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The Canadian Press - ONLINE EDITION

Tory caucus persuades Harper to change his tune again on income splitting

OTTAWA - The Conservative caucus appears to have put some woolly socks on Prime Minister Stephen Harper's cold feet on income splitting, convincing him to stick with a key campaign promise despite his finance minister's public reservations.

After Harper suggested earlier this month that he might be having second thoughts, the message from the prime minister changed this week to one of again embracing the concept.

Conservative MPs and insiders say the change of heart, which occurred while Finance Minister Jim Flaherty was overseas, came after MPs from across the country applied pressure on Harper over the past two weeks to not abandon the idea.

MPs who spoke to The Canadian Press on condition of anonymity said that they had heard from constituents and party activists during a Parliament break last week. The message was strong and clear: keep the promise.

High-profile figures such as Employment Minister Jason Kenney and Democratic Reform Minister Pierre Poilievre have been voices in favour of the policy.

"Contrary to popular belief, the PM does listen, and caucus does make a difference," said one MP.

But some Tories believe that the original promise — to allow up to $50,000 in income to be shared — might yet be tinkered with or complemented by other tax relief for families and individuals who would not benefit from income splitting.

Still, the change in positioning has also left Flaherty out on a limb with no net for his comments the policy needed "a long, hard analytical look."

While Flaherty's reservations about income splitting — made on several occasions surrounding his Feb. 11 budget — took many by surprise, Harper and his office appeared at first to be on side, despite several cabinet ministers taking him to task.

When asked point blank if the government would fulfill its 2011 campaign promise to introduce the policy when the budget is balanced, Harper at first would only refer to general tax relief for families, studiously avoiding the term income splitting.

And then suddenly this week, the tune changed again.

"Income splitting has been a good policy for seniors in Canada, and it will also be a good policy for Canadian families," the prime minister said in French in response to Liberal goading about broken election promises.

Conservative consultant Tim Powers says too much has been made of a policy difference between Harper and his finance minister.

"You only have to look at their history, it's hard to make an argument there's a divide. You can't say there's a divide until there is something to see (a policy enacted)," he said.

One Conservative said Flaherty had done his job in floating a trial balloon about delivering benefits to families in a different, more equitable manner, but that it had been shot down by the party's supporters and caucus members.

Officials in the minister's office would not comment on the apparent difference between arguably the two strongest men in the cabinet, cutting off inquiries on the subject.

"We're going to reduce taxes for families. The prime minister and minister have been pretty clear on that," said Chisholm Pothier, Flaherty's deputy chief of staff.

Tory insiders insisted that the two both agreed more analysis needed to be done. Economists on both the left and right have argued that allowing couples with children to pool part of their incomes in order to be taxed at a lower rate would benefit only a minority of families.

In a widely discussed paper by the respected C.D. Howe Institute, analysts judged the program would cost $2.7 billion but bring no benefits to 85 per cent of Canadian households, and disproportionately favour families that least needed the help, while acting as a disincentive to work.

One of the authors, associate director of research Alexandre Laurin, says the policy was designed to benefit a specific type of family — where one parent earned most if not all the income — and offer the most tax relief to high earners, with 40 per cent of the benefits going to households with income of $125,000 or more. Single parent families, which need the help most, are shut out.

For that reason, Laurin says the policy will be difficult to tweak, although it is always possible to reduce the benefits and use the savings to help families that income splitting misses.

"If you don't like income splitting now, even if you tweak, you are not going to like it because it is targeted to one type of family and it's most likely the family that needs it less," he said. "The Universal Child Care Benefit would be a better way if the aim is to financially help families raising children."

But if the caucus has indeed won the battle, the prime minister and finance minister may be stuck with a policy that most analysts agree would work better by another means.

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