A perfectly unhealthy storm

Bernard Hickey highlights the major unsettling choices we will need to make soon on healthcare because we will be unable to afford our current system

23rd Sep 12, 10:05am by Bernard Hickey

By Bernard Hickey

What would our health system look like in 2060 if we change none of the entitlements or the way it's paid for?

Would we still be able to afford the current system where any sick resident who needs to go to a hospital can go for free?

Would we still be able to subsidise doctor's visits, vaccinations and prescription drugs?

Would we increase taxes to keep the existing services?

Or would we limit the availability of the less 'discretionary' healthcare to most people and encourage people to take out insurance?

Those are the questions raised by a disturbing new set of forecasts emerging from our economic and government policy makers at a series of seminars being held in Wellington by the Treasury and Victoria University's to debate New Zealand's long term fiscal outlook.

An independent panel is examining Treasury's Long Term Fiscal Model and has rerun the outlook, given the lowering of New Zealand's economic growth potential after the Global Financial Crisis and an ageing population.

The results are unsettling.

With the current settings for taxes and government spending, the ageing of our population and the higher pension and healthcare costs that generates would more than triple the budget deficit to 11.8% of GDP by 2060 and blow out public debt to 170% of GDP from around 14% in 2010. Greek public debt is currently 165% of GDP.

Doing nothing is not an option. It's clear now that economic growth will not solve the problem.

Demographic twist

The scale of the deleveraging now sweeping the developed world and the effects of ageing populations are pressing down on growth rates. We face decades rather than years of slow growth.

The main drivers are rising pension costs and rising healthcare costs as the percentage of the working age population over 65% almost doubles to over 30% by 2060.

The real surge in the number of retired people happens over the next 30 years as the Baby boomers born between 1946 and 1964 retire and age. By 2060 there will be four pensioners for every 9 younger adults.

The taxes of from just two taxpayers will have to pay for the pension and health care costs of one pensioner.

Rising costs compound rising demand

We are belatedly having the debate about the pension costs, thanks to the promptings of Retirement Commissioner Diana Crossan. But we have yet to have one about healthcare, partly because health has been bulldozed off the current political agenda by a truckload of money to cut surgery waiting lists.

Healthcare costs are projected to rise from 6.9% of GDP in 2010 to 11.1% of GDP in 2060. Pension costs are forecast to almost double to 8% of GDP.

Once costs for other beneficiaries and interest costs are paid, there would be no money left for Education, Police, the Defence Force or the Justice System.

That's assuming voters were still in control of their government and could make those choices. More likely, someone from the IMF or the Australian owned banking system would be directing cuts across the board, along with tax increases.

Tough choices

So what choices are today's voters going to make to ensure that doesn't happen? Will they choose means testing of public health? Will they choose to increase tax rates to avoid a blowout in the deficit? Or will they choose to accelerate the budget 'car' into the brick wall by just running up big deficits and debt in the hope that growth will solve all the problems?

Should we invest even more in primary health care now to avoid the high secondary health care costs later?

Should our health system embark on a massive efficiency drive, possibly involving offshore or private outsourcing of facilities and services, to try to cope with the looming storm?

We're certainly not having the debate at the moment.

All of these questions are deeply uncomfortable ones for politicians to address, let alone voters.

But they cannot be ignored for long.

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This opinion piece first appeared in the Herald on Sunday. It is used here with permission.

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39 Comments

by scarfie | 23rd Sep 12, 10:46am 1348353990

Peak oil coming home to roost and the Seneca effect in motion. So the question is even bigger than you pose Bernard as the demographic balance isn't going to correct, but get progressively worse. For lessons on how to approach this then studies of other empires that have fallen at the end of the resource curve need to be studied.

There will certainly be a redefining of "working age".

by Patricia | 23rd Sep 12, 11:23am 1348356190

Many working age middle class people, and their families, take out medical insurance now. But the poor and their families cannot afford it. The real problem is when a person retires and when they turn 70 medical because insurance becomes an impossibility then and especially with an increase in premiums every year after 70. So it all goes back to a living wage for the poor and sufficient extra income over and above super. Means testing super/health care will not solve the problem. In the Guardian this week a correspondent suggested that there be NO public healthcare provided for those over 65. Now that would save the problem......... If there is one..... I still cannot get past the fact that when all the baby boomers were children nobody saw them as a problem and what was provided for them was far more than is provided now.

by steven | 23rd Sep 12, 3:51pm 1348372308

I dont understand your last paragraph....young as a group need little healthcare and it drops from born to young adult as opposed to the same numbers at 65+ which generally need an ever increasing amount til death.

