Alternative Federal Budget vs. Income Splitting: Who benefits?

On March 19th, we released the 2015 Alternative Federal Budget (AFB) and also marked the publication’s 20th anniversary. Like every year, the AFB includes practical measures to improve Canadian’s lives. For the past two years, we’ve been running our AFB through a sophisticated income inequality simulation to see how our budget would affect poverty and inequality in Canada. This analysis allows us to see who benefits and who doesn’t from various social programs and tax/transfer changes.

In the AFB, there are big gains for lower income earners clear through the middle class. Program spending is the biggest help, but targeted transfers also chip in. The top 5% does pay more, but while the dollar amount might seem big, it only amounts to 3% of pre-tax income for these families making more than $150,000 a year.AFB2015_blog1

In contrast, the federal government’s recently announced Family Tax Cut (a.k.a. income splitting) has the exact opposite distribution—the top decile benefits the most, by far. The working class gets nothing, and the middle class gets almost nothing.

AFB2015_blog2

Federal policy should strive to lower income inequality, not make it worse. As we like to say around the AFB table, budgets are not just technical financial documents—they are the product of values and contain some of the most important choices that governments make. This year’s Alternative Federal Budget demonstrates that we can afford to make choices that would benefit the vast majority of Canadians, not just those at the top of the income scale.

David Macdonald is a Senior Economist with the CCPA. You can follow David on Twitter @DavidMacCdn.

4 comments

  1. So if there is a small number of families being treated unfairly, that unfairness should be continued? If 2 families with same family income, where both spouses have to work, have to pay different amounts of tax, what is fair about that? I need better arguments then that there are not a lot of families like this and/or one spouse will be encouraged to leave work. Also, do not think I do not care about poorer people, why not correct the horizontal inequity and then raise the tax rate a bit across the board to correct the more widespread vertical inequities both you and I are equally concerned about?

  2. I commented yesterday!

    Is this not an open/visible discussion? Or is it that it just takes times for a comment to appear?

    1. Hi Anthony,

      Comments made to our blog by first-time posters are moderated, so it does take a little time for them to appear online.

      Best wishes,
      Emily Turk
      Canadian Centre for Policy Alternatives

  3. What is really sad is the complete misrepresentation of income splitting. It is about fairness and equity. The principle of fairness should be that families that make the same income should pay the same taxes.

    Simple example. Family A earns 80k, two parents working, making 60k/20k.
    Family B earns 80k, two parents working, making 40k each.
    Family A pays $1100 MORE in taxes than Family B.
    Unfair any way you look at it.

    Nothing about robbing poor to pay rich – 80k is not rich. Nor does the other family have to pay anything. We just want to pay the same amount of tax as the family that makes the same as us.

    Simple, Fair.

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