Maureen Bader: B.C.'s health tax grab

B.C.’s deficits are slated to total $5.5 billion over three years, and the government seems to be hoping that higher tax revenue from greater economic growth will eventually reduce them. However, the hike in the Medical Services Plan (MSP) tax, otherwise known as the health tax, shows how B.C.’s deficit will more likely be defeated—by stealth tax hikes—if the government doesn’t rein in spending.

Paul Martin defeated the federal deficit in the 1990s primarily with stealth tax hikes. Tax increases helped reduce the federal deficit by about 75 percent while spending cuts accounting for a mere 25 percent. Almost 60 percent of the new tax take came from an increase in personal income taxes through a stealth process known as de-indexation. By de-indexing, federal tax brackets stayed fixed while inflation slowly drove up incomes, moving them into higher and higher tax brackets. This stealth tax brought a $10-billion increase in annual federal revenue between 1988 and 1997. This, in addition to new deficit reduction taxes and higher payroll taxes, raised personal tax rates on average by 20 percent between 1989 and 1997. The result was stagnating after-tax income for families and skyrocketing revenues for government.

If history is any guide, B.C.’s stealth health tax may be the first accelerating tax hike in the battle against the deficit, once again leaving people standing still while government revenues rise.

Many British Columbians believe the MSP, or health tax, is an insurance premium paid for health services, similar to the auto premium paid to ICBC. Nothing could be further from the truth. The MSP is a poll tax—a per-person tax charging a fixed amount per individual. The health tax doesn’t go to fund health care in the province anymore than it funds education, roads or anything else—it goes directly into general revenue. Without a doubt, this tax would have been eliminated long ago had it been named the “bureaucrat salary enhancement levy”. Moreover, B.C.’s MSP revenue represents a mere 10 percent of the huge and growing health-care budget.

The health tax is going up this year and has the potential to spiral completely out of control. On January 1, 2010, the health tax will increase by 6 percent, to $684 per year for individuals, $1,224 per year for couples, and $1,368 per year for families. But the most worrying part about the health tax hike is that it will rise by the same proportion as the health-care budget every year. If the health budget rises by 6 percent per year, the health tax will double in about 10 years, hitting individuals with a health tax of $1,368 and families with a health tax of $2,736. Right now, about 14 percent of B.C.’s population is 65 or older but by 2032, 25 percent of our population will be over 65. Currently, people over 65 account for about 44 percent of health-care spending, so without reform of the health-care system, health costs will continue to accelerate and so will the health tax.

The federal deficit was defeated in the 1990s mainly through tax hikes and we’ve now seen the first volley in that direction here in B.C. This health tax impacts a family’s bottom line, has nothing to with health care, and everything to do with a tax grab. Instead of picking more hard-earned cash from taxpayers’ pockets to fund unsustainable spending, politicians must do what every family does when it hits rough times—limit spending. To begin that process, the health tax must be eliminated.

Maureen Bader is the B.C. director of the Canadian Taxpayers Federation.

Comments

2 Comments

Stephen Rees

Sep 21, 2009 at 1:01pm

It really worries me when I read something by Maureen Bader that I agree with. The poll tax in BC known as MSP is highly regressive (she fails to mention that) - it hits the poor much harder than the rich. Which, of course, is the intention. It is also pretty rare in Canada - only one other province charges MSP - she doesn't mention that either. But failure to pay MSP can also be used as a way to deny service to the neediest. Also missing.

pwlg

Sep 24, 2009 at 11:25am

Stephen, I think the lines between us are diminishing especially when you have a government that has truly flipped its lid.

When a government decides to eliminate a measly $160,000 funding for essential seniors health programs in one of its electoral strongholds and the largest per capita population of seniors in the province and Canada, Surrey-White Rock, then you know they have hit rock bottom.

My question is, since 2004, the government has used its revenues from the sale of oil and gas leases in the north to suggest that they had revenue surpluses in the billions. Just where has all that money gone to?

And to think, BC voters thought the BC Liberals were the best to manage our economy.

Evidence now shows that nothing can be further from the truth..if anything, they have been masterful, up to this point, at managing deception.