Monday, November 3, 2014

Prime minister boosts monthly child benefit, unveils income splitting plan

Prime Minister Stephen Harper and his wife Laureen do arts and crafts with students at the Joseph and Wolf Lebovic Jewish Community Campus in Vaughan, Ont., on Wednesday, October 30, 2014. (Nathan Denette/THE CANADIAN PRESS)
Prime Minister Stephen Harper and his wife Laureen do arts and crafts with students at the Joseph and Wolf Lebovic Jewish Community Campus in Vaughan, Ont., on Wednesday, October 30, 2014.(Nathan Denette/THE CANADIAN PRESS)

Prime Minister Stephen Harper has unveiled a package of family-focused tax cuts worth nearly $27-billion over six years that will shape the political debate heading into the 2015 election campaign.

The combined measures are worth about $4.6-billion a year and include income splitting for families with children under 18 and an expansion of the Universal Child Care Benefit, which delivers monthly cheques to families.

Income splitting will allow couples with children younger than 18 to transfer up to $50,000 in income from the higher earner to the lower earner for tax purposes, for a benefit that will be capped at $2,000. It starts with the 2014 tax year.

The Universal Child Care Benefit was a key pledge of the Conservatives’ 2006 platform, and delivers $100 cheques every month to families for each child under six. The government announced on Thursday that the monthly amount will rise to $160. Also, parents with children aged 6 to 17 would begin receiving monthly cheques worth $60 for each child in that category.

Devoting future surpluses to these measures will force the opposition NDP and Liberals to decide whether to promise to reverse them to pay for new spending or scale back their own proposals. The Prime Minister said the package sends a clear message that direct financial support is better for families than a national daycare program would be.

“These add up to real dollars in the pockets of Canadian families,” Mr. Harper said at a campaign-style event with his wife, Laureen, at a community centre in Vaughan, Ont. “This is a difference between our philosophy and the others. We have always been clear that money and support to help families raise children should not go into more bureaucracy. It should go to the real experts on child care. That’s mom and dad, and that is what we are doing.”

The cuts shower benefits on people with kids, a key group of voters for the Conservatives. The party is announcing the relief now so the effects are seen long before Canadians go to the ballot boxes.

The new child care benefit would be in effect as of Jan. 1. The payments for up to the first six months of the year would come in a single cheque delivered in July, just three months before the scheduled federal election in October.

The expansion of the benefit is paid for in part by eliminating the Child Tax Credit, which was worth about $1.8-billion a year in forgone tax revenue.

As expected, the Conservative government altered its initial income splitting proposal to cap the tax break at $2,000, a response to concerns that high-income Canadians would benefit the most.

In 2011, a C.D. Howe Institute research paper titled “Why income splitting for two-parent families does more harm than good” found 40 per cent of total benefits would go to families with incomes above $125,000 a year – with some receiving a tax cut of as much as $6,400. The report also found that 85 per cent of all households – including single parents – would gain nothing.

The institute’s Alexandre Laurin, who co-wrote the paper, said the revised package responds to many of those criticisms.

“It’s an attractive package because there’s something for everyone in there,” he said. Mr. Laurin added that the new version will do “less harm” that the original would have. However, some criticisms remain, including the fact that income splitting creates a disincentive for the lower-income spouse to return to work because they would face a higher tax rate.

NDP Leader Thomas Mulcair called income splitting a step in the wrong direction, and noted that former Conservative finance minister Jim Flaherty opposed it.

“This is a plan, as Jim Flaherty said, that will increase inequality in our society – it will only help a very small minority of people at a time when inequality is increasing in our society,” he said.

The Official Opposition Leader did not say whether he would cancel it if his party forms the next government.

Liberal Leader Justin Trudeau, who has vowed to repeal income splitting, said the tax break does not encourage economic growth or strengthen the middle class.

“Middle-class families ... should not have to pay more to give families like mine or Mr. Harper’s a $2,000 tax break,” Mr. Trudeau said in Whitby, Ont., where he was visiting the party’s candidate in the federal by-election.

He said in an accompanying statement that “the vast majority of Canadian families will receive no benefit from income splitting. Single mothers will receive nothing; families with parents in the same income bracket will receive nothing.”

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