Archive for the ‘Universal Transfers’ Category

two-tiered versus universal provision of healthcare

Sunday, November 15th, 2015

This weekend’s edition of the Financial Times contains a letter that repeats a common, but erroneous argument levied against universal healthcare. Why insist that everyone receive the same standard of service, even those who able and willing to pay some portion of the higher standard of service they desire?

Sir, It is about time someone in an influential position raised the issue of other forms of revenue for National Health Service funding. I and many colleagues of mine who have lived and worked in The Netherlands and France are tired of hearing about the NHS funding problems, which continue to arise because of the ideological obsession of all our political parties with their belief that medical care must be free to everybody. This is no doubt because of their fear of losing votes if they suggest otherwise.

Those of us fortunate enough to enjoy a reasonable level of private income would be well prepared to contribute to this important service through, for example, GP attendance fees and top up private insurance arrangements as occurs in the Netherlands. It would not be difficult to determine an individual’s private income through the tax authorities and fix an appropriate level above which he or she must make some form of private contribution to the NHS.

Michael Speer, “Obsessed with idea that healthcare must be free“, letter to the editor, Financial Times, 14 November 2015 (metered paywall).

Britain’s National Health Service (NHS) is financed entirely with general government revenue. No-one is forced to use NHS, but if a taxpayer chooses to go to a private clinic or hospital, he or she must pay the entire expense out-of-pocket, either directly or by purchasing private insurance. This is the system that Mr Speer dislikes.

I was about to write a letter to the editor asking why, if people like Mr Speer are willing to contribute to the cost of their own medical care, they are not also willing to contribute to Her Majesty’s treasury in order to alleviate the chronic under-funding of the National Health Service?

I then saw that there was no need to draft a letter, for the Financial Times published the following response from another reader:

Sir, …. Are those people who are reluctant to pay more tax happy to pay into expensive private health insurance, their contributions covering not just healthcare costs but shareholder profits? Are they happy to discover that certain pre-existing conditions are excluded from cover? And if, taking all that into account, they feel better off than paying the extra taxes, are they really content to see the poor, unable to afford the insurances, appointment charges or other suggested costs, receiving only some basic treatment?

Peter Cave “Why is paying tax worse than paying premiums?“, Financial Times, 14 November 2015 (metered paywall).

I did not include the first part of Mr Cave’s letter, as his argument is clear without it. I would emphasize even more, however, the point that allowing the wealthy to pay top-ups for better treatment inevitably lowers standards for treatment of the poor. It is the interest of the poor that the wealthy not be excluded from Britain’s NHS nor (with the same reasoning) from government-funded schools.

Hong Kong’s stalled march on the road to universal pensions

Wednesday, October 14th, 2015

The government of Hong Kong continues to drag its feet on implementation of the “universal, uniform amount, non-means-tested pension” recommended by authors of a government-commissioned report that was released more than a year ago.

Nearly a third of older persons in Hong Kong survive with less income than the official poverty line, set at HK$3,600 [US$465] a month. Hong Kong is a prosperous city, with per capita GDP in 2015 of US$42,000 – nearly as high as that of Canada (US$44,000) – but its distribution of income is very unequal.

Hong Kong’s acting Chief Executive now claims that many of the territory’s low-income elderly are not really poor. Why? Because, when questioned, half of them respond that they “do not face financial difficulties”. From this, the government infers that these ‘income poor’ must be ‘asset rich’.

An alternative explanation – ignored by government – is that respondents might seek to avoid the stigma attached to admission that they are financially constrained. This stigma is especially strong in Chinese culture, since adult sons are expected to care for their aged parents.

Sadly, the Hong Kong government will very likely add an assets test to the income test required of those who apply for a social assistance pension. This will do nothing to lessen the stigma attached to what is perceived as poverty relief. What is needed is a modest old age pension provided to all residents from age 65, regardless of family or individual income and assets. Hong Kong is a wealthy territory. A universal pension is affordable. It is simple to administer. It is the right thing to do.

For detailed information, here are excerpts from two recent and one two-year-old article published in Hong Kong newspapers.


towards universal pensions in the Philippines

Saturday, October 3rd, 2015

[O]nly about a third of seniors currently receive pension. Eighteen percent receives a contributory pension …, while 15% benefit from the … [the] social pension program for indigent senior citizens. ….

