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Archive for the ‘Switzerland’ Category

I’m in Geneva, Switzerland, where I just gave a speech about how international bureaucracies such as the OECD are seeking to undermine tax competition in hopes that the welfare state can be propped up for a few more years with ever-higher taxes.

But regular readers already know my views on these issues, so instead I want to focus today on a referendum that just took place a couple of days ago in this Alpine nation.

That referendum has convinced me that I was wrong when I wrote a few years ago that there were five reasons (government-constraining federalism, pro-gun culture, etc) to put Switzerland above the United States.

I’m not convinced there’s a 6th reason. Simply stated, the Swiss have to be the most sensible people in the world.

Here are some excerpts from an English-language report published by Swiss Info.

An attempt to federalise Switzerland’s inheritance tax system and redistribute wealth by taxing legacies worth more than CHF2 million ($2.15 million) has been rejected by Swiss voters… On Sunday, 71% of voters and all 26 Swiss cantons rejected the proposal. …Two-thirds of the revenue from this new tax, projected at CHF3 billion a year, would have been credited to the nation’s old age pension fund.

Yes, you read correctly. The Swiss left thought they could lure voters into supporting a tax hike based on a discriminatory tax on a tiny segment of the population.

But an overwhelming share of Swiss voters rejected this class-warfare scheme. Here’s a map of the results. But instead of liberal blue states and conservative red states that are found in the United States, Switzerland has nothing but conservative brown cantons.

The German-speaking cantons voted no. The French-speaking cantons voted no. And the Italian-speaking canton voted no.

It’s almost enough to make one feel sorry for Swiss statists.

…the political left has continued its losing streak at the ballot box. In the past two years voters have rejected pay caps within companies, the introduction of a nationwide minimum wage and a plan to scrap lump sum taxation for rich foreigners. …Supporters of the plan countered that the overall tax burden in Switzerland is still one of the lowest in Europe.

Though I have to wonder if Swiss leftists are extraordinarily stupid.

Did they really think that complaining about low taxes was the way to win an election?!?

I can just imagine what went through the minds of ordinary Swiss voters: “hmm…we’re richer than our high-tax neighbors and we’re growing faster than our high-tax neighbors…should we copy them or maintain the policies that have worked?”

Opponents had a more compelling argument.

Several politicians and media described the tax as a “KMU Killer”, referring to the German abbreviation for small and medium-sized businesses, which employ more than three-quarters of the Swiss workforce. Businesses said it would have been an effective double tax on income since firms already pay tax on earnings. …Switzerland’s cabinet, both houses of parliament and all 26 cantons had recommended voters reject the proposal, as did the main business lobbies.

Needless to say, I appreciate the argument about double taxation. That’s the obvious economic argument against the death tax.

But what makes Switzerland remarkable is the last part of the excerpt. It appears that the entire Swiss political establishment, as well as the entire business community, understand that it would be crazy to kill the low-tax goose that lays the golden economic eggs.

But ultimately, you have to give credit to the Swiss people. As mentioned in the article, they keep rejected statist proposals.

Here are a few I’ve written about.

Needless to say, my favorite Swiss referendum took place back in 2001, when 85 percent of voters imposed a spending cap on the central government. As explained in this video, this system has been remarkably effective at limiting the growth of government.

P.S. Oregon voters and California voters, by contrast, are far less discerning than their Swiss counterparts.

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Back in March, I shared a remarkable study from the International Monetary Fund which explained that spending caps are the only truly effective way to achieve good fiscal policy.

And earlier this month, I discussed another good IMF study that showed how deficit and debt rules in Europe have been a failure.

In hopes of teaching American lawmakers about this international evidence, the Cato Institute put together a forum on Capitol Hill to highlight the specific reforms that have been successful.

I moderated the panel and began by pointing out that there are many examples of nations that have enjoyed good results thanks to multi-year periods of spending restraint.

I even pointed out that we actually had an unintentional – but very successful – spending freeze in Washington between 2009 and 2014.

But the problem, I suggested, is that it is very difficult to convince politicians to sustain good policy on a long-run basis. The gains of good policy (such as what was achieved in the 1990s) can quickly be erased by a spending binge (such as what happened during the Bush years).

