'Whopping new payroll tax' a burden to B.C. businesses, says CFIB

B.C. government hints exemptions to new health payroll tax on the way — but not for cities

The budget  unveiled by the provincial government on Tuesday is a mixed bag for businesses, according to the Canadian Federation of Independent Business.

"There is a bit of good news and a bit of bad news — well, a lot of bad news," said CFIB vice-president Richard Truscott.

The NDP government pledged huge investments in child care, affordable housing and health care, all things that benefit entrepreneurs and business owners as much as the next British Columbian.  

The government also promised to eliminate Medical Services Plan premiums by 2020. 

Businesses will make up a significant part of the shortfall, with a new payroll tax for employers set to be introduced Jan. 1, 2019.

"This whopping new payroll tax is going to hurt a lot of small businesses," Truscott told Stephen Quinn, the host of CBC's The Early Edition.

The employer health tax requires companies with payrolls over $500,000 a year to pay a 0.98 per cent tax on annual payroll.

The tax increases in increments based on payroll.

"We will be protecting small businesses," promised Finance Minister Carole James. "It's only large businesses, over $1.5 million, that will pay the full tax, so, in fact, the majority of businesses will not be impacted by the employer's health tax."

About 98 per cent of businesses in B.C. are classified as small businesses, meaning they have fewer than 50 employees.

The $500,000 threshold may sound like a lot, Truscott said, but that could easily mean a payroll that is split between just a handful of people.  

"We'll be pushing hard to get that threshold up to at least $1 million, preferably a little bit more," he said.

Stalling growth

The problem is the tax will encourage businesses to stay small and below the payroll threshold, said political science associate professor Hamish Telford.  

"This creates perverse incentives," he said. "Businesses are now going to have to contemplate how much they want to grow."

Dan Baxter, a policy director with the B.C. Chamber of Commerce, says the financial pressure may prove too high for many businesses.

"It's just that cumulative effect as taxes keep getting piled on," he told Angela Sterritt, the host of CBC's B.C. Almanac . "At some point, we could stall the economy."

With files from The Early Edition and B.C. Almanac.