Jim Flaherty backs away from income-splitting promise

Federal Finance Minister Jim Flaherty suggested today he no longer supports bringing in income splitting for couples with children, kicking off a debate over whether the Conservatives are stepping back from a 2011 campaign promise.

The Conservative promise to introduce income splitting was a major part of the last election campaign and was tied to bringing the budget back into balance, something the government will likely have achieved a year from now.

"It's an interesting idea. I'm just one voice. It benefits some parts of the Canadian population a lot. And other parts of the Canadian population virtually not at all," Flaherty told reporters following an event in Ottawa.

"And I like to think I'm analytical as finance minister, so I will, when we discuss it eventually in cabinet, in caucus, I will present my analysis to my colleagues."

Earlier, Flaherty said the measure needs "a long, hard, analytical look" by experts "to see who it affects in this society and to what degree. Because I'm not sure that overall it benefits our society."

The Conservatives promised income splitting for couples with children under 18, a plan that would overwhelmingly benefit families where one adult has little to no income, such as a stay-at-home parent, and the other has a high income.

Other Conservative MPs, including Employment Minister Jason Kenney, said they still support the policy.

"The bottom line is it's about tax fairness for families so they don't get penalized," Kenney said after coming out of the party's weekly caucus meeting.

In question period, Flaherty took only two questions, but didn't get to fully answer one. After standing and joking about his year as finance minister in Ontario's last Progressive Conservative government, Speaker Andrew Scheer moved on to the next questioner.

Prime Minister Stephen Harper stood to take between 25 and 30 minutes of questions Wednesday, leaving Flaherty sitting two seats away. Harper normally only answers questions from party leaders. It raised questions about whether Flaherty was being benched, something Harper's director of communications flatly denied on Twitter.

"No. Do you have a question on the actual substance of the budget?" Jason MacDonald responded to a reporter.

MacDonald said Harper retains confidence in Flaherty.

"His record on job creation, economic growth speaks for itself," he wrote on Twitter.

New Democrat Leader Tom Mulcair seized on the apparent dispute, but noted that Harper didn't reassert the promise to introduce income splitting.

"[Harper] completely evaded the question," Mulcair said, adding that he doesn't think the Conservatives still plan to introduce the measure.

"When you have groups as diverse as the Canadian Centre for Policy Alternatives on the one hand and the C.D. Howe Institute on the other hand, saying the exact same thing, that it won't benefit the vast majority of Canadian families, I think it's quite clear that they're starting to realize that they've got problems."

Mulcair suggested Flaherty was benched for casting doubt on the policy.

"The prime minister rose to answer the question, evaded it and kept the finance minister seated for pretty well all of question period. I think Canadians can read a lot into that," Mulcair said.

In question period, Harper told Mulcair only that one of the government's highest priorities is "tax reduction for Canadian families."

"I know Mr. Speaker that their plans would be tax hikes on Canadian families, but we believe in this party we should cut taxes for Canadians," Harper said.

An October, 2011 report by the C.D. Howe Institute, an economic think-tank, found the policy would affect a narrow slice of the population.

"And if the objective is to provide support to families in raising children, it would distribute most benefits where they are least likely to be needed. Splitting would also be revenue costly, adverse to work incentives, and gender-biased," the report concluded.

The researchers found that the Conservatives' income-splitting proposal would:

Highly concentrate the benefits among high-income, one-earner couples: 40 per cent of total benefits would go to families with incomes above $125,000.

Be of no benefit to 85 per cent of all households, including single-parent families, and that even among couples with children nearly half would gain nothing or less than $500.

Cost $2.7 billion in lost federal tax revenue.

The Broadbent Institute, a think-tank named for former New Democrat leader Ed Broadbent, argues income splitting would benefit Canada's wealthiest families and come with a $3-billion price tag.

Flaherty delivered his 10th federal budget Tuesday, one that put him within the margin of error of balancing the books a year ahead of schedule.

Updated figures in the budget show the Conservatives with a $2.9-billion deficit, just within the $3-billion contingency Flaherty has kept in reserve in case of major blows to Canada’s economy. The Finance Department upgraded its projected surplus for next year to $6.4 billion from $3.7 billion.