Many British Columbians may not have noticed, but Jan. 1 marked the introduction of a huge new tax on job creators in the province.
The employer health tax means thousands of businesses, many of which are small- and medium-sized independent businesses, will be expected to sign up and pay the $2-billion payroll tax.
While most British Columbians may not directly feel the pain the tax will cause, it is not only bad for the health of employers, but also bad for the province’s economy. And that’s not good news for anyone.
READ MORE: B.C. businesses bracing for health payroll tax impact on jobs
The tax is intended to replace the revenues lost from the NDP’s election promise to phase out the much-hated Medical Services Plan premiums. But rather than replacing that lost revenue by spreading it across all taxpayers through the income tax system, as the government’s own task force recommended, they stuck employers with the bill.
What the government fails to understand is that when additional payroll costs are imposed on small business, those costs are fixed and profit-insensitive. It means they must be paid regardless of the business’s financial situation, similar to property taxes, Canada Pension Plan, or minimum wage.
There is also no guarantee that small businesses’ revenue will grow to offset the new cost. So that means two things for business owners: One, they increase prices, which means you pay more. Or two, they have to reduce costs, which includes options like reducing staff levels or hours of operation. In severe cases, they will close. This tax will become the tipping point for some B.C. businesses.
Every once in a while, the government will actually admit how a tax will negatively affect average British Columbians. When last year’s government budget was released, deep in the background documents was this nugget: “Employer-paid payroll taxes […] are generally reflected in lower wages.”
To add insult to injury, business owners have been scratching their heads for months now trying to figure out how to comply with this tax. Even on basic matters of how the tax works and how it is to be administered, most employers have been left in the dark. Where and when are payments made? What happens if an entrepreneur or their family have two businesses? Will there be audits, and what will the business owner need to do to ensure compliance?
The lack of information and support is disappointing, to say the least. The tax came into effect Jan. 1. It’s now March, and the list of unanswered questions from business owners continues to grow by the day.
At a bare minimum, the government needs to be clear about how the new tax will affect the economy, how it will affect local businesses, and what it means in terms of jobs and wages. They also need to work with business owners to provide them with all the information, tools and resources to administer and remit the tax.
Still don’t think the employer health tax will affect you? Think again.
Richard Truscott is the B.C. and Alberta vice-president at the Canadian Federation of Independent Business.
