B.C.'s deficit is slated to total $5.6 billion by 2011 and the government seems to be hoping that higher tax revenue from greater economic growth will eventually reduce it. However, the hike in the Medical Services Plan (MSP) tax, otherwise known as the health tax, shows how B.C.'s deficit will more likely be defeated -- by stealth tax hikes -- if the government doesn't rein in spending.

Paul Martin defeated the federal deficit in the 1990s primarily with stealth tax hikes. Tax increases helped reduce the federal deficit by about 75 per cent while spending cuts accounting for a mere 25 per cent. Almost 60 per cent of the new tax take came from an increase in personal income taxes through a stealth process known as de-indexation. By de-indexing, federal tax brackets stayed fixed while inflation slowly drove up incomes, moving them into higher and higher tax brackets. This stealth tax brought a $10 billion increase in annual federal revenue between 1988 and 1997. This, in addition to new deficit reduction taxes and higher payroll taxes, raised personal tax rates on average by 20 per cent between 1989 and 1997. The result was stagnating after-tax income for families and skyrocketing revenues for government.

If history is any guide, B.C.'s stealth-health tax may be the first accelerating tax hike in the battle against the deficit, once again leaving people standing still while government revenues rise.

Many British Columbians believe the MSP, or health tax, is an insurance premium paid for health services, similar to the auto premium paid to ICBC. Nothing could be further from the truth. The MSP is a poll tax -- a per-person tax charging a fixed amount per individual. The health tax doesn't go to fund health care in the province anymore than it funds education, roads or anything else -- it goes directly into general revenue. Without a doubt, this tax would have been eliminated long ago had it been named the ‘bureaucrat salary enhancement levy.' Moreover, B.C.'s MSP revenue represents a mere 10 per cent of the huge and growing health care budget.

The health tax is going up this year and has the potential to spiral completely out of control. On January 1, 2010, the health tax will increase by 6 per cent, to $684 per year for individuals, $1,224 per year for couples and $1,368 per year for families. But the most worrying part about the health tax hike is that it will rise by the same proportion as the health care budget every year. If the health budget rises by 6 per cent per year, the health tax will double in about 10 years, hitting individuals with a health tax of $1,368 and families with a health tax of $2,736. Right now, about 14 per cent of B.C.'s population is 65 or older but by 2032, 25 per cent of our population will be over 65. Currently, people over 65 account for about 44 per cent of health care spending, so without reform of the health care system, health costs will continue to accelerate and so will the health tax.

The federal deficit was defeated in the 1990's mainly through tax hikes and we've now seen the first volley in that direction here in B.C. This health tax impacts a family’s bottom line, has nothing to with health care and everything to do with a tax grab. Instead of picking more hard-earned cash from taxpayers pockets to fund unsustainable spending, politicians must do what every family does when it hits rough times -- limit spending. To begin that process, the health tax must be eliminated.

By: Maureen Bader
Posted: September 21, 2009
Topic: British Columbia

Contact the regional director Jordan Bateman for further information.

Type: Commentary

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