Medical Services Plan premiums are a tax — let’s accept that fact and roll them into the income-tax system. The Canadian Centre for Policy Alternatives released a report this week presenting 16 possible tax reforms, one of which would see MSP premiums eliminated and income taxes raised to compensate.
While we don’t champion the cause of raising taxes irresponsibly, this suggestion makes sense. MSP premiums cover only 12 per cent of B.C.’s health-care budget, so we’re already paying most of it through income taxes.
The B.C. government is intent on preserving the province’s reputation for low taxes, but refusing to raise income taxes while raising MSP premiums is a shell game. Money collected to fund a public service — and a mandatory one at that — is a tax, no matter what you call it.
Simply collecting the money as income tax would save money — about 4.6 million people are enrolled in MSP, half in group accounts. The government sends monthly bills to 2.3 million residents. About 800,000 low-income British Columbians are exempt from paying premiums.
Many of those involved in group plans have their premiums paid by their employers, but that’s regarded as a taxable benefit, meaning taxes are levied on taxes.
Collecting more income tax instead of premiums would spare the cost of a huge bureaucracy. Just mailing out invoices costs millions. Add to that the cost of pursuing those who fall behind in their premium payments — current arrears in MSP premiums amount to $360 million.
The CCPA takes it further. Its MSP-elimination scenario would see a 20 per cent increase to each of B.C.’s five tax brackets, and adding two new brackets with rates of 20 and 22 per cent for annual incomes of $150,000 and $200,000 respectively. The research institute says that would bring in close to the same amount that premiums yield, but more of the burden would be shifted to those earning higher incomes.
With the increase recommended by the institute, a person earning $50,000 would pay $574 more each year in income tax, but would be spared the MSP premium of $798, if single, or $1,526, if supporting a family.
Under the current system, the premiums are the same for all income levels beyond the threshold of $30,000. Paying the single premium of $798 a year is of little consequence to someone making $100,000 a year, but to someone making $30,000 or $40,000, it’s a hardship. The monthly family premium of $128 is a major sum to a family counting the pennies in its grocery budget.
At the higher end, it makes a substantial difference. With the suggested increases, a person making $500,000 a year would pay $27,548 more in income tax, but B.C.’s low-tax reputation would not be significantly tarnished — that person would still pay substantially less in provincial income taxes than he or she did in 2000.
One of the principles of the income-tax system is that those who have more pay a bigger share of the costs. The same should apply to health care.
The boast that B.C. tax rates are among the lowest in Canada rings a little hollow, given that it is the only province that charges health-care premiums. Eliminating the premiums and raising income taxes to compensate is a more honest and transparent approach.
© Copyright 2013