Secret doc casts doubt over Finance Canada’s support for Conservative income splitting scheme

Has the Department of Finance told the Conservatives their family income splitting plan violates a key tax policy principle that seeks to minimize “interference with individual decisions such as those related to labour force participation, work effort, choices in childcare, and family formation?”

In a heavily redacted briefing note marked “secret” to Finance Canada’s Deputy Minister, prepared by senior departmental staff soon after Stephen Harper’s re-election in 2011, the department presented a “preliminary analysis” of the electoral promise to allow families with children under 18 to split up to $50,000 in income (after the federal budget is balanced).

The document, newly released to PressProgress under access to information law, analysed the Conservative promise through the lens of “tax policy principles,” including “Economic Efficiency and Neutrality”:

“An economically efficient and neutral tax system generally minimizes interference with individual decisions such as those related to labour force participation, work effort, choices in childcare, and family formation.”

What follows is two full pages of analysis about how the Conservative plan stacks up (or doesn’t) against this tax policy principle.

The entire analysis is blacked out because the information is considered advice, recommendations, or deliberations involving a government institution or a minister. (Click here to see what former Finance Minister, the late Jim Flaherty, thought about the scheme.)

Thankfully, an income splitting study released recently by the Institute of Marriage and Family Canada outlines exactly how the Conservative scheme would violate this tax policy principle.

The “myth busting” report, given a boost by Employment Minister Jason Kenney, explains why social conservatives are big fans of income splitting: the scheme may discourage women from participating in the paid workforce to stay at home to look after the kids and create an incentive for guys to marry their (not working) “impecunious, long-time girlfriends.”

Here’s how Lawrence Solomon, a contributor to the institute’s study, sums it up:

“As an example, a single man earning $40,000 a year today can pay more than $6,200 in taxes to federal and provincial governments. Under the current tax system, he would see little immediate financial gain in getting married to his impecunious, long-time girlfriend. But under a full income-splitting system where he and his wife would each report $20,000 in income, tying the knot would lower the tax bill to $3,500, a marriage benefit of $2,700.”

Sounds like maximizing interference with individual decisions related to labour force participation and family formation.

Here’s the full briefing note:

Finance Canada briefing note in family income splitting