The cries of concern from some are startling, but B.C. is only catching up to the rest of the country by eliminating the Medical Services Plan and replacing it with the new Employer Health Tax (EHT).
Here’s what you need to know about the tax:
• Eliminating MSP premiums means a fairer tax system. Whether you make $45,000 or $450,000, you pay the same flat dollar amount in MSP. Rising premiums are a part of the reason overall tax fairness was eroded so badly in B.C. between 2000 and 2016.
• The new tax creates a level playing field among similar-sized businesses. Currently, employers who cover MSP premiums for their employees pay a disproportionate share of the tax compared to their competitors who do not pay for MSP. The EHT requires all businesses of a given payroll size to chip in.
• Most small businesses are exempt from the EHT. Businesses with payrolls under $500,000 are entirely exempt from the EHT and those with payrolls between $500,000 and $1.5 million will pay a reduced rate. According to the government, 85 per cent of B.C. businesses will be exempt and only five per cent will pay the full EHT.
• There is no “double dipping” problem with the EHT as opponents claim. It’s true that businesses currently covering MSP premiums for employees will pay both the remaining 50 per cent of MSP and the new EHT in 2019. But they’ll also gain large savings from the 50-per-cent reduction in MSP premiums in both 2018 and 2019.
• B.C. has low payroll taxes by Canadian and international standards. Six Canadian provinces and territories, including Ontario and Québec, have payroll taxes at the same or higher rates than B.C. is proposing. And Canada has long had among the lowest total payroll taxes in the Organisation for Economic Co-operation and Development (OECD).
• The B.C. business sector should count its tax policy blessings. Since 2000, B.C.’s provincial corporate tax rate has been cut from 16.5 per cent to the current 12 per cent, and the small business rate has fallen from 5.5 per cent to two per cent. B.C. businesses also enjoyed even larger federal corporate tax cuts over the same period.
• Businesses will benefit from elimination of the MSP and increased consumer purchasing power. Any additional tax that business pays because of the EHT is a savings for individuals and families. With more purchasing power, households will spend that money in the local economy.
• The government should help schools, municipalities and service agencies with the EHT. Unlike businesses, these employers don’t have profits to draw on and they haven’t benefited from the slew of business tax cuts in recent years.
The remaining revenue from eliminating the MSP should be replaced. With the EHT, the government is so far only replacing $1.9 billion of the $2.6 billion in foregone MSP revenues. It should close this $700 million revenue gap to fund investment in housing, child care, poverty reduction and responses to climate change.
– Alex Hemingway is Canadian Centre for Policy Alternative-BC’s public finance policy analyst. His work focuses on the state of B.C.’s public services, including education, health care, social services and regulation.
He also investigates the taxation system and its relationship to inequality and the capacity of government to provide high-quality and accessible public services.