The federal government's new income-splitting plan for families with small children will reduce revenue by more than $2 billion in 2015, according to a new report from the Parliamentary Budget Officer.
In a report released Tuesday, the PBO estimates that the Family Tax Cut (FTC) will cost the government $2.2 billion this year, contradicting Finance Department estimates that it will cost about $1.9 billion.
The measure will benefit about two million, or 15 per cent, of Canadian households, the report says.
"Middle and middle-high income households benefit most because they are more likely to have a family income and income tax structure conducive to FTC gains," the report notes.
The policy will offer the most benefit to families where the primary earner works full-time hours and earns a gross wage roughly double that of the secondary earner.
But the policy will have a "near zero" impact on families in the bottom 20 per cent of income, the report says.
About 7,000 full-time jobs and $90 million in income will be shed by the Canadian labour force due to the policy, the PBO estimates.
In response to the report, Finance Minister Joe Oliver said in a statement Tuesday that the federal government has reduced Canadians' tax burden to its "lowest level in more than 50 years." Income-splitting and the other tax measures announced last fall "will benefit 100 per cent of families with kids – the vast majority of benefits going to low- and middle-income families," Oliver said.
Prime Minister Stephen Harper fulfilled a campaign promise from the 2011 election when he unveiled the Family Tax Cut last fall as part of a series of new tax measures aimed at appealing to young families. It extends income-splitting to couples with children under age 18, and allows a higher earning spouse to transfer up to $50,000 of taxable income to a spouse in a lower income bracket.
The government estimates the measure will provide eligible families with a maximum of $2,000 in tax relief a year.
At the same time, the government also announced an increase to Universal Child Care Benefit for children under six, a new benefit for children aged six to 17, and a $1,000 increase in the maximum amount that can be claimed under the Child Care Expense Deduction.
When the Family Tax Cut was unveiled, Finance Department officials estimated that it would cost the federal government $2.4 billion in 2014-15 and $1.9 billion in 2015-16. The measure will have "a negligible impact on provincial revenues," the PBO said Tuesday.
The opposition has lambasted the plan because it benefits a small percentage of Canadian families.
"For the 15 per cent who do get something, it is the wealthiest few who get the most," Liberal finance critic Scott Brison said Tuesday in a statement issued to CTVNews.ca.
He added that Liberal Leader Justin Trudeau would scrap the measure and invest in "jobs and growth."
