B.C. businesses may be about to have to pay up to $2 billion to pay for the province’s commitment to do away with Medical Services Plan (MSP) premiums.
Starting on Jan. 1, 2019, a new payroll tax will be put in place to pay for that pledge.
“It was a quite a surprise to not see the word innovation in the budget and I would connect that to the new tax businesses have to pay,” said BC Chamber of Commerce president and CEO Val Litwin.
“It is an almost $2-billion tab. It will discourage growth, it will discourage investment.”
Threshold concerns
Businesses with payrolls of more than $1.5 million will pay a rate of 1.95 per cent on their total payrolls.
Any businesses with payrolls between $500,000 and $1.5 million will pay a reduced rate and businesses with payrolls below $500,000 will not pay the tax.
The business community is supporting the move away from MSP, but they’re concerned about where the province set the limits.
The province projects the tax will take in $1.85 billion starting next year that will make up for loss revenues associated with the elimination of the MSP.
“We think the threshold should have been much higher, $500,000 in payroll may seem like a lot, but it is only between 10 to 12 employees,” said CFIB vice-president Richard Truscott.
“It is not going to be a smooth transition for many businesses.”
WATCH HERE: B.C. budget analysis: Notable announcements in 2018 budget speech
Finance Minister Carole James said the MSP is an unfair health tax that should be scrapped.
She added that doing away with MSP and making businesses cover the cost will make the tax system more fair while ensuring the province can still pay for health services.
There are four other provinces in the country that have payroll taxes to help pay for medical services.
“Certainly, when we looked at the health tax, we looked at other provinces, we reviewed the direction they took and that is why we are giving a year before it is implemented,” said James.
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One of the main challenges for businesses will be the tax’s first year.
Businesses are potentially going to be hit twice in 2019. If employers already cover the cost of MSP premiums, they will have to pay both that cost and the new tax.
That comes while businesses also face an increase on the carbon tax to $35 per tonne and an increase to the minimum wage to $15 an hour by 2021.
“The main point is not just the payroll tax in isolation, it’s the incrementalism,” said Iain Black, president of the Greater Vancouver Board of Trade (GVBOT).
“The small business community is being hit with a 34 per cent hit to minimum wage in the next four years, a nine per cent increase in the corporate tax rate if they happen to make over the small business tax threshold, they are getting a 16 per cent increase in the carbon tax over the next few years.”
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