Unless, of course, there’s some sort of constraint on the desire to spend money. And the panelists discussed the three most successful examples of reforms that constrain the growth of government.

We started with a presentation by Daniel Freihofer from the Swiss Embassy. He talked about Switzerland’s “Debt Brake,” which actually is a spending cap.

It’s remarkable how well Switzerland has performed while most other European nations have suffered downward spirals of more spending-more taxes-more debt. Here’s a chart I put together on what’s happened to spending in Switzerland ever since 85 percent of voters imposed the Debt Brake early last decade.

By the way, Herr Freihofer said during the Q&A session that support for the Debt Brake is now probably about 95 percent, so Swiss voters obviously understand that the policy has been very successful.

Our second speaker was Clement Leung, Hong Kong’s Commissioner to the United States. He talked about Article 107 and other rules from Hong Kong’s Basic Law (their constitution) that limit the temptation to over-tax and over-spend.

And if you want to see some of the positive results of these rules in Hong Kong, here’s some of what Commissioner Leung presented.

By the way, the burden of government spending in Hong Kong averages about 18 percent of economic output. That’s the most impressive result. And Commissioner Leung explained that there’s a commitment to keep the burden of spending below 20 percent of GDP.

The final panelist was Jonathan Williams from the American Legislative Exchange Council, and he talked about Colorado’s Taxpayer Bill of Rights, popularly known as TABOR.

Jonathan talked about how the pro-spending lobbies keep attacking TABOR, and he mentioned that they narrowly succeeded in getting a five-year suspension of the law back in 2005. But Colorado voters generally understand they have a good policy.

The most recent attempt to enable more spending came in the form of an increase in the state’s flat tax back in 2013 and voters rejected it by a stunning 66-34 margin (almost as impressive as the recent vote against tax hikes in Michigan) even though Jonathan said advocates outspent opponents by a 289-1 margin.

Here’s a slide from his presentation showing what happened during other attempts to enable more spending.

By the way, Jonathan also mentioned that Colorado’s voters are about to get a TABOR-mandated tax cut because taxes on marijuana are pushing revenues above the limit. Talk about a win-win situation!

To wrap up, one of the big lessons from all the presentations is that governments generally get in trouble because they can’t resist over-spending when the economy is doing well and generating lots of tax revenue.

I fully agree, and I’ve previously explained this is why Alberta got in fiscal trouble, and also why California suffers a boom-bust budgetary cycle.

The way you solve this problem is not with a balanced budget requirement (which often serves as the justification for tax hikes), but some sort of spending limitation rule.

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It’s not very often that I applaud research from the International Monetary Fund.

That international bureaucracy has a bad track record of pushing for tax hikes and other policies to augment the size and power of government (which shouldn’t surprise us since the IMF’s lavishly compensated bureaucrats owe their sinecures to government and it wouldn’t make sense for them to bite the hands that feed them).

But every so often a blind squirrel finds an acorn. And that’s a good analogy to keep in mind as we review a new IMF report on the efficacy of “expenditure rules.”

The study is very neutral in its language. It describes expenditure rules and then looks at their impact. But the conclusions, at least for those of us who want to constrain government, show that these policies are very valuable.

In effect, this study confirms the desirability of my Golden Rule! Which is not why I expect from IMF research, to put it mildly.

Here are some excerpts from the IMF’s new Working Paper on expenditure rules.

In practice, expenditure rules typically take the form of a cap on nominal or real spending growth over the medium term (Figure 1). Expenditure rules are currently in place in 23 countries (11 in advanced and 12 in emerging economies).

Such rules vary, of course, is their scope and effectiveness.

Many of them apply only to parts of the budget. In some cases, governments don’t follow through on their commitments. And in other cases, the rules only apply for a few years.

Out of the 31 expenditure rules that have been introduced since 1985, 10 have already been abandoned either because the country has never complied with the rule or because fiscal consolidation was so successful that the government did not want to be restricted by the rule in good economic times. … In six of the 10 cases, the country did not comply with the rule in the year before giving it up. …In some countries, there was the perception that expenditure rules fulfilled their purpose. Following successful consolidations in Belgium, Canada, and the United States in the 1990s, these countries did not see the need to follow their national expenditure rules anymore.

