January 26, 2015 April 9, 2014
Can the MSP Tax be Eliminated?Why is BC the only remaining province to have a health tax where a family with an income just over $30,000 pays exactly the same tax as one with an income in the millions?
Is BC the last province to still use a regressive MSP tax because the Liberals don't support taxation based on ability to pay or is it because there isn't sufficient political demand to make a change? Perhaps both, because few know that fewer than 40% of BC families pay the tax out of their own pocket, and MLAs aren't in that 40%!
Good for Green MLA Andrew Weaver for joining the long standing NDP call to eliminate the MSP tax. He managed to generate some publicity and discussion which was generally sympathetic to the idea of eliminating the premium tax.
Ontario eliminated premiums January 1, 1990, when it switched to a payroll tax; in 2004, in additiion to its payroll tax, Ontario added an income tax surcharge, calling it a premium even though it is nothing of the kind. It comes under income tax legislation and it is collected as part of filing income tax in Ontario.
Alberta eliminated its premiums in 2009 without implementing any replacement tax. In its 2015 budget, Alberta introduced what it calls a health-care levy, although it is really an income tax surcharge like Ontario's. Of course the Alberta election will determine whether that budget is implemented. One of Alberta's budget documents described the tax and provided a comparison with BC and Ontario. It shows middle income families pay more in BC.
BC provides MSP premium tax assistance to families and individuals whose adjusted income is less than $30,000 (adjustments are $3,000 for each person in the family who is over 65, a child or disabled). Financial statements for the Medical Services Commission for the period ending March 31, 2013 reported $840.1 million in income covering people in receipt of premium assistance and $1.974 billion in other premium revenue (what other individuals and employers pay) for a total of $2.96 billion in premium income. A further $0.955 billion was paid by government to the Commission to make up the full amount necessary to cover payments to physicians. For the period ending March 31, 2001, income for premium assistance was $357.9 million and other premium revenue was $895.6 million, for a total of $1.25 billion. For that year the government paid a further $864.8 million to the Commission to cover payments. The data show that between 2001 and 2013, payment by government to cover premium assistance increased 135%, other premium income increased 120% but the government’s general subsidy to top up the Commission’s revenue increased only 11%. More than doubling the premium tax, the Liberals have steadily reduced government’s contribution from general revenue to the Commission; that’s continued through the 2015-16 budget with increases to the MSP tax.
When government announced premium assistance for 2015 its release said nearly one million British Columbians receive MSP subsidies, including more than 800,000 residents who pay no MSP premiums. A freedom of information requested produced data showing that for March 2014, 974,040 people received premium assistance (that counts just 3 people in families of 3 or more), of which 817,018 received 100% coverage. In July 2014 BC's population was estimated to be 4,631,302 so 17.6% received full premium subsidy and another 3.4% received partial subsidy.
An estimate of how many people have their premium tax paid by their employer can be made from data on the number who are enrolled with MSP as part of a group. That includes almost all of the roughly 300,000 direct and indirect (health and education) provincial public sector. When the Minister of Finance or the Premier talk about paying the premium tax so as to appreciate the cost of health, keep in mind that they don't personally pay a dime; you pay their share as their employer! A freedom of information request produced a document showing 1,965,742 people covered as part of a group as of December 2014, that consists of 979,874 "account holders" and their dependants. The 42.4% of the BC population that has MSP coverage through a group is probably about the number whose premium is paid by their employer or some other third party such as a union benefit plan. Together with those receiving premium assistance, that means 40% of BC families and individuals actually pay the premium tax out of their own pocket.
Elimination of the premium tax has different implications for each of the three categories: premium assistance, employer paid and individually paid. While it appears to be a trivial change for those who receive premium assistance, it is important to recognize that a big red tape burden for both government and thousands of poor people would be eliminated if it were no longer necessary to administer the assistance scheme.
The purpose of eliminating the premium tax is not to create a windfall for employers; however, when the Alberta government announced on April 22, 2008 that its premiums would be eliminated effective January 1, 2009, its news release said there would be $1 billion in savings to Albertans and Alberta. Normandin Beaudry, a benefit consulting firm, wrote on its website: "As regards to collective agreements, it would be wise to consider removing all clauses that refer to the payment of these premiums to avoid any recourse or future obligation on the part of the employer. It is worth noting that several Ontario employers found themselves in court following the introduction of the Ontario Health Premium because their collective agreements provided for the payment of the individual premium that was previously in place." In other words, Ontario eliminated premiums in 1990 but when it introduced an income surtax in 2004 but called it a premium, old wording that remained in some collective agreements led to grievances. If BC were to eliminate its premiums, dozens of collective agreements would have clauses that might require renegotiation and unions would likely want to capture the savings reaped by employers. None of that would have to be done before premiums were eliminated. Orderly renegotiation could occur as agreements expire.
