De­bate over tax­ing ben­e­fit plans set to erupt

Saskatoon StarPhoenix - - CANADA - JOHN IVISON Na­tional Post jivi­son@post­

The de­bate about the tax­a­tion of health and den­tal ben­e­fits has, to this point, been an aca­demic ar­gu­ment about fair­ness and tax ef­fi­ciency.

But it’s about to get in­tensely po­lit­i­cal, as Canada’s doc­tors and den­tists tell vot­ers how much the move to tax plans that cover pre­scrip­tion drugs, den­tal and vi­sion care might cost them.

The lob­by­ing cam­paign aimed at per­suad­ing the gov­ern­ment to drop any plans it may have to tax health care not pro­vided un­der pro­vin­cial sys­tems will kick into high gear when the House of Com­mons re­sumes.

The Cana­dian Den­tal As­so­ci­a­tion re­ports that 50,000 protest emails have al­ready been sent to local MPs and Bill Morneau, the fi­nance min­is­ter, through its www. dont­taxmy­ben­e­ on­line pe­ti­tion.

Key to the suc­cess of those ef­forts will be soon-to-be re­leased re­search from the Con­fer­ence Board that sug­gests mid­dle-in­come earn­ers across the coun­try will pay an ad­di­tional $1,000 (or more depend­ing on prov­ince) in ad­di­tional fed­eral and pro­vin­cial in­come tax, if the gov­ern­ment does de­cide to make the health and den­tal plans held by 13.5 mil­lion work­ing Cana­di­ans a tax­able ben­e­fit.

The Con­fer­ence Board study for the CDA sug­gests some­one earn­ing $45,000 in full-time em­ploy­ment in On­tario, with fam­ily cov­er­age, would pay an ex­tra $1,167 in tax. Those earn­ing $60,000 in that prov­ince would pay an ad­di­tional $1,043, while work­ers earn­ing $90,000 would pay $1,277 more. Those num­bers are rea­son­ably con­sis­tent across the coun­try, ex­cept in Que­bec, where those earn­ing $90,000 would pay a com­bined $1,729. Ob­vi­ously, if two wage-earn­ers in the same fam­ily have cov­er­age, that amount will dou­ble.

The prospect of health and ben­e­fit tax­a­tion be­ing in­cluded in the spring bud­get was first raised by the Na­tional Post last month. The sub­ject was sub­se­quently brought up by the op­po­si­tion Con­ser­va­tives in the House of Com­mons and by jour­nal­ists with the prime min­is­ter at his endof-year press con­fer­ence.

The gov­ern­ment’s talk­ing points have been con­sis­tent — no de­ci­sions have been taken and any move would not be made in iso­la­tion. How­ever, health-care or­ga­ni­za­tions re­main deeply wor­ried that the pro­posal is still on the ta­ble.

The Lib­er­als have been at pains to point out this would not be a tax grab, aimed at get­ting their hands on the $2.9 bil­lion that could be levied (at least in year one), if health and den­tal ben­e­fits were treated as in­come in the same man­ner as com­pany cars or life in­sur­ance.

The gov­ern­ment has con­firmed a re­view of health and den­tal ben­e­fits was un­der­taken by a panel of aca­demics, look­ing at a range of tax cred­its, with the goal of mak­ing the tax sys­tem as fair, ef­fi­cient and sim­ple as pos­si­ble.

The aca­demic ar­gu­ment in favour of tax­ing health and den­tal is straight for­ward — most em­ployee ben­e­fits are taxed but, for rea­sons lost in the mists of past pub­lic pol­icy, health and den­tal cov­er­age is not. The ar­gu­ment for tax­a­tion is that those with­out pri­vate health plans, of­ten peo­ple on low in­come, are sub­si­diz­ing those who have them, gen­er­ally peo­ple in the pub­lic sec­tor or those who work in large com­pa­nies.

Re­form­ing the tax­a­tion of ben­e­fits has been ad­vo­cated by the Depart­ment of Fi­nance for years.

It was also en­dorsed by an ad­vi­sory panel on health­care in­no­va­tion, chaired by for­mer Univer­sity of Toronto pres­i­dent David Nay­lor, in 2015. The Nay­lor re­port sug­gested end­ing the cur­rent sys­tem and in­tro­duc­ing a “tax swap,” where the gov­ern­ment brought in a re­fund­able tax credit to help all Cana­di­ans pur­chase pri­vate in­sur­ance. The prob­lem with this so­lu­tion is that it would add ad­di­tional cost to pro­vide a de­cent level of cov­er­age — around $1 bil­lion in the Nay­lor re­port.

This is not a gov­ern­ment that is look­ing to spend more money, in what is likely to be a bad news bud­get.

A more cost-ef­fec­tive course of ac­tion for the Lib­er­als would be to high­light the ex­ist­ing med­i­cal ex­pense tax credit (METC). Mak­ing ben­e­fits tax­able makes them el­i­gi­ble for re­im­burse­ment un­der the METC.

The Con­fer­ence Board re­port points out that for those earn­ing less than $45,000, the in­creased in­come-tax bur­den would be can­celled out by claim­ing the ex­ist­ing tax credit.

The prob­lem is that only 17 per cent of Cana­di­ans ever get around to claim­ing this credit — and it would not off­set the cost in­crease for those earn­ing more than $45,000.

As a re­sult, the po­ten­tial ex­ists for a mas­sive po­lit­i­cal back­lash.

The health-care coali­tion points out that when Que­bec taxed health and den­tal ben­e­fits in 1993, it re­sulted in a sub­stan­tial loss of cov­er­age.

Once ben­e­fits were sub­ject to pro­vin­cial in­come tax, there was a 14-per-cent de­crease in em­ployee-pro­vided sup­ple­men­tary health cov­er­age in the prov­ince.

If those lev­els were re­peated na­tion­ally, the rev­enues from the new tax would be much re­duced and many Cana­di­ans would be forced to buy ex­pen­sive pri­vate cov­er­age (an av­er­age $3,521 a year for a fam­ily plan).

Med­dling with the equi­lib­rium of the pri­vate/pub­lic health mix has the po­ten­tial for un­in­tended con­se­quences.

But this is a gov­ern­ment that has al­ready proven it­self in favour of in­come tax “fair­ness” for the mid­dle class “and those work­ing hard to join them.”

If tax­ing the health and den­tal ben­e­fits of the top 30 per cent of earn­ers yields rev­enues to fund other so­cial en­gi­neer­ing ex­per­i­ments, as far as the Lib­er­als are con­cerned, so much the bet­ter.


Prime Min­is­ter Justin Trudeau’s Lib­eral gov­ern­ment has said no de­ci­sions have been taken on a health-tax plan.

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