MSP Replacement Could Mean Property Tax Increases, Says UBCM

The province’s new Employer Health Tax will shift significant costs onto many municipalities and could result in higher property taxes, the Union of British Columbia Municipalities has concluded after receiving survey responses from 77 members.

“Given that the communities most impacted tend to be larger population centres, it is safe to conclude that the implementation of the EHT will lead to property tax increases for the majority of British Columbia’s population,” said the report Employer Health Tax Impact on Local Governments released Friday.

“This will have a particular impact on the private sector, since businesses that are already paying the EHT directly will likely face increased property taxes as well,” it said. “Due to the extent of these impacts, many local governments are questioning a tax policy that results in the funding of a provincial service (healthcare) through property taxation.”

Finance Minister Carole James was unavailable for an interview.

Since announcing the EHT in the February budget, James has defended it as a fairer way to pay for health care than the MSP premiums that the government is eliminating. The MSP is regressive, she has pointed out, with families that make $60,000 a year paying the same amount as those making ten times as much.

A spokesperson for the finance ministry provided a statement saying staff are reviewing the UBCM report. "While other provinces eliminated MSP premiums and moved to an EHT, the former government chose to double premiums for people, businesses and municipalities," it said.

The switch from the MSP is a net tax cut of $800 million and will save families up to $1,800 a year, it said. "In comparison, the report's stated cost of the EHT to municipalities amounts to a few dollars a month per household. Even if some municipalities chose to fund their entire EHT costs through property taxes, people would still come out far ahead."

When the EHT is in place, employers with a payroll under $500,000 won’t pay anything. The full rate of 1.95 per cent will apply after the payroll exceeds $1.5 million.

While there have been questions raised about how the new tax will affect municipalities, the UBCM report is the first to provide numbers for a broad range of local governments.

In April the UBCM surveyed financial officials working for its members. After the shift from the MSP is complete, 22 of the municipalities in the survey will see a decrease or no change in their costs. The other 55 will see increases, with a dozen expecting costs to at least double.

“Due to differences such as population served, the degree of contracting out, and levels of service, local government payrolls vary in size from hundreds of thousands to hundreds of millions,” the report said. “As a result, the impact of EHT implementation on local governments varies considerably.”

Some of the biggest increases will be seen by Vancouver, Victoria, Burnaby, Saanich, New Westminister, Langley and Port Coqutilam. Smaller communities including Ashcroft, Harrison Hot Springs, Kaslo, Lytton, Port Alice and Trail will see decreases.

Regional districts will see increases as well and the report anticipates that they will seek money from member municipalities to cover their increased costs.

Taken together, the communities that participated in the survey say they will see their related costs doubled as the shift from MSP to EHT is completed by 2020. In the transition year, 2019, their costs will temporarily quadruple.

“What’s key is that every local government is impacted differently,” said Wendy Booth, the president of the UBCM. “When the Employers Health Tax was first brought forward, we did have some concerns brought forward by some of our member local governments. Before we could really comment on it we needed to have some data to back it up.”

The communities expecting increased costs have few options. “We’re pretty limited in how we can raise our money, but we do have to provide all these services,” Booth said.

“We already are stretched with the roads, sewer, water, fire, police, recreation that we need to pay for. How are we going to juggle it? Every community is going to have a different choice. Do we increase our property taxes to do it, or do we cut a level of service on some other function that we provide for the community?”

The UBCM has in the past sought access to other sources of revenue, arguing that property taxes themselves are unfair.

As the report noted, “While the property tax provides revenue stability and predictability, it does not fairly distribute costs across income levels, placing an undue share on lower and middle income British Columbians.”

The report has now been distributed to the membership and the provincial government, Booth said. “I’m sure we’ll have further discussions moving forward on it.”