Workers will ultimately pay part of B.C.’s new employer health tax
Last week, British Columbia’s provincial government announced the elimination of Medical Services Premiums (MSP) premiums by 2020. And introduced a new payroll tax—the employer health tax (EHT), to be implemented a year earlier.
Does this mean British Columbians are finally free from the financial burden of health care?
Of course not.
For starters, it’s important to dispel the notion that the tax swap will lift the financial burden of health taxes off individual British Columbians and place it on businesses.
In reality, businesses view payroll taxes as part of the overall compensation paid to workers. As businesses absorb these tax costs, there’s less money available for the wages and salaries of their employees. Crucially, over time, worker compensation will not grow as fast as it otherwise would without a payroll tax. Therefore, workers ultimately pay part of the cost of a payroll tax such as the EHT—a finding confirmed by empirical research.
But even with the new EHT, B.C. taxpayers can expect to continue to contribute in a variety of ways to pay for the nearly $22 billion the province will spend on health care in 2018/19. This is because total spending on health care is actually funded by the government’s pool of general revenue collected from a variety of tax sources.
There simply is not any direct connection between the MSP (which is a tax) and health-care spending. The same is true for the $2 billion annual revenue the new EHT will bring. In fact, revenues collected from the EHT will constitute just 8 per cent of total spending on health care in the province, once fully implemented in 2020/21.
More generally, Canadian families in every province pay a substantial amount for Canada’s public health-care system through taxes. For example, an average Canadian family of two adults and two children (earning approximately $127,814) paid an estimated $12,057 for public health-care insurance through the various combinations of provincial and federal taxes.
Whether it be through MSP premiums, payroll taxes such as the new EHT, sales taxes, or income taxes, one thing is clear—British Columbians can expect to continue to pay a substantial amount for their public health-care system. It’s just coming out of the left pocket instead of the right side that we’re used to.