Those who suffer the most as a result of the premium tax are the 40% who pay the tax out of their own pocket. Some of their hardship is indicated by the extent of past due payments. A freedom of information request for those data revealed as of March 2015 those covered by "direct payment" were responsible for over $700 million in past due payments; $252 million (36%) was past due over one year. A frequently asked questions section on the MSP website was recently removed. It used to refer to what to do when the government sends a collection agency after you! The same folks who are being chased by collection agencies for their MSP premium tax, pay enough tax so MLAs can get their MSP covered for free at taxpayers' expense! There's something very wrong about that.
It is unlikely BC's budget could take a hit of over $2 billion by eliminating the MSP tax without one or more replacement taxes being introduced. Those who emjoy employer paid MSP would not be happy to see the cost shifted on to their personal income tax. A reasonable approach might be to announce at least a year in advance that the MSP tax would be replaced with a combination of a payroll tax and an income tax surcharge as is done in Ontario. It would take courageous politicians to do that since far fewer families personally pay MSP than those estimated to either already have it paid by government plus those who have it paid by their employer. In other words, don't hold your breath waiting for a big change to the MSP tax. It might be politically dead right to move too quickly. An alternative is to stop increasing the tax each year and let it slowly shrink in real terms.
Political FinancingThere are two ways tax dollars are used to support political parties. Provincially Manitoba and Quebec provide parties with grants based on the number of votes received although in Manitoba both the NDP and Conservatives have refused to accept the grants. Federally a similar system was introduced in 2004 when donations by unions and business were made illegal; the Harper government is phasing out these grants with the last payment scheduled for April 2015. Many think that change was made because the Conservatives fund-raising machine is much better than that of the other parties but it is also true that the grants were not popular with the public. In the absence of those grants, individual contributions are vital for all political parties. It is arguable that even individual donations involve public subsidy since the tax credits they earn are far in excess of charitable tax deductions.
Tax credits are made available for both provincial and federal political donations. Unlike a deduction from income which is how charitable donations are treated, tax credits are deductions directly from taxes owing. In British Columbia a donation to a registered political party earns a 75% tax credit on the first $100 donated, 50% on amounts over $100 and under $550, and 33 1/3% on amounts in excess of $550 to a maximum credit of $500. A donation to a federal party earns a $75% tax credit on the first $400 donated, 50% on amounts over $400 and under $750, and 33 1/3% on amounts over $750 to a maximum credit of $650. In BC those who donate a cumulate amount of $250 or more annually have their names disclosed in an online searchable database; there are no limits on union or business donations. Only individual donations are permitted federally and there are limits to the cumulative amount any person can donate over a year. As with provincial donations, the names of federal donors can be seen in an online searchable database.
Donors to any political party might be particularly interested in how much their MLAs and MPs donate. Since first names appear in a variety of forms, it is best to start by searching the databases by last name and then modify the search to include the first name and any initials used in the disclosure. For example, if you search the Elections BC file on "Clark" for 2013, you'll find Christy Clark gave $1,453.86 in 2012 but she apparently didn't give over the $250 disclosure limit in any prior or subsequent year. A search on most NDP MLAs reveals donations of $100 per month. That has been what the party has expected of its MLAs for over 25 years despite MLA salaries more than doubling over that time. In 2012, John Horgan donated $1,240 to the BC NDP; in 2013 he gave $1,825. Mable Elmore is an exception to the $100 per month rule; in 2012 she gave $2,335 and in 2013 she gave $2,575. Jenny Kwan gave $1,895 in 2012 and $1,775 in 2013.
I was curious what the declared candidates for the NDP federal nomination in Vancouver East gave to the federal NDP. I couldn't find any disclosed donations for either Jenny Kwan or Mable Elmore. I haven't check the entire list, but it appears most MLAs just donate to the provincial party.
Some might say these matters are an irrelevant distraction to the nomination campaign in Vancouver East, yet the members whose votes are being courted receive countless phone calls and emails from both the provincial and federal NDP asking for support. Many of us respond generously, noting that a $400 federal contribution only costs $100 after the tax credit.
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