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Tue, 04 Mar 2014 20:45:00 GMT | By Deirdre McMurdy, MSN Money

Beyond the income splitting drama

Income splitting and other tax promises will be put to the pre-election test.


Deirdre McMurdy

Every single cell in the human skeleton is replaced every seven years. Relationships are notoriously vulnerable to the “seven year itch.” And the fabric of even the most disciplined and controlled governments seems to fray after seven years in power.

The latter point is arguably demonstrated by the Conservative government’s publicly grappling with the issue of income splitting — seven years after being elected.

When the Tories came to power in 2006, they became legendary for a command-and-control style of governance that had every caucus member and every Cabinet minister sticking closely to the script, never deviating from the official Party line on anything. The thought of publicly grappling with anything was, well, unthinkable.

Fast forward.

At the time he released the 2014/15 federal budget in mid-February, Finance Minister Jim Flaherty suggested that maybe, just maybe, income splitting wasn't such a great idea after all. His apparent misgivings were all the more noteworthy because a) Minister Flaherty has been one of the most stalwart Cabinet advocates of Tory policies and b) income splitting was a key campaign promise in the last federal election.

(In a nutshell, income splitting is a tax policy that allows the reallocation of income between spouses who earn different amounts. By “splitting” their income, the higher earner reduces his/her income tax rate and the spouse who earns less (or nothing) pays relatively more. Although Canadian seniors have been allowed to do this since 2007, further extension of the policy is criticized by those who claim it benefits only the wealthiest 15 per cent of the Canadian population.)

By most measures, Flaherty’s remarks about income splitting were hardly incendiary. In a post-budget interview, he mildly observed: “I think income splitting needs a long, hard analytical look … to see who it affects and to what degree, because I’m not sure that overall, it benefits our society.”

However, because of the Minister’s record of staying on message and serving The Cause, his soft language was greatly amplified.

Given the way things work in the current government, it could be concluded that Prime Minister Harper was using Flaherty as a canary in the electoral coal mine: checking the public reaction to any change in stance on the issue of income splitting before descending into the pit.

Either that or he was using Minister Flaherty as a straw man to help him position himself as a champion of income splitting and as a leader who keeps his promises — despite a dissenting finance minister.

(Continued)
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