Not so sure on medical insurance for middle class though I guess it depends on whos middle class....dont have stats, would like to see the %s...

The Guardian, dont agree with there is certainly some scope for higher taxes for the better paid, however that can only go so far. The improvements in healthcare, drugs and proceedures makes the demand limitless IMHO....

We should have the debate.....do we do hip ops? do we do hearth transplants? Id say no to either, the first is foreseable, the second way to expensive for a single person...sex changes? LOL....uh no.

regards

by Patricia | 23rd Sep 12, 7:12pm 1348384340

Sorry, bad drafting. What I meant was what was provided for the baby boomers were maternity homes, kindys, schools, primary, intermediates, secondary and universities, plunket, inoculations, dental clinics, apprenticeships,(the staff to do all this too) most of which were a huge drain on a very small work force yet I don't remember those children being regarded as a problem. The costs then were just different sort of costs. Now if we were breeding and had the same problems as the Middle East as well then that could be a problem. Of course a Government could print money to deal with such problem but I know that suggestion is an anathema to you Steven.

by steven | 24th Sep 12, 8:15am 1348431308

The world has moved on....if you look at the level of care that OAPs had in the 60s v today and the expectations its a whole different ball game, really it comes down to maths.

Middle east has a huge problem....but that is a topic all by itself.

Printing...yes I have a huge issue with that...its pretty much economics 101. and it doesnt deal with the problem, it at best can kicks it a few years. IF we were to do that then say a decade from now we would have to have huge interest rates to curb spending, that means un-employment and hardship.

Its actually an anathema with just about any economist you can name (except at the zero bound), backed up with real world examples of how bad it is. I was around when UK Labour tried to do it and it made a huge mess of the economy that took at least a decade to sort....

I fail to see how you cant understand that printing money into existance except in one very specific circumstance (a liquidity trap) isnt a bad thing.

Money is a proxy for energy and indeed items....how can you think that on a finite planet money printing wont cause huge issues?

Now at the zero bound trap Govn spending on one off projects can help us get out of a recession or at least mitigate the worst ie job losses and excessive hardship. The circumstances around that working without inflation are pretty clear though.

a) Be in a liquidity trap.

b) Spend money in such a way that it gives no future expectation of inflation. So one off spends with no future costs, so tax rebates to the tax payer or govn infrastructure projects like replacing bridges or necessary capacity expansions...

c) Targetted and limited. Best done with Govn bonds (not sure but I suspect so) as the money gets taken back out in a known time frame.

Even then it could well be that once we come out of this we flick un-controllably into significant inflation, that in turn causes job losses, hardship etc.

What do we do then? print more?

So OK you print to pay for operations, trouble is that hip op that was $2000 now becomes $2500 when the Govn prints money. Or indeed a double whammy, when you print foreigners demand more money as medical kit is bought in USD....the exchange rate could change 20% as our NZD drops in value (80 cents to 60cents) a huge cost increase alone...

Our problem today of course is the debt / printing cant be under-written ie paid back...but again that is another huge discusion.

regards

by Patricia | 24th Sep 12, 10:30am 1348439448

Shall we use te word "lending" instead? Print to lend. For a specific purpose. With levies/charges that pays it back. Increase taxation. Reinstate death duties. Disallow putting the family home into a Trust. There are a million ways to remove the "loan".

by ngakonui gold | 23rd Sep 12, 12:21pm 1348359661

do resthome subsidies come under healthcare costs?

if so this is the place to start to save.

so many people rorting the system.

hiding assets in trusts,bank accounts in family members names etc.

these people may have paid taxes all their lives but guess what you didn't pay enough.

by steven | 24th Sep 12, 8:25am 1348431924

I think the payments come under WINZ if you cant pay rather than a healthcare cost, and yes it seems there is a wholesale belief that ppl think they shouldnt pay for the resthome so try and dodge it. In terms of dodging I think that IRD/WINZ now can look at trusts and transfers to children and say tough, and count it in your assets for means testing.

regards

by Optimist | 23rd Sep 12, 1:08pm 1348362493

Working in the health industry I see the problem you mention Bernard gettting more evident every year.