The scheme should cover all 1.2 million indigent senior citizens who are 60 years old and above, as … mandated by … the Expanded Senior Citizens Act of 2010.

This budget was, however, limited to only cover those age 77 and above. ….

“Other countries like Thailand, has recognized already the limitations and challenges of targeting, that’s why they opted for universal,” said Emily Beridico, COSE executive director.

A central question is, of course, whether the government could fund such a commitment.

The price tag, however, is lower than people might think. For example, a universal pension of P750 [US$16] for all Filipinos aged 60 and over would cost P69 billion or 0.5% of the GDP. Put in context, this is only a little more than the P56 billion government subsidy to only about 500,000 of military and uniformed pensioners ….

“We are aware there is money for fully covering the 60 years old indigent and expanding it further to all older Filipinos,” said Dioscorro Benalla, president of COPAP [Confederation of Older Person Associations of the Philippines]. “If government has allotted 56 billion pesos for a minuscule population of pensioners, we find no reason to deny … [benefits to any portion of] the entire older people population. Besides, who paid taxes?”

“We have been paying taxes since we were born and has been contributing to pension. We deserve every cents of it from the moment we turn 60 until we die,” Benalla stressed.

Coalition of Services of the Elderly (COSE),”Advocates call for improved senior pension for Pinoys“,, 2 October 2015.

According to HelpAge International, the Philippines’ means-tested 500 peso (US$11) social pension reaches only 4% of Filipinos aged 60 or older, at a fiscal cost of 0.03% of the country’s gross domestic product (GDP). I don’t know what accounts for the difference between HA’s estimate of 4% coverage and COSE’s higher estimate of 15% coverage. In any case, it is clear that the vast majority of older Filipinos have no access to pension income – contributory or non-contributory.

Previous TdJ posts on this topic can be accessed here and here.

promoting universal pensions in Vietnam

Friday, October 2nd, 2015

In 2014, here in Vietnam only 2 million older people received [employment-related] pensions, and around 2.9 million older people received allowances from social assistance programs [i.e. social pensions]. This left some 4.6 million people aged 60 and above uncovered by any social protection scheme ….

Social, public and private pensions must be expanded to increase coverage to the vital informal sector. ….

Not only would a sustainable pension system provide the means for millions of older people to attain a better quality of life, but it would also help ensure their dignity. …. Providing a social pension of US$15 per month for all people aged 65 and above would cost only 0.3% to 0.5% of GDP, which is a very small fraction of Government spending but could have a huge impact on the lives of older people.

Vietnam has worked very hard to increase life expectancy. But this achievement is surely wasted if Vietnamese citizens cannot live these additional years in comfort and in dignity. …. By taking action now we can ensure that retirement is the best, and not the worst years of our lives.

Ritsu Nacken,”The worst of times, or the best?“, Than Nien News, 1 October 2015.

Ms Ritsu Nacken is Acting Representative of the United Nations Population Fund (UNFPA) in Vietnam.

According to HelpAge International, the government of Vietnam provides social pensions of 180000 Dong (US$8) to 14% of the population aged 60 and older. Six of every seven of these social pensions are given to  residents aged 80 years and older who receive no other pension income. One in seven social pensions go to residents aged 60 to 79 years who live in poverty and are willing and able to pass a means test. Total government expenditure on social pensions amounts to a tiny sum: only 0.01% of gross domestic product (GDP).

I do not understand why Ritsu Nacken provides such a wide range of estimates (0.3% to 0.5% of GDP) for a universal pension from age 65. I suspect that the 0.5% estimate might be for the cost a universal pension from age 60, but have not checked the numbers. The high figure could also refer to the projected cost of pensions from age 65 at some point in the future.

business opposition to universal pensions in Hong Kong

Friday, September 4th, 2015

One year ago the government of Hong Kong released a commissioned report that calls for universal benefits – an old age pension for all residents from the age of 65.

