BC’s tax system has become fairer since 2017, richest 1% paying more

Provincial governments made substantial changes to BC’s personal tax system over the past 25 years. Both the BC Liberal government that took power in 2001 and the BC NDP government that took power in 2017 reshaped the tax system—but with very different effects on inequality and fairness.

In a fair tax system, people would pay based on their ability to contribute—the higher your income, the higher your overall tax rate. When that doesn’t happen, we allow high levels of economic inequality to take hold, which hurts economic growth, distorts our democracy and is linked to worse performance on a wide range of health and social outcomes. Moreover, failing to impose higher tax rates on the increasingly concentrated income and wealth shares of the rich leaves money on the table, depriving governments of revenues for critical public services and infrastructure.

The good news is that tax changes enacted since the BC NDP formed government in 2017 have benefitted low- and middle-income earners the most, while the richest 1% saw their provincial tax rate increase. While this is an improvement in tax fairness, the system remains less fair than it was in 2000.

In contrast, tax changes from 2000-2016 under the previous BC Liberal government overwhelmingly benefitted the richest 1% of British Columbians, who saw their tax rate fall sharply, while modest- and middle-income households benefited the least. That is, tax fairness was diminished.

Despite the progress made on tax fairness in BC since 2017, we are still living in an era of extreme economic inequality. The richest 1% control 25% of the wealth in Canada, CEO pay has hit new heights, and the 87 richest families hold more wealth than the bottom 12 million Canadians combined. In BC, while the richest 1% saw their total tax rate rise after 2017, it remains much lower than it was in 2000.

Further tax measures aimed at the rich are needed to reduce this inequality, and added revenue could help fund badly needed public services and infrastructure at a time when BC is facing big challenges.

How we crunched the numbers

This report tracks changes to BC taxes paid by households, including income tax, Provincial Sales Tax (PST), Medical Services Plan premiums (which were eliminated in 2020), carbon tax, tobacco tax and property tax. I compare the effective tax rate—tax paid as a share of total income—for BC households at different income levels at different points in time.

In the analysis, BC households are divided into 10 income groups—called deciles—from the poorest to the richest 10% (based on their total income, which includes employment income, investment income and government benefits like income assistance and child benefits).¹ I also break down the top decile so we can see what’s happening for the very richest 1% and those just below them on the income scale.

I compare tax rates across two periods: between 2016 (the last full calendar year before the BC NDP took office) and 2023; and between 2000 and 2016 (covering tax changes under the BC Liberals).

This analysis uses a Statistics Canada tool that captures what households actually pay in taxes after credits and deductions: the Social Policy Simulation Database and Model (SPSD/M).² Taxes not paid directly by households, such as corporate taxes, are not part of the model. For example, large tax cuts for corporations in the 2000s (and recent small increases) are not analyzed. Since corporate ownership is concentrated among the affluent, corporate taxes tend to improve the fairness of the tax system. In this respect, this analysis likely understates the erosion of tax fairness from 2000-2016 (when corporate rates were cut) and the improvements to tax fairness from 2016-2023 (when they slightly increased).

Low and middle-income earners benefit most, richest 1% paying more

Under changes to BC’s personal tax system since 2017, the vast majority of households have seen their effective provincial tax rate fall, while only the top 1% have seen the rate rise (see Figure 1).

For the bottom 99% of households, on average, the effective provincial tax rate (total taxes paid as a share of income) fell from 12% to 10.3%, whereas for the richest 1% it rose from 10% to 11.1%. As Figure 1 shows, the further down the income ladder we go, the larger the reduction in the tax rate, indicating improved tax fairness.

