Mr. Speaker, I am very pleased to speak to an extremely important issue that I think is going to be one of the election issues in 2015.
We know that this was a Conservative promise, one that was made without much regard for reality or the social impacts of income splitting.
I want to briefly summarize what income splitting is, even though other MPs are generally doing the same. Nonetheless, it is good to go over the basics and the reasoning.
In their 2011 election platform, the Conservatives proposed allowing individuals to transfer a portion of their income to their spouse, to a maximum of $50,000, in order to put themselves in a lower tax bracket. This applies to families with children, of course.
There are several problems with such a measure. At first glance, it seems like a good idea. I think the government is currently trying to rebrand this measure and find a different name for it. We heard the minister of state talk about justice or fairness for families. On the contrary, this measure is unfair to families. If we look beyond the issue of whether up to $50,000 can be transferred, we see that this measure mostly benefits people with high incomes. A number of studies—the most notable of which are those conducted by the Canadian Centre for Policy Alternatives and the C.D. Howe Institute—clearly showed that 85% to 86% of families will not benefit at all from this measure. It will benefit only 14% or 15% of Canadian families. How is that fair? It is not.
Clearly, this is an extremely costly measure for the federal government. It will be extremely costly in terms of the public services that will eventually be lost. The government is responsible for providing adequate funding, but the Conservatives have exactly the opposite philosophy in how they govern.
According to the two organizations' estimates, the measure will cost the various levels of government about $5 billion—$3 billion for the federal government and about $2 billion for the provincial governments. However these measures will benefit less than 15% of Canadians. Why are only 15% of Canadians benefiting? Let us look at those who will not benefit from this measure. I have a whole list. Clearly, income splitting will not do anything for single people because it affects families with children. It will not do anything for couples who do not have any children. It will not do anything for single-parent families, even though they could use a break, because the measure pertains to couples. Clearly, if a person does not have a spouse, income cannot be transferred. This measure will not do anything for families with children over the age of majority, even if those children are still dependants because they are going to school or they have a disability, for example. The taxation system provides for some tax credits in that regard, but the income splitting measure will not do anything for those individuals. Income splitting will not do anything for families where the parents have similar incomes. A family where both spouses are working and earning about $30,000 will not benefit from this measure at all. This measure does not do anything for parents who earn less than about $42,000 because they are in the lowest tax bracket. We can therefore see that the list of couples who will benefit from this measure is extremely small.
As a blatant example of inequity, consider the members of this House who have minor children and whose spouses or common-law partners are stay-at-home parents. We are people who would benefit from that. Here in the House, there are a number of members who are still young enough to have minor children. With our salary and a stay-at-home partner, if we can transfer up to a maximum of $50,000, we would personally benefit from about $5,000 in tax cuts. Do we want the $5,000? In society, that might benefit us personally. However, ultimately, we need the money far less than couples who, for instance, have trouble making ends meet and where each person has a salary of $20,000 or $25,000. Both must work to provide for their family. We therefore must think of the example we have here in this House.
In terms of the list of exceptions, I will move on to the question of good governance.
As I mentioned, income splitting would increase income inequality, since the wealthiest families would be the ones benefiting from it, as only one spouse needs to work and earns a salary that is high enough to provide for the family.
We are also wondering whether, after balancing the budget, the Conservatives are prepared to do without $3 billion in revenue.
The Conservative government often talks about the late Jim Flaherty, former finance minister. However, before he died, Mr. Flaherty had given the Conservative government a serious warning that this measure was extremely risky and that it had to be studied because it would only benefit a few segments of society, leaving out many families who would have far greater need of it.
In our view, this measure is completely inappropriate. At the time, Mr. Flaherty had warned the government that this measure was risky because, if the government wanted to balance its budget eventually, it had to make choices. Does the government want to throw the country back into deficit right away by providing additional tax cuts once it balances the budget, or does it want to use the surplus for other things such as debt reduction?
