The chair of British Columbia’s MSP Task Force says the government did not heed its advice in introducing a payroll tax as the only measure to cover the costs of getting rid of MSP premiums in 2020.
In a series of Twitter messages, University of Victoria economist Lindsay Tedds linked to the task force’s letter to Finance Minister Carole James. The letter suggested the province consider a combination of a personal income tax surcharge and a small payroll tax.
“The MSP Task Force provided an interim report earlier this month. This is not the direction we were going,” Tedds wrote. “The Task Force, of course, serves at the pleasure of the Government. We provided interim advice. They are free to go in their own direction. We hope, however, to continue our work as we were working on some really neat stuff!”
The province has announced MSP will be eliminated on Jan. 1, 2020. To make up for the lost revenue, the province will be introducing a payroll tax on Jan. 1, 2019. The province is estimating the payroll tax will bring in $1.85 billion next year.
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 MSP Task Force is expected to submit a final report by March 31, 2018. In the interim report letter dated Feb.1, 2018, the Task Force said it received over 1,400 submissions and that there is a “strong expectation that the MSP revenue would be replaced with a combination of personal income tax and payroll tax.”
The task force also suggested no phase-in of the new measures and that reasonable notice be given about any MSP change.
“MSP premiums are paid by many employers as an employee benefit, which represents part of the compensation for those employees,” reads the interim report letter. “Reasonable notice will provide time for employees and employers to agree upon how that compensation will be replaced when MSP are eliminated.”
In an interview with Global News, Tedds said, “We were tasked to consider business competitiveness, and so a large payroll tax as the sole vehicle to replace the MSP revenue was not the direction that we were heading in.”
“We were looking at it being a combination of measures, possibly being – including an income tax levy, as well as a payroll tax,” she added.
Many business groups have already expressed concern that they were surprised by the payroll tax. But, when asked in the budget lock-up about the MSP as a benefit, James said she is confident the province has provided enough heads-up before the tax comes into effect at the beginning of next year.
“We know there will be a transition in some areas where there are contractual obligations. That is why we are implementing the MSP complete reduction in 2020 to give time for those discussions to occur,” James said. “I suspect people will understand this is a more fair system.”