Rising Costs and Falling Revenue forces NHS to cut Hearing Services, Hip & Knee Operations and Eye Surgeries

Posted by PITHOCRATES - October 27th, 2012

Week in Review

The costs of an aging population (due to fewer people having babies these days than in our parent’s generation) are causing great cost pressures on Britain’s National Health Service.  The number of elderly patients is rising.  And they’re consuming more health care resources.  While the tax base is shrinking.  With fewer people paying taxes overall tax revenue falls.  You don’t have to be highly skilled in math to see the problem here.  They’re spending money faster than they can get it.  And when you have a problem like that your options are few.  You cut costs.  Increase wait times.  And ration services (see NHS hearing services ‘being cut’ by Nick Triggle posted 10/22/2012 on BBC News Health).

NHS hearing services are being scaled back in England, an investigation by campaigners suggests.

Data obtained by Action on Hearing Loss from 128 hospitals found more than 40% had seen cuts in the past 18 months.

In particular, the study found evidence of rises in waiting times and reductions in follow-up care.

The report is the latest in a growing number to have suggested front-line care is being rationed as the health service struggles with finances.

The NHS is in the middle of a £20bn five-year savings drive.

The government believes the savings can be made by increasing productivity.

But in the past year reports have suggested everything from hip and knee operations to eye surgery is being cut.

As American health care transitions into full scale Obamacare these are terms we’ll start to hear.  Cost cuts.  Wait times.  And rationing.  You know, before they cut our hearing services.  Then these things will happen.  We just won’t hear about them.

Incidentally, the NHS is trying to cut about $32.2 billion from their approximate $162 billion budget.  That’s a 20% cut.  According to Kaiser, the US spent about $2.3 trillion on health in 2010.  A similar 20% cut in our health care spending would total approximately $450 billion over five years.  Or about $900 billion over 10 years.  Which is close to what the first CBO score came in for Obamacare.  When they were counting revenue for some years but no costs.  So basically to do what the British are doing would require the repealing of Obamacare.  That’s how big these numbers are.  And why we should repeal Obamacare.  Before our excellent health care system suffers these cost cuts, wait times and rationing.

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Amtrak can’t make a Profit on a Cheeseburger they sell at $9.50

Posted by PITHOCRATES - October 27th, 2012

Week in Review

Poor Amtrak.  Always the example of government at its worst.  Subsidizing passenger rail when all private railroads gave up on it long ago.  Because you can’t make money on passenger rail.  So what does the government do?  They furnish a service that no one is demanding.  Pouring billions of tax dollars into a failed economic model to desperately try to keep it afloat.   And Amtrak still loses money.  Despite selling cheeseburgers at $9.50 (see Amtrak’s food service: How to lose money on $9.50 cheeseburgers posted 10/23/2012 on The Economist).

JOHN MICA, the Republican chairman of the House Transportation and Infrastructure committee, has held many hearings on Amtrak, America’s government-run passenger rail company, over the past few years. Few, though, have drawn as much attention as an August discussion of—what else!—hotdogs and beer, when Mr Mica noted that, over the past three decades, Amtrak has not once broken even on its food offerings.

… Andrew Biggs at the American Enterprise Institute, a conservative think-tank, suggests that Amtrak’s labour costs are to blame.

If you follow that link you will see these numbers:

How do you lose $85 million per year selling $9.50 cheeseburgers, as Amtrak reportedly has?

One way is to pay Amtrak employees 19% more in salaries and benefits than comparable private sector workers.

… Amtrak salaries were on average 4% lower than private sector levels. However, benefits were 81% higher than private sector levels, including 19% more paid leave, 181% more generous health coverage, and 51% more generous retirement benefits. This helps explain why, over a 7-year period, Amtrak quit rates averaged 2-3% per year while private sector quit rates were 26-27%. No one wants to give up a job with so many perks.

Going back to the Economist article:

Labour costs are part of Amtrak’s problem, but they’re not the heart of it. That honour goes to the company’s unprofitable, unpopular, slow and generally indefensible long-haul routes…

Amtrak loses a lot of money providing food service on its long-haul routes because it loses a lot of money on almost everything related to those routes. Long-haul passenger train trips, especially at Amtrak speeds, are for hobbyists, people with lots of time and very restricted budgets, and people who are afraid of flying. No private-sector company without Amtrak’s political and legal obligations would continue to operate its long-haul routes without substantial changes.