Since the Conservatives took power—so since the 2005 public accounts were released—Canada's debt has increased from $421 billion to $667 billion. That figure will be even higher this year. That is an increase of $256 billion—or over 60%—since the Conservatives took power. Do the Conservatives want to use the future surplus to pay down the debt? No, they are talking about offering tax cuts, which will create an even bigger deficit.
That is what happened when they lowered the GST from 7% to 5% and we saw our revenues drop by $8 billion a year. In 2008, even before the recession, the Conservatives had started running a deficit as a result of this measure and the additional corporate tax cuts.
The Conservatives brag about being good managers, but at the end of the day, they are the ones who put us in a deficit situation. Aside from the period between 2006 and 2008, when they came to power and eliminated the federal government's fiscal space, the last time a Conservative government introduced a balanced budget was in 1912—yet they brag about being good managers.
My colleague from Kings—Hants mentioned the provinces and income inequality, but he ignored the fact that transfers to the provinces were cut by 40%. These cuts obviously made things tough for the provinces. He blames the provinces for the increase in income inequality. He also blames Liberal, Conservative and New Democrat governments for a situation they inherited from the federal Liberal government at the time.
The NDP has a better record on balancing budgets than provincial and federal Conservative governments. The governments of Tommy Douglas, Gary Doer and Roy Romanow introduced balanced budgets for over 10 to 15 years, and meanwhile, the federal government was running deficits under the Liberals and Conservatives.
The NDP is, without a doubt, the party that is most likely to properly manage public finances for the public good and is considered as the party that properly manages taxpayers' money. After assessing the situation, the Department of Finance agrees with us.
The United States has income splitting, and I am certain a Conservative member will point this out. In fact, it is not so much that the U.S. has adopted income splitting, but rather that it has adopted a basic unit of taxation. Unlike Canada, where the individual is the basic unit of taxation, the family is the basic unit of taxation in the U.S. There are historical reasons for that approach.
In the mid-20th century, the United States needed to unify its taxation policies. A number of states considered the individual as the basic unit of taxation, while others considered it to be the family. Eventually, they had to simplify matters. A broad debate on taxation was held, and the outcome was a more or less simplified taxation system.
The process involved defining the basic unit of taxation. The U.S. decided that it should be the family. A number of commissions, including the Carter commission, and several committees studied the issue. The Carter commission was the last great commission to undertake a reform of the taxation system. After two years criss-crossing the country, the commission produced a report, which was greatly watered down by the subsequent Liberal government, this being the 1970s after all, but widely hailed by academics and tax experts. The report recommended that the individual be considered as the basic unit of taxation. This provision allows for a simpler tax system that everyone can agree on.
Now the government wants to allow people to use the family as the basic unit of taxation in some cases and the individual in others. This will further complicate the taxation system, and if only for that reason, this is not a desirable policy option.
The government boasts of having already introduced pension income splitting. The tax cost of this initiative is already higher that originally forecast. At the end of the day, as a result of pension income splitting, Canada will lose $1.2 billion in tax revenues while the provinces overall stand to lose about $500 million.
This example gives us a pretty good idea of what income inequality would look like. Let us consider for a moment how this measure affects seniors. If we divide pensioners into two groups, one-half having the lowest incomes and the other half having the highest, we see that the half with the lowest incomes benefited from only 2% of the tax cuts as a result of pension income splitting. That means that the half with the highest incomes benefited from 98% of the tax cuts. What is more, the 10% of pensioners with the highest incomes benefited from 31% of the tax cuts.
The example of pension income splitting illustrates the scope of the problem and how the income gap will widen, not only as a result of this measure, but also as a result of the Conservatives’ proposed initiative.
Now then, will the government move forward with this initiative? It will be included in the next election platform. However, if we are to believe the current Minister of Finance and certain MPs, it is clear the government appears intent on moving forward. Moreover, instead of addressing additional income inequality issues, it is starting to rebrand to economists, journalists, the media and society as a whole the totally unfair policy of income splitting, which has now acquired a bad reputation. It will rebrand it as an exceedingly fair policy.