One of the key policy changes driving reduced effective tax rates in the middle of the distribution was the elimination of Medical Services Plan (MSP) premiums in 2020. MSP premiums were a highly regressive health care tax in place for decades—and significantly increased during the 2000s—which cost individuals up to $900 a year and families up to $1,800. These premiums were charged at a flat monthly rate per person, meaning the higher your income, the smaller the share of income in MSP you paid (except those with very low incomes who received assistance to offset the premiums).³

Increases to the Climate Action Tax Credit were another factor that decreased the effective tax rate of lower-income earners over this period, as was the creation of the BC Family Benefit for families with children.⁴

In turn, the creation of new top income tax brackets—16.8% on individual taxable income over $181,232 and 20.5% over $253,752—account for the increased effective tax rate we see for the richest 1% of households.⁵

Another notable area of tax policy change in BC relates to property and real estate. However, limitations to the Statistics Canada data and model mean that property taxes are only partially captured in this analysis. The SPSD/M model includes household property taxes paid on principal residences but not on other real estate holdings.⁶ This analysis therefore only partially captures the effects of the creation of the Speculation and Vacancy Tax and the provincial School Tax bracket on properties over $3 million. In this respect, the results presented here may underestimate the improvements to tax fairness since 2016, since these new real estate tax measures are narrowly targeted at more affluent landowners who own very expensive properties or own secondary properties left vacant. Indeed, land and property wealth are highly concentrated among the wealthiest households in British Columbia to begin with.⁷

In contrast, the changes to BC’s tax system between 2000-2016 show the opposite pattern. Large across-the-board income tax cuts in the early 2000s benefited the top 1% most and middle- and modest-income earners least (see Figure 2).⁸ Notably, these tax cuts were paired with deep cuts to public services, harming all those who rely on them—especially the most vulnerable.

What about people whose MSP premiums were covered by their employer?

Before the elimination of MSP premiums, roughly 40% of British Columbians had them covered by an employer, according to the best available estimate. For this group, the elimination of MSP premiums would not have translated into immediate pocketbook savings even though it constitutes a cut in their total provincial tax bill. Of course, these workers still benefit from never having to pay MSP premiums again including when their employment situation changes.

The upshot is that Figure 1 above represents an upper estimate of the size of the 2016-2020 savings from tax changes since it assigns the full savings from eliminating MSP premiums to households. But the share of the gains shown flowing to modest- and middle-income households may actually be greater since we expect that employers in lower-wage sectors were less likely to cover MSP premiums. In this respect, the analysis here may underestimate how much eliminating MSP improved tax fairness.

The changing landscape of tax fairness in BC

Looking back at the state of BC’s personal tax system in 2000, it was modestly progressive at the top end, with the top decile (and top 1%) paying a larger share of income in taxes than households in the middle (see Figure 3). By 2016 this progressivity vanished, with middle-income earners paying a slightly higher effective rate than those at the very top. Finally, by 2023, this change was partly reversed, with the top 1% again paying a modestly higher effective rate than those in the middle of the distribution.

In all three years, the model shows the poorest deciles paying a higher effective tax rate than middle or upper deciles, as these households pay a significant share of their (low) incomes in commodity taxes like the PST. These types of taxes take up a bigger share of the income of households in the lower-income deciles (see Figure 4). However, the model results in the bottom deciles should also be interpreted with caution, as their tax bills are composed largely of these commodity taxes, which are the least precisely modelled parts of the SPSD/M.⁹ Generally, a bigger role in our tax system for taxes tied to income and wealth—and a smaller role for commodity taxes—would help improve tax fairness.¹⁰

Notably, each period of time examined above saw a major cut to effective tax rates across almost the entire income distribution (with the exception of the top 1% in the most recent period). Every income decile—including the top 1%—was paying a lower effective tax rate in 2023 than they did in 2000.

In fact, in 2023, the richest 1% were paying an effective tax rate of 11.1%—substantially down from 14.4% in 2000 (since the addition of two new top tax brackets after 2017 only partly undid the huge tax cuts that the richest received in the early 2000s).¹¹

But these two sets of tax cuts differed in some important ways. First, as already discussed, changes between 2000-2016 disproportionately benefited the richest 1%, while changes from 2016-2023 resulted in the largest benefits flowing to low- and middle-income earners and the richest having part of their previous tax cuts reversed.

Second, the big personal tax cuts of 2000-2016 were not offset by increases in other revenue sources like corporate taxes (which were cut, too) but rather “paid for” through devastating cuts to public services —and through increases to the deeply unfair MSP premiums.

Tax changes since 2017 have been a different story. While eliminating MSP premiums was one of the largest personal tax cuts in the province’s history, this loss of revenue was partly offset by the introduction of an Employer Health Tax (applying to businesses with payrolls over $1 million).¹² This followed the lead of many other provinces that had long since replaced individual health premiums with payroll taxes. Other new revenue-raising measures included a one-point increase to the corporate tax rate, the new top income tax brackets and taxes on vacant and high-end real estate.

