Conservatives mum on internal debate over income-splitting

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Conservative cabinet ministers are trying to paper over public differences at the most senior levels of the governing party about whether to renege on a major campaign promise to allow income splitting for couples with children – a niche tax break that's been official Tory policy for more than eight years.

Finance Minister Jim Flaherty, who drew this debate out into the open this week when he voiced misgivings about the fairness of a relatively narrowly cast political pledge, was mum Friday when pressed on why Ottawa is rethinking the promise. He was also tight-lipped on what happens next.

"The plan always was to reduce taxes for families … in order to lighten the burden on families in Canada," the Minister told reporters during a stop in North Vancouver. "The form that takes will be determined over time."

When asked about Stephen Harper's position on the issue, Mr. Flaherty said: "I don't talk about my conversations with the Prime Minister, but the Prime Minister certainly, I know this, agrees that we should reduce taxes on families to the extent we can."

Employment Minister Jason Kenney, one of several cabinet ministers, including Treasury Board President Tony Clement, who has made it clear they believe the Conservatives should make good on their promise, also offered soothing words when questioned Friday. He rejected the notion he's at odds with the Finance Minister.

"Minister Flaherty and I are very good friends, and I'll tell you, we're both committed to the same objectives and both very proud of our Irish heritage," he told journalists at an event in St. John's.

Conservative MPs, however, privately say the governing party is readying for a behind-closed-doors tug-of-war over what to do now.

"There's obviously going to be an internal debate on this. … But I don't think any of us want to have this debate in public," one Tory MP said, speaking not for attribution. The MP said that a strong majority of the Conservative caucus backs the 2011 tax pledge.

The challenge for the Tories is reaching a consensus on how to proceed without alienating key supporters. Income splitting has tremendous symbolic significance for some Conservatives who are upset about what they consider a bias in Canada's tax system against stay-at-home spouses. It became party policy in 2005.

During the 2011 election, the Conservatives unveiled a very targeted pledge that would allow couples with children under 18 to split up to $50,000 of their income each year for tax purposes – reducing what the household would pay the Canada Revenue Agency. It was to take effect when the federal budget is balanced, which is now forecast for 2015.

The measure would cost $2.5-billion but benefit just 1.8-million households – saving these families $1,300 on average, the Tories said.

Tom Flanagan, a former adviser to Stephen Harper and a distinguished fellow at the University of Calgary's School of Public Policy, said he's previously not seen the kind of public disagreement between Harper cabinet ministers that took place Wednesday after Mr. Flaherty criticized income splitting.

"I think it's unprecedented for this party and this government to have senior ministers – Flaherty, Clement and Kenney – publicly taking different sides on such a big issue."

He said the tax pledge is dear to many party activists. "This is a particularly important for one strand of Conservatives who put primary importance on the role of families," Mr. Flanagan said.

"The underlying notion that the tax system was unfair to married couples with young children is something that goes way back, certainly to Reform years."

University of Calgary economist Jack Mintz, who has helped lead the charge in favour of income splitting through research reports for the Institute of Marriage and Family Canada, said the measure is an attempt to correct an imbalance within the tax system. He said he disagrees with the idea – one the Conservatives are reportedly considering – to instead double the $100 universal child care benefit, which goes to families for each child under the age of six.

"It will be disbursed over a large population but have very little impact per person of course because we're just talking about a hundred bucks."