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Politics Flaherty’s income-splitting doubts open rift in Conservative Party

Finance Minister Jim Flaherty ties his shoe before speaking at a post-budget event in Ottawa on Feb. 12, 2014

FRED CHARTRAND/THE CANADIAN PRESS

Finance Minister Jim Flaherty has opened up a rift inside the Conservative Party after he questioned the merits of delivering on an income-splitting pledge for Canadian families – a key piece of the party's re-election effort.

"I'm not sure that over all it benefits our society," Mr. Flaherty told a business audience in Ottawa Wednesday, taking a much firmer stand than he has previously stated. "I think income splitting needs a long, hard analytical look."

The comments triggered political drama in Ottawa just a day after Mr. Flaherty delivered his budget, a stay-the-course document that outlined the government's pledge to return to balanced budgets and a $6.4-billion surplus by 2015-16, an election year. Instead of selling the merits of his budget, Mr. Flaherty's comments spurred speculation over whether the government is orchestrating a step back from the pledge – or whether Mr. Flaherty is straying from the party line. Mr. Flaherty declined to say when asked on Tuesday whether this budget would be his last.

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Employment Minister Jason Kenney was among the Conservative cabinet ministers who were quick to defend the policy.

"All I know is we keep our platform commitments. There's always different ways you can design a program around the details," he said. "The bottom line is we're committed to tax relief for Canadian families."

At the same time, Mr. Kenney is signalling that he is open to pushing back the start date of the Canada Job Grant training subsidy – in contrast to the hard line that Mr. Flaherty took in Tuesday's budget, where he stated that Ottawa would go it alone in provinces where no deal is reached by April 1. In an interview with The Globe and Mail, Mr. Kenney said there could be "some flexibility" on that deadline, if an agreement has been struck beforehand.

The income-splitting promise is expected to cost as much as $2.5-billion and is contingent on a balanced budget. Prime Minister Stephen Harper delivered the tax-break pledge himself in the 2011 election, standing with a family in their backyard in Victoria. The pledge would allow a higher-earning spouse to transfer income to the lower-earning spouse as a tax-saving move, provided the couple has at least one child under 18.

But Conservative sources say there will be internal debate over the details of the pledge, such as whether it should be more modest to allow for other forms of tax cuts.

Mr. Harper's spokesperson told The Globe and Mail that the government "is committed to greater tax relief for Canadian families," yet the statement from Jason MacDonald did not specifically promise to deliver on the income-splitting pledge.

Mr. Kenney, who successfully steered immigration changes and wooed ethnic communities to the Tories, is among a select group of cabinet members with the authority and autonomy to speak their mind. Mr. Kenney is also seen as a strong possible leadership contender.

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It is not the first time Mr. Flaherty and Mr. Kenney have clashed on an issue. In December, Mr. Flaherty made it clear he did not appreciate Mr. Kenney's call for Toronto Mayor Rob Ford's resignation.

Many Conservative MPs are eager to see the measure adopted before the next election and didn't hesitate to weigh in after a closed-door caucus meeting.

"I campaigned on it last time and I expect that people will love it," Conservative MP Joe Preston said.

"We brought in income splitting for seniors and we're going to continue down that road," said MP Paul Calandra, who added he was "certainly not" backing off from the income-splitting pledge.

During the afternoon Question Period, Mr. Harper took the unusual step of answering all but two questions directed at Mr. Flaherty. The Prime Minister's spokesperson rejected suggestions the Finance Minister was being deliberately sidelined.

The 2011 Conservative Party platform promised families with dependent children under the age of 18 would be allowed to split their income for tax purposes. The Institute of Marriage and Family Canada has been urging MPs on Parliament Hill to support the pledge, arguing it will make it more affordable for one parent to stay home.

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Others have said the policy has several flaws, including that it would primarily benefit high-income Canadians.

Researchers with the C.D. Howe Institute have warned income splitting "does more harm than good" and would discourage mothers in particular from returning to the work force.

A research report by the Centre for Policy Alternatives came to a similar conclusion last month.

"It creates a tax loophole big enough to drive a Rolls-Royce through," that report stated. "In essence, it's a tax gift to Canada's rich."

Income splitting was by far the most expensive tax cut promise in the 2011 Conservative election platform. The platform estimated it would cost $2.5-billion in 2015-16 in forgone revenue.

Liberal Leader Justin Trudeau praised Mr. Flaherty for expressing doubts about the policy.

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"The Finance Minister has made some good points indeed," Mr. Trudeau said. "The various reports out about income splitting suggest that it is more beneficial in general to richer families rather than middle-class families. As I've long said, our focus is on serving the middle-class."

Mr. Flaherty has hinted at concern regarding the policy in recent days, but Wednesday's comments were his most definitive on the topic.

Speaking with reporters after the Wednesday morning event in Ottawa, Mr. Flaherty was asked about his comments.

Mr. Flaherty appeared to backtrack when asked by the Liberals near the end of Question Period to state his position on income splitting.

With a report from Daniel Leblanc

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