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Tax cuts, starts your engines. Finance Minister Jim Flaherty has announced that the federal government expects not only to return to budget balance, but to surplus, by fiscal 2015. Flaherty delivered the government’s economic update in Edmonton, projecting a deficit of $17.9 billion for 2013-14, $5.5 billion in 2014-15, and a surplus of $3.7 billion for 2015-16.

Add the $3-billion budget contingency fund to that last number and it looks like Ottawa will be sitting on a surplus of almost $7 billion in an election year — just in time to fulfill its tax cut promises from the 2011 vote and make some new ones.

The centrepiece of the Tory plan is income-splitting for families, which the Conservatives promised to enact once the budget was balanced. It would allow couples with dependent children under the age of 18 to transfer $50,000 between them for tax purposes. The savings wouldn’t be huge but, taken together with the federal child benefit, they would sweeten the pot for parents who want one spouse to stay home or work part-time.

Under the plan, a family pulling in a taxable income of $100,000 a year would save $3,500 in federal tax; a similar family earning $60,000 a year would save $1,000. A family pulling in $40,000 in taxable income would save nothing, since both partners would end up in the same tax bracket. This has led to the criticism that the policy would benefit only the rich. It also would leave breadwinners in single-parent families out in the cold, since they would have no one with whom to split their income.

Another criticism is that income-splitting would strip Ottawa of tax revenues on an ongoing basis, structurally eroding its ability to balance the books over time. The Tories predict that income-splitting would reduce revenues to the treasury by approximately $2.5 billion annually; a C.D. Howe study pegs the cost at $2.7 billion.

Income-splitting plays directly to the demographic Holy Grail all parties are chasing in the next election: middle class families.

A similar charge was levelled over the Tories’ 2 per cent cut to the GST — which was amply derided by economists for other reasons, including the fact that it would not provide the same economic stimulus as an income tax cut. That might have been the point. As Paul Wells noted in his recently-released book The Longer I’m Prime Minister, for those who believe in smaller government the GST cut was a perfect way of shrinking the size of the state, simply by reducing the amount of money at its disposal. Over time, income-splitting could achieve the same result.

Income-splitting also plays directly to the demographic Holy Grail all parties are chasing in the next election: middle class families. In 2011, the average total income for a single-earner two-parent family with children was $86,400. Dual-earner two-parent families with kids enjoyed an average income of $115,500. Economically, both these cohorts would benefit from income-splitting.

Who stands to get hurt the most by income-splitting — the Liberals or the NDP? Since income-splitting was conceived by the Conservatives before the NDP breakthrough in 2011, it likely was conceived as a frontal assault on the Liberals. While lower-income voters do vote Conservative on some issues, such as crime policy, the party is probably assuming that the poor are more likely to opt for the NDP.

This leaves the Liberals in bind. Do they deride income-splitting, copy it, or promote a different type of tax relief — such as lower rates for all brackets, regardless of family type?

Given the surplus, I would bet on the latter. The NDP will also have to consider some kind of personal income relief, if only to stay competitive. This may up the ante for the Tories to offer other tax breaks as well, since after funding the income-splitting promise they will still have $4 billion in the kitty. And so on, and so on.

So thank you, Mr. Flaherty, for bringing Canada back into the black. Regardless of who wins, after years of restraint and tiny tax credits, 2015 promises to be a true taxpayer’s election — at last.

Tasha Kheiriddin is a well-known political writer and broadcaster who frequently comments in both English and French. In her student days, Tasha was active in youth politics in her hometown of Montreal, eventually serving as national policy director and then president of the Progressive Conservative Youth Federation of Canada. After practising law and a stint in the government of Mike Harris, Tasha became the Ontario director of the Canadian Taxpayers Federation and co-wrote the 2005 bestseller, Rescuing Canada’s Right: Blueprint for a Conservative Revolution. Tasha moved back to Montreal in 2006 and served as vice-president of the Montreal Economic Institute, and later director for Quebec of the Fraser Institute, while also lecturing on conservative politics at McGill University. Tasha now lives in Whitby, Ontario with her daughter Zara, born in 2009.

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