Canada's Finance Minister Joe Oliver stands to speak during Question Period in the House of Commons on Parliament Hill in Ottawa March 10, 2015. Mr. Oliver has remained coy as to his plans for releasing the federal budget and has not ruled out waiting beyond April.Chris Wattie/Reuters
The Parliamentary Budget Officer says the Conservative government's income-splitting tax cut will cost $2.2-billion this year and only benefit about 15 per cent of Canadian households.
A report released Tuesday takes a closer look at the "Family Tax Cut" announced in the fall by Prime Minister Stephen Harper that would allow couples with children under 18 to transfer income for tax purposes up to a maximum savings of $2,000.
The analysis from Parliamentary Budget Officer Jean-Denis Fréchette finds the benefits will primarily go to "medium- through high-income households," repeating a conclusion reached by other researchers. In fact, the PBO says families in the bottom 20 per cent of income would receive "near zero" benefit from the tax cut.
The main reason only 15 per cent of families would benefit is that it applies only to families in which one spouse is in a higher income-tax bracket than the other. There would also be no benefit to single-parent households.
Canadians are currently discovering what the new tax break means for them as they file their taxes for the first time under the new provision. The NDP and Liberals are vowing to repeal the tax cut in favour of other priorities and both parties said the PBO report supports their view that income splitting is bad public policy.
While income splitting reduces taxes for the higher-earning spouse, it effectively raises taxes for the lower-earning spouse. The PBO report says this will encourage higher earners to work more and lower earners to work less. It estimates a net loss in employment of about 7,000 full-time equivalent positions as the negative labour effects among lower earners is expected to be greater than the gains among primary earners.
The PBO describes this as "a small negative impact" on total labour supply.
From a fiscal point of view, the PBO says the tax cut will reduce federal revenues by about $2.2-billion in 2015.
Federal Employment Minister Pierre Poilievre responded to the PBO with a statement that said 100 per cent of families will benefit from the combined package of tax measures aimed at families.
"Under our Conservative government, the tax burden on Canadians is at the lowest level in more than 50 years," he said. "Our government thinks the best way to help families is to leave more money in the hands of the real experts on families. Their names are mom and dad."
The family tax cut was a central pledge of the 2011 Conservative election platform. Supporters of the policy say it addresses an existing unfairness in which some families are taxed more than others even though they earn the same combined household income.
The final policy as introduced last fall included several adjustments meant to respond to previous criticisms of the policy. For instance, the tax break will be delivered as a non-refundable credit. That avoids a significant negative impact on provincial revenues related to the calculation of the tax base.
The government also capped the maximum benefit at $2,000 to avoid much larger tax breaks for Canadians with very high incomes.
Also, in response to criticism that the benefits would go to relatively few Canadian households, the government coupled its announcement with other tax breaks that have a broader reach.
Starting this year, the government is increasing the universal child-care benefit monthly payment to parents. For each child under six, parents will now receive $160 a month instead of $100. Also, a new benefit of $60 a month will be paid to parents for each child over six until they reach the age of 18.
The increased payments are expected to be delivered starting in July, 2015, and will include a cumulative payment for benefits incurred as of Jan. 1, 2015.
Bill Curry