It is a very large and real problem already, which will obviously get much larger.

The bottom line is that more and more people will not recieve the healthcare that feel they are entitled to as there will not be the resources to fund it. Preventative health care will only be ecomomically beneficial for the country until the person retires. Most people when they retire are in effect beneficiaries. There is no economic benefit having someone on a benefit for 30-40 yrs with exponentially increasing costs as they age and accumulate more medical conditions. To use an extreme and non-PC example it would be more economic if poeple smoked and worked a full productive life to the age of 65 then retired and died shortly after from a cardiac arrest due to their smoking.

An another (obviously extreme) example to illustrate the point. 1. in 1965 a 60 yr old woman fractures her hip. there is a signifcantly probablity she will be dead within the next 6 weeks due to a blood clot or pneumonia from being immobile in bed - no more medical costs and no superanuation to be paid. 2. Now take that same 60 yr old woman in 2012, she will get a hip joint replacement total cost about $15,000, she will then grow old enough to get angina and have stents or coronary surgery for $20,000, and associated medication for life $20,000, and with these interventions she is kept alive and then develops dementaia at age 80 and spends the last several years of her life in a rest home at cost of $200,000.

Compare case 1 with case 2, where does the extra money come from? - also in case 2 they will be getting superanutain through all those years.

Medicine is a political football and it would be political suicide for any political party to make the major changes which are obviously required. We currently see lots of rearranging of the deck chairs.

Their is a limit to how many can be supported by how few, especially regarding mdical costs. More and more poeple will not get the healthcare they feel they are entitled too, and will suffer or die eralier than they would otherwise, unless they can pay for more of it themselves.

But then not everyone gets overseas trips and has a flash car or house. However we in NZ still have a very "socialist" type public health system that we think will just continue on as it is, but it won't.

Expect to see bigger health inequality in NZ. Those who can pay for healthcare will get it.

Major changes are required, these can be planned or occur by nescessity - the later more likely.

Maybe we need to limit the number of beneficeries (including retirees) to say maxium 20% of the population and have a "floating retirement age" so it stays at 20%? Such a system would likely be viable. Just not sure what work a lot of the 70 and 80 yr olds could do? Maybe looking after the grand kids and extended families living and co-operating more, under one roof? - would save a fortune on housing, travel and appliances, insurance. Plenty of constructive things that could be done.

by Kate | 23rd Sep 12, 1:37pm 1348364274

Good post - two extrmemely good comparisons. Know an 80+ yo who recently feinted to an unconscious state, went to hospital by ambulance, was resusitated and is back at home now. Cause of the episode - the doseage/combination of circulatory system 'management' medications. Why is this person on all those meds? To prolong life beyond what nature intends.

by Gibber | 23rd Sep 12, 1:48pm 1348364936

love it when those elderly feint when I'm playing them at cards.

Not so keen when they faint. Disrupts the game

by Casual Observer | 23rd Sep 12, 2:44pm 1348368253

also in case 2 they will be getting superanutain through all those years. Do you not know optimist, or did you deliberately fail to mention, that when someone is in govt supported care, their super is taken to pay for their cost of care. An elderly friend was in care and all but $14pw was taken from their super to go to the cost of their govt supplied care. They also got a once ayear $70 payment to go towards clothes etc. So while yes, technically, they receive super, they don't actually get to spend it, other than $14pw.

by Anarkist | 23rd Sep 12, 7:01pm 1348383687

Why do only see the cost side of the balance sheet? Why not look upon growth of future healthcare as a potent source of economic growth? I see the people's persistence in making a strict dichotamy between the activities of the State and the private sector as a silly convention. Its responsible for avoidable though understandable oversights. Since the healthcare portfolio just happens to be on the government's, because its seen as a government responsibility its easier to see as a societal cost. If it were a private sector activity its likely it would be seen as a profitable industry with good growth prospects. Only the more gloomy Greens questions whether we can afford to bear the cost of feeding our country.

