Ottawa Citizen

Flaherty’s criticism still haunts Tories

His comments on income splitting will fuel opposition election tactics

- JASON FEKETE jfekete@ottawaciti­zen.com

A year after then-finance minister Jim Flaherty questioned the wisdom of his government’s incomespli­tting plan, his comments still haunt the Conservati­ves — and have turned into an election issue over the value of the Tory government’s multibilli­on-dollar tax-cut policy.

On Feb. 12, 2014, less than 24 hours after delivering a federal budget, Flaherty shocked reporters and fellow Conservati­ves when he declared the government’s plan to offer income-splitting to couples with children would have virtually no benefit for many Canadians.

“It benefits some parts of the Canadian population a lot and other parts of the Canadian population virtually not at all,” Flaherty told reporters that day, following a discussion on the issue with an Ottawa business audience.

Flaherty told business leaders that income-splitting “needs a long, hard analytical look” by think-tanks and others to see which Canadians it affects and to what degree. “I’m not sure that overall it benefits our society,” he told the crowd.

The government had promised in its 2011 election platform to introduce income-splitting for couples with children under 18 (sharing up to $50,000 of income) once the budget was balanced. But the policy had been panned by conservati­ve and progressiv­e think-tanks alike, which argued the policy would disproport­ionately help wealthier Canadians and produce little, if any, benefit for most Canadians.

Two months after speaking out on the issue, Flaherty died suddenly of a heart attack at his Ottawa condo. His death came just a few weeks after he had resigned from cabinet and as he was preparing to move back to the private sector.

Now, a year after those famous comments on income-splitting, Conservati­ves are still defending the tax break and the Conservati­ve government’s opponents repeatedly point to Flaherty’s criticism as proof income-splitting is a poor policy that will benefit wealthy Canadians the most.

In many ways, Flaherty’s criticism sparked a national discussion on the issue and contribute­d to the government’s decision to cap a family’s income-splitting benefit at $2,000. As debate heated up over the value of income-splitting, the government promised last fall to expand the Universal Child Care Benefit (UCCB) to ensure all Canadian families with kids under 18 receive additional benefits.

“When a senior cabinet minister says a policy is worth a second look, with an eye to revising, it is a notable event, especially if it appears to cut across a party stance,” said Finn Poschmann, vice-president of policy analysis at the C.D. Howe Institute, a think-tank that has studied income-splitting extensivel­y.

“No question Mr. Flaherty sparked a sincere debate,” he said. “Mr. Flaherty was perceived as willing to shift course as circumstan­ces warranted, and it did not come across as a matter of opportunis­m or partisansh­ip.”

Poschmann said there is a “sound tax fairness argument in favour of income-splitting,” which is: why should a couple with an 80-20 income split pay significan­tly more tax than a couple with a 50-50 split? But the Conservati­ve income-splitting policy would have helped higher-income Canadians the most, he said, which is why the government then expanded the UCCB to spread benefits across a broader income range.

Flaherty’s comments and the government’s income-splitting policy have also turned into a key election issue with all three main parties, which are trying to woo middle-class voters.

All three have been looking to use the policy as a wedge issue going into an expected fall federal election: the Conservati­ves attacking the Liberals and NDP as wanting to hike taxes because they would cancel income-splitting; the New Democrats and Grits saying the Tories are ignoring the middle-class and giving tax breaks to wealthy Canadians who need them the least.

David McLaughlin, a public policy expert and former chief of staff to Flaherty, said the Conservati­ves’ decision to cap the benefit on income-splitting, and enhance the UCCB, was a “very deliberate” attempt to respond to the controvers­y, including addressing Flaherty’s concerns and the fairness of the tax cuts.

The government is trying to wedge out the Liberals and NDP by arguing they would hike taxes by opposing income-splitting, while Trudeau and the Liberals are looking to portray themselves as in favour of lower taxes but also tax fairness for all, he said.

“You’ve got the lead-up to an election where the Conservati­ves clearly want to run as tax cutters and the party of low taxes, the party of the middle class, so they wanted to shield themselves further from any forays into the middle-class vote territory by Trudeau, who at least was talking about it explicitly,” McLaughlin said.

“The Conservati­ves’ middleclas­s brand was under pressure and the best way to buttress it, the best way to reinforce it, was to reprise their tax-cutting credential­s.”

Today, the issue has become arguably the Number One attack point for Justin Trudeau against the Conservati­ves. Trudeau has repeatedly assailed Prime Minister Stephen Harper over income-splitting, saying it will benefit wealthy Canadians the most — “families like his and mine” — with a $2,000 tax break.

The policy will benefit only 15 per cent of the wealthiest households in Canada, and offer no benefit to 85 per cent of households, Trudeau has argued, citing past reports from multiple think-tanks like the C.D. Howe Institute and the Canadian Centre for Policy Alternativ­es.

This week, ex-Tory-now-Liberal MP Eve Adams cited the government’s income-splitting plan in explaining why she no longer felt at home in the Conservati­ve party.

“Even Canada’s former finance minister, Jim Flaherty — a Progressiv­e Conservati­ve from Ontario — could not support the impact and the waste of income splitting,” Adams told reporters at a news conference with Trudeau.

Adams said income-splitting, which is expected to cost the treasury roughly $2 billion annually, “will devour the surplus without benefiting many Canadian families, or creating a single job.”

The Mississaug­a-Brampton South MP has also announced she is seeking the nomination to run against Finance Minister Joe Oliver in his Eglinton-Lawrence riding in Toronto. Were she to win that nomination, she made it clear she will try to make the government’s income-splitting plan a ballot-box issue against the current finance minister.

You’ve got the lead-up to an election where the Conservati­ves clearly want to run as tax cutters.

 ??  FRED CHARTRAND/THE CANADIAN PRESS FILES ?? Former finance minister Jim Flaherty shocked reporters and fellow Conservati­ves in February 2014 when he said income splitting would have no benefit for many Canadians.
 FRED CHARTRAND/THE CANADIAN PRESS FILES Former finance minister Jim Flaherty shocked reporters and fellow Conservati­ves in February 2014 when he said income splitting would have no benefit for many Canadians.

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