The Queen's Park bean counters breathed a sigh of relief on Thursday afternoon, after learning the federal income-splitting tax cut wouldn't carve $1 billion out of provincial revenues.
Prime Minister Stephen Harper made the announcement at 4 p.m. in Vaughan, outlining a combination of income splitting and increased child-benefit cheques that amounted to $4.6 billion a year in tax relief. (Income splitting allows a high earner to count some income under a spouse's name to qualify for a lower tax bracket.)
However, near the top of a backgrounder prepared by the federal Department of Finance was a key sentence for its Ontario counterpart: "Since the Family Tax Cut is designed as a federal non-refundable credit, it would have no effect on provincial revenues."
In the lead-up to the announcement, there was widespread concern at Queen's Park that a federal income-splitting plan would also mean a $1.1-billion revenue drop for the province, thanks to rules that bind federal and provincial tax collection.
That worried the Finance Ministry because Ontario faces a $12.5-billion deficit and needs all the revenue it can get to help balance its books in three years,
A Mowat Centre report in September outlined the danger, saying that "it was not anticipated by provinces that the federal government would use these agreements as a Trojan horse to foist policy choices upon provinces and weaken their balance sheets."
Ontario Finance Minister Charles Sousa had written to the federal government last week to raise alarm about the harm their income-splitting plan could have on his effort to eliminate the deficit, and asked for consultation on any tax change affecting Ontario.
In a statement shortly after Harper's Thursday announcement, Sousa was cautious but relieved.
"While we are still studying the specifics of today’s announcement, it appears that the federal government has listened to the concerns of our province and adjusted its plans, recognizing the potentially damaging impact its actions could have had on Ontario’s economy during this time of sensitive recovery," he said.
Earlier in the day, Ontario Treasury Board President Deb Matthews didn't hide her annoyance about the possibility of having a potential tax cut imposed by Ottawa.
"On one hand they're saying, 'Shame on you Ontario, running a big deficit,'" she said. "And then time and time again, they make decisions that impact our ability to balance."
She also didn't hide her views on income splitting, which many economists have said disproportionately benefits the wealthy: "It's pretty universally acknowledged to be bad public policy," she said.
The Progressive Conservatives and NDP, meanwhile, took opposite views on income splitting but agreed the Liberals had only themselves to blame if the revenue hole couldn't be filled.
"If Ontario didn't have billion-dollar scandals like the gas plants, they wouldn't be complaining today about good news announcements for Ontario families," said interim PC leader Jim Wilson.
The NDP's Catherine Fife, meanwhile, said it was "concerning that the federal government is going to be bringing in this policy," saying it would make an austerity budget even worse.
"Our recommendation is that Minister Matthews should pay attention to the savings that we've identified through moving away from the privatization agenda," she said.

Federal income-splitting plan avoids forcing $1-billion tax cut on Ontario

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