I am truly flabbergasted to see how blind this government is to such clear facts and figures. I am far less hopeful than my colleague from Kings—Hants, who spoke just before me, as to the will of the parties in the House to find some common ground for dealing with income inequality. It is clear that the Conservatives are turning a blind eye to this reality. For them, it is a matter of facilitating access to education and training. We are not opposed to that, but it will not be a cure-all. Initiatives have been taken in the past, and continue to be taken by this Conservative government and by various provincial governments, that increase the effects of income inequality. Some of the proposed initiatives, such as income splitting, will increase the problems, even exponentially.
When I talk about economists, it is quite interesting to see where these negative comments about income splitting are coming from. It is rare to see the Canadian Centre for Policy Alternatives and the C.D. Howe Institute agree, not only on the fact that this policy is harmful but also on the fact that it would have some financial ramifications.
I have a question for my colleagues who always boast of their sound management. Do they really want to take action that will once again put the federal government in a deficit situation, for the sole reason of bringing in a tax break that will benefit only 15% of Canadian households? Would they not rather show good governance and start tackling urgent issues?
We do not have any problem whatsoever with tax cuts for middle-class families, for families that need a break. However, such measures must be reconciled with measures to reduce the debt, which, may I remind you, has ballooned by 60% since the Conservative government was elected in 2006. Steps will also have to be taken after that to rebuild public services that have been devastated in recent years, especially since 2006.
Consider R and D, the environment and immigration, to name a few areas. All of these services to Canadians have been drastically cut, jeopardizing in the process services for which Canadians pay taxes and to which ultimately they are entitled. I suspect that one of strategies of the Conservative government, and of Conservatives in general, is to ensure a mismatch between the taxes paid to different levels of government and the services that Canadians receive for their tax dollars.
I know that a debate on immigration took place in the House until very late last night. I was astounded by a statistic I learned of during the 2013 holidays—if I am not mistaken— regarding a call centre in Montreal that was set up to respond to Canadians requiring a visa or experiencing immigration problems. The number of employees at the call centre was so drastically cut that 91% of telephone calls in December 2013 were lost in the system and never got through to an agent. In other words, only 9% of calls were answered by an agent.
How about we talk about the cuts to science made by the Conservative government? I know what the ramifications of these cuts are because there are a lot of scientists in my riding. Some scientists work at the Maurice-Lamontagne Institute. Others work at the Institut des sciences de la mer, ISMER, at UQAR. Still others work in a number of private sector companies that come under the umbrella of the Technopole maritime du Québec. A hub of expertise has sprung up in Rimouski and the lower Saint Lawrence valley in marine biotechnologies and maritime technologies in general. The cuts made by the government to the Maurice-Lamontagne Institute have resulted in an exodus of scientists from the region. This has hurt not only the region's economy, but also Canada’s reputation in the sciences.
Additionally, there were a number of measures imposed as part of the overhaul of the employment insurance system that are having a major impact on regions where the economy still relies heavily on seasonal employment. These measures are intended to diversify the economy, but that takes time. In reality, the measures imposed by the Conservative government are making the regions in question poorer. Ironically, the Conservatives’ slogan in 2011, at least in Quebec, was “Our regions in power”. Almost every measure imposed by the Conservative government has ended up hurting the regions and making them poorer.
I know that this issue will be a core plank of our election platform in 2015 in the lead-up to the next election. If what we are seeking is good governance, every measure to do with budget surpluses should be divided between logical tax cuts that benefit a broad cross-section of society rather than simply 15% of people, as income splitting would do, paying down the debt and reinvesting in a number of public services that have suffered considerably as a result of this Conservative government’s cutbacks.
This, therefore, is the principle of good governance that we espouse, and it corresponds to the good governance models of our New Democratic governments in the provinces. I hope that the government will listen to reason and scrap this ill-advised policy of income splitting in favour of adopting fiscal and economic policies that will benefit all Canadians and not just a small segment of the population.