But even though expenditure limits are less than perfect, they’re still effective – in part because they correctly put the focus on the disease of government spending rather than symptom of red ink.

Countries have complied with expenditure rules for more than two-third of the time. …expenditure rules have a better compliance record than budget balance and debt rules. …The higher compliance rate with expenditure rules is consistent with the fact that these rules are easy to monitor and that they immediately map into an enforceable mechanism—the annual budget itself. Besides, expenditure rules are most directly connected to instruments that the policymakers effectively control. By contrast, the budget balance, and even more so public debt, is more exposed to shocks, both positive and negative, out of the government’s control.

One of the main advantages of a spending cap is that politicians can’t go on a spending binge when the economy is growing and generating a lot of tax revenue.

One of the desirable features of expenditure rules compared to other rules is that they are not only binding in bad but also in good economic times. The compliance rate in good economic times, defined as years with a negative change in the output gap, is at 72 percent almost the same as in bad economic times at 68 percent. In contrast to other fiscal rules, countries also have incentives to break an expenditure rule in periods of high economic growth with increasing spending pressures. … two design features are in particular associated with higher compliance rates. …compliance is higher if the government directly controls the expenditure target. …Specific ceilings have the best performance record.

And the most important result is that expenditure limits are associated with a lower burden of government spending.

The results illustrate that countries with expenditure rules, in addition to other rules, exhibit on average higher primary balances (Table 2). Similarly, countries with expenditure rules also exhibit lower primary spending. …The data provide some evidence of possible implications for government size and efficiency. Event studies illustrate that the introduction of expenditure rules is indeed followed by smaller governments both in advanced and emerging countries (Figure 11a).

Here’s the relevant chart from the study.

And it’s also worth noting that expenditure rules lead to greater efficiency in spending.

…the public investment efficiency index of DablaNorris and others (2012) is higher in countries that do have expenditure rules in place compared to those that do not (Figure 11b). This could be due to investment projects being prioritized more carefully relative to the case where there is no binding constraint on spending

Needless to say, these results confirm the research from the European Central Bank showing that nations with smaller public sectors are more efficient and competent, with Singapore being a very powerful example.

One rather puzzling aspect of the IMF report is that there was virtually no mention of Switzerland’s spending cap, which is a role model of success.

Perhaps the researchers got confused because the policy is called a “debt brake,” but the practical effect of the Swiss rule is that there are annual expenditures limits.

So to augment the IMF analysis, here are some excerpts from a report prepared by the Swiss Federal Finance Administration.

The Swiss “debt brake” or “debt containment rule”…combines the stabilizing properties of an expenditure rule (because of the cyclical adjustment) with the effective debt-controlling properties of a balanced budget rule. …The amount of annual federal government expenditures has a cap, which is calculated as a function of revenues and the position of the economy in the business cycle. It is thus aimed at keeping total federal government expenditures relatively independent of cyclical variations.

Here’s a chart from the report.

And here are some of the real-world results.

The debt-to-GDP ratio of the Swiss federal Government has decreased since the implementation of the debt brake in 2003. …In the past, economic booms tended to contribute to an increase in spending. …This has not been the case since the implementation of the fiscal rule, and budget surpluses have become commonplace. … The introduction of the debt brake has changed the budget process in such a way that the target for expenditures is defined at the beginning of the process, which must not exceed the ceiling provided by the fiscal rule. It has thus become a top-down process.

The most important part of this excerpt is that the debt brake prevented big spending increases during the “boom” years when the economy was generating lots of revenue.

In effect, the grey-colored area of the graph isn’t just an “ideal representation.” It actually happened in the real world.

Though the most important and beneficial real-world consequence, which I shared back in 2013, is that the burden of government spending has declined relative to the economy’s productive sector.

This is a big reason why Switzerland is in such strong shape compared to most of its European neighbors.

And such a policy in the United States would have prevented the trillion-dollar deficits of Obama’s first term.

By the way, if you want to know why deficit numbers have been lower in recent years, it’s because we actually have been following my Golden Rule for a few years.

So maybe it’s time to add the United States to this list of nations that have made progress with spending restraint.