It is not widely-known, but Hong Kong’s older residents have long received a universal pension: the Old Age Allowance (OAA). The pension is tiny, so is derisively referred to ‘fruit money’. Everyone aged 70 and older receives it, unless he or she applies for and receives a larger, means-tested Old Age Living Allowance (OALA). The report released in August 2014 calls for an increase in the size of the universal pension, and a reduction in the age of eligibility (to age 65). It is larger than the OALA, and would replace means-tested benefits.

The report generated considerable reaction at first, but I have seen no published comments on it in recent months. The topic of universal pensions is now back in the news.  A local business association has published a study that harshly criticizes the universal pension proposal, claiming “it would widen the gap between the rich and the poor” in Hong Kong, which already suffers from an extremely unequal distribution of income.

The Business and Professionals Federation of Hong Kong criticized the universal pension proposal, saying it would widen the gap between the rich and the poor.

An earlier retirement study conducted by University of Hong Kong academic Nelson Chow Wing-sun, as appointed by the [government’s] Commission on Poverty, proposed a monthly pension of HK$3,000 [US$385] for everyone aged 65 or above.

David Akers-Jones, president of BPF and a former chief secretary of Hong Kong, disapproved and instead suggested giving a minimum income … restricted to those who need it ….

The BPF’s report … proposed that seniors with no MPF [Mandatory Providence Fund] balance and non-MPF assets under HK$250,000 [US$32,255] get a HK$4,000 [US$515] monthly allowance. For those living alone, it’s HK$5,000 [US$645]. ….

Imogene Wong, “Pension proposal to `widen gap’“, The Standard, Hong Kong, 2 September 2015.

The full BPF report can be downloaded at the link below. Here is an excerpt from the executive summary.

[T]he fruit money (nickname of OAA [HK$1,090 a month]) paid to all over 70 is very poor policy. Why should the Government give cash to a rich 75 year old any more than they give it to a rich 40 year old? As the number of elderly increase dramatically, this sort of thinking must stop.

We discuss the Universal Pensions movement in section VII. The Universal Pensions advocates have got it all wrong and it is extraordinary that such a bad idea has been accepted by so many that should know better. By focusing on universality they guarantee that the elderly who need Government support will get less. At BPF, we support the concept of a minimum income for the elderly but such an income should only be provided to those who do not have the income or assets to look after themselves. In this way the Government can and should pay more to those in need rather than wastefully make payments to the better off. By upgrading MPF we can assure that less and less people will need Government support in the future and Government can improve its programs without requiring extensive new taxes.

Business and Professionals Federation of Hong Kong, The Way Forward for Retirement Protection in Hong Kong, August 2015, p. 2.

The BPF wants to “make as few as possible Hong Kong elderly reliant on Government” by increasing mandatory contributions to Hong Kong’s Provident Fund from 10% to 15% of salary income, with government paying the employee portion of contributions by “lower paid employees”, and by limiting “the amount in the MPF account taken out at age 65 to ensure an income stream for retirees”.

The BPF promotes its alternative proposal as beneficial for the poor by ignoring the effect of mandatory savings on disposable household income. Mandated savings of 10% or 15% of a worker’s salary, used to build up retirement savings that will make the worker ineligible for means-tested benefits, is equivalent to a tax on payrolls.

It is not true that universal pensions widen the gap between the rich and the poor, unless the pensions are financed with regressive taxes. If the BPF wants to lessen income inequality, it might consider reform of income tax, which is limited in Hong Kong to a maximum of 15% of income. In addition, there is no tax on consumption: no tax on sales, goods & services or value-added. A modest increase in income tax rates, or introduction of a retail sales tax, could easily finance a decent universal age pension.

towards universal minimum pensions in Cabo Verde

Saturday, June 13th, 2015

Cabo Verde, an island country with a population of 525,000 and a per capita income of four thousand US dollars, is seldom in the news. It is a located 570 kilometres off the coast of Western Africa. The former colony of Portugal became an independent state in 1975.

I was surprised, then, to learn that this small, low-income country has achieved near-universal pension coverage for residents aged 60 years and older.

According to … the International Labour Organization’s (ILO) Social Protection Department, over 90 per cent of older persons in Cabo Verde receive a pension, if you add up contributory and non-contributory coverage. ….

