October 30, 2014 / 4:33 PM / 3 years ago

UPDATE 3-Canadian PM Harper unveils family tax breaks ahead of election

(Adds Harper quote, budget expectations, paragraphs 4, 12)

By Alastair Sharp

VAUGHAN, Ontario, Oct 30 (Reuters) - Canadian Prime Minister Stephen Harper unveiled C$26.76 billion ($23.89 billion) in family tax cuts and benefits over six years on Thursday, which will start flowing to voters over the coming year as the country gears up for an election next October.

Normally, tax measures are only introduced in the government’s spring budget. But the timing of Harper’s move means that, instead of seeing election promises, voters will start seeing actual government checks and lower taxes before next October’s election.

Having the tax measures already in place could also make it more difficult for opposition parties to pledge to revoke them if elected, limiting their room for maneuver against the governing Conservatives in the upcoming campaign.

“We’re doing this in a way that assures that the things we promised in the last election will actually reach people in the life of this Parliament,” Harper told reporters.

The most controversial measure would allow “income-splitting” for parents with children under 18. That would let a parent transfer C$50,000 of income for tax purposes to a lower-earning spouse, where the income would be taxed at a lower rate.

The plan would be of most benefit to families in which one spouse, such as a stay-at-home parent, has substantially less income than the other. The tax break will be capped at C$2,000, which limits its cost to about C$2 billion per year instead of the C$2.5 billion estimated in the Conservatives’ 2011 election platform.

The fate of the income-splitting campaign pledge came into question earlier this year when late Finance Minister Jim Flaherty said he was not sure it would benefit society overall.

New Democratic Party leader Thomas Mulcair said the income-splitting plan would “cost billions of dollars and still give absolutely no help to 86 percent of Canadian families... How does that benefit our society?”

Supporters of income splitting say it is fairer to tax parents that have a lower combined income less onerously than those that have two big salaries. Critics say it is unfair because it does nothing for single-parent homes, and Liberal leader Justin Trudeau has pledged to revoke income-splitting if he wins the election.

The concept is loosely analogous to the U.S. tax system, where people can choose “married filing jointly” status with lower tax rates than “married filing separately”.

Another provision would enhance the child care benefit, which provides C$1,200 ($1,071) a year per child under six years of age regardless of whether he or she is in day care. The enhancement will add a further C$720 per year for every child up through age 17.

The government had budgeted a C$2.9 billion deficit in the 2014-15 fiscal year ending in March, and Harper said there would still be a small deficit after these measures. He said there would be a small surplus in 2015-16.

$1=$1.12 Canadian Additional reporting by David Ljunggren in Ottawa; Writing by Randall Palmer; Editing by Jeffrey Hodgson, Lisa Von Ahn and Peter Galloway

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