Tax sharing confusion: Flaherty showing signs of needing a rest

The Family Tax Cut, as it was called, was one of the marquee promises in the Conservatives’ 2011 election campaign. “We will soon be in a position,” the party platform exulted, “to take a historic step forward to achieve greater fairness for families … tax sharing for couples with dependent children under 18 years of age.”

“This important new measure,” it announced, “will be implemented when the federal budget is balanced within our next full term of office.” This was the pot of gold at the end of the rainbow, “significant tax relief for approximately 1.8 million Canadian families — each of them saving, on average, $1,300 per year.” But more than that, there was a principle at stake: to “ensure that the federal income tax system respects and supports the choices that families make.”

It doesn’t get any more central to Tory doctrine than that. As things stand, it explained, “couples with the same number of children and the same total income are not treated equally. A two-income couple, in which one spouse earns more than the other, pays more federal income tax than a two-income couple in which the two spouses earn equal amounts. And a singleincome couple pays even more.”

Tax sharing, or as the rest of the world calls it, incomesplitting, would fix that. Under the Conservative plan, the spouse in the higher tax bracket of the two would be able to pass up to $50,000 to the other for income-tax purposes, thus reducing their combined tax liability. That was the promise. That has been the understanding since then. And that’s what Jim Flaherty has just informed us he doesn’t believe in.

Flaherty is not, as he protests, “just one voice.” He is the minister of finance, the second most powerful person in the government. He is the only minister of finance this government has ever had, at nearly eight years in office one of the longest-serving ever. So when he repudiates one of the party’s most important policies, it’s — well, what is the precedent for this?

Is income splitting still party policy? On the evidence of Wednesday’s extraordinary question period, it’s unclear. Asked to clear up the confusion, neither the prime minister nor Flaherty, in one of only two questions he was permitted to take, would give a clear answer. But the apparent humiliation of the finance minister, forced to watch as other ministers answered questions on the budget he had just delivered, surely signals the prime minister’s displeasure.

If so, then we have a clear split between the prime minister and his lieutenant — with other senior ministers openly taking sides between them. In which case, it is difficult to see how Flaherty can carry on in the job. As a matter of tax policy, incomesplitting is squarely within the finance minister’s purview. It is inconceivable that the minister, having attacked the policy in public, should then be charged with putting it into effect — and defending it from opposition attack. Or would someone else have to answer for this part of the minister’s portfolio? No. If it is a choice between the policy and the minister, the minister will have to go.

There is good reason to stick with the policy, and not only because it was an election promise. Critics complain the policy would primarily benefit relatively wellto-do couples, while leaving out single parents and others. But there is more than one dimension to equality. Economists speak not only of “vertical equity,” that is between rich and poor, but “horizontal equity” — the notion of treating “like as like,” or taxing people in similar circumstances at similar rates.

Equalizing the tax treatment of couples of similar means is an example of the latter. It does not confer a special benefit, but only corrects a special inequity. To object that others, not so situated, would not benefit from this change is only to say that they were not subject to the same inequity.

That’s not to deny the importance of vertical equity. But what matters is the progressivity of the tax system as a whole, not whether every single part of it is progressive in itself. The GST, for example, might be seen as regressive in isolation, but not when the GST credit for the poor is taken into account.

Are there more pressing cases of inequity than discrimination against singleearner couples? Could the estimated $2.5-billion annual cost of income-splitting be used instead to redress some of these? Probably. But it’s not as if these other concerns have been going neglected: from the GST credit to the Working Income Tax Benefit to the National Child Tax Benefit to the Guaranteed Income Supplement and beyond, the country has devoted tens of billions of dollars to raising up the poorest among us, and rightly so. Meanwhile the top personal income tax rate has not changed since 1986.

As for Flaherty, he has been showing signs of needing a rest long before this.

He is, it must be acknowledged, unwell: He has difficulty speaking, looks unsteady on his feet, and, whether or not this is related, has been behaving increasingly erratically, from tearing up over Rob Ford’s difficulties to swearing a blue streak at fellow minister Jason Kenney — on the floor of the Commons. Most telling, he seems to be running low on ideas, as the thinness of recent budgets attests.

After eight years, he has a decent if not towering legacy, from the Working Income Tax Benefit to Tax-Free Savings Accounts to the elimination of tariffs on intermediate goods.

The balanced budget, his singular objective of late, is within sight. If he is not prepared to carry out the rest of the Conservative agenda, then perhaps someone else should be called upon to deliver that pre-election budget.