Small Business Benefits From Simplifying the MSP Tax System

Year: 
2016

B.C. is the only province in the country to levy a healthcare premium, while other provinces such as Ontario and Quebec use a payroll and/or income tax surcharge. Further, this is a flat tax impacting all equally. The Province recently announced some changes to help alleviate the hardship caused on those with lower incomes. However, this does not address business costs as most provide MSP as part of a benefits package for their employees or the increases that are carried by employers with a union workforce. There needs to be a more equitable and less costly health care funding system.

Every resident of B.C. is required to have MSP coverage and pay premiums, either directly or through their employer. As of January 1, 2016, if the employer isn’t picking up the MSP expense, a person’s monthly fee is $75 for singles, $144 for a family of two, and $150 for a family of three of more.[1] An individual earning $30,000 pays the same premiums as one making $300,000, and a family earning $40,000 pays the same premiums as a $400,000 family. The amount of uncollected premiums is approaching half a billion dollars and the costs to maintain this increasingly complex system is reducing the impact of the $2.4+ billion dollars collected annually to help fund health care. The 2016 B.C. Budget did include minor changes that remove children from the calculation of premiums and raises the income level at which MSP payments start to alleviate the costs for a certain percentage of the low income population.

The MSP program imposes a tax on B.C. residents that has been called “punitive, regressive, inefficient, administratively expensive and discriminatory.”[2] MSP premiums, often defended as a means of controlling health care costs through consciously making individuals aware that health care is not free, has failed to be an incentive for individuals to conserve on their usage.

Abolishing the MSP premiums would not be easy as it generates almost $2.5 billion annually (in 2015-16, according to the 2016 B.C. Budget document page 16, Table 1.8). MSP premiums are B.C.'s single largest source of non-tax, own-source revenues, and they exceed other notable revenue sources such as corporate income tax or natural gas royalties.[3] MSP premiums do not cover the full cost of health care in B.C., which is projected at $19.6 billion of the province's $48.1-billion budget.[4]

B.C. is the only remaining province in Canada to have a separate funding mechanism to collect funds for medical services. One of the reasons for this approach is to be an educational tool to reinforce the high cost of medical services and reduce unnecessary usage.[5] Ontario eliminated its health care premiums in 1990 by introducing an employer payroll tax. In 2004, the Province of Ontario reintroduced individual health care premiums through the income tax system; these are not flat-rate levies, but rise with income to a maximum annual $900 at taxable incomes of $200,000 and higher. This approach avoids regressive effects as well as the administrative and compliance costs of collecting separate premiums. Alberta, too, eliminated premiums in 2009 and introduced a new health care contribution levy in 2015.

Eliminating the bureaucratic apparatus needed to collect the premiums by collecting the MSP revenues through one or more existing taxes would eliminate the financial burden on employers, the self-employed and retirees as well as those associated with premium assistance. Small business owners and the self-employed also realize these costs through higher benefit expenses for employees and individual premiums that rise faster than the rate of inflation. The MSP is a cost driver for employers, and in that sense it poses problems.

THE CHAMBER RECOMMENDS:

That the Provincial Government mandates an overhaul of the current MSP system through the new Provincial Tax Competitiveness Commission (PTCC) giving consideration of the following options:

  1. Replace the MSP with a progressive and equitable approach to health care funding;

  2. Abolish the current MSP premium system and implement a line item to the provincial income tax; and

  3. Provide in advance at least one year’s notice to indicate that the MSP tax would be replaced with a combination of a payroll tax and an income tax surcharge, as is done in Ontario.

Footnotes

[1] BC Budget 2016

[2] Vancouver Sun Editorial – February 19, 2016

[3] Business Council of BC

[4] Vancouver Sun, T Sherlock – February 16, 2016

[5] Jon Kesselman, Canada Research Chair in Public Finance, Simon Fraser University. 

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