It’s time for the B.C. government to get rid of the Employer Health Tax (EHT).
The EHT is a three per cent tax businesses pay once their payroll goes above $500,000. In other words, it’s a punishment for businesses that succeed and expand.
The province should scrap the EHT to save businesses money and help them hire more British Columbians.
Imagine a small, family-owned mechanic garage in town. The manager makes $100,000 per year, while eight junior mechanics each make $50,000 per year. The garage has been up and running for years and it’s the shop many in the community went to for their first oil change.
The owners finally saved enough money to open another garage on the other side of town. To do so, they’ll need to hire another manager and eight more staff. That means the payroll will shoot up to $1 million per year.
The first half-million is exempt from the EHT, but every dollar above $500,000 is hit with a tax of about three per cent. That means they’re hit with a tax bill of $14,625, just because they wanted to expand their small business, hire more workers and provide additional services for their community.
In effect, the EHT punishes businesses for expanding and creating new jobs.
This year, the Eby government will take $2.7 billion away from businesses through the EHT.
If the government simply returned spending to the level we saw in Budget 2022, it would have enough money left over to eliminate the EHT, balance the budget and still pay down $4.8 billion of debt in 2024.
The government should scrap the EHT. Businesses in Alberta, Saskatchewan and most of the Atlantic provinces aren’t forced to pay this tax.
And B.C.’s EHT inflicts more pain than the same tax applied in other provinces.
In 2019, Ontario’s EHT threshold was the lowest in the country, at $490,000. But because of difficulties businesses faced during the pandemic, Ontario more than doubled its EHT threshold to $1 million. A higher threshold means fewer businesses pay the tax.
Ontario now has the second-lowest EHT threshold. Its tax rate is also lower. Even when Ontario’s EHT kicks in, it’s at a rate of between 0.98 and 1.95 per cent.
In Manitoba and Newfoundland and Labrador, the EHT threshold is pegged at $2 million in payroll. That’s four times higher than here in B.C.
The B.C. government needs to provide EHT relief and there’s a few ways it could do it.
The government should scrap the EHT, bringing us on par with provinces like Alberta, Saskatchewan and most of the Atlantic region. That’s the best option for B.C. businesses and workers.
At minimum, the Eby government must increase the payroll threshold before the EHT kicks in and reduce the tax rate.
Raising the threshold to between $1-2 million would bring us in line with the rest of the country. And it wouldn’t penalise the smallest local businesses for expanding.
Right now, the EHT is currently applied at almost three per cent. Cutting that in half would save B.C. businesses $1.4 billion in 2024.
It’s time for the B.C. government to scrap its EHT and stop punishing businesses for expanding and hiring their neighbours.
Carson Binda is the B.C. director for the Canadian Taxpayers Federation.