But the real issue, as noted in the IMF research, is sustainability. Yes, it’s good to have a few years of spending discipline, but the real key is some sort of permanent spending cap.

Which is why advocates of fiscal responsibility should focus on expenditure limits rather than balanced budget requirements.

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I’m a huge fan of Switzerland, largely because its voters approved a spending cap that should be a role model for other nations.

It’s called the “debt brake” and it has helped reduce the burden of government spending in Switzerland at a time when most nations in Europe have been moving in the wrong direction.

But that’s not the only reason I like Switzerland.

I also appreciate the fact that Swiss voters seem to be much more sensible than voters in other nations.

Every so often I see polls, for instance, suggesting that French voters overwhelmingly want less government spending. But then they go out and elect statist presidents such as Sarkozy and Hollande.

In Switzerland, by contrast, voters are sensible where it counts most – in the voting booth.

Earlier this year, 76 percent of voters rejected a minimum wage hike.

Back in 2010, nearly 60 percent of voters shot down a class-warfare proposal for higher taxes on the rich.

And they’ve done it again. In a recent referendum, they defeated a government-run healthcare system by a landslide.

Here are some excerpts from an AFP report.

Swiss voters on Sunday rejected a plan for a seismic shift from the country’s all-private health insurance system to a state-run scheme. Referendum results showed that almost 62 percent of voters had shot down a reform pushed by left-leaning parties. …”The Swiss population does not want a single national scheme,” said the Swiss Insurance Association. “Our health system is among the top performers in the world. Competition between health insurers and freedom of choice for clients play a major role in this,” it added. …The rejection of the plan by nearly two-thirds of voters is a major blow for pro-reform campaigners, given that opinion polls had shown the ‘No’ vote was likely to be around 54 percent. In a 2007 referendum, 71 percent of voters rejected similar reforms. …for Switzerland’s cross-party government and its right- and centre-dominated parliament, the current system has proven its mettle and is debt-free, unlike the health services of France, Italy or Britain.

Though it seems that speaking French is somehow linked to economic illiteracy.

German-speaking regions voted against the plan, while their French-speaking counterparts were in favour.

Back in 2011, I wrote that there were five reasons why Switzerland was better than the United States.

But perhaps I wasn’t being sufficiently enthusiastic. Over at Being Classically Liberal, there’s an article entitled “9 Reasons Libertarians Should Love Switzerland.” Here’s the bottom line.

The Swiss are rich, happy, gun-owning, peace-loving people. The country has one of the freest market economies in the world and a relatively small and very decentralized government which hasn’t waged war since the early 19th century. In this libertarian’s eyes, Switzerland might just be the most awesome country in existence.

I’m agnostic on whether Switzerland is the “most awesome.” Hong Kong and Singapore, for instance, have smaller government.

That being said, Switzerland is much better on both guns and federalism.

And if you believe in grading on a curve, the burden of government spending in Switzerland is far smaller than it is in neighboring nations.

So it is a very admirable place.

Though I haven’t given up on America quite yet. And if I ever do, I’ll still choose Australia over Switzerland.

P.S. While it is encouraging that Swiss voters overwhelmingly rejected a single-payer healthcare scheme, I should acknowledge that their current system is not exactly libertarian Nirvana since it mandates that households purchase a health insurance policy.

P.P.S. But I don’t want to close on a bad point, so I’ll simply call your attention to the fact that Switzerland has one of the lowest levels of welfare spending among industrialized nations.

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I’m beginning to think that people from some nations are smarter and more rational than others.

That may explain, for instance, why voters in Estonia support fiscal restraint while voters in France foolishly think the gravy train can continue forever.

But I’m not making an argument about genetic ability. Instead, what I’m actually starting to wonder is whether some political cultures yield smarter and more rational decisions.

Switzerland is a good example. In a referendum this past weekend, an overwhelming majority of voters rejected a proposal to impose a minimum wage. Here are some excerpts from a BBC report.

