Harper unveils income-splitting plan; Ignatieff blasts four-year delay

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Stephen Harper is kicking off the 2011 campaign battle for the middle class vote with a $2.5-billion tax break pledge aimed at parents of children under 18.

But there's a huge catch to this: It wouldn't take effect until the deficit is eliminated - a date that could be four years in the future.

The measure would allow parents to split, or share, up to $50,000 of their household income for tax purposes. The Conservatives estimate this promise would provide tax relief for almost 1.8 million families who would save on average $1,300 per year.

"We understand that family budgets are stretched and by making the tax system fairer for families, we will make it easier for parents to cover the day-to-day cost of raising their kids," Mr. Harper said.

The Conservative Leader unveiled his "Family Tax Cut" pledge in the Victoria-area riding of Esquimalt-Juan de Fuca Monday morning. It's the seat formerly held by Liberal MP Keith Martin, who is quitting federal politics and was previously elected in the riding under the Reform and Canadian Alliance banners before crossing the floor to the Grits.

Liberal Leader Michael Ignatieff immediately heaped scorn on the Tory idea.

"It's like you come to a family and say, 'I've got good news. First, I'm going to cut taxes for the biggest and most profitable corporations in the country and then maybe in five years, if you take a ticket and you're patient and you vote for us a couple of times, and we'll do something really great for you,'" Mr. Ignatieff said in Toronto.

"Is that credible? It's just not credible."

NDP Leader Jack Layton struck similar tone, telling reporters during a campaign stop in Regina that the Conservative income-splitting plan asks Canadian families to wait for relief.

"As I understand it, this will come into force some time in the future, possibly, if certain conditions are met. A lot of these kids who are 16, 17, 8 now are going to be grown up by then. Our families here in Canada need help right now," Mr. Layton said.

Mr. Harper "thinks that people can wait on a wing and prayer, that maybe they will get some help some day," he said.

"We believe that help is needed now. That's why I met with the Prime Minister I said 'let's take the federal tax off home heating right now to give families a break. Let's immediately move every senior out of poverty.' He rejected our suggestions."

The promised Conservative measure is a form of income splitting, a policy the Conservatives have long favoured but held off enacting because it can be expensive depending on how it's implemented. The Tories introduced pension-income splitting for seniors in 2007.

Income splitting allows the spouse in higher tax bracket to shift income to their partner with a lower level of earnings so that the overall rate of taxation is reduced.

But this version has the potential to be divisive. Writing Monday on The Globe's Economy Lab blog, Carleton University professor Frances Wooley said the policy risks triggering a " Mommy War."

"People sometimes think 'the work done by parents who stay home looking after their children is valuable, therefore those people deserve a tax break.' They're already getting an enormous tax break. They're getting thousands of dollars worth of in-kind income - the value of the work that is being in the home - and not being taxed on it," the professor writes.

"Mommy Wars, that pit at-home mothers against working mothers, women against women, are bitter and destructive," she adds. "If we want to support families with children, then we can just introduce tax measures that support families with children, for example, an enhanced child tax amount. It's that simple."

Under the Conservative proposal, a working spouse could transfer income for tax reporting purposes to a stay-at-home partner in a lower tax bracket.

Under existing tax rules,a two-income couple where one spouse earns more than the other pays more federal income tax than two-income couple where the two spouses earn equal amounts.

And a single income family pays even more.

A family with two incomes that are essentially the same would not see any real benefit under the plan.

"A re-elected Conservative government [would]end the unfairness against single-income families with children and two-income families with children where one spouse earns more than the other," the Tories said in a release.

"This will also ease the burden on double-income families by allowing them to keep more of what they earn."

The Conservatives say this "Family Tax Cut" is consistent with the tax treatment of families in other countries. "Currently France, the United States, Germany, Belgium, Greece, Luxembourg, Portugal, Switzerland, Ireland, Norway, Poland and Spain allow families some form of income splitting."

As it stands, "the tax system doesn't recognize the fact that many, even most families, pool their income to pay their household bills," Mr. Harper said. "Instead it treats families the same as room-mates living under the same roof with no financial attachment. That's not realistic; that is not fair."

"For example two parents earning $60,000 and $20,000 pay almost $1,300 more in federal taxes than two people in an identical household each earning $40,000 even though their combined income is the same," Mr. Harper said.

"We think once the budget is balanced that fixing this should be one our highest priorities."

But the Tories are forced to delay their promise until there's more money in Ottawa's coffers.

As last week's federal budget indicated, big deficits mean money is tight. Therefore one of the biggest challenges for the political parties on the campaign will be to keep promises affordable and properly costed.

The Tory announcement comes as the federal parties move to establish themselves on issues related to families and the battle for middle-class voters begins.

As last week's federal budget indicated, big deficits mean money is tight. Therefore one of the biggest challenges for the political parties on the campaign will be to keep promises affordable and properly costed.

Mr. Ignatieff will begin rolling out major policy announcements this week on the cost of post-secondary education for families. The Liberal Leader has emphasized how middle-class families want to be able to afford to send their children to college or university, but are also worried about taking care of elderly.

The Liberal Leader is spending Day 3 of the election campaign in Toronto and Mississauga. He began the day with a press conference at the Fairmont Royal York to attack the Conservatives' record on what he sees is wasteful spending. Ajax-Pickering MP Mark Holland, who was the Liberal point man last summer on the spending at the G-8 and G-20 summits, was at his side.

Mr. Ignatieff, however, has yet to release any substantive measures himself. Instead, he was on the defensive reacting to the Conservatives first policy announcement of the campaign. He said his full campaign will be released within the first week of the campaign and that it will be more affordable than the Conservative plan - partly by rolling back tax cut commitments made by the Tories, including one reduction already made and future planned relief.