Beneficiaries receive a monthly payment of 5,000 Caboverdian escudos (about US$ 65).

This represents 20 per cent more than the poverty line. To qualify for the social pension, older persons must be residents of Cabo Verde, be 60 years old or above, have an income below the national official poverty line and not be covered by any other social security scheme.

The social pensions cost nearly 0.4 per cent of Cabo Verde’s GDP and are fully financed from the state budget.

ILO Newsroom, “Social protection in Cabo Verde: the little archipelago that could“, Equal Times, 8 June 2015.

This is informative, but leaves questions unanswered. Are benefits the same for all recipients, or are benefits reduced for those who have some income, though not enough to lift them above the official poverty line. Do the income- and pension-tests apply to individuals, or to households? Why hasn’t the country moved to full universal pensions, or at least universal minimum pensions (eliminating the income test)? Why are both income-tests and pension-tests retained when they deny coverage to such a small number (less than 10%) of age-qualified residents? How many older persons live in poverty, yet fail to apply for a social pension because of stigma, lack of information or bureaucratic obstacles? On the other hand, how many shameless older persons receive a social pension even though they have incomes above the national poverty line and/or access to a social security (contributory) pension?

Can a reader point us to a source of statistics with which to answer some of these questions?

means-tests for New Zealand’s universal pension?

Friday, May 22nd, 2015

New Zealand’s Labour party is out of office, opposing the ruling centre-right National party. To my surprise, the Labour leader recently brought up the possibility of re-introducing means-tests for the country’s universal pension, known as Superannuation. Some years ago, for a short period, ‘super’ benefits were clawed back from taxpayers with high reported incomes. The income-tests proved to be very unpopular, were removed after a national referendum, and the universal pension became a dreaded ‘third rail’ that politicians – until now – feared to touch.

[Centre-left] Labour leader Andrew Little has raised the ghost of broken promises past with talk of means testing the state pension. ….

On Friday morning, during a post-Budget speech, where Opposition leaders traditionally towel the Government for its lack of vision/broken promises/miserliness/feathering of mates’ nests, he managed to blurt out something that sounded like means testing state superannuation payments [New Zealand’s universal pension].

Now we know it wasn’t that, because his office said so – and so did his finance spokesman Grant Robertson.

But when someone at the top of politics starts musing about whether it is fair that those who continue working past 65 also get the state pension it is hard to think it is anything else. [Emphasis added.]

Unless, that is, what he was nutting around was withholding super from those earning wages and salaries past 65, but not those who earn other income such as dividends, rents, business income or …. capital gains?

Does he, a Labour leader, really think someone working 40 hours a week should miss out on super but not someone earning $2000 a week from investment income? [….]

Little had better have a convincing argument, because his thoughts conjures up memories of the Lange-Bolger years and the dreaded surtax, a form of means testing the universal pension […]. Prime Minister Jim Bolger famously promised to scrap it in 1993 and then retained it – a major reason why [the centre-right National party has]… been so careful to be unequivocal about leaving super alone since they took office.

Vernon Small, “What was Andrew Little thinking?“, Stuff (Fairfax Digital), 22 May 2015.

a Scandinavian solution for tax collection

Sunday, May 17th, 2015

No-one likes paying taxes, yet Scandinavian countries somehow succeed in collecting about 45% of their GDP in tax revenue, compared to about 25% in the US and about 35% in Germany and the UK. “The Scandinavians” writes FT ‘undercover economist’ Tim Harford, “have managed to raise large sums from their citizens without destroying their economies. How?”

[T]he answer is partly cultural.

It is also partly about the comprehensive tax reporting in Scandinavia, which makes outright evasion very difficult. Norwegian tax returns are published for all to examine. ….

Not everyone will feel delighted about an all-seeing government determined to invade privacy in the name of higher taxes. But there are other elements of Scandinavian taxation that any government might want to emulate: Scandinavian countries minimise the distortions of their tax system by avoiding the bad habits of politicians in other countries.

Chief among these habits is targeting a narrow tax base. The US tax system is full of ad hoc deductions and exemptions. The UK system needlessly excludes swaths of the economy from tax. ….

