With almost $3 billion as the cost of this likely option, is that the best Canada can or should do to create more equity in our tax system, much less to support families, especially those struggling with poverty?” asked CPJ executive director Joe Gunn. “Not even close.”

The Centre for Policy Alternatives said tax cuts such as income splitting “will provide the greatest benefit to those who need it least,” according to senior economist Armine Yalnizyan. Instead, its Alternative Federal Budget proposed measures such as “affordable child care” and supports to health care and infrastructure. It proposes taking aim at income inequality and raising people out of poverty.

Mrozek rejects the idea that income splitting is designed to benefit the rich. She pointed out a government surplus indicates it has taken in more taxes than it needs to pay for its programs. She finds it frustrating when the surplus is viewed as the government’s money rather than a sign Canadians have been over-taxed.

“Income splitting allows more families to have more of their own money in the first place,” she said.

The New Democrats cited a 2011 C.D. Howe Institute study that estimated about 15 per cent of the population would benefit from income splitting. If 15 per cent of the population is “being unfairly taxed compared to other people of similar household income, that’s an injustice that needs to be addressed,” Pennings said, noting that is how the promise was defined in the 2011 election campaign.

“I guess unfairness is okay as long as it’s targeted towards families,” he said.

Income splitting is not just a social conservative issue, but a bridge-builder with conservatives who want lower taxes, Mrozek said.

Mrozek said she is “not married” to income splitting as the only way to reduce the tax burden on families, but the Conservatives need to have a well-thought-out plan if they intend to backtrack on their promise.

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