Flaherty and Harper agree child care benefit a better policy than income splitting
NationalPost.com – Full Comment – Income-splitting has not split Flaherty, Harper
February 14, 2014. John Ivison
Stephen Harper and Jim Flaherty are not squabbling over the so-called Family Tax Cut, as the opposition would have you believe.
On the contrary, they are of the same mind — income splitting is dead and the $2.5-billion earmarked for the tax cut would be better spent extending the universal child care benefit that gives $100 a month to families with children under six.
Mr. Flaherty initiated a torrent of speculation when he made some unenthusiastic comments about the concept of income splitting, an election pledge from the 2011 campaign under which spouses could share up to $50,000 of their income for tax purposes. The Conservative platform said it would provide “significant tax relief for approximately 1.8 million Canadian families — each of them saving, on average, $1,300 a year” and promised to introduce the measure when the budget is balanced.
Mr. Flaherty said that while the Family Tax Cut would benefit some parts of the population, it would benefit others “not at all.”
Multiple sources suggest that the Finance Minister was not at odds with official policy and there is no daylight between him and the Prime Minister. In reality, he was the messenger for a policy he and Mr. Harper had already worked out. The two men have been hearing from think-tanks worried that income splitting would exacerbate Canada’s skills shortage by incentivizing young parents to stay out of the workforce to raise their children.
Aside from the policy implications, there were concerns that the Conservatives may not get enough political bang for the substantial amount of bucks invested in the program – one study suggested only 9% of households would benefit by more than $500 a year. Most of those would be high earners, leaving the program vulnerable to opposition charges that the Conservatives are forsaking the middle class.
So how to make life easier for the greatest number of parents without encouraging productive workers to stay home? Why not simply extend and increase the existing universal child care benefit? After all, according to Statistics Canada, there are 5.6-million households with children.
The Conservatives spent $2.7-billion last year, giving each family $100 a month for each child under six. The child care benefit helps all income classes and is popular among supporters of all parties, even the NDP. The suggestion is that the Conservatives will commit to spending the $2.5-billion saved by not establishing the Family Tax Cut on an extension of the universal child care benefit that would see children older than six covered too.
The Prime Minister has been looking to dampen the ardour for income splitting for some time and Mr. Flaherty took the opportunity of speaking frankly when he was asked about the commitment on Wednesday. Mr. Harper side-stepped the controversy when he was asked at an event Thursday, though it was noticeable that he did not endorse income splitting. He said that the Cabinet will have the discussion on how to spend the surplus once the budget is balanced.
But it might be a good idea if he shares the apparent evolution of policy with his Cabinet and caucus colleagues before that. When Jason Kenney, the Employment Minister, emerged from caucus Wednesday, he appeared blind-sided by Mr. Flaherty’s comments. “All I know is that we keep our platform commitments,” he said.
It is conceivable that Mr. Kenney supports income splitting over an increase in child benefit even now. Certainly, other members of caucus feel that trust between the party and voters will be shattered if the Conservatives do not introduce the Family Tax Cut. “There will be significant caucus pushback,” said one MP. “We’ve been bushwhacked. There is a view that families are getting a raw deal, as the Prime Minister so eloquently explained in the 2011 campaign. Income splitting is not an end-game – it’s progress towards flattening the income tax system.”
The Conservatives do have a history of promises made, promises not quite kept. In 2006, they promised to eliminate capital gains tax if the proceeds were re-invested. That promise was not fulfilled but Mr. Flaherty did bring in the Tax Free Savings Account that sheltered investments from capital gains tax, up to a certain limit.
The received wisdom is that income splitting will stay and that Mr. Flaherty will go because he’s veered off-message.
That’s the problem with the received wisdom — it’s not often right and it looks like it’s wrong again
It’s more likely the reverse will be the case. There have been plenty of legitimate question marks about whether Mr. Flaherty will deliver another budget. He was in New York last week, where he met Henry Kravis, the founder of the legendary Kohlberg Kravis Roberts private equity firm, leading to speculation that he is set to move on.
Then there was the curious fluffing of the deficit in the current year to bring it within touching distance of surplus, if the $3-billion contingency fund is not drawn down. The Finance Minister could leave before the next budget and still claim legitimately that he was the man who balanced the books.
Despite this, Mr. Flaherty is telling friends that he knows what is going on — he is.
“Jim still loves his job and he has given no indication he’s ready to leave,” said Regan Watts, a former senior aide. “He is singularly focused on the deficit and knowing Jim, he’ll want to take care of that first.”
Other friends point out that he is sounding better and travelling more than he did when his skin condition was at its worst.
That’s the problem with the received wisdom — it’s not often right and it looks like it’s wrong again.
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