There is no finite pool of capital which can be fully employed. There is no danger of running out of money. Money is almost entirely an emphemeral artifact. Capital will come into existence when there is a demand for it. Tremendous investments in healthcare could be made which would transform it from being seen as an affordable cost to a marvelous boon for the economy. Healthcare infrastructure (hospitals, healthcare centres, training institutions, research centres), medical research, medical tourism, and all the ancillary industries that would grow off that.

by steven | 24th Sep 12, 8:57am 1348433823

Not only at 60....they now do hips past 80 in the UK (dont know about NZ?)....bottomless....

by Neven911 | 24th Sep 12, 10:55am 1348440939

80! nuttin, my ex mother in law had on done in the past two years and she's 92. Having said that she still lives in her own home and this is the first major medical procedure she has ever had (was a fitness instructor...'retired' at 70 can still touch her toes!), So you can't penalise someone for a healthy life or can you? The worst ones are those that don't pop off at 65 but linger unhealthily

Neven

by Von | 24th Sep 12, 1:29pm 1348450196

Whoa there - wait a minute. I turned 65 last week (yeah I'm a Baby Boomer) and I can assure you that besides some genetically related health problems now catching up with me in my dotage, I am probably fitter than a lot of 40 year olds out there! Bike every day, garden, watch my weight, eat really healthy meals, work part time, and okay I will receive superannuation this week for the first time. I gave up health insurance a few years back as my husband is 4 years older than me - and yes he's fit too - but the premiums were going up every year to astronomical costs.

I do not consider myself a burden on the health costs of New Zealand and neither were my parents before me. My father died last year age 91 and it was only in the last two years of his life that he required care. My husband's mother is 88 and still going strong, not requiring any assistance and lives in her own home.

Don't judge elder folk out there all you young ones in cyberspace because believe me, blink and you will soon be here. Advice, start living healthy now - invest in your own health as I did most of my life and hopefully you won't be a burden to anyone. Oh and I know a lot of other "boomers" who are exactly like me.

by Kate | 23rd Sep 12, 1:27pm 1348363620

So much of what "ails" us comes down to lifestyle choices. Don't means test based on income but rather based on lifestyle choices. Obesity, for example, is probably one of the worst threats to health expenditure going forward. I saw the Minister for Social Development on the telly this mroning and thought .. gee she's going to cost taxpayers alot in future - bad hips, bad heart, circulatory problems and likely diabetes if she isn't already being treated for it. And she's bagging parents who don't send their kids to daycare (weel, 'early childhood education' that is and at the taxpayers expense I might add!). There is so much about this government that defies logic.

by Casual Observer | 23rd Sep 12, 3:18pm 1348370327

So much of what ails us is also genetic Kate. Blame the hippocratic oath and pharmeceutical companies for our long lived friends/family surviving on medication. ;-)

I remember seeing Dr John Mayhew on tv at the time he was All Blacks Dr. He said people often associated size with fitness and good health. However a person's size is not necessarily a gauge of health status. He said a bigger person who is fit will be healthier than a skinny person who never exercises. He said that waist size is a better guide than taking just the size of the person in to account. He was proud to say that none of the All Blacks under his watch at that time, had a waist measurement of over 100cm, which is the guideline for men. It is 88cm for women.

We should have voluntary euthanasia in NZ.

by Basel Brush III | 23rd Sep 12, 3:33pm 1348371213

What about "'migrant substitution"'

Our apparent nearly equal migrant inwards versus outwards figures show a huge number of working citizens and dependants exiting while we allow immigrants in under family unification schemes. Hence we will have large numbers of oldies who have made little if any contribution to the tax system other than acting as baby sitters so immigrant parents can both work. Chances are that any existing health issues with not be declared or picked up on arrival and we then carry the burden.

by Wolly | 23rd Sep 12, 3:49pm 1348372170

So why can't surgery be carried out in India...lower costs...why would it be a problem...air fares and accommodation all sorted...Curry in the wards. Notice how the price of some drugs in the supermarts are way lower than certain brands...like half the price...made in India!...And why not involve some of the Pacific island nations in a scheme to house and care for old Kiwi coots...yet more savings to be had...

by auckguy | 24th Sep 12, 10:59am 1348441199

This practice has been offered for a few years already by Malaysia/Singapore's tourism. They call it "healthcare tourism".

by KH | 23rd Sep 12, 4:13pm 1348373589

Bernard heaves in 'deleveraging' into his post like it is a problem. However we should rename 'deleveraging' into say 'family wealth creation'. Bernard might then work out that it is a solution, not a creator, of the issues he poses.

