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Business tax revolt brewing in B.C.

Suite of new taxes stalling business growth even before they go into effect
An array of B.C. business organizations are calling on the NDP government to scrap a new payroll tax aimed at making up for revenue lost by ending Medical Services Plan premiums  | Feng Yu/Shutterstock

(This story has been updated, with comments from Lindsay Tedds, who chaired the government's MSP Task Force. The earlier version stated the payroll tax was implemented contrary to the recommendations of the task force. Tedds said the task force had considered a payroll tax, but made no specific recommendations.)

The B.C. government’s plan to shift the burden of medical insurance premiums onto employers has sparked what is starting to look and sound like a tax revolt.

This comes as the B.C. government, on March 26, caved into anger from municipal politicians and changed plans for its planned speculation tax, by reducing tax rates and reducing the areas of the province where the tax would be in effect.

But even if the BC NDP government has been having second thoughts about transferring the cost of Medical Services Plan (MSP) premiums onto company owners, it has painted itself into a corner, and would either need to break its promise to scrap the MSP or blow a $1.85 billion hole in its budget.

Of all the tax increases in the recent provincial budget, the new employer health tax has drawn the most fire from businesses in B.C., in no small part because it was unexpected and, in implementing it, the government ignored the advice of its own MSP Task Force.

Lindsay Tedds, who chaired the government's task force, said the task force did not make specific recommendations on how the MSP should be replaced, but offered advice, which was ignored.

The task force did consider a payroll tax paid by employers, but concluded that it was "leaning towards a combination of a personal income tax surcharge, a small payroll tax, and one or more of the additional ideas."

The task force also specifically advised against the phase-in approach that the government took.

The task force suggested that any new measures to replace the MSP should come into effect at the same time as the MSP was eliminated. Instead, the government opted to introduce the payroll tax a year before the MSP is completely phased out, resulting in the "double-dipping" that has upset so many employers that currently pay their employees' MSP premiums.

"They ignored our advice," Tedds said. "They didn't ignore recommendations because we didn't make any recommendations."

Last week, the Canadian Federation of Independent Business (CFIB) formally called on the provincial government to scrap the new payroll tax.

“The new payroll tax is poorly designed and will have a big impact for many small businesses,” said Richard Truscott, CFIB’s vice-president for B.C. and Alberta. “The government should scrap the tax, or at least go back to the drawing board and make it much more small-business-friendly.”

The CFIB is one of nine business associations, representing thousands of businesses, that have signed a letter to Premier John Horgan asking him to “immediately withdraw” the new tax.

They include the Retail Council of Canada, the Tourism Industry Association of BC, the BC Hotel Association, Restaurants Canada and the Independent Contractors and Businesses Association. The new tax to replace the MSP will be levied on all businesses with a payroll over $500,000. It represents a significant tax burden shift from workers to employers.

“That MSP amount was raising about $2.6 billion a year,” said Val Litwin, president and CEO of the BC Chamber of Commerce. “Business is now being asked to pick up roughly $2 billion of that, which is about 75% of the total cost. Previously the ratio was about 40% on business, 60% on the employee. We just think it’s too much.

“It’s all about the cumulative effects there of all the taxes that are now coming down the pike.”

Those other cumulative costs and taxes include an 11.5% minimum-wage hike, a 1% corporate income tax hike, a 17% carbon tax increase, a suite of federal and municipal tax increases, and a number of increasing provincial fees such as higher water discharge permit costs that will affect a range of businesses including fish farms, slaughterhouses and concrete makers.

The provincial government plans to increase revenue from fees, licences and permits to $4.2 billion, from $3.7 billion.

“When you take it now as a suite of tax increases, it’s anything but sweet,” Litwin said.

Because the new payroll tax will be imposed one year before MSP premiums are phased out, those businesses that currently cover their employees’ MSP premiums will pay double.

“I think the most offensive thing in this is that they’re double-dipping for 13 months,” said Greg Wilson, director of government relations for the Retail Council of Canada. “It’s like penalizing the most progressive employers.”

Teal-Jones Group, a Surrey-based lumber mill, estimates the new payroll tax will cost the company $500,000 to $600,000 in the first year of implementation, and about $200,000 annually once the MSP has been eliminated. For a medium-sized manufacturer like Westeck Windows and Doors in Chilliwack, which has a head count of 240, the new payroll tax will add $322,000 annually to the company’s costs, according to Chilliwack Liberal MLA John Martin.

And according to Tracy Redies, who shares the finance critic role with Shirley Bond, Ocean Trailer Rentals in Delta will pay an additional $120,000 a year.

“Just in front of me, I’ve got 15 businesses that, together, are going to pay an additional $4.2 million in taxes with respect to the employer health tax,” Redies said.

The new payroll tax comes on top of an 11.5% minimum-wage hike in June, and federal payroll tax increases.

That combination, along with an increase in carbon taxes, hits the greenhouse sector especially  hard. Greenhouse growers are particularly vulnerable to carbon taxes because they burn natural gas to produce the carbon dioxide that plants need to grow.

Currently, they get 80% back from the government in a carbon tax credit. But with the carbon tax rising to $50 per tonne by 2021, the BC Greenhouse Growers’ Association fears the money for tax credits will run out.

“We do have concerns about the carbon tax,” said association executive director Linda Delli Santi.

But the biggest immediate concern for greenhouse operators is the minimum-wage hike, followed by the new payroll tax.

Greenhouse growers rely heavily on foreign and minimum-wage workers. A typical 53-acre greenhouse operator would employ 150 minimum-wage workers, Delli Santi said.

Half of the 60 greenhouse operators belonging to the association have payrolls above $500,000, so they will also pay the new payroll tax, all while minimum wages go up 11.5% this year and another 9% in 2019.

“Between those three increases – the carbon tax, the health tax, the minimum wage – that’s going to cost us about $10,000, $11,000 an acre,” Delli Santi said.

Bond said the payroll tax took everyone by surprise because, for one thing, the government’s own task force on MSP reform recommended against it. It also broke a campaign promise.

“The premier said that there would be no additional taxes, other than the ones that were mentioned in the platform,” Bond said. “And the other issue that’s an enormous concern to many people is that the government actually asked for advice [from the MSP Task Force] and then didn’t take it.”

Last week, Finance Minister Carole James was peppered with examples of small and medium-sized businesses that are concerned about the new tax.

Asked if it would be reconsidered, James said it would not and that her government was determined to eliminate the MSP.

“We are doing that because, unlike the other side, we believe in getting rid of a regressive tax – the last province left in this country with a regressive tax,” James said. “I believe that giving individuals $900 a year and families $1,800 a year will help small businesses in British Columbia as those dollars are circulated. I also believe that eliminating MSP premiums saves $2.6 billion for British Columbia businesses and individuals....

“It is a fair way to ensure that we get rid of a regressive tax – the lowest payroll tax in this country in British Columbia, more money in people’s pockets, helping the economy in our province.”

Despite the pressure the NDP is coming under to scrap the payroll tax, Bond thinks the government has painted itself into a corner. The payroll tax constitutes the single largest budget item – $1.85 billion. So reversing course would mean either keeping MSP premiums in place or adding $1.85 billion to the debit side of the annual budget.

“There is not enough room in this budget for them to make significant numbers of changes without impacting the overall credibility and sustainability of their budgets,” Bond said.

“In essence, they’re in trouble if they continue with the taxation regime they’ve put in place, and the more they promise to tweak it and make adjustments to it, they’re in trouble on the other side of the ledger.”

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