The simplest way to broaden the tax base is to dismantle barriers to getting a job. Scandinavian governments subsidise education, transport and care for children and the elderly, all of which help people to work who might otherwise find themselves stuck at home. As a result, even high taxes do not keep them out of the labour market. [Emphasis added.]

Tim Harford, “Tax: a Scandinavian solution“, Financial Times, 16 May 2015 (metered paywall).

Note that if subsidies for education, transport, child care and elder care are means-tested, the result is high implicit taxes on income from wages.

Mr Harford’s column is gated, but most of the information he draws on is from an AEA journal that is freely available to non-subscribers:

Henrik Jacobsen Kleven, “How Can Scandinavians Tax So Much?Journal of Economic Perspectives 28:4 (Fall 2014), pp. 77-98.

Kleven’s article is part of a symposium on “Tax Enforcement and Compliance” that includes three related articles.

universal pensions in Zanzibar

Saturday, May 16th, 2015

This week Zanzibar’s finance minister, Mr Omar Yussuf Mzee, announced that a year from now all citizens aged 70 years and older will begin to receive a monthly cash benefit in the amount of 20,000 Tanzanian shillings (10 US dollars) a month. The monthly pension might seem small, but it is equal to roughly 20% of per capita GDP, so substantial relative to typical incomes in the territory. On the other hand, life expectancy at birth is only 57 years, so few residents of Zanzibar live long enough to collect a pension that begins at age 70.

The finance minister said care for the elderly had been improved and from April 1, 2016, the government would start paying universal pension to all old citizens aged 70 years and above.

“This universal pension will 20,000/- per month and will be granted to every eligible old citizen, regardless of his current income.

A total of 1.65 billion/- have been earmarked for this purpose,” he said. He said Government Budget Support (GBS) support had played an important role in the budget framework, especially in the execution of development projects.

Issa Yussuf, “Isles unveils 830bn/- donor-weaning budget“, Tanzania Daily News, 14 May 2015.

Zanzibar is a semi-autonomous region of Tanzania. According to the 2012 population census, its population was 1.3 million, a tiny part of Tanzania’s 44.9 million residents. The same census reveals that 36,726 persons, fewer than 2.8% of Zanzibar’s total population, were aged 65 and older. The number in the target group (70 and older) was not reported, but the finance minister implicitly anticipates, in earmarking 1.65 billion shillings for universal pensions, fewer than 7,000 beneficiaries.

It will be interesting to see if the rest of Tanzania follows Zanzibar’s example by introducing universal age pensions. There has been considerable interest in such a project in recent years, stimulated in part by the work of HelpAge International. See, for example, here, here, here, and here.

forced payments and the size of the state

Friday, May 15th, 2015

The always sensible Martin Wolf explains why it is an illusion to think that the size and power of the state can be reduced by forcing citizens to pay for their own pensions, healthcare, schooling and other services. Compulsory private payment for social services is a form of taxation, particularly if the state provides means-tested benefits to the poorest.

On the question of affordability, one must dispense with the fallacy that high taxes doom an economy. It is possible to be internationally competitive and prosperous with higher taxation and lower taxation. ….

The question of what is done via the state and what is done through private action is a social choice. So, too, is the decision on how much income to transfer among households. …. Furthermore, the decision to transfer an area of spending from public to private does not eliminate the cost. To take one example, the US spends far more on health than European countries, although (I would say, because) more of it is privately paid for. ….

[Reducing costs by charging beneficiaries] is highly implausible unless one is prepared to cut sharply into the use of services by the worse off. The attempt to charge generates complex means testing, which creates perverse incentives. If instead, people were encouraged to save for such expenditures, one would either have to provide costly incentives or impose compulsory savings, as in Singapore. Compulsory saving is not so different from taxation, particularly if the state contributes on behalf of the poorest. ….

The [UK] election has delivered a government that has promised to reduce British state spending to US levels. But it is still required to provide services and transfers that meet British expectations. The challenge for the government is to persuade the British that they are happy with US spending. If it succeeds, it will have delivered a political revolution. My bet is that it will fail.

Martin Wolf, “Nothing is certain except death and taxes (or compulsory saving)“, Financial Times, 15 May 2015 (metered paywall).