BUDGET 2014: Flaherty wants “long, hard analytical look” at income splitting

Mark Brownlee
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Federal Finance Minister Jim Flaherty is backing away from a promise his party made during the last election campaign to allow income splitting for families after the deficit is wiped out.

Federal Finance Minister Jim Flaherty spoke with CBC journalist Amanda Lang.

The governing Conservatives promised during the last election to implement income splitting for families – a policy that allows a husband or wife to lower the tax they pay by shifting some of their income to their spouse – once they put the government back into the black.

In Tuesday’s budget, the federal government projected a surplus starting in fiscal 2015-16. But Mr. Flaherty said Wednesday morning he is unwilling to commit to the policy.

“I think income splitting needs a long, hard analytical look,” said Mr. Flaherty, speaking to members of Ottawa’s business community at the Westin Hotel. “I’m not sure that, overall, it benefits our society.”

Mr. Flaherty said he wants the country’s think-tanks to look into the policy to determine whom it would benefit.

Income splitting is most helpful to families where one spouse makes significantly more than another since it allows the higher earner to move into a lower tax bracket.

However, economists, who largely don’t support the policy, argue this benefits only a small fraction of the population.

Tuesday’s budget provided few specifics about what the government plans to do with the $6.4-billion surplus it is projecting for next year.

Businesses in the National Capital Region have been wondering what the windfall will do to the size of the federal government, the area’s largest employer. The Conservatives have in recent years attempted to rein in the deficit by eliminating civil service jobs.

Mr. Flaherty said that cutting the government’s costs – not adding to them – remains his top priority.

“I would pay down the public debt and reduce taxes more,” he said Wednesday morning.

However, he added that “I’m only one person.”

Tuesday’s budget said that compensation costs for civil service employees are an ongoing concern as the government prepares to negotiate new deals with unions representing federal workers.

On Wednesday Mr. Flaherty indicated that civil servants may soon have less money to spend in the local community. He referred to issues such as pension plans, which he believes are more generous than those in the private sector.

“You’ve had a preferred status and that preferred status is going to end,” he said Wednesday. “And you can fight it if you want, but it’s going to end.”

The budget estimated that the government can achieve $7.4 billion in savings through cutting public service compensation.

Mr. Flaherty spoke with CBC journalist Amanda Lang Wednesday as part of the Post-Budget Breakfast, an event co-organized by the Ottawa Chamber of Commerce and OBJ.

–With files from The Canadian Press.

Organizations: Conservatives, CBC, Ottawa Chamber of Commerce and OBJ

Geographic location: Ottawa, National Capital Region

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