More proof that income-splitting will benefit few

Posted on March 24, 2015 in Equality Policy Context – Opinion/Editorials – Only 15 per cent of already well-off Canadian households will benefit from the Harper government’s income-splitting tax break. It should be scrapped.
Mar 23 2015.   Editorial

Now that the Parliamentary Budget Officer (PBO) has confirmed that only 15 per cent of Canadian households will benefit from the Harper government’s income-splitting tax break, it’s time Ottawa reversed it.

There are many reasons to do so, which should be weighed against the small number of votes the prime minister has sarcastically suggested to opposition parties could be lost in an election year if they try to scrap the measure, known, rather 1984-ishly, as the Family Tax Cut (FTC).

First, it would play to the 85 per cent of households who will not benefit from the FTC, families who are also most likely to be struggling to make ends meet and in need of more help than those who stand to reap up to $2,000 in tax breaks from the income-splitting measure.

Second, experts say the tax break will actually discourage lower earning spouses from working — and thus paying taxes, depriving federal coffers of potential revenue. That’s because as a result of income-splitting, the lower-earning spouse goes into a higher tax bracket. That’s an encouragement to work fewer hours, or not to re-enter the labour force, at all, after maternity leaves.

Moreover, income-splitting will cost Ottawa $2.2 billion in badly needed revenue. Harper’s tax break, in fact, couldn’t come at a worse time as slumping oil prices are already resulting in lost revenue for the federal government. The PBO earlier estimated the drop in oil prices would cost the government $25 billion over the next five years, and $8.2 billion this year alone.

In short, the Conservative government could use that $2.2 billion, and more, if it is to live up to its image as prudent fiscal stewards, along with its promise to deliver a balanced budget this spring.

Income-splitting was, after all, part of a larger package of $5 billion in tax giveaways, which also included a bigger Universal Child Care Benefit and expanded Child Care Expense Deduction. Those benefits also disproportionately benefit a small number of better-off households and are too meager to cover the cost of child care.

Finally, that $5 billion could better be spent on universal child care, which studies have shown would pay for itself — and more — in taxes paid by women going back into the workforce in increasing numbers. It would also benefit voters in poorer, working-class and middle-income households, as well as wealthier families.

In short, the costs of income-splitting far outweigh the benefits, as experts on both the left and the right agree. The Harper government should rethink this misguided policy.

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