All passenger rail loses money.  Except for, perhaps, the Bullet Train in Japan.  And the TGV in France.  These are the only two trains (at least they were at one time) that actually make a profit.  All other trains cannot survive without taxpayer subsidies.  Because rail transportation is very expensive.  Moving heavy freight by train works because it’s the most cost efficient option for heavy freight.  And sometimes the only option.  But moving people?  There are a lot of other options.  We can drive ourselves.  Take a bus.  Or fly.  All of which are more cost efficient than a train.  A commuter jet, for example, can make three round trips in the time it takes a train to make one trip.  One-way.  So that’s six revenue-producing trips for the commuter jet versus one for the train.  Which is a big reason passenger airlines can be profitable while Amtrak cannot.

Trains require an enormous amount of infrastructure.  And a lot of people.  All of this just to move a few passengers.  Who don’t weigh much.  But require a lot of space for their weight.  So your typical passenger train doesn’t carry a lot of people.  To recover the full cost of moving a passenger train from point A to point B in the ticket price would require a ticket price far greater than anyone would pay.  Which is why the government subsidizes passenger rail.  Because no one would board a train otherwise.

The long-haul trains add porters, bartenders, food staff, wait staff, etc.  Greatly adding cost to a money losing route.  Making these trains the biggest losers.  In large part to those employee benefits.  For those employees on the train. And those not on the train.  To all of those who help get it from point A to point B.  And the insufficient number of revenue-producing trips these trains make to cover those costs.

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Britain’s Liberal Democrats propose Lowering the Voting Age to bring in more Irresponsibility into Parliament

Posted by PITHOCRATES - October 27th, 2012

Week in Review

A teenage girl goes home to live with mom after her boyfriend left her.  And her unborn child.  Another teenage girl in high school saves her allowance for cigarettes.  A high school friend dies in a DUI accident that he caused.  A high school kid overdoses on drugs he took from his parent’s medicine cabinet.  Kids make a lot of bad decisions.  A lot drink while underage.  A lot drive while drunk.  A lot use drugs.  A lot engage in casual sex that results in a pregnancy or an STD.  This is why drugs are illegal.  And why we have a minimum age to drink.  And to smoke.  To minimize the effect of their bad decisions.  Because high school kids are really, really irresponsible.  Always putting ‘having a good time’ ahead of acting responsibly.  So based on that here’s a good idea.  Let’s have these same irresponsible kids vote (see Give 16 year olds the vote, say peers by Christopher Hope posted 10/22/2012 on The Telegraph).

New legislation published on Monday would extend the right to vote to 16 and 17 year olds in all elections and referenda in the United Kingdom…

Lord Tyler, who was the Liberal Democrats’ former shadow Leader of the Commons, said: “It isn’t good enough for Scots young people to be heard, just once, on this vital question, and then ignored thereafter, and worse still that English, Welsh and Northern Irish young people will continue not having a say at all…”

He added: “What about the expected referendum on Europe? I visit sixth forms regularly, and find students there more engaged and knowledgeable about current affairs, the state of the world and the state of our country, than many of the older people I bump into here in the House of Lords. It is time to give them a say.”

Those old people in the House of Lords?  They probably are refusing to vote for more irresponsible spending.  Like more subsides for university students that they simply can’t afford.  And other government benefits.  Of course if you can replace the responsible people in Parliament (or Congress in the US) with irresponsible people you can probably keep spending money you don’t have.  And having irresponsible kids vote can make that happen.  Because they are always putting ‘having a good time’ ahead of acting responsibly.  And would love to have free college.  Including room and board.  And some spending money for after classes.  All paid for by government.  As well a lower drinking age (“if we’re responsible enough to vote at 16 we’re responsible enough to drink”).  A lower smoking age.  Even decriminalize marijuana.  And champion other pressing concerns high school kids have.

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Due to Revenue Shortfall Australia will have Businesses Estimate their Taxes Monthly Instead of Quarterly

Posted by PITHOCRATES - October 27th, 2012

Week in Review

Commodity prices have fallen.  Cooling the great mining boom in Australia.  So how does the government address this falling tax revenue?  Do they cut their spending?  No.  They make businesses gamble with their cash-flows (see Monthly tax bill to help plug budget hole – Sydney Morning Herald by Peter Martin posted 5/22/2012 on Canberra Hub).

The budget will receive a $8.3 billion boost in the three years from 2014 as the government moves to collecting company taxes every month, rather than quarterly…

In its first year the measure is expected to give the budget a $5.5 billion boost because it will collect revenue that would have been paid in future months.

Accountants say it will not result in business paying significantly more tax overall, but will increase the