Canadian Centre for Policy Alternatives senior economist shows how to eliminate medical services premiums

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      Everyone knows that medical services premiums are a regressive tax.

      That's because for the most part, they aren't apportioned in relation to income, unless you qualify for premium assistance. (To find out if you do, go here.)

      At the same time, these fees have become a cash cow for the B.C. government. More than $2.5 billion is forecast to be generated in this fiscal year.

      This morning, the Canadian Centre for Policy Alternatives offered two options for dumping MSP premiums in Canada's westernmost province.

      CCPA senior economist and public interest researcher Iglika Ivanova notes early in her essay that this is B.C.'s "most regressive tax".

      "The amount is inconsequential for higher-income families but represents a significant expense for those with modest incomes," she writes. "For example, a two-parent family with a combined income of $40,000 currently pays $1,800 per year, the same as a family making $400,000. That’s 4.5% of the first family’s income and only 0.45% of the second’s."

      Some have premiums paid by employers; others must pony up cash themselves, exerting an unfair penalty against low-wage workers without strong benefit plans.

      Ivanova pointed out that other provinces don't charge these fees.

      So what are her options for replacing revenue lost from cancelling medical services premiums?

      The first is to impose a small increase in personal income tax. This would save money for companies that pay these premiums on behalf of employers.

      "Workers would have an opportunity to negotiate for the employer’s savings to be passed on as wage increases, whether through collective bargaining or individual contract negotiations, but they might not always be successful," Ivanova writes. "Instead, employer savings might go to shareholders in the form of higher profits or to consumers in lower prices."

      That's why she prefers her second option, which is to impose a combination of business-tax hikes and personal-income-tax increases.

      She reports that nearly two million British Columbians had medical service premiums paid by their employer or a family member's employer in 2014.

      "So if we assume employers pay around 40% of MSP premiums in the province, BC could replace 60% of MSP revenues through personal income taxes and the remaining 40% through a business payroll tax," she concludes.

      The question then becomes: how would the 60 percent be allocated in new personal income taxes?

      Ivanova proposed creating two new upper-income tax brackets. One would be for those with taxable incomes between $150,000 and $200,000 and another would apply to those with taxable incomes above $200,000.

      By applying a provincial tax rate of 18 percent on marginal taxable income in the $150,000–$200,000 range and 20 percent for marginal taxable income exceeding $200,000, the numbers would come out very well for most families under a hybrid system with businesses covering 40 percent of the lost MSP revenue.

      According to Ivanova, 67 percent of families would benefit and only six percent would pay more. The remaining 27 percent of families would see their after-tax income remain the same.

      Late last month, the long-time chief of staff to former B.C. premier Gordon Campbell, Martyn Brown, wrote an article on about the "power of the pivot" in provincial politics. Brown pointed out how politicians can sometimes catch their opponents off guard in advance of elections by making sudden policy turns that are popular with the electorate.

      Premier Christy Clark recently did an about-face on regulating real-estate agents, but she's shown no appetite for cancelling medical services premiums.

      As examples, Brown cited Campbell's introduction of the carbon tax and his decision to promote a new relationship with First Nations. Brown also mentioned Premier Christy Clark's recent decision to take away real-estate agents' authority to self-regulate.

      Ivanova has provided Clark, with a blueprint for making an even more major policy pivot, this time with medical services premiums, before the 2017 election.

      So far, Clark has stubbornly resisted calls to scrap medical services premiums, which flow into general revenue. If she continues doing so, don't be surprised if this issue shows up front and centre in the B.C. NDP platform next year.