Families who build equity, or create savings, or just put themselves on an ownership basis do that by reducing debt. And the families who do that are in the best position to look after themselves on old age. Including their health. Truely health insurance can become unaffordable after about 70 years with premiums of $12K+ pa for a married couple. But there are many who do have it and take the pressure off the state.

Similarly we are developing as a nation of renters. Fine for a few decades. But the inevitable demograpic result is that many of those high earners, now renting, will find themselves needing council housing when they hit an age wall in their sixties and their income drops off the cliff. And they will need support for everything else including health care.

it's time Bernard to promote wealth creation and equity. Deleveraging is good. A high GDP based on continuing debt is just an illusion of busyness and won't help us in anyway, including the nations healthcare needs.

by steven | 23rd Sep 12, 4:57pm 1348376244

Deleveraging is a problem but thats just the first, though maybe its all interlinked. The wealth creation you tout is a myth, its really resource explotation....and when you have 100+ years of significant population doing it, it cant just keep going. We are at or about the limits of it now and worse we cant stay at that level.

I dont know where you are or get such info on high earners renting. For my far more modest income level most ppl I know own at least one house (their own) and a rental or 4 isnt un-common. I would suggest the high earners who rent are few and far between, except those who expect a depression shortly but if Auckland house sales is an indication thats very few.

Deleveraging is painful, its necessary, not sure about good as the boost more debt has given our economy (say 10% per annum) is/ was significant. Consider when its paid back its about the same amount or more, so 15~20% less $s going into our economy a huge recessionary hit. ie Thats the 10% debt boost removed plus paying old debt down at the rate it was taken on....say 10%, so 20%. That level is 20 years of recession....I cant see it, I think its going to be defaulted on....big time.

Then we look at the costs of x2 the OAPs both pension payouts and healthcare....on an economy that is shrinking.......

Then factor in Peak oil..........

I cant see this being a small event.

regards

by KH | 23rd Sep 12, 6:13pm 1348380814

Your point well made and my comment about high earners was a little loose. But renting is a problem when people get old and income drops. There is a need for older persons social housing generated by the renters group. And they require external support for their health care as well. Renting is on the rise. There is a demographic wave in the future from this that will crate a problem.

People who deleverage potentially assist the GDP growth that Bernard desires. In the end they are wealthier, live better and consume more.

by Stephen Hulme | 23rd Sep 12, 5:09pm 1348376943

Can someone define with numbers collective net deleveraging taking place in New Zealand?

The necessity to deleverage liabilities not matched by failed or mulitple instances of rehypothecated assets is not something that is prevalent in New Zealand since our shadow banking system is possibly non-existent when compared to offshore instances of such activities.

by iconoclast | 23rd Sep 12, 5:43pm 1348379034

It is doubtful that the evidence you are looking for can be provided.

On a local basis, the only deleveraging of note was the collapse of the "finance company" sector and its conduit activities into the "developers". That has already happened. The other side of that equation were the depositors who have taken the haircut. The only residue is the $1.5 billion bail-out (transfer of assets) from South Canterbury Finance to the Government. That de-leveraging has yet to conclude. Add in Crafar Farms and that Russian Dairy Company.

On a global basis, the "tell-tales" you should consider are these. In the US the only deleveraging of note are homeowners who have been foreclosed. Otherwise the Federal Reserve has undertaken 6 programs of "prevention" to avoid deleveraging, and the latest program is open ended, which is telling you the US is prepared to go to any lengths to avoid deleveraging. It hasn't happened and isn't happening.

Bernard throws the "deleveraging" term around like a "pearl-of-wisdom" without substance.

by Poission | 23rd Sep 12, 7:28pm 1348385322

In the US the only deleveraging of note are homeowners who have been foreclosed.

