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(Anthony Jenkins for The Globe and Mail)
(Anthony Jenkins for The Globe and Mail)

Jeffrey Simpson

Harper-Flaherty tax rift – a chasm that must be closed Add to ...

Finance Minister Jim Flaherty joked to a business audience after his budget last week that he had recently seen former Ontario premier Bill Davis. The former premier, a Progressive Conservative, said to Mr. Flaherty, “Jim, you’re becoming more progressive.”

Some Canadians might take this comment from Ontario’s best postwar premier as a compliment. Within the world of the Harper Conservatives, however, to be called “progressive” is an accusation.

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Mr. Flaherty is and always has been a small-c conservative, going back to his years in Mike Harris’s Ontario government. Asked at the same postbudget meeting what he would like to do with a federal surplus, the minister replied: cut taxes and pay down debt. It was hardly the response of someone itching to spend government money for “progressive” purposes.

Yet within a day of the budget, a chasm yawned between Mr. Flaherty and Prime Minister Stephen Harper – a chasm wider than any in recent memory between a prime minister and a minister of finance.

Mr. Flaherty, in prebudget interviews and postbudget comments, had the temerity to speak a partial truth about income splitting by saying the idea – he couldn’t come right out and denounce the idea – needed much more study despite having been promised by the Conservatives in the last election.

For this lèse-majesté, Mr. Flaherty was denounced publicly by his cabinet colleague, Jason Kenney, and more ominously was humiliated in the House of Commons when Mr. Harper took most of the questions about the federal budget. The scene was like a teacher making a student sit in the corner wearing a dunce cap. A slap down from a very angry Prime Minister.

The most important relationship in any government is that between the prime minister and the minister of finance. In any relationship, there will be differences of opinion, with the prime minister always having the last say.

But so central is this relationship that publicly not a crack must show in a common front, in case markets begin to wonder about the coherence of a government, the caucus begins to pick sides (as happened in the later Jean Chrétien-Paul Martin years), the media circles, and the public wonders what is going on.

To this point, the Harper-Flaherty relationship has been publicly solid. After all, Mr. Harper doesn’t completely trust many ministers, so his office throws lassos around them. Mr. Harper has kept Mr. Flaherty in his post since Day One of the Conservative regime. And Mr. Flaherty has done his boss’s bidding.

For example, at early briefings after the first Conservative election, the Finance department told Mr. Flaherty about how cutting the GST by two points was bad policy. Mr. Flaherty replied that he understood the argument, but that the Prime Minister had written the party electoral platform, and that was that.

The Prime Minister wrote the last platform, too, with income splitting an important part of it. Come a balanced budget, the platform read, and income splitting would happen. The budget is now de facto balanced and will be in surplus in 2015, election year.

Will income splitting happen in the form it was promised – up to $50,000 transferred from the higher-earning to the lower-earning person in a marriage with children – or will it be adjusted? Or will it be scrapped entirely and replaced with some other inducement for families?

The trouble for Mr. Flaherty, apart from the Prime Minister’s annoyance, is that many of his caucus colleagues love income splitting. This is red-meat stuff for Conservative MPs who venerate what they see as the “traditional family” – dad working, mom at home with the kids. Income splitting helps this family structure, while it does nothing for other kinds of families, let alone single people.

Remember the central truth about contemporary Canadian politics: Policy is not about the broad public interest or the 60 per cent of voters who will never vote Conservative.

It is about the Conservative base and the perhaps 10 per cent of voters who have abandoned the party for the moment. They must be lured back for the Conservatives to win another majority. Income splitting must be seen in this political context.

As for Mr. Flaherty, he might recall that the two finance ministers who fell out with their leaders – John Turner (with Pierre Trudeau) and Paul Martin (with Jean Chrétien) – both resigned.

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