Taxes on jobs

A basic observation of economics is that if the price of something goes up, the quantity demanded goes down. Here in the Yukon, we're about to test this hypothesis on lower-paid workers and their jobs.

A basic observation of economics is that if the price of something goes up, the quantity demanded goes down.

Here in the Yukon, we’re about to test this hypothesis on lower-paid workers and their jobs. Federal and Yukon agencies are inadvertently co-operating in this experiment by raising the cost of employing someone, with Ottawa planning hikes in employment insurance premiums and the Yukon Workers’ Compensation Health and Safety Board now charging the highest premiums in the country.

Both programs are, in effect, taxes on jobs. Especially low-wage jobs, since EI and workers’ comp both are capped at certain salaries and have a relatively bigger impact on lower earners. International agencies like the Organization for Economic Co-operation and Development have been warning for years about the impact these job taxes can have on employment.

There is already a big “wedge” between the cost of employing someone and their take-home pay, thanks to federal income tax, Yukon income tax, Canada Pension Plan deductions (employer and employee shares) as well as current EI deductions (also paid by both employer and employee) and workers’ comp. Pushing job taxes higher during a recession may not be a good idea.

These programs are often labelled as “insurance,” but in reality they are mandatory social programs with fees more akin to taxes than what you pay your home insurance company. They may be excellent programs, but there can be better ways to finance them than job-taxes that take a bigger bite out of lower salaries.

When considered on top of the CPP deduction increases a few years ago, the hikes to EI and workers’ comp costs will be significant.

Respected Canadian economic researcher Dale Orr estimates the federal plans to raise EI premiums, which he calculated from tables hidden deep in the appendix of the last federal economic update, to be $632 per worker over four years. Employers will also have to pay a similar amount for each worker.

Meanwhile, increases in the average workers’ comp rate in the Yukon have left it nearly double that in BC, according to a recent highly unpopular study published by the Whitehorse Chamber of Commerce, which used data from the Association of Workers’ Compensation Boards of Canada. The average actual assessment in the Yukon was 2.9 per cent in 2008, while it is just 1.51 per cent in BC. Businesses pay very different rates based on risk and industry, but for the “average” firm this means that for a worker earning $50,000 it would have to pay $1,455 in the Yukon but only $755 in BC.

These figures may not seem large, and they certainly aren’t to policy-makers earning $120,000 per year, but to small businesses struggling in a recession they can make a difference.

Our governments should think harder about how to fix this problem.

What might make more sense than raising EI premiums? Some economists have suggested putting the GST back to seven per cent, which would boost government revenues by around $10 billion. Taxing daily purchases isn’t ideal, but skimming more money off sales of caviar, luxury vehicles and foreign tourists is probably better than a job-tax focused on the lowest-paid. Other economists have suggested higher income taxes, which would also hit the rich more.

As for workers’ comp, local unions have made a vociferous case that there is value for the Yukon in having our own workers’ comp agency that is conveniently located and under Yukon control. They may be right, but duplicating the infrastructure of the BC or Alberta board is expensive. The Whitehorse Chamber of Commerce research paper pointed out that the Yukon Workers’ Health and Safety Compensation Board has 82.5 employees, while a regional office in BC has just 28.

Right now, it is Yukon workers who have to pay for this extra cost, estimated at about $5 million per year.

Sometimes the benefits outweigh the extra costs of having a standalone Yukon organization. We have our own hospital board, college, environmental assessment agency, legal aid agency, electricity company (two, actually) and a phone company shared with the other territories. But not our own bank, securities regulator, pension plan or police force.

If the Yukon government decides the benefits outweigh the costs of having a Yukon workers’ compensation board, then it should rethink who pays for the extra cost. Perhaps they should cap employer contributions at BC rates, and top up the shortfall with some of the $683 million they get from Ottawa each year.

After all, they don’t make Yukon students pay 100 per cent of the cost of maintaining Yukon College.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s

adventure novels.

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