Swiss voters have overwhelmingly rejected a proposal to introduce what would have been the highest minimum wage in the world in a referendum. Under the plan, employers would have had to pay workers a minimum 22 Swiss francs (about $25; £15; 18 euros) an hour. …critics argued that it would raise production costs and increase unemployment. The minimum wage proposal was rejected by 76% of voters. Supporters had argued it would “protect equitable pay” but the Swiss Business Federation said it would harm low-paid workers in particular. …unions are angry that Switzerland – one of the richest countries in the world – does not have a minimum pay level while neighbouring France and Germany do.

Every single Swiss Canton voted against the minimum wage.

That means the French-speaking cantons voted no, even though the French-speaking people in France routinely support politicians who favor bad policy.

That means the German-speaking cantons voted no, even though the German-speaking people in Germany routinely support politicians who favor bad policy.

And it means that the Italian-speaking canton voted no, even though the Italian-speaking people in Italy routinely support politicians who favor bad policy.

So why is it that the same people, genetically speaking, make smart decisions in Switzerland and dumb decisions elsewhere?

I don’t have an answer, but here’s some more evidence. As you can see from these passages in a New York Times story, the Swiss have a lot more common sense than their neighbors.

“A fixed salary has never been a good way to fight the problem,” said Johann Schneider-Ammann, the economic minister. “If the initiative had been accepted, it would have led to workplace losses, especially in rural areas where less-qualified people have a harder time finding jobs. The best remedy against poverty is work.” …“Switzerland, especially in popular votes, has never had a tradition of approving state intervention in the labor markets,” said Daniel Kubler, a professor of political science at the University of Zurich. “A majority of Swiss has always thought, and still seems to think, that liberal economic principles are the basis of their model of success.”

Even the non-Swiss in Switzerland are rational. Check out this blurb from a story which appeared before the vote in USA Today.

…some who would be eligible for the higher wage worry that it may do more harm than good. Luisa Almeida is an immigrant from Portugal who works in Switzerland as a housekeeper and nanny. Almeida’s earnings of $3,250 a month are below the proposed minimum wage but still much more than she’d make in Portugal. Since she is not a Swiss citizen, she cannot vote but if she could, “I would vote ‘no’,” she says. “If my employer had to pay me more money, he wouldn’t be able to keep me on and I’d lose the job.”

Heck, I’m wondering if Ms. Almeida would be willing to come to Washington and educate Barack Obama. Minimum Wage BensonShe obviously has enough smarts to figure out the indirect negative impact of government intervention, so her counsel would be very valuable in DC.

But if Ms. Almeida isn’t available, we have another foreigner who already has provided advice on the issue of minimum wages. Here’s Orphe Divougny, originally from Gabon, with a common-sense explanation of why it doesn’t make sense to hurt low-skilled workers.

By the way, this isn’t the first time the Swiss have demonstrated common sense when asked to vote of key economic policy issues.

In 2001, 85 percent of voters approved a plan to cap the growth of government spending.

In 2010, 59 percent of voters rejected an Obama-style class-warfare tax plan.

No wonder there are many reasons why Switzerland ranks above the United States.

P.S. I wrote earlier this month about Pfizer’s potential merger that would allow the company to reduce its onerous tax burden to the IRS by redomiciling in the United Kingdom.

Well, Jeff Jacoby of the Boston Globe has weighed in on the issue and I can’t resist sharing this excerpt.

…the outrage isn’t the wish of an American corporation to lower its tax bill. It is a US tax code so punitive and counterproductive that it can drive a company like Pfizer, which was launched in Brooklyn in 1849, to turn itself into a foreign corporation. The United States has the highest corporate tax rate in the developed world. That puts American companies at a serious competitive disadvantage, since their rivals elsewhere are able to channel more of their profits into new investment, hiring, and productivity. What’s worse, ours is the only country that enforces a system of “worldwide” taxation, which means that American firms have to pay tax to the IRS not only on income earned in the United States but on their foreign earnings as well. Other nations content themselves with “territorial” taxation — they only tax income earned within their national borders. US corporations like Pfizer that have significant earnings overseas are thus taxed on those earnings twice: first by the government of the country where the money was earned, and then by the IRS.

Amen, amen, and amen.

Our tax system imposes a very punitive corporate tax rate.

It then augments the damage with worldwide taxation.

And the system is riddled with onerous rules that cause America to rank a lowly 94th out of 100 nations for business “tax attractiveness.”

