Harper’s ‘income splitting lite’ is still a bad idea
TheStar.com – Opinion/Editorials – Prime Minister Stephen Harper’s latest promise of income-splitting for some families is a watered-down version of a bad idea.
2014/10/30. Editorial
So welcome to the 2015 federal election campaign. Prime Minister Stephen Harper – tie and glasses off, smiling his best campaign smile – kicked it off on Thursday with a package of tax changes he said will benefit every Canadian family with kids. Who can resist?
In fact, the centrepiece of Harper’s big “family” announcement was a watered-down version of a badly flawed policy that was pooh-poohed by even the Conservatives’ most successful finance minister, Jim Flaherty. Still, Harper was bound and determined to bring in some form of income-splitting, which the Tories have been promising since 2011, and he’s done it just in time for the benefits to kick in for next year’s election.
The best that can be said about the limited type of income-splitting announced by the prime minister is that it will cause less damage than the plan he originally wanted to bring in. It will allow couples with children under 18 to transfer up to $50,000 of income to the spouse with the lower income for tax purposes, thereby cutting their overall federal tax bill.
The new twist is that the government will cap the benefit at $2,000 a year. That means couples with one high income earner won’t reap the windfall that the original plan would have given them. And it will cost the government less in foregone tax revenue.
But income-splitting will still leave most families out. Single parents (accounting for as many as 28 per cent of families, by some estimates) will get nothing. Couples with relatively similar incomes won’t benefit either. Only couples that fit the stereotypical model of one high earner and one who doesn’t work outside the home, or has a low salary, stand to be significant winners.
Independent analysts haven’t studied the new plan, but a study by the C.D. Howe Institute of the original scheme concluded that 85 per cent of families “would gain no benefit whatsoever.” No wonder critics on both the left and the right – as well as Flaherty himself – say income-splitting is fundamentally unfair.
The government has tacked on two more measures to ensure that all families will benefit. One is an increase in the Child Care Tax Deduction by $1,000 a year. The second is a boost in the monthly child care benefit from $100 to $160 a month for kids under 6, and a new benefit of $60 a month for children 6 through 17.
Both are a grossly inadequate response to the national crisis in child care, but by sprinkling new benefits around the government can claim to be giving something to everyone. And by amazing coincidence the cheques will start flowing in the middle of next year. Harper’s social policy may be flawed, but his political instincts are as sharp as ever.
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Tags: budget, child care, economy, featured, ideology, standard of living, tax
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