Income splitting benefits would flow West: study
OTTAWA – The Harper government’s income splitting plan is more expensive than previously believed, helps even fewer Canadians than earlier thought and would benefit Conservative strongholds such as Alberta and Saskatchewan more than other provinces, according to a study by the Broadbent Institute.
The report from the left-leaning public policy group reaches similar overall conclusions as previous studies on the controversial 2011 election promise, whose implementation is contingent upon Ottawa balancing its budget.
As the C.D. Howe Institute found in 2011, the proposal would provide no benefit to the vast majority of families while giving the biggest benefits to the country’s most affluent single-income families.
But the latest analysis digs deeper into the data, using Statistics Canada’s social policy simulation database which estimates benefits for families in 2015, the expected year of implementation.
It finds the program would cost the Ottawa treasury about $3 billion a year and direct the lion’s share of tax savings to higher income families, while providing no benefit at all to about 90 per cent of households. Those numbers are slightly higher than estimated by C.D. Howe in 2011.
Among the most surprising findings is the large disparity in the regional breakdown of benefits.
It turns out that among the target group — families with minor-age children — the biggest winners by far reside in Alberta, where the average annual tax saving would be $1,359, while families in Saskatchewan come in second at $1,070. Those two provinces, which have a combined 42 federal ridings, sent 40 Conservative MPs to Ottawa in the 2011 election.
Families in Prince Edward Island would get the least average benefit at $488, followed closely by Quebec families with children, which would average $510 in benefits. Those two provinces were among the least productive for the Conservatives, electing only six Tories among their combined 79 MPs in 2011.
By ascending order of benefits, qualifying Nova Scotia families would average $727 in benefits, followed by Manitoba ($772), New Brunswick ($787), British Columbia ($853), Ontario ($874) and Newfoundland ($925).
Broadbent Institute executive director Rick Smith has no explanation for the regional disparity other than that the program as unveiled was designed for a particular type of family — the so-called “Leave It to Beaver” traditional home with a principal breadwinner and a stay at home spouse who takes care of the children.
“It turns out there are few families of that type but there are more of them in Alberta than in Quebec,” he said.
The program would allow the higher earning spouse to transfer up to $50,000 to the lower earner for tax filing purposes.
Overall, the study shows that 90 per cent of families would get no benefit, either because they have no children under 18, are single-parent households or because the two working spouses are in the same tax bracket.
To benefit the most, one spouse must make $100,000 more than the other and have a taxable income above $136,270, the highest marginal rate.
Of families with children under 18, the average tax saving is calculated at $841, although that includes the 54 per cent of those households that receive no benefit at all.
But for 147,000 Canadian families with a high-income breadwinner, the average benefit would be $7,128.
“If the government set out to specifically design a policy to make inequality worse, this would be it,” Smith said.
“This policy is an inequality generating machine.”
The lack of broad-based benefits is expected to be a major campaign issue should the Conservatives go ahead with income splitting in next year’s budget. It was one reason cited by the late finance minister Jim Flaherty for publicly expressing doubts about the program earlier this year, touching off a fire storm among Conservative MPs who remain committed to seeing it implemented.
READ MORE: Federal cabinet split over income-splitting
Current Finance Minister Joe Oliver has vacillated between supporting income splitting and leaving the door open to changes.
The NDP will introduce a motion in the House on Tuesday to declare the proposal harmful to Canadian society in that it helps few and exacerbates income inequality.
Although polls show income splitting is currently popular, Smith believes one reason is that most Canadians assume they will benefit, when in fact they likely won’t.
Without seeing the results of the study, which was given to The Canadian Press prior to the official release Tuesday morning, Andrea Mrozek of the Institute of Marriage and Family said income splitting can be implemented “the right way” so as to spread the benefits more broadly.
“We can implement this in a way that benefits a bigger group of families. For example, we have always looked at the French model, which allows a single parent to split with a child, so thereby benefiting from income splitting,” she said.
According to the Broadbent study, which was based on analysis by Tristat Resources, that would benefit an additional 20 per cent of families.
Tax policy expert Jack Mintz of the University of Calgary believes unequal benefits are unavoidable, but can be at least partially mitigated by other means, including increasing the tax credit for child-care costs.
Still, Smith says there are far superior ways of delivering tax relief to hard-pressed families, such as enriching the Child Tax Benefit for lower-income families, a similar conclusion reached by the authors of the C.D. Howe study.
“We wouldn’t be so concerned about this if it weren’t so darn expensive,” said Smith. “This would cost the federal treasury $3 billion a year, so we are talking about a wealth transfer from nine of 10 Canadians to the wealthiest amongst us.”
© 2014 The Canadian Press