Flaherty has doubts about benefits of promised income-splitting

OTTAWA -- Finance Minister Jim Flaherty opened a rift within the Conservative cabinet Wednesday by casting doubt on the wisdom of using next year's expected budget surplus to expand income-splitting ahead of the next election.

Income-splitting for families with dependents under the age of 18 was a key promise the governing Tories made in the last election, but with a catch: it was contingent on a balanced budget.

The federal budget Flaherty introduced Tuesday projects a $6.4-billion surplus in 2015, just in time for the coming election.

On Wednesday, however, Flaherty lobbed a grenade into the Conservative caucus room when he said he personally thinks blowing part of that money on a promise that's expected to cost upwards of $2.5 billion is not the way to go.

"I would pay down public debt and reduce taxes more, myself, but I am only one person," he said in a post-budget interview before the Ottawa Chamber of Commerce.

"There's a tendency among politicians to always -- regardless of political stripe -- to always want to throw baubles out the window and pretty things -- 'Look over here,' you know," he laughed.

"And this is a shiny thing. Vote for me because I have a shiny thing. I'm not there."

Prudent fiscal management has historically served Canada well, but federal governments lost their way over the last 50 years and became spendthrifts, Flaherty continued.

"We've created a large public debt and we should deal with it and we should knock it down," he said. "Not for my sake, it won't make any difference to me, but it will make a big difference to the next generations."

Just a few hours later, cracks started to appear within the Tory caucus about whether they should abandon their 2011 election promise -- and whether Flaherty should continue to serve as finance minister.

Treasury Board President Tony Clement and Employment Minister Jason Kenney said they're behind income-splitting, while Quebec MP Maxime Bernier sided with Flaherty.

"I know what our campaign commitments are and I stand by those commitments," Clement said.

Echoed Kenney: "We made a platform commitment to introduce income-splitting when we get to a balanced budget. We'll get to a balanced budget next year, that's very clear."

Industry Minister James Moore, however, dodged direct questions about whether he agrees or not with Flaherty on income-splitting.

"You're talking about 2015. We have to get through 2014 first," Moore said as he ducked into the safety of the Commons no-go zone for reporters.

Flaherty should "absolutely" stay on as finance minister, said Alberta MP and finance committee chair James Rajotte. Kenney, who has reportedly clashed with Flaherty over his support for troubled Toronto Mayor Rob Ford, wouldn't comment.

New Democrat MP Peter Julian could barely contain his glee as he described the "incoherence" within the federal cabinet and the Prime Minister's Office.

"We now have a finance minister backtracking from what was a key Conservative commitment," he said.

There have been concerns in recent months about Flaherty's health.

He was reappointed as finance minister in July after his office made clear he would stay on until the budget was balanced. There had been speculation that Harper was considering a change in the top cabinet portfolio if Flaherty, who has been in poor health due to a rare skin condition, was not prepared to run again.

But Flaherty maintained earlier this month that things have improved and he's still able to do his job.

The C.D. Howe Institute has calculated it will cost federal coffers $2.7 billion a year -- plus $1.7 billion from the provinces -- to allow couples with young children to split up to $50,000 of their income for income-tax purposes.

And the Tories have yet to implement another costly campaign promise: doubling the original $5,000 annual limit on contributions to tax-free savings accounts.

Critics say both policies would favour only a small segment of the population. With record household debt, many families can't afford to sock away $10,000 a year, they note.

The institute has argued that 85 per cent of households, particularly single parents, would gain nothing from the income-splitting proposal. As well, it estimated 40 per cent of total benefits would go to families with income above $125,000, who could gain up to $6,400 from Ottawa, with more savings potentially coming from the provincial tax bill.

Rajotte acknowledged that the policy would likely benefit only a small percentage of the population.

"It's a simple fact that there's a certain percentage of the population -- those families with two parents that have incomes that are very disparate -- benefit from it," Rajotte said.

"Those situations where two people working outside the home, with incomes that are comparable, obviously they're not going to benefit not nearly as much from a measure like this."

University of Calgary economist Jack Mintz has argued those problems can be fixed if income-splitting is accompanied by other measures that would allow the benefits to be shared by other kinds of families.