Liberals’ fog of secrecy about to lift
Politics: Trudeau says he’d spend income-splitting and TFSA money elsewhere, with the specifics set to be unveiled before long
The federal budget is in and the battle is on. It will unfold, within three weeks at the outside, with the unveiling of a major Liberal economic plank many months in the making, intended to trump the incomesplitting and moderately enhanced universal child benefit upon which the governing Conservatives have staked their political future.
The fog of secrecy shrouding this plan, meant to answer the central question that has dogged Justin Trudeau since he vaulted to the head of his party two years ago (You say middle-class Canadians are hurting — but what will you do about it?) remains thick. Its unveiling originally had been timed for March, following a February budget. It was delayed when Finance Minister Joe Oliver delayed, as Liberal strategists wanted to be certain they had the Conservative plan in hand before finalizing details of their counter-stroke.
In particular there was concern the Tories might reverse themselves on income-splitting, or dramatically revise the tax break, which the C.D. Howe Institute and others have said benefits only the wealthiest 15 per cent of Canadian families. The Liberal plan is predicated on redeploying the $2 billion a year budgeted for income-splitting. Oliver’s budgeted increase in the allowable annual contribution to a tax-free savings account, to $10,000 from the current $5,500, will also be nixed should the Liberals form a government, Trudeau confirmed Tuesday.
The lion’s share of any savings will presumably be applied toward the Liberal alternative, which we only assume will be called, just to blue-sky it a bit, The Liberal Plan To Restore Opportunity and Growth for Canada’s Middle Class, or some such. The Liberal proposal will be offered, Trudeau also confirmed Tuesday, within the context of a promise to balance the federal budget next year.
What will this look like? Here, some dot-connecting is helpful. Liberal policy-makers have been camped out for the past 24 months with research from economists such as Miles Corak, Mike Veall, Kevin Milligan and Mike Moffat (the latter two are members of Trudeau’s economic advisory council), all thinkers focused on rising income inequality, dormant middleclass income growth and declining social mobility. Toronto Liberal MP Chrystia Freeland’s 2012 book, Plutocrats, posits the need for a re-alignment or tweaking of current-day capitalism, to broaden its benefits to more people.
The tone of much of this analysis is re-distributive. That is to say, it offers evidence that a successively greater share of national income has gone to fewer, wealthier people, beginning in the early 1980s, and that the most effective lever for offsetting such a trend, historically, has been redistribution of wealth. Last year in his keynote at the Liberal convention in Montreal, and again this week, Trudeau ruled out tax increases for the middle class, but did not do so for wealthier Canadians.
This month, Milligan, along with co-authors Lauren Jones and Mark Stabile, published a report for the Martin Prosperity Institute at the University of Toronto’s Rotman School, positing the social and economic gains resulting from enhanced child benefit payments to low-income families. Not only do recipients spend a greater share of their income on basic needs, the authors found, they also spend less on alcohol and tobacco. In other words, such benefits have their intended effect of helping people improve their lot. They’re not frittered away, to use the expression famously used by a Liberal staffer in the 2005-06 federal campaign, on beer and popcorn.
Here’s where it leads, if one connects these elements: A Liberal plan that proposes a robustly more generous universal child benefit, aimed at lower- and middle-income Canadians, the latter perhaps loosely defined as those in the middle two income brackets, above $44,701 a year and below $138,586, to be financed by the cancellation of income-splitting and bulked-up TFSAs, as well as higher taxes on the wealthiest Canadians, perhaps loosely defined as those earning more than $150,000 annually.
In this event, the Conservatives will accuse the Liberals of initiating a class war, killing jobs and growth by raising taxes. The Liberals will respond by pointing middle-class Canadians to their family’s bottom line, and asking whose plan benefits them more.
The Liberal calculus, very simply, is that vastly more voters will benefit from their plan than from income-splitting, and that any backlash against an increase in taxes on the wealthy will, virtually by definition, not be broad-based. It is a straight-up appropriation of a time-tested Harper government tactic — giving money through targeted benefits to individuals who belong to key voter blocks — only applied to more families, and thus more voters.
In unveiling his last budget in 2014, then-finance minister Jim Flaherty mused income-splitting helped too few Canadians for his liking, igniting a debate within his party, which he lost. Though the measure was heavily downplayed in Budget 2015’s messaging, indicating the Conservatives understand its freight of risk, it remains the biggest-ticket item on their docket. They may come to rue the day they didn’t scrap it altogether, as Flaherty would have preferred, and start over.