In other words, when greedy politicians complain about Pfizer’s possible inversion, it’s a classic case of blaming the victim.

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What happens when you mix something good with something bad?

To be more specific, what happens when you have a big success story, like the spending cap in Switzerland that has dramatically slowed the growth of government, and then expect intelligent and coherent coverage by a government-run media outfit that presumably wants a bigger public sector?

Well, the answer is that you get a very muddled story.

Here’s some of what Swiss Info, which is part of the Swiss Broadcasting Corporation, wrote about that nation’s “debt brake.”

The mind-boggling…debt racked up by governments…has turned some heads towards Switzerland’s successful track record… Swiss voters approved a so-called ‘debt brake’ on federal public finances in 2001, which was put into operation in 2003. A decade later, the mountain of government debt – that soared to dangerous levels during the 1990s and early 2000s – has been reduced by CHF20 billion ($23 billion) from its 2005 peak. The ratio of debt to annual economic output (gross domestic product or GDP)…fell from 53% to 37% between 2005 and the end of 2012.

There’s nothing wrong with that passage. Indeed, you could almost say that Swiss Info was engaging in boosterism.

Moreover, the story points out that other nations have been going in the wrong direction while Switzerland was enjoying success.

…as Switzerland was chipping away at its mountain of debt, other countries were building theirs up. …Since the middle of 2007 public sector debt alone has soared 80% to $43 trillion, according to the Bank for International Settlements.

And the story even notes that other nations are beginning to copy Switzerland.

The Swiss debt brake is the perfect model for other countries to embrace… Germany applied its own version of the Swiss debt brake in 2009, followed by Spain and other European countries.  …“Switzerland came up with the blueprint for what I am sure will be the standard fiscal model of the future,” said Müller-Jentsch.

So why, then, do I think the story has a muddled message?

The answer is that there is no explanation of how the debt brake works and therefore no explanation of why it is a success.

A reader will have no idea, for instance, that the debt brake is actually a spending cap. Readers also will have no way of knowing that red ink has been controlled because the law properly focuses on limiting the growth of spending.

By the way, it wouldn’t have required much research for Swiss Info to include that relevant data. If you do a Google search for “Swiss debt brake,” the first item that appears is the column I wrote in 2012 for the Wall Street Journal.

In that piece, I explained that “Switzerland’s debt brake limits spending growth to average revenue increases over a multiyear period” and I added that “Before the law went into effect in 2003, government spending was expanding by an average of 4.3% per year. Since then it’s increased by only 2.6% annually.”

So why didn’t Swiss Info mention any of this very relevant information? Is it because it tilts to the left like other government-owned media outfits, and the journalists didn’t want to acknowledge that spending restraint is a successful fiscal policy?

I have no idea whether that’s the case, but there is a definite pattern. When I appear on PBS, the deck is usually stacked in favor of statism. Moreover, you won’t be surprised to learn that I’ve had similar experiences with government-run TV in France. And it goes without saying that the BBC in the United Kingdom also leans left (though at least they seem to believe in fair fights).

This video from Swiss Info is similarly vague. It’s a favorable portrayal, but people who watch the video won’t know how the debt brake works or why it has been successful.

P.S.  I don’t know the details about the German version of the debt brake, but it’s probably having some positive impact. The burden of government spending has not increased in that nation since 2009, at least when measured as a share of GDP. Though the Germans also weren’t as profligate as other nations (including the United States) in the years before they adopted a debt brake, so I’ll have to do more research to ascertain whether the German approach is as good as the Swiss approach.

P.P.S. In any event, the moral of the story is that good fiscal policy should be based on the Golden Rule of having government grow slower than the productive sector of the economy.

P.P.S. The Princess of the Levant and I continued our tour of the French Riviera. This photo is from Les Jardins Exotiques at Chateau d’Eze.

photo1(5)

As part of my travels, I’ve learned that the unluckiest people in the world are from Menton and Roquebrune in France. That’s because they were part of Monaco until 1860.

So now, instead of enjoying an income tax of zero under Monegasque rule, they are part of France’s wretched fiscal system.

