Federal budget offers modest financial relief for families
Tories miss opportunity to stimulate economy
Most of the federal budget unveiled on Jan. 27 was focused on stimulating the larger Canadian economy, but according to the Institute of Marriage and Family Canada, the effect on families was mixed. IMFC executive director Dave Quist said that Canadian families needed “tangible tax relief” and that “this budget takes steps in that direction.”
The steps were exceptionally moderate, raising the threshold at which taxes or higher tax rates are levied.
The basic personal exemption will rise to $10,320 from $9,600. The ceiling to remain in the lowest tax bracket of 15 per cent will rise from $37,885 to $40,726. The top end of the middle bracket of 22 per cent will rise to $81,452.
The overall tax savings will be modest. A single person making $40,000 will save an extra $115 from the new measures, while a one-income family with two children making $40,000 will have an additional $148 to call their own at year’s end.
This is nothing to sneeze at for families struggling to get by, but neither will it address the financial anxieties of Canadians. On the program side, the government will allow low-income Canadians to keep more of their income before social assistance claw-backs kick in and Employment Insurance has been extended five weeks.
But, as Quist observed, once again the Conservative government missed the opportunity to bring in income splitting to reduce the tax burden on families and eliminate the tax disadvantage for families that have one parent stay at home with the children.
A family with one income earner pays more on the same family income than a two-income family in which both the father and mother draw a salary. Quist noted that under the proposed 2009 budget, a two-income family of four earning $60,000 would pay $4,415 in federal taxes, but a single income family of four earning $60,000 would pay $6,043.” The family with a stay-at-home parent pays $1,682, or 37 per cent, more than does the two-income family. Quist said, “Family income splitting would address this inequity head on.”
Quist also said that families could use the extra cash in the current challenging economic climate. He added studies show finances are one of the most stressful aspects of family life and the government could have done more to alleviate financial anxieties with broad-based tax relief and income splitting.
In early January, before the budget, Jack Mintz, Palmer Chair in Public Policy at the University of Calgary, urged the Conservative government to enact income splitting, noting that it was both politically popular and good policy.
In 2007, an Ipsos-Reid poll found that 77 per cent of Canadians support income splitting and, in 2007, the Tories brought in limited income sharing for pensioners. But, despite floating the idea in the mid-2000s, the Conservatives have not pushed for it as a broad-based measure.
Yet, says Mintz, “few initiatives this government could plausibly propose would match its earlier GST reductions for widely distributed tax relief (or) economic stimulus.”
He says taxing the family unit rather than individuals in almost all cases reduces the tax burden for families. The money saved in taxes, Mintz argues, could be spent by families, which can serve the same stimulus function as government spending.
Last year, Mintz noted in a special report on income-splitting that finance ministry officials say the revenue federal coffers would lose make such a policy prohibitively expensive.
Yet, as part of the government’s attempt to prime the pump by funding struggling industries and building infrastructure, Finance Minister Jim Flaherty vastly increased spending and estimates that over the next five years, Ottawa will increase the debt-load of the federal government by nearly $90 billion.
Quist said the new debt will be an added tax burden to all Canadians. While acknowledging “the circumstances of the current economic situation are unique,” Quist said, “we need to remember that future generations will be forced to carry this debt burden.”
The IMFC said that Canada’s 7.5 million financially burdened two-parent families would probably reinvest tax savings back into the economy. It charges the government for missing the chance to enact a virtuous and popular tax reform.