THE BLOG

It's Time To Rethink B.C.'s Medical Services Plan Tax

01/30/2015 02:14 EST | Updated 04/01/2015 05:59 EDT
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In just two weeks, the B.C. Legislature will sit once again. The government will deliver a speech from the throne and table the next B.C. budget. In anticipation of the ensuing budget debate, it's time to start a conversation on Medical Service Plan (MSP) premiums, a regressive tax that unfairly burdens low and fixed income British Columbians along with small business owners and the self-employed.

Currently in British Columbia, individuals who earn more than $30,000 must pay a monthly flat fee of $72. This means that someone who earns $30,000 per year pays the same MSP premium as a person who earns $3,000,000 per year. MSP premiums are perhaps the most regressive form of taxation in B.C.

Progressive taxes, such as income or corporate tax, are based on the premise that those who can afford to pay more should pay more. That is, higher income earners would pay larger taxes than lower earners. This premise forms the foundation of our income tax systems right across the country.

Some may wonder why we have to pay provincial MSP premiums in the first place. After all, we are the only province in Canada to require them. The rest of Canada has moved away from monthly premium charges and instead uses general tax revenues -- primarily provincial income taxes that are based on taxpayers' ability to pay -- to acquire the funds needed to pay for Medicare services. In fact, after the Alberta government announced its plans to eliminate their premium charges for MSP coverage in 2008, B.C. was left as the only province to continue charging these individual flat-rate premiums. Every other province in the country uses a progressive system of health care funding.

In the 2014/15 B.C. budget, revenue from MSP premiums was expected to be $2.271 billion, whereas corporate tax revenue was estimated to be $2.348 billion. While the province does not have the fiscal resources to stop charging MSP premiums without replacing the revenues, there are progressive alternatives we should be exploring.

We need look no further than provinces like Ontario and Quebec, where health premiums are paid in your annual income tax return, rather than as flat-rate monthly levies. This approach avoids the regressive effects of monthly premiums since rates rise with income to a maximum annual level. For example, in Ontario the current maximum annual rate is set at $900 for taxable incomes of $200,600 and higher, with those individuals earning less than $20,000 paying no premiums; in Quebec, the maximum annual contribution is $1,000 for taxable incomes over $150,000.

There are also numerous other benefits in using our annual income tax return to pay health care premiums. There would be no need for the massive provincial bureaucracy to notify, collect, and chase after MSP premiums. Huge postage savings would result from eliminating monthly invoicing. And we would no longer have to endure the horror stories about people who've moved abroad for several years only to return to B.C. and have collection agencies chasing them for unpaid MSP premiums.

In eliminating the MSP, legislation would have to include a stipulation. Those employers who have negotiated MSP (taxable) benefits as part of overall compensation would have to roll the benefit cost into base salary.

Employees would benefit by seeing an increase in compensation up front. Employers would, too. When the government increases MSP premiums, employers are on the hook for a fixed cost that they have no control over. This is particularly problematic for schools and hospitals that are also funded by the government. The MSP premium increases are not funded, so these, and other institutions, have to find the money within their existing budget.

You can still ensure complete transparency of a progressive MSP premium by simply including it as a line item on the annual income tax return. It then moves from a regressive to progressive tax as in every other province in Canada.

Successive British Columbia governments have made a choice -- a choice to favour regressive over progressive taxation. It's a choice that puts the interests of the wealthy over the interests of low and fixed income British Columbians along with small business owners. And the choice is made, in part, to maintain the illusion of low taxes.

It is time for B.C. to replace MSP premiums with a more progressive and equitable approach to funding our health care system. Overhauling our current, regressive approach would be a positive step in addressing poverty and income inequality, and ensuring a sustainable health care system for now, and future generations.

It is a conversation British Columbians deserve.