Unlike many businesses and other communities’ municipal governments, the City of Campbell River is not expecting a hit to its bottom line due to the provincial government’s decision to eliminate the Medical Services Plan in favour of the Employer Health Tax.
The government reduced MSP by 50 per cent in 2018, and then announced it would continue the phase-out and reduce it to zero eventually. As of Jan. 1, 2019, the government will begin to replace the revenue it used to receive from MSP contributions with the new Employer Health Tax, so for at least one year, businesses with payrolls over $500,000 who pay their employees’ MSP premiums will need to pay both costs.
While other municipalities are announcing a tax rate increase to cover this cost, the City of Campbell River says because they didn’t lower their budget for medical plan coverage after the announcement of the MSP reduction, they won’t need to do increase taxes to cover any shortfall.
With a payroll of approximately $18.5 million last year, the city paid $336,000 in MSP premiums. This year, the city budgeted $340,000 for medical coverage, but will only pay $170,000 in MSP premiums. Since the Employer Payroll Tax does not come into effect until next year, the city essentially saved $170,000 over the course of the year, which it can then use to roll over into the following year to pay the would-be deficit created by the implementation of the Employer Payroll Tax.
Then in 2020, when the city has budgeted $400,800 for health coverage for its employees due to inflationary factors, all of that money will go towards the Employer Payroll Tax. So as long as the province follows through on its plan to eliminate the remaining 50 per cent MSP payment, the transition comes out in the wash.
In fact, while most of the talk around the implementation of the Employers Health Tax has focused on the hardships it could cause in the business community, then chief financial officer Myriah Foort says in her report to council about the change, it may actually be a good thing in the long run, at least for some businesses – including the city.
“It is expected that the employer health tax will be less administratively burdensome with a flat calculation on gross payroll versus individual employee calculations,” Foort says in her report to council about the change, “…moving to this tax from the Medical Services Premiums (MSP) may be a more efficient system for the province, public service bodies and businesses.”
But Coun. Colleen Evans says it’s important to remember that not everyone in the business community will be so lucky.
“Recognizing that we have certainly been able to take a very proactive approach to our own budget, we need to be aware that for many businesses within our community this has the potential of a significant impact, and I’d like to acknowledge that this uncertainty is a real challenge for small business,” Evans says.
“I appreciate that we took a different approach, but for a lot of businesses in our community, this will impact the bottom line.”