Why payroll taxes are here to stay

Opinion

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This article was published 18/03/2024 (573 days ago), so information in it may no longer be current.

Political parties in Manitoba have for decades promised to eliminate the province’s so-called payroll tax. The reason they never do it is because once they get into government, they find out one of the largest employers in Manitoba that pays the tax is the federal government.

Ottawa fills provincial coffers with millions of dollars in payroll taxes every year. Once political parties get into government and figure that out, they quietly rescind their pledge to phase out the tax.

The Progressive Conservative party, which held office from 2016 to 2023, was one of those political parties. The Tories pledged to phase out the payroll tax, formerly known as the health and post-secondary education levy. But like all governments before them, they eventually realized the tax — which raises almost a half-billion dollars a year to help pay for health care and universities and colleges — is an important source of revenue for the province. And it’s paid mostly by large employers, including the feds.

The federal government employed 13,403 people in Manitoba in 2023. Like all employers with payrolls in excess of $2.25 million, the feds pay the health and post-secondary education levy. Manitoba Finance doesn’t provide breakdowns of how much each employer pays in payroll tax levies.

However, if the average federal employee earned $40,000 in 2023 (probably a lowball), Ottawa’s total payroll in Manitoba would be somewhere in the neighbourhood of $536 million. At 2.15 per cent (the rate paid by employers with payrolls of $4.5 million or more), that would be about $11.5 million a year paid to the Manitoba government. No provincial government in their right mind would give that money up.

The Tories didn’t even come close to eliminating the payroll tax while they were in government. In their 2023 budget, they promised to cut the rate employers pay, but only if the economy grew by a certain amount, which it didn’t. So no tax cut. Which is why NDP Finance Minster Adrien Sala said this week there will not be a payroll tax cut for the 2023-24 fiscal year.

The Tories and the NDP before them have raised the payroll tax threshold, which has removed some smaller companies from the tax roll. But they have always ensured that big employers, including those in the private sector, such as Canada Life, IGM Financial and Pollard Banknote, continue to pay the tax. Why? Because those companies have a corporate obligation to contribute to the cost of the health care and post-secondary education services their organizations benefit from.

They can also afford it. Canada Life employs more than 3,000 people in Winnipeg. Pollard Banknote has 850 staff in Manitoba and recently reported a new revenue record of $520 million in 2023, up 7.6 per cent from 2022.

Besides, if large private-sector companies, some of whom have raised their dividend payouts to shareholders in recent years, are not paying the levy, then who would replace that income?

Where would the half-billion dollars in tax revenue come from if not from the health and post-secondary education levy?

Government can’t cut income taxes, eliminate education property taxes and phase out the payroll tax and still expect to have the revenue to pay for expensive public services that include health care, education, justice, child welfare and infrastructure. The math just doesn’t work.

It’s a harsh reality advocates of broad-based tax cuts conveniently ignore. Business groups and others demand tax cuts, but they also want governments to pay for expensive infrastructure, fund municipalities, pay for health care and education and of course, subsidize businesses through generous corporate welfare handouts. They want it both ways.

As it is, the Manitoba government is already running a structural deficit. That means even in good economic times, the province is not generating sufficient revenues to pay for baseline public services. Premier Wab Kinew acknowledged that at a news conference a few months ago.

Eventually, bond rating agencies will recognize that and downgrade the province’s credit rating, which will drive up borrowing costs for the province. That happened under an NDP government before they were defeated in 2016.

There is no reasonable economic argument to be made to cut taxes when a government is running a structural deficit, not unless there are corresponding spending cuts. If political parties, business groups and others are proposing tax cuts while government is running structural deficits, they should also identify where government can cut spending. They don’t offer that advice because they don’t want spending cuts. They want tax cuts and spending increases which, of course, is hopelessly unrealistic.

Payroll taxes are here to stay because government needs the revenue to pay for front-line services. Any talk of phasing out that tax is pure fantasy.