Ahead of the release of the federal budget on March 19, the government is distancing itself from suggestions that the fiscal plan will include income-splitting measures for Canadian couples.
The government has signalled that there simply isn't enough room in the budget to include the measure that would allow Canadian couples to split their total income between them in order to minimize taxation.
"To do income splitting would be about $5 billion and it doesn't appear we have the fiscal room to move on that in this particular budget," a senior government official told The Globe and Mail.
The officials said both Prime Minister Stephen Harper and Finance Minister Jim Flaherty agree it's out of the question.
"The prime minister and the finance minister are both on the same page: They looked at the numbers and both came to the conclusion that income splitting is highly unlikely this year," the source said.
The government has already brought in an income-splitting measure for seniors, allowing them to divide pension income to the same effect.
That effort has been costing the government about $700 million each year.
The federal government has already promised to send cash to Quebec and other provinces in order to address the so-called fiscal imbalance -- a pledge that some economists say could cost up to $3 billion annually.
"We have four major commitments in our budget: spending priorities, the fiscal balance, paying down the debt and tax relief," the official said.
Tax relief will form an important part of the budget. The Tories have already laid out the following measures:
- A $1 billion plan to let couples split pension income for tax purposes;
- A $725 million corporate income levy cut;
- And $800 million in personal tax relief using interest savings from retired federal debt.
They are also expected to announce a plan to reduce taxes for low-income Canadians, possibly in the form of a Working Income Tax Benefit that would reward Canadians for working rather than going on social assistance.
However the source said the Tories remain committed to the idea they first raised last fall and it's still a possibility for further down the road.
Don Drummond, chief economist for Toronto-Dominion Bank, said he expects the Tories will try to deliver on broader income splitting in future budgets.
"It's not a matter of principle. It's a matter of cost," he said. "Its day will come, but it will have to come at a time when they have a larger amount of fiscal resources," he told The Globe.