As a result of these revenue measures, it’s been possible for the current provincial government to lower the effective tax rate of most BC households and improve the fairness of the personal tax system while also reinvesting in—rather than cutting—public services like health care, education and child care.

Tax the rich to reduce inequality and invest in the common good

Still, much more action is needed to improve tax fairness and tackle extreme inequality, as well as to raise revenue that can be reinvested in vital public services and infrastructure. In fact, BC is still investing a smaller share of our economic pie in the public good than we once did. As a share of our total economic output, provincial government revenue remains substantially lower than it was a quarter-century ago, falling from 21.4% of GDP in 1999/00 to a projected 18.9% in 2023/24. Similarly, provincial operating spending fell from 21.5% of GDP to 20.4% over the same period.¹³ 

To improve tax fairness and raise more revenue, obvious places to start would be tax increases focused on large corporations, wealthy landowners and those with the highest incomes. We face big challenges in BC—unaffordable housing, a strained health care system, toxic drug deaths and climate crisis (among others). Taxing the rich to invest in the common good can help us meet those challenges head-on.

Footnotes

¹ We use deciles rather than fixed nominal income groups because they provide a more appropriate comparison over long periods of time since inflation and real wage growth gradually move family incomes upward. For reference, the decile thresholds in dollars for the 2023 year are provided in the Technical Appendix. [Back to the top]

² For more details, see the Technical Appendix. [Back to the top]

³ See the next section for a discussion of the implications of some MSP premiums being covered by employers. [Back to the top]

⁴ In this analysis, these items are included in total income as government transfers instead of being subtracted from the total amount of taxes paid, since they are unconditional transfers. They can reduce effective tax rates by increasing the denominator (income) rather than reducing the numerator (taxes). [Back to the top]

⁵ These income tax bracket thresholds are for the current 2024 tax year (they rise each year to adjust for inflation). [Back to the top]

⁶ To estimate property taxes paid, the model uses Statistics Canada’s Survey of Household Spending, which encompasses the full property tax bill for principal residences including both provincial and municipal portions. [Back to the top]

⁷ Tax fairness with respect to the wealth distribution is distinct from fairness with respect to the income distribution, but both are important. The SPSD/M model used here only allows us to examine income deciles. [Back to the top]

⁸ The bottom decile also had one of the larger percentage decreases in taxes, though this is as a share of their very low incomes (and as a result, in dollar terms the benefits were very small). Results for the poorest 10% should be interpreted with caution. This group’s tax bills are composed almost entirely of commodity taxes, which are the least precisely modeled parts of the SPSD/M and may be particularly sensitive to changes in the System of National Accounts that affect commodity tax comparability before and after 2009. See the Technical Appendix. [Back to the top]

⁹ Plus, some families in the bottom deciles have low declared incomes because of capital losses (in investments or small business) while actually having higher disposable incomes and thus are not truly poor. [Back to the top]

¹⁰ However, commodity taxes that would otherwise be regressive can be made much fairer with credits or rebates that flow disproportionately to lower-income households, as seen with the Climate Action Tax Credit. [Back to the top]

¹¹ If the modelling in this analysis was able to incorporate the full effects of the Speculation and Vacancy tax and School Tax on properties worth over $3 million (on properties other than principal residences, which are already captured), this might offset those cuts a little further but would be unlikely to close the gap. [Back to the top]

¹² Some businesses may have tried to pass on this new employer-paid tax to their employees in the form of lower wages (especially if they weren’t already covering the now-eliminated MSP premiums for their employees), but this is difficult to measure and would depend on labour market conditions. Low-wage employers would have been constrained in their ability to do so over this period of time due to significant increases in the minimum wage. Businesses with payrolls less than $1 million are exempt from the Employer Health Tax. [Back to the top]

¹³ This is one strong indication that BC has the economic capacity to raise additional revenue and increase investments. As the credit rating agency Moody’s has noted repeatedly, the province has the “flexibility to raise taxes if necessary while still remaining competitive with other jurisdictions.” [Back to the top]

Topics: Economy, Provincial budget & finance, Taxes