Income splitting to drain workers from labour force, particularly women: PBO

WATCH: Tom Clark reports that the Parliamentary Budget Officers said the income splitting measure will only help 15 per cent of Canadians — many of whom are already rich.

The Harper government’s income-splitting plan will benefit just 15 per cent of Canadian households, and will encourage some workers – particularly women – to leave or stay out of the labour force, according to a new report by the Parliamentary Budget Officer.

In the analysis released today, the PBO said middle and high income households will benefit most from Family Tax Cut gains.

The report says the FTC benefits a “relatively narrow” segment of the population.

This leaves single parents and low-income families with little to no opportunity to benefit.

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“FTC eligibility rates for households in the bottom 20 per cent of income are near zero,” reads the report.

READ MORE: Does the income-splitting plan only benefit 15% of Canadians?

It could also lead to a small drain on the workforce: the equivalent of 7,000 net full-time jobs.

The plan, it said, provides incentive for the lower-earning partner in some households to stop working.

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Since men are the primary breadwinners in 80 per cent of Canadian households, the budget office expects women to make up the majority of those who withdraw from the workforce.

Last fall, Prime Minister Stephen Harper introduced the multibillion-dollar measure, a key pledge in the Conservatives’ 2011 election platform. It was announced in time for this spring’s tax season.

“As a result, if you look at it that way, it’s regressive in a sense,” assistant parliamentary budget officer Mostafa Askari told reporters.

The measure has been controversial and politicians quickly weighed in on the budget office report.

Employment Minister Pierre Poilievre issued a statement shortly after the study’s release, though he didn’t directly address income splitting. He stressed that the Conservatives’ overall plan to cut taxes for families remained on the right track.

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Opposition parties were swift to cast the report’s findings as further evidence the income-splitting plan should be scrapped.

NDP finance critic Nathan Cullen called the measure “wasteful and ineffective.”

Liberal finance critic Scott Brison said: “Anything that costs $2.2 billion and actually hurts jobs and growth is clearly wrong-headed.”

The PBO estimates the FTC will reduce federal revenues by $2.2 billion in 2015. The initial estimate by Finance Canada placed the fiscal impact at $1.9 billion. However, the report finds it will have “negligible impact on provincial revenues.”

The benefits are restricted to $2,000 in tax reductions per household, per year.

The benefits are available to married or common-law couples with children under the age of 18. Commonly referred to as income-splitting, the FTC allows a spouse to transfer up to $50,000 of taxable income to a lower-earning partner.

“In FTC-eligible families, primary earners predominantly work full-time hours and have a gross wage rate that is roughly double that of secondary earners.”

The measure also arrives at a time when the country is trying to attract lower-wage workers into the labour force.

The budget office’s report said the measure will encourage secondary earners in qualifying households to work less because taking on their spouse’s wages could move them to a higher tax bracket.

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The study estimated the anticipated effect of lower-earning partners staying out of the workforce will reduce their participation in the labour supply by the equivalent of 14,000 full-time jobs.

It said this will likely be offset, in part, because the tax measure also encourages the primary income earners in each eligible household to work more.

The budget office says since main income providers could fall to a lower tax bracket, they might have increased incentive to earn more. The result, the report said, will add the equivalent of about 7,000 full-time jobs.

Askari described the overall net effect as “pretty small” because it represents less than 0.04 per cent of total hours of labour supplied and less than one 0.01 per cent of total employment income.

With files from The Canadian Press

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