By Alex Hemingway
Changes to personal BC taxes over the past year and a half — including elimination of Medical Services Plan (MSP) premiums—mean the vast majority of households are seeing their tax bills fall while the richest one per cent are paying more.
This is good news for tax fairness in BC.
Taxes are only part of the story, however. Investments in high-quality, universal public services that taxes pay for are equally important in building an equitable and decent society.
The provincial government recently made major new investments in areas like child care and housing. Even so, provincial spending as a share of BC’s annual economic output has plummeted over the last two decades due in part to tax cuts, limiting the scale of much-needed investments in public services.
To understand the effect of recent tax changes, we examined total provincial taxes — including income tax, PST, MSP, tobacco and the carbon tax — paid by households at different income levels. The amount of taxes paid as a share of household income is called the “effective tax rate.”
Our analysis finds the vast majority of households will pay a lower effective tax rate in 2020 because of the current government’s personal tax changes. Modest- and middle-income households benefit most from the changes while only the richest one per cent pay more.
Strikingly, these tax changes are almost opposite to those under the previous government, which mostly benefited the top one per cent.
The current household tax reductions are driven almost entirely by elimination of MSP premiums. MSP is an unfair tax because whether you make $45,000 or $450,000 you pay the same flat dollar amount (those with very low incomes get assistance). The wealthy pay a much smaller share of their income in MSP than everyone else.
The lost revenue from eliminating the MSP is largely being replaced by revenue from other tax measures on business and the affluent. These include the Employer Health Tax, a corporate income tax rate increase, the new top personal income tax bracket and new taxes on wealthy property owners.
Still, two decades of tax cuts have contributed to eroding BC’s ability to generate revenue and fund public services. It may be hard to believe, but if public spending (as a share of BC’s annual economic output) today was the same as in 2000, we’d have an additional $7 billion annually to invest in urgent social and environmental priorities.
That amount of money could add 10,000 units of new affordable housing per year throughout the province, quadruple funding to the CleanBC climate plan, raise welfare rates to 100 per cent of the poverty line, fully implement universal $10-per-day child care and eliminate tuition fees for domestic students—with room to spare.
To help raise these funds, we recommend a new top tax bracket of 22 per cent on incomes above $200,000 and additional taxes on the enormous real estate windfalls held by wealthy landowners.
It is important that our taxation system is fair because income and wealth inequality have reached dizzying heights in our province. The social and environmental crises we face demand action now.
Alex Hemingway is an economist and Public Finance Policy Analyst at the Canadian Centre for Policy Alternatives BC Office.