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There’s an old joke about two guys camping in the woods, when suddenly they see a hungry bear charging over a hill in their direction. One of the guys starts lacing up his sneakers and his friend says, “What are you doing? You can’t outrun a bear.” The other guys says, I don’t have to outrun the bear, I just need to outrun you.”

That’s reasonably amusing, but it also provides some insight into national competitiveness. In the battle for jobs and investments, nations can change policy to impact their attractiveness, but they also can gain ground or lose ground because of what happens in other nations.

The corporate tax rate in the United States hasn’t been changed in decades, for instance, but the United States has fallen further and further behind the rest of the world because other nations have lowered their rates.

Courtesy of a report in the UK-based Telegraph, here’s another example of how relative policy changes can impact growth and competitiveness.

The paper looks at changes in the burden of welfare spending over the past 14 years. The story understandably focuses on how the United Kingdom is faring compared to other European nations.

Welfare spending in Britain has increased faster than almost any other country in Europe since 2000, new figures show.  The cost of unemployment benefits, housing support and pensions as share of the economy has increased by more than a quarter over the past thirteen years – growing at a faster rate than in most of the developed world. Spending has gone up from 18.6 per cent of GDP to 23.7 per cent of GDP – an increase of 27 per cent, according to figures from the OECD, the club of most developed nations. By contrast, the average increase in welfare spending in the OECD was 16 per cent.

This map from the story shows how welfare spending has changed in various nations, with darker colors indicating a bigger expansion in the welfare state.

Welfare Spending - Europe

American readers, however, may be more interested in this excerpt.

In the developed world, only the United States and the stricken eurozone states of Ireland, Portugal and Spain – which are blighted by high unemployment – have increased spending quicker than Britain.

Yes, you read correctly. The United States expanded the welfare state faster than almost every European nation.

Here’s another map, but I’ve included North America and pulled out the figures for the countries that suffered the biggest increases in welfare spending. As you can see, only Ireland and Portugal were more profligate than the United States.

Welfare Spending - NA + WE

Needless to say, this is not a good sign for the United States.

But the situation is not hopeless. The aforementioned numbers simply tell us the rate of change in welfare spending. But that doesn’t tell us whether countries have big welfare states or small welfare states.

That’s why I also pulled out the numbers showing the current burden of welfare spending – measured as a share of economic output – for countries in North America and Western Europe.

This data is more favorable to the United States. As you can see, America still has one of the lowest overall levels of welfare spending among developed nations.

Welfare Spending - NA + WE -Share GDP

Ireland also is in a decent position, so the real lesson of the data is that the United States and Ireland must have been in relatively strong shape back in 2000, but the trend over the past 14 years has been very bad.

It’s also no surprise that France is the most profligate of all developed countries.

Let’s close by seeing if any nations have been good performers. The Telegraph does note that Germany has done a good job of restraining spending. The story even gives a version of Mitchell’s Golden Rule by noting that good policy happens when spending grows slower than private output.

Over the thirteen years from 2000, Germany has cut welfare spending as a share of GDP by 1.5 per cent… Such reductions are possible by increasing welfare bills at a lower rate than growth in the economy.

But the more important question is whether there are nations that get good scores in both categories. In other words, have they controlled spending since 2000 while also having a comparatively low burden of welfare outlays?

Welfare Spending - The Frugal FiveHere are the five nations with the smallest increases in welfare spending since 2000. You can see that Germany had the best relative performance, but you’ll notice from the previous table that Germany is not on the list of five nations with the smallest overall welfare burdens. Indeed, German welfare spending consumes 26.2 percent of GDP, so Germany still has a long way to go.

The nation that does show up on both lists for frugality is Switzerland. Spending has grown relatively slowly since 2000 and the Swiss also have the third-lowest overall burdens of welfare spending.

Hmmm…makes you wonder if this is another sign that Switzerland’s “debt brake” spending cap is a policy to emulate.

By the way, Canada deserves honorable mention. It has the second-lowest overall burden of welfare spending, and it had the sixth-best performance in controlling spending since 2000. Welfare outlays in our northern neighbor grew by 10 percent since 2000, barely one-fourth as fast as the American increase during the reckless Bush-Obama years.

No wonder Canada is now much higher than the United States in measures of economic freedom.

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