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How a tax change would help voters that Conservatives want

Joe Friesen / Globe & Mail

When Jim Flaherty introduces his budget next week, he may trumpet a long-promised policy that would allow parents with children at home to split their income to reduce the amount of tax they pay.

Income splitting is a tax policy that would allow a higher-earning person to assign some of his or her income to a spouse, effectively lowering what tax bracket he or she is in. The policy brings the most benefit to a couple in which one spouse works while the other stays at home with the kids, and could cost the treasury a few billion dollars of lost tax revenue a year.

But the policy can also be seen as a tailored appeal to voters in the constituencies the Conservatives need to hold to keep their majority.

Family income splitting was first promised back in the 2011 election campaign, with the caveat that it wouldn’t be introduced until the budget was balanced. Three years later Mr. Flaherty is expected to announce that the government is on course to get out of the red by next year, just in time for an election-year budget.

The Broadbent Institute launched a campaign this week, calling the income-splitting proposal a $3-billion Mad Men giveaway. They describe it as a misguided policy that favours the wealthy and is based on an early 1960s concept of the traditional family. On the other side of the coin, University of Calgary economist Jack Mintz and lobby groups such as the REAL Women of Canada have long argued for such a measure, on the grounds that it would remove a tax penalty for those families that want to have a parent stay at home but struggle to make it work financially.

Kevin Milligan, an economist at the University of British Columbia, said the policy would benefit only a small subset of families. For one, single parent families are ruled out. They make up 16 per cent of all families. What’s more, nearly 14 per cent of the population aged 15 and over lives alone, a rate four times higher than it was in 1961. About one in five people did not live in a census family in Canada in 2011.

So having removed all those millions of people from eligibility, the policy would also be of little or no benefit to those families where each parent earns roughly the same amount, or even those cases where they’re in the same tax bracket. It would be of most benefit to those families with a very-high earning breadwinner and a spouse who stays at home and earns nothing. That’s a relatively small group.

“Imagine it was your goal to transfer resources to families that choose to have a stay-at-home spouse and are struggling with their finances, then this is an odd policy to hit those people,” Prof. Milligan said. “If I had a couple billion to spend on remedying the inequities in our society, spending it on lowering the taxes of a $200,000 and $0 [incomes] couple is not where I would spend it.”

So why pursue it? It represents a marriage of ideological and strategic goals. One clue comes from the accidentally leaked Conservative strategy document about the ethnic vote in the last campaign. It said of certain ethnic groups “they live where we need to win.” The same is true of families with children. The key seats that are vulnerable to a Liberal resurgence are those suburban ridings around big cities, primarily in the Greater Toronto Area. The Conservatives need to hold on to them and they are rich with families with young children.

Take, for example, Brampton West, a Conservative gain in 2011. Roughly 54 per cent of families in that riding have children at home, much higher than the Canadian average of 36 per cent. The same is true for many other similar ridings, such as Mississauga-Brampton-South, Ajax-Pickering and Pickering Scarborough-East, which have above-average numbers of families with children at home.

The Conservatives will still have to work hard to get them to the polls though. A StatsCan study of the 2011 election found that “the presence of children was negatively associated with 2011 voting in all family types.” Single parents with kids under five had the lowest turnout figures at 36 per cent. Couples with children under five voted at a 60 per cent rate, very close to average.

Photo: bcgovphotos. Used under a Creative Commons BY-NC-ND licence.