Canada's finance minister is defending a new set of tax cuts aimed at families as both "fair" and "progressive."
The proposed plan -- known as the Family Tax Cut -- includes the introduction of "income splitting," an idea that is controversial among economists, who say wealthier Canadians stand to gain more.
In an interview that aired on CTV's Question Period on Sunday, Finance Minister Joe Oliver said it's important to consider the just-announced program "in its totality."
“We put a cap of $2,000, so a disproportionate amount will not go to wealthy people,” he said of the income splitting aspect, which will allow couples with children to "split" up to $50,000 of income for tax purposes.
That means if one parent stays home, works part-time or earns significantly less, the higher-earning partner could transfer up to $50,000 of his or her taxable income to the lower-earning partner, allowing for tax relief of up to $2,000. The greater disparity between the two partners’ income, the more money the family is allowed to split, resulting in a greater potential benefit.
"You have to look at the package in its totality," Oliver said. "Two-thirds of the benefits will go to middle- and low-income Canadians."
As part of the Family Tax Cut, the government will also boost the Universal Child Care Benefit from $100 to $160 a month for each child under six, and add a child-care benefit of $60 a month for each child aged six to 17.
Jonathan Rhys Kesselman, a Simon Fraser University economist and author of C.D. Howe Institute commentaries critical of income splitting, said that the boost to child-care benefits does not go far enough.
"Both the original (income splitting) scheme and the modified one announced (Thursday) provide nothing for single parents, provide nothing for low- and moderate-income parents and those are the families that most need that support in raising their kids," he said in an interview that aired on CTV’s Power Play earlier this week.
Rhys Kesselman pointed out that something known as the Child Tax Credit is being cancelled when The Family Tax Cut is introduced, which will offset much of the gain for many parents.
Can the government afford the Family Tax Cut?
Oliver also addressed questions about whether the Family Tax Cut -- projected to cost $4.6 billion in 2015-16 -- can be afforded if plunging oil prices prevent the government from posting a projected surplus.
"We’ve looked at the numbers," he said. "We're going to have a surplus next year."
A pre-election promise
Income splitting will apply retroactively to 2014 tax returns, which means those who will benefit are likely to notice as soon as next spring. The enhanced UCCB will cheques will start arriving in mailboxes in January 2015.
With the next federal election scheduled for Oct. 19, 2015, the Family Tax Cut could become an election issue.
The Conservative government has faced criticism ever since it promised income splitting in 2011. Jim Flaherty, who was the Conservative finance minister before his death in April, was among the critics of the practice.
NDP Leader Thomas Mulcair invoked Flaherty’s concern in Parliament on Thursday. "This is a plan, as Jim Flaherty said, that will increase inequality in our society."
Liberal Leader Justin Trudeau, who had previously said he would repeal income splitting if his party forms the next government, also commented on the plan on Thursday, calling it "not good enough."
