While a new report shows that introducing a tax on employer-paid health benefits would add $3.8 billion to the federal government’s coffers in the 2018 tax year, it would also dramatically raise health-care costs for many Canadians, according to the Canadian Life and Health Insurance Association.
Tasked with measuring the federal fiscal impact of including employer-paid health benefits in the taxable income of employees, the Parliamentary Budget Officer concluded in its report the measure would increase personal income tax receipts by $2.8 billion, raise Canada Pension Plan contributions by $532 million and decrease transfer payments to individuals by $441 million.
However, the report relies on assumptions that don’t reflect the true picture of health benefits in Canada today, according to the CLHIA. “Taxing health benefits would raise health-care costs for low and middle-income earners dramatically and put their highly valued benefits plans at risk,” said Stephen Frank, the association’s president and chief executive officer, in a news release.
After the idea of taxing employer-provided benefits plans surfaced at the end of 2016, Prime Minister Justin Trudeau suggested during an exchange in Parliament in February 2017 that his government wasn’t planning to tax employee health and dental plans.
The Canadian Life and Health Insurance Association points out that more than 13 million Canadians have coverage through employer-sponsored health plans, which means that more than 25 million Canadians depend on them to help them pay for coverage of prescription drugs, dental and eye care, physiotherapy and more.
“The PBO assumptions do not take into account the past experience in Canada that many employers would drop coverage and millions of Canadians would lose access to the benefits they depend on,” said Frank.
The report found the majority of the tax burden would be on high-income individuals, since they’re most likely to work in jobs that provide such benefits. “They are also the taxpayers facing the highest marginal tax rate,” the report noted. The report found that while lower-income workers or retirees who receive employer-provided benefits would indeed face a higher tax burden, the medical expense tax credit would mitigate the impact to some extent.