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May 10, 2019

Val Litwin: let's build a smarter employers health tax

Finance Minister Carole James and Premier John Horgan have introduced an Employer Health Tax that replaces the current Medical Services Plan. 

Small businesses who previously paid MSP premiums for their employees are now also paying the new employers health tax (EHT). With this “double dip” top of mind for our members as the May 15 registration deadline fast approaches, it’s time to talk about smart tax policy that supports B.C.’s “economic backbone.”

In March, provincial legislation was introduced to eliminate Medical Services Plan premiums by 2020. This regressive tax was something the B.C. Chamber of Commerce was in favour of phasing out. But the resulting EHT needs substantial work. Businesses from downtown Vancouver to Dawson Creek are telling us that this new tax is curtailing growth and eroding their ability to compete.

While an MSP task force was formed to advise on how to replace revenue from the MSP premiums, the government did not implement all the recommendations from the group’s final report. The terms of reference explicitly stated that “business competitiveness” must be considered and, as such, the final report recommended a combination of measures to mitigate negative impacts. What the government came back with, however, is the EHT, which puts too much burden on too many small businesses in B.C.

Employers with payrolls upward of $500,000 will be required to pay EHT — a threshold that is simply too low and which means too many small businesses will be burdened by the tax. The $500,000 threshold reflects the payroll of a company with approximately 10 employees. This means there are roughly 40,000 small businesses in B.C. (employing between 11 and 49 staff) paying the EHT. We think more small businesses deserve a better chance to scale and grow.

Consider, too, that many start-up companies are pre-revenue — but not pre-payroll. For example, new companies in the tech industry may have large payrolls because they employ highly skilled workers — before they ever turn a profit. This new tax could slow their attempts to scale, or sink them, before they even cast off. With B.C. trying to position itself as an innovative marketplace that inspires entrepreneurs to invest, these kinds of tax measures could cause growth-mindset entrepreneurs to go elsewhere — a “tax competitiveness” fail indeed.

The B.C. Chamber is advocating to raise the EHT threshold to $1.5 million, which would give more small businesses a chance to scale and grow the economic pie for everyone. Such a reprieve would also reduce the burden for smaller companies and start-ups already struggling under the carbon-tax increase, rising federal and municipal taxes and the ongoing minimum wage increases, which the B.C. Chamber supported.

In order to effectively replace revenue from the MSP, we need to implement a progressive tax model through a combination of personal and business taxes. What this essentially means for individuals is that the more you make, the more you pay — to a point. Medical premiums would then be supplemented by an employer contribution through a progressive payroll tax (a model has worked well for Ontario since 1990 when it got rid of healthcare premiums).

We’ve supported eliminating MSP premiums through our policy since 2003. But the employers health tax as designed will fail small enterprises that make up 98 per cent of all businesses in B.C. and are the backbone of the provincial economy.

Val Litwin is the CEO of the B.C. Chamber of Commerce.

Letters to the editor should be sent to provletters@theprovince.com. The editorial pages editor is Gordon Clark, who can be reached at gclark@postmedia.com.