Harper's income splitting will make rich Canadians with babies richer

There is a certain irony in learning of the government’s decision to introduce income splitting, a left-over promise from the 2011 election.

There is a certain irony in learning of the government’s decision to introduce income splitting, a left-over promise from the 2011 election.

After all, Stephen Harper was a man who was once against irrelevant and frivolous economic policies, especially if they pandered to a political base. He was an economist, we were told, so he knew better. Over the years, however, Harper has become the embodiment of all that he once used to despise. It drips of desperation.

Under Harper’s scheme, income splitting will allow couples with children under the age of 18 to transfer up to $50,000 from the spouse with the higher income to the other whose income is lower, thereby lowering the household’s overall tax rate.

Who benefits?

At first glance, many will cheer this policy. After all, who would not want an extra $2,000 a year in tax savings? But don’t applaud yet. So what’s wrong? Well … lots.

First, a few studies now have estimated that up to 85 per cent of Canadians will not benefit one penny from this new policy. It excludes all single working parents and childless couples. At a price tag of $27 billion over the next six years, one would have hoped that it would benefit more Canadians!

Second, why insist on couples having children? What is the relationship between income splitting and children? Well, absolutely nothing. It makes no sense. Zero. Zilch. Nada. So why is Harper insisting on announcing a policy that targets presumably straight couples with children? This raises bizarre questions about his motives.

The answer, of course, is rather obvious. This is just a ploy to satisfy all those right-wingers who see a man and a woman with children as the perfect image of the Canadian nucleur family. And if the woman is barefoot and pregnant, and is a stay-at-home mom, even better.

But what about hard-working, single adults? Nope, no benefits for you. Childless couples where one has lost his or her job? Move on, nothing to see. Loving gay and lesbian couples? Well, maybe if you have children, but otherwise nope. And since most gay and lesbian couples have no children, is this policy specifically designed to be discriminatory? Oh, and of course, the breadwinner must make an income sufficiently high to be able to transfer $50,000 to his spouse. So you gotta be rich too!

No economic meaning

Third, from an economic point of view, this policy makes really no sense at all: it is in fact devoid of any economic meaning. What’s the purpose of it? To put some money back into the pockets of the privileged, that’s all. Yes, they may end up spending it, but don’t count on this contributing to the economic recovery, or to reduce unemployment.

If Harper really wanted to give you a job, there are a number of far better policies he could have chosen to achieve this. At $26 billion, I can think of repairing our crumbling infrastructure, to start, or investing in education. How about health care?  No, no. Seven years after the worst economic crisis since the Great Depression, Harper is giving money away to rich Canadians with babies. Makes sense to you?

Keep in mind that Harper is also obsessed with balancing the federal budget and is even thinking of introducing a law about it. If this program costs $26 billion over six years, then it means that Harper will introduce important and perhaps draconian cuts elsewhere. So more money for rich Canadians with babies, and more cuts for you and me.

The bottom line is that income-splitting raises important questions about the competence of this government and of Harper himself. At a time when Canada’s economic performance can best be described as lackluster, this is what Harper thinks is wise economic policy. Go figure.

I am no fan of the Harper government, but this new policy goes against every ounce of intellectual honesty. It is difficult to find economists, on either the right or the left, who think income splitting is a sound economic policy.

When Harper loses the next election, one can only hope the new government, whoever leads it, will repeal this irrelevant and frivolous policy and replace it with one that makes actual sense, and one that will benefit more Canadians and create jobs, not just line the pockets of rich Canadians with babies.

Louis-Philippe Rochon is Associate Professor, Laurentian University and co-editor, Review of Keynesian Economics