Employers who thought they were off the hook for Medical Services Plan premiums as employee benefits when the NDP government announced the elimination of premiums last year got a surprise on Tuesday. The NDP government’s budget unveiled a new payroll tax in 2019 to offset the loss in revenue from the premiums.
The payroll tax will be a new expense for many companies that have payrolls over $500,000; those with payrolls under $500,000 will be exempt from the tax.
Finance Minister Carole James said since government is one of the biggest employers, the public sector will account for about 20 per cent (ultimately $400 million a year) of the revenue that new tax brings in when fully implemented.
The “employer health” tax, as it is dubbed by government requires companies with payrolls over $500,000 a year to pay a 0.98 per cent tax on annual payroll. The tax goes up in increments up for every $250,000 in payroll. Big companies will be hardest hit as they will pay a 1.95 per cent of tax on payrolls over $1.5 million.
The tax is projected to bring in $463 million in 2018-19, $1.85 billion in 2019-20, and $1.92 billion in 2020-21. MSP premiums brought in $2.6 billion annually in revenue so there will still be a large gap the government is looking to make up.
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A government-appointed group will make other recommendations by the end of March on ways to replace the remainder of revenue lost through MSP premium elimination. Ideas like an income tax surcharge may be implemented. But the budget documents says the final analysis will focus on “progressivity, fairness and competitiveness of the tax system.”
The elimination of MSP premiums will be complete by Jan. 1, 2020, which, combined with a 50 per cent cut that took effect this year, will save individuals who paid premiums up to $900 a year and families $1,800 a year. Employers paid the premiums for some workers but the government doesn’t know what proportion of premiums were paid by employers.
James said MSP premiums were akin to a regressive and unfair tax since it wasn’t tied to income. Individuals earning $45,000 a year have paid the same as someone earning $250,000. But James admitted MSP premiums were a solid source of government revenue.
She said the employer payroll tax exists in other provinces but B.C. will have the lowest payroll tax rate in Canada. In a press conference, James said the government consulted with other provinces including Manitoba, Ontario and Quebec which all have similar payroll taxes.
“The advice we got was to give time for implementation and discussions,” she said, referring to negotiations which may ensue between companies and employees. Asked about whether there might be some unintended consequences like layoffs, she pointed to provinces like Quebec which are “booming” even with such taxes.
The Greater Vancouver Board of Trade has concerns about the impact of the payroll tax on businesses, saying in a press release:
“In doing this, the government will be reducing the tax burden on individuals, by transferring the majority of the $2.6 billion burden onto business. Because many larger corporations already pay this on behalf of their employees (as a benefit), the incremental impact of this payroll tax will overwhelmingly affect small-midsize businesses the most.”
In other revenue-raising measures, the government said it will boost taxes on tobacco in the 2018-19 fiscal year only. Based on current tobacco consumption rates, the tax will lift tax revenues to $822 million in 2018-19, $112 million more than sales tax revenue in the previous fiscal year. The percentage increase is said to be about 11 per cent, according to the Ministry of Finance. Before the increase, B.C. lagged most other provinces in tobacco tax rates.
Cannabis is expected to be legalized later this year and, curiously, the B.C. share of cannabis tax revenue is projected to be only $50 million in 2018-19, rising to $75 million in 2019-20. It is not clear if there will be a price advantage to consumers using cannabis compared to tobacco and if so, whether tobacco smokers may switch to cannabis.
The Health Ministry budget will balloon to a hair below $20 billion in fiscal 2018-19, by far the most spent by any ministry. James said the government will spend $548 million over three years on seniors care and $150 million more over three years on primary care.
The capital budget envisions spending $1.11 billion in the current fiscal year and $1.10 billion in 2018-19, totalling $3 billion over the next three years. Some of the biggest capital projects are already announced hospital upgrades across the province. Noticeably absent from the budget is any mention of the St. Paul’s Hospital redevelopment near Main Street and Terminal Avenue in Vancouver. Health minister Adrian Dix had said last year that he expected financing for a business plan in this budget.
While long-term hospital renewals like Peace Arch (completion in 2021) and Royal Columbian (2026) are specified in capital expenditures, St. Paul’s is not even at a preliminary budgeting stage.
Hospitals and health regions will consume $13.4 billion in 2018-19 and the Medical Services Plan, which pays fees to doctors for patient services, will cost $4.81 billion, five per cent more than the current fiscal year.
Pharmacare adds another $1.272 billion in costs to Ministry of Health spending. The government has allocated $105 million to the Pharmacare budget, largely because it has eliminated deductibles for an estimated 240,000 lower income families.