The limitations of the US property to deleverage correctly was for a numer of reasons.The correction was very fast ie property prices dropped substantially,the rush for the exits was limited and hence it is still incomplete and beyond the minsky moment in some cases.

Secondly property is illiquid it is difficult to realise quickly,and there are substantive exit costs such as federal property WHT of around 10% ( it can be even more restricitve for non residents Hawaii for example having an additional 5%)

This is a constraint for the US baby boomers who are seeking to realign investments.

by scarfie | 23rd Sep 12, 7:40pm 1348386032

My belief is that deleveging is a mathematical impossibility. Options are inflate or default. Will be interesting to see how it pans out though.

by KH | 23rd Sep 12, 7:57pm 1348387049

Scarfie. Deleveraging is not impossible. I buy a house. I borrow to make it possible. I leverage my initial stash. I drive the mortgage down (deleverage).

Your deep and meaningful contribution - well it needs to be a little more grounded.

by Poission | 23rd Sep 12, 8:18pm 1348388320

deleveraging is a mathematical impossibility

In mathematics very little is impossible,it is possible for example to prove the impossible

almost surely eg Hilberts 10th problem was solved as an inverse problem eg Matiyasevich

As a physical (real problem) I agree,the forcing has a positive feedback reinforcing the problems that it is often meant to solve and hence increasing instability in the system it was meant to induce stability in.

The fundamental problem is that there needs to be a more altrusic approach to what is needed ,what can be done,and what constraints do we need to limit the same emerging problems arising again say in asset bubbles.

there is a nice review by Yellen of the SF fed here.clearly the Orthodoxy is not an option and it might be time to nail Minskys thesis to the doors of the Incumbent a reformation so to speak.

by KH | 23rd Sep 12, 6:10pm 1348380619

HaHa. Yes that is my point. Bernard tosses the 'deleveraging' word about like is a given bad thing. And yes, we need to query that assumption. It doesn't stack up to me.

As to if it is actually occuring. ?? But my interest is in individual families. What is maddening is that as families rich and poor do what they can to drive down debt, entities such as local authorities increase families liabilities by proxy.

by moa man | 23rd Sep 12, 7:05pm 1348383922

Nothing wrong with deleveraging.

Debt, like religion, is the opium of the people, keeps them quiet and happy whilst having the soul sucked out of them.

by Wolly | 24th Sep 12, 6:40am 1348425650

I understand a secret working group is flat out planning to organise a private clinic in India to become the first base for surgical operation on elderly Kiwi with an aim to reduce the costs inside NZ and help Tweak cross the surplus finish line.

Hey it's a good idea.

by stp | 24th Sep 12, 8:45am 1348433130

Nature will take its course. Only rich and ....nothing for a while then strong will survive....So no problem in a long run.....Nature is always right.....

by benwave | 24th Sep 12, 9:00am 1348434039

Judging by the example of America, moving to more user-pays charges for medical care would likely end up with everybody paying more... and the difference being paid to insurance companies.

by boofhead | 24th Sep 12, 10:02am 1348437766

What about a healthcare tax levy. The percentage rate payed would depend on the age one is when its introduced. So if you start paying at 18 you pay much less than if you start paying at say 50. And none of this start it in twenty years business to avoid upseting the boomers lol!!!

Ofcourse high earners would end up paying in more which would piss some people off. But the fact is we need people to stack the supermarket shelves, cleaners, aged care workers etc. Without them society would not function so someone has to do the undesirable jobs, and I for one would not like to see the US situation where low income earners are sent home to die because they cant afford insurance.

by WHODUNNIT | 24th Sep 12, 1:37pm 1348450653

I believe I have a worthwhile suggestion as regards the problem of insufficient funds to pay for true universal Healthcare without destroying the county's economy ...

A new Government Insurance Company [ The G I O ?] could be set up incorporating the currect ACC infrastructure - or at least that part which is deemed appropriate , and this new entity would also be responsible for providing COMPULSORY Third Party Vehicle insurance along with acting as specific provider of both Central Government [ where required] Local Body and School /University insurances, EG: Valid levels of Earthquake Fire, and General property Insurance ] plus other "High Value" [ Professional Indemnity for defined groups for example ] insurance coverage

All of which would be in addition to a National Health Insurance Scheme which would be additionally funded by direct deductions through a small % of PAYE.[ 0.25%....???]

