Canada plans 2015 tax breaks but mum on income-split pledge

OTTAWA/NORTH VANCOUVER, British Columbia Fri Feb 14, 2014 5:16pm EST

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OTTAWA/NORTH VANCOUVER, British Columbia, Feb 14 (Reuters) - C anada's Conservative government will deliver tax relief to families when it balances the budget in 2015, Finance Minister Jim Flaherty said on Friday, but he wouldn't confirm whether it will stick to a controversial pledge on "income splitting".

The Conservatives pledged in 2011 that once the budget is balanced they would let couples with children reduce taxes by sharing their income for tax purposes, similar to U.S. rules whereby couples get a lower tax bracket when they file jointly.

But Flaherty surprised political observers on Wednesday when he said he wasn't sure the measure would benefit society overall, suggesting a split in the Conservative ranks on whether to renege on the pledge.

"We will reduce taxes for families next year when we have a surplus, and that's what the prime minister has said as well. There are various ways of doing that," Flaherty told a news conference in North Vancouver, British Columbia, that was dominated by questions on income splitting.

Flaherty echoed comments made by Prime Minister Stephen Harper on Thursday in which he said the Conservatives, in power since 2006, will cut taxes for families, without specifying whether the income-splitting idea is now dead.

The 2011 Conservative platform estimated income splitting, which would apply to couples with children under 18, would cost the government C$2.5 billion ($2.25 billion) annually.

The question came to the fore this week as Flaherty delivered a budget that forecast a healthy surplus for 2015-16.

On Wednesday, Flaherty pointed to a number of studies saying that income splitting would benefit a relatively small portion of society, and especially the rich.

Opposition parties jumped on his comments in Parliament, saying that party's willingness to ditch the pledge demonstrated a lack of trustworthiness.

The 2011 Conservative platform said the income-splitting plan would provide "significant tax relief for approximately 1.8 million Canadian families, each of them saving, on average, C$1,300 per year."

Until this week it had been assumed that this plank would be a central feature in next year's budget ahead of the October 2015 election.

Harper spokesman Jason MacDonald declined on Friday to confirm that income splitting is still on the Conservatives' agenda, saying rather that "once we've achieved balance we'll fulfill our commitment to offering Canadians additional tax relief."

The income-splitting proposal is particularly popular with the social conservative part of the party's base, partly because it benefits higher-income families with stay-at-home spouses. Such families pay more in taxes than those who have two working parents bringing in the same combined income.

Only a few Conservative legislators were willing to enter the fray publicly this week. Employment Minister Jason Kenney said on Wednesday he was "absolutely" looking forward to income splitting being introduced because it was a matter of fairness. Treasury Board Tony Clement said he stood by the Conservatives' campaign commitments.

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