Skip to main content

Canada's Prime Minister Stephen Harper (R) and Finance Minister Jim Flaherty walk to the House of Commons to deliver the budget on Parliament Hill in Ottawa February 11, 2014.Blair Gable/Reuters

Stephen Harper is publicly contradicting his Finance Minister for the second day in a row, defending a major Conservative campaign pledge to allow income splitting as "an excellent policy" even though Jim Flaherty has voiced misgivings about the fairness of the measure.

It's unusual for the Prime Minister to openly disagree with one of his most influential ministers.

But it's a sign that Mr. Harper is unwilling to let Mr. Flaherty – who this week signalled he's considering retiring from federal politics – dictate the future of a key election promise.

Sources say income splitting remains on the table, despite the Finance Minister's surprise decision to criticize the policy in mid-February.

They say, however, that it's quite possible the pledge could be trimmed to make it less generous a tax break or to modify it in other ways. That's because, as written, the promise would eat up close to half the projected budget surplus but deliver insufficient political benefits – with an impact felt by less than two million households. Such a rewrite of the promise would mean the Tories would be fulfilling the spirit of the pledge if not the letter of it.

In the House of Commons on Wednesday, Mr. Harper made it clear he hasn't forgotten his campaign pledge.

"As I said during the election campaign, we think income splitting would be an excellent policy for Canadian families," the Prime Minister told MPs, noting the government has already enacted the policy for seniors.

This follows comments he made in French Tuesday when he told the Commons income splitting "will also be a good policy for Canadian families."

An internal debate within the Conservative government has begun over the 2011 election pledge. During that campaign, the Tories promised they 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 Canada Revenue Agency. It was to take effect when the federal budget is balanced, now forecast for 2015.

The measure was projected to cost $2.5-billion but benefit 1.8 million households – saving these families $1,300 on average, the Tories said. Sources say with the passing of time the cost would now be closer to $2.7-billion.

According to the C.D. Howe Institute, 85 per cent of Canadian households would gain nothing from the measure.

A spokesman for Mr. Flaherty – who this week told Reuters he hasn't decided whether he will run in the 2015 election – said both Mr. Harper and the Finance Minister agree on the need to deliver more tax relief for Canadians.

"Our priority is to balance the budget and, once that's done, continue to offer tax relief to families. They have been consistent in expressing that," Chisholm Pothier, Mr. Flaherty's deputy chief of staff and director of communications, said.

The Conservatives are unlikely to dump income splitting in favour of broad-based tax relief such as an income-tax rate cut because, sources say, the government believes across-the-board breaks are quickly forgotten by voters and therefore deliver little lasting political benefit.

Should the Tories rework the income-splitting pledge to make it less generous, this would leave more money for other measures, such as reviving the short-lived home renovation tax credit or enriching the Universal Child Care Benefit for parents of young children.

The Conservatives must also decide whether to keep other 2011 election pledges linked to a balanced budget, including a promise to increase the contribution limit of tax-free savings accounts to $10,000, doubling the child-fitness tax credit and introducing an adult-fitness tax credit. Sources say the promise to raise the popular savings-account limit is certain to be enacted, but the fate of the adult-fitness tax credit is less clear.