The nett result of the combined handling of such large levels of total insurance business should easliy make the organisation capable of obtaining attractive Re- insurance arrangements in the same way that the current crop of rapacious private sector insurance companies.

The overall reason for its existence would of course be quite different from the private insurers in that it would - a bit like Pharmac - be responsible for getting the very best possible deal for NZ as a whole at the same time as addressing the current systems inherent inequities.

This is very much a "concept under development" and I am by no means certain thathe idea could be made to work but it does seem to offer some potential....? anyone care to comment ???

by Brian | 24th Sep 12, 10:02pm 1348480967

Hi Bernard,I find the debates about how the govt. will fund future expenditure whether in health, education, etc to be somewhat confusing and you may be able to clear up some concepts about how our Govt.operates at the marco level.Govt. spending is in no case operationally constrained by revenues: meaning that there is no slovency risk. In other words the govt. can always make any and all payments in its own currency,no matter how large the deficiit is or how few taxes it collects.If the govt. does'nt tax because it the need the money to spend,Why tax at all?From my limited understaanding, the govt. taxes to regulate spending power.That means that if the economy is to hot so to speak, raising taxes will cool it down, and likewise, cutting taxes will warm it up.Taxes are about regulating our spending power to make sure we don't have too much and cause inflation, or to little which causes unemployment and recessions.Another thing you might like to cmmment on is that govt. deficits mean we are leaving our debt burden to our children.In real terms surely this is impossible.Debt or no debt our children will get to consume whatever they produce.Do deficits take away from savings or add to savings and conversely bugdet Surplus take away private savings.The idea that social welfare is in trouble because govt. won't be able to make future payments.Surely as a country that has monopoly on issusing its own currency it can make all its payments in a timely manner by marking up peoples accounts at banks simply by marking those accounts upwards from the govt.computer.We hear all the time that the trade deficit is unsustainable inbalance that takes away jobs and output.If countrys want to sell us there goods and accept payment in N.Z. dollars what is the real problem? Imports improve our stndard of living.Jobs are lost because taxes are to high for a given level of govt. spending.I could go on, surfice to say debating the different options seems pointless if a real understanding of how the economy operates in the real world isn't understood.Regards.

by Robo47 | 25th Sep 12, 8:08pm 1348560512

I will be castigated for my comment here. I have worked in Procurement in both public and private healthcare so have some clue....

In my view, the problem is that healthcare is free, or supposedly so. While the aging population will increase demand, the cost for doing many procedures, should go down, due to improved technology, minimal invasive surgery, many surgical procedures should cost less and less but the don't. Healthcare inflation runs ahead of the rest of the economy.

This occures for a number of reasons, one of courese is the cost of medical research, but these costs are generally recoverd when new technology is under a patent, once the patent is gone, competitors come in and product costs go down. The major reason for the high healtcare inflation is the fact that it is mostly government funded, suppliers and those selling labour, see governments increasing the budget for healthcare, so they increase their prices to capture the same share of the health budget.

Many suppliers get away with this practise because they sell to the end user of the product, not the paitent nor the buyer, ( much to my frustration as a procurement professional). The end users are mdeical professionals who have minimal concern for cost and total concern for their job, some of which is curing the patients and some is getting what they can out of their employment. This situation leaves the door open for much coercion. I have seen surgeons refuse to be involved in trails due to the "competitor giving me too much money". As flatly as that. Go ask your local hospital thearter manager how many operations where cancaled during the rugby world cup!

I could go on with stories that would make you go red with rage about the waste and really down right corruption.

In fact many senior medico's resort to telling you to F**K off when their suuply contracts are reviewed using procurement staff, and questions are asked about why we pay so much. This practise has, or did when I was involved, create a culture of fear mentality where lower level staff will refuse to ask senior staff to try a new and cheaper product for fear of being yelled at.

While these issue are only part of the problem, the unhealthy hierarchical and aggressive approach to fending off change is a bigger problem.