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Shortcomings of B.C. Employer Health Tax

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On February 20, 2018, the provincial government proposed a new $1.9 billion tax that will hit over 60,000 businesses on January 1, 2019.

The Employer Health Tax (EHT) was proposed to replace revenues lost from the elimination of the Medical Service Plan (MSP). However, the tax is currently structured to penalize businesses. New CFIB research reveals multiple holes in the proposed policy, as well as serious shortcomings in the province’s own analysis.

Background Information:

  • The proposed Employer Health Tax (EHT) was introduced by the BC Government in its February budget to replace the revenues lost from the elimination of Medical Service Plan (MSP) premiums for individuals and businesses. 
  • The new $1.9 billion a year tax would take effect on January 1, 2019 and means businesses with more than $500,000 in payroll would pay a series of tiered tax rates. Business with more than $1.5 million in payroll would pay the full 1.95 per cent tax.
  • CFIB survey research previously released (spring of 2018) showed employers believed the tax will create disincentives to business growth, hurt employees through reduced wages, increase prices for consumers, and cause public sector entities like municipal governments and school boards to hike property taxes and fees on businesses. The City of Vancouver is increasing property taxes in 2018 by an additional 1.7 per cent solely due to the EHT.
  • The BC Government’s 2018 Budget affirmed this type of expected reaction from employers when it stated “Employer-paid payroll taxes and employer-paid healthcare premiums are generally reflected in reduced wages” (page 128).
  • The Government claims only 5 per cent of all businesses will pay the full tax, and only 15 per cent will pay some tax. In reality, CFIB estimates the new tax will be paid by 44 per cent of businesses with a payroll (i.e. with employees). This is over 80,000 businesses across BC, most of them relatively small. Another 19 per cent are close to the $500,000 threshold.
     

Our Recommendations:

Our new research paper on the EHT also makes several recommendations to improve the proposed policy:

  • Exempt youth from the payroll calculation;
  • Increase the small business exemption  (e.g. from $500,000 to $2 million);
  • Make the tax graduated (e.g. rather than applying the tax rate on the entire payroll, pay the tax rate on the payroll within that range – 0 per cent on the first $500,000, 0.98 per cent on payroll between $500,000 to $1,000,000, etc);
  • Create a more even split between businesses and individuals;
  • Tie the thresholds to inflation;
  • Ensure the tax is as easy as possible to administer;
  • Phase in new taxes only when the MSP has been fully eliminated (Jan 1, 2020). 

To see the new findings and learn more about the proposed Employer Health Tax, you can read the Proposed Employer Health Tax Hurts BC Small Business.