Getting team India to win again – fiscal consolidation

The fiscal deficit, the amount by which the Indian government’s expenditures has exceeded it’s revenues is 5.5% of GDP over the last 5 years. Over that same period the revenues have averaged 9.6%, so the fiscal deficit as a proportion of the revenues is 57%.Expenditure

In 2012-2013 India’s subsidies ballooned to almost ₹2.6 trillion (2.5% of GDP), almost 30% of government expenditure. The government’s decision to steadily reduce the fuel subsidy, at 40% of the total subsidy bill, was overdue, and will help the government towards it’s aim of fiscal consolidation. With 250 million Indians living on less than $1.25 per day, the food subsidy is sensible, but widespread corruption results in food not reaching the intended beneficiaries. Subsidies

India is allowing it’s demographic dividend to lapse. Young Indians are not getting the education required for them to compete against the youth from the other Asian tigers. The government is aware of this. It introduced an act in 2009 giving the right of education to every child, 50 years after the constitution said it should. But the fiscal deficit divides intent from achievement. There are 230 million Indian children aged between 6 and 14. There are not enough schools and teachers, or the money to pay for them.

Increasing taxes is also a challenge. The super wealthy are already taking advantage of the agreement with Mauritius, and the proximity of Singapore and Dubai to minimize their taxes. The nightmare that is India’s bureaucracy is already chasing away foreign investment, without adding punitive taxes to the list of disincentives. Taxes on tourists are so punitive that India ranks alongside little Switzerland for revenue earned from its visitors. Indirect taxes hurt the poor.

The government was relying on growth to save the day, and now that hope is disappearing fast.

In anticipation the 2014 election no-one is expecting a solution soon.

But India needs a plan – now!

More at:
Getting team India to win again
Getting team India to win again – poverty
Getting team India to win again – infrastructure
Getting team India to win again – The 1991 financial crisis
Getting team India to win again – the plan
A billion brains
A passage to Mayfair
A price worth paying
A tale of two villages
Asian Development Outlook 2013 pg190
Can India become a great power?
Cash, with strings
Made outside India
The Right of Children to Free and Compulsory Education Act, 2009
What a waste
Will India Be The First BRIC Fallen Angel?

Retreat from the cliff part 2

Tax breaks and subsidies are intended to drive people towards financial decisions that work in the best interest of the economy.

Isn’t capitalism supposed to be able to do that on it’s own? Apparently not.

America’s tax code is so complex that few tax payers are willing to submit their returns unaided.

Not only is it costly for the tax payer, it’s also costly for the government. The breaks and subsidies cost $1.1 trillion according to a recent estimate.

There is no question that some of the tax breaks work. However, the majority are the result of successful lobbying to the benefit of specific interest groups.

So which ones to get rid of?

Let’s start with all of them. Specify a time-frame, say nine months, for the interested citizens to motivate why the breaks and/or subsidies should be reinstated. On D-day, those subsidies and breaks without a reprieve stop.

Who gets priority in the decision making? Affordability should determine that. Businesses that would go broke; businesses that have invested huge amounts of money, and would lose that money; the poor.

That should get rid of quite a few like the ethanol subsidy. It only took 33 years to get rid of that one.

Parts of this idea have already been raised in the run-up to the presidential election. They have not got much attention. That’s a pity.

More at:
The high price of tax breaks Not so easy
Taking from the 19%, giving to the 1% Mitt’s maths
Charity and taxation Sweetened charity
Barack Obama and the economy The choice
Visas for entrepreneurs Where creators are welcome

Retreat from the cliff

America spends nearly 17.4% of it’s GDP on healthcare. The Netherlands is second with 12%. America spends $7,538 per person which is 50% more than Norway’s second place with $5,003.

Now, if America’s healthcare were that much better, it might just be acceptable, but that’s not the case.

Rumor has it that this has got the attention of the most senior politician in America. Apparently he’s actually done something about it, although some of his opponents are not happy about the solution. Nor are they proposing a better idea.

If the healthcare in America isn’t better than other countries, then why are the costs so much higher?

It seems that the cost of the medication is part of the reason. When a drug company creates a new drug, it invests a great deal of money into R&D, and the company files a patent to protect that investment. So far, so fair.

The protection lasts for 16 years, during which time the company effectively has a monopoly, and can charge what it thinks the market will bear. Once the patent expires, other manufacturers can produce the drug under a generic name, but not the brand name that the public is familiar with. The price for the generic product is usually a fraction of the cost for the branded product.

The problem is that if you’re insured, you don’t know, and may not even care that the branded product costs $668, and the generic equivalent is $50. So to give you a clue the medical insurers created copays, where the the patient is obliged to contribute a small proportion of the price. After the introduction of copays, the costs started to drop, and by 2003 more that 50% of the drugs people picked up were generics.

In 2007 the drug companies took action. They introduced the Patient Access Card. Patients with the card have to copay the same amount on the branded drug as the generic, and the drug company picks up the rest. So patients can’t tell which drug is more expensive.

Another reason for high costs is administration. The coding of the treatments is so complicated that doctors complain that 25% of their billing costs go into that part of administration. That can be fixed.

There are other things driving up the cost of healthcare. In the 1980s, Jack Wennberg proved that 25% of the procedures in Vermont and Maine were unnecessary. Often the doctors are not the ones at fault.

We want the best healthcare, but what is best? When we know the doctor, and there is a relationship of trust, we usually go with her advice. When we’re in the emergency in a foreign town, and the visible signs don’t look good, and the doctor looks awfully young, trust is not going to help with the decision making, and that’s when it can get really expensive.

Litigation also drives up costs. It’s helped to reduce malpractice, but not efficiently. In other countries, the professional bodies that suspend bad doctors from practice is a lot less costly, and just as effective.

Hopefully these issues will be getting a lot of attention in the coming months.

More at:
Who’s Going Broke? Comparing Growth in Healthcare Costs in Ten OECD Countries
OECD Health Data 2011
Evaluating medical treatments Evidence, shmevidence
Health Care Spending in the United States and Selected OECD Countries April 2011
Waiting for Robbo
Obamacare and the Supreme Court A guide to the health-care case

Since this was originally published:
Can statistics cut the cost of US healthcare?
Health-care spending