Entries from October 2006 ↓

Implications (2)

Flaherty’s pension move opens a door
to family income-splitting

So, here’s my next big suggestion for Jim Flaherty: Income-splitting and a family tax return.

family.jpg Now that pensioners will average out income between husband and wife – which is only fair – families should be able to do the same thing. The tax code’s been designed in a way (by Liberals) that bases taxation on individuals, when it’s actually the family which is the basic economic unit of society. So, Jim, it’s high time we joined other civilized countries and allowed families, or at least spouses, to pool income for tax purposes.

This would drop family taxes overall, permit stay-at-home spouses to make RRSP contributions as well as CPP payments, allow for better retirement planning, and hike household cash flow. It would also end the inequity between single and double-income families, and cause the tax system to finally recognize the massive social and economic benefit that caregivers give society. I mean, how can you be against moms? Let’s do it.

Despite the recent hundred bucks-a-month child care payment, the level of government assistance to families has been eroding for the past thirty years. And yet, the financial burden of raising children has only increased, especially as costs for higher education have been downloaded by the provinces onto parents, and with the advent of the health tax in Ontario.

In my mind, it is no coincidence that this ongoing government war on the family has resulted in fewer couples deciding to have children. Canada today has only 1.5 births per woman, a rate so low that were it not for immigration, we would die out as a society. At the same time, the age of our population is rising fast, and the number of seniors will about double in the next 20 years. More people draining resources. Fewer new workers entering the labour force – this is a recipe for national bankruptcy.

So, from a tax fairness, societal and economic point of view, giving families a break through income-splitting makes plain sense. It would encourage more families to have stay-at-home caregivers since the tax on single-income families would be cut. It would encourage more couples to have children, since the financial sacrifice involved would be lessened.

Finally, one would think that if ever there was a government ready to walk the walk after talking the talk, it would be this one, on this issue. The Harper Administration is avowedly pro-family, and I would expect income-splitting would be one of the goals most worthy of achieving. It certainly is for me. I campaigned for this in the last election. I promoted it in all my literature. I lobbied Jim Flaherty for it while he was writing his first budget.

It is the right thing to so. This is the right time to do it. This is the right government to pull it off. And once Canadian couples with kids are allowed to split income, no government will ever be able to take it away.

But, what will this cost? Can we afford it?

If we restrict this to two-parent families with children under 18 years of age, the cost would be $1.561 billion per year, based on 2005 numbers. Of that, two-thirds of the cost would go to benefit double-income families, and the remaining amount for the 26% of all families that have just one income. The greatest number of people to benefit would be in the income range of $60,000 to $80,000 per year.

I have no doubt Jim Flaherty will argue this is too rich, since he also has to find $5 billion to cut the GST by another 1% in the coming budget and maybe a billion or more to allow investors to roll over capital gains without paying tax.

But I believe this is a pivotal time. The economy is strong. The books are balanced. The money is flowing in.

Beyond that, we’re a country in need of the moral backbone to admit families are the basis of our society, and that government needs to do much, much more to support them. The middle class voters of Halton have asked me for this. I gave my promise it would be my work in Ottawa. I will not let them down.

Implications (1)

Market likely to shows its fury this morning
as Flaherty boldly does what Goodale mused

What Jim Flaherty did tonight was quite profound. The implications will be with taxpayers and investors for years to come, and with this government in spades. Jim rolled the dice. It was an uncharacteristic move for a cautious man.

As a result:

(1) For the Toronto stock market, the first day of November could be a slaughter of sorts. Income trusts have been the darling of Bay Street, with giants Bell and Telus recently announcing plans to convert. Stock in those giants will plunge, and several billion dollars will be wiped off the investment accounts of Canadians, a lot of them owned by seniors who rely on income trusts to get by.
(2) This will create some serious bad blood between the investment community and the feds. After all, this is a huge political gamble for the Harper Conservatives. We are just a few months after an election campaign in which the Tories made it clear they would never, ever tax income trusts, and in which former Finance Minister Ralph Goodale was pummeled for even musing about it. Of course, Ralph’s real crime was talking about taxing trusts, instead of doing it, which helped wipe more than $9 billion from their worth over the course of a few weeks.
(3) In fact, Flaherty will have to wear this, which is why, I figure, he was not looking his jovial self on television Tuesday night. The man has just ushered in a monumental tax increase; triggered a general market decline; changed the rules upon which corporate Canada had laid its plans; pissed off core Conservative support; and set himself up to be accused of a sizeable flip-flop. If I were Ralph Goodale, I’d be up all night getting ready for QP.
(4) But at the same time, Flaherty and PMSH are very aware of the impact this will have on seniors, who are the ones income trusts have benefited most. Companies that turn into trusts pay their profits to unitholders in the form of income, instead of retaining profits which are taxed. That means their share prices usually rise, and the people owning units get a far higher return on investment than a GIC could ever pay. That’s why seniors love ‘em. And to mitigate, the feds are hiking the tax threshold for seniors and allowing them to split pension income for tax purposes. This latter item is something I have personally supported for ages, but didn’t expect it to arrive with a nuclear bomb strapped to its thorax.

So, it was a night of guts for the minister of finance. And he will have some intense days as a result. His argument will be that income trusts threatened to suck off so much lost tax revenue that without a new levy on them, everyone would end up paying more. Whether investors – and seniors – buy it will be the big question.

Did he do the right thing, and the right way? Well, this is just what I predicted in the media a couple of weeks ago, after Bell announced it would be morphing into a trust. It looked then like a death stroke was inevitable. And it came on Hallowe’en. Flaherty was right to dump this on an unsuspecting nation, in order to keep the stock market carnage to one day or two and avoid a Goodale-type slow melt. But the boys on Bay Street have long memories, and this night will go down as a classic. In the morning, they will show you. Count on it.

Media release

MP Garth Turner calls pension-splitting
‘a victory whose time has come’

October 31, 2006 6:15 pm EST

Today Finance Minister Jim Flaherty, in a surprise announcement, said Ottawa will allow retired couples to split their income for tax purposes, starting in 2007. This means more than two million pensioners will see a basic tax unfairness corrected, says MP Garth Turner, who has believed in and promoted the reform and hosted a national conference on the issue just three weeks ago in conjunction with major pension groups.

“I am delighted beyond words that Flaherty and Prime Minister Stephen Harper have recognized that these people need this recognition and this help,” Turner said. “Today’s retirees lived and worked in families where one spouse usually stayed home with kids, which means pension income now flows in through the hands of just one person. That increases the tax rate, and seriously impairs the lifestyles of millions of people on fixed incomes. Finally, we have a bright light at the end of the tunnel for these folks.”

Turner has worked with a group of 17 pension groups representing more than 2.4 million retired people pushing for pension-splitting, coordinated by CAPS – the Canadian Association for Pension Splitting. The effort culminated in a conference on Parliament Hill on October 3rd, which more than 30 MPs, representing all parties in the House of Commons, attended.

“This is a victory whose time has come,” says Turner. “Today’s retirees usually have no more income options, and to tax them at the highest marginal tax rates – as has happened for decades now – is to rob them of precious purchasing power. This change sends out a signal that the Harper government understands, and is prepared to reverse a long standing wrong.”

Turner, now an Independent Member of Parliament, was ousted from the national Conservative caucus just days ago. “Yes, I pushed hard for this one,” says Turner, “and I know the finance minister may not have been happy with me. But all I can do now is praise the government, the prime minister and the Conservative Party for doing what was absolutely the right thing.”

For more information or to arrange an interview
Esther Shaye
Media Relations, Office of Garth Turner
(905) 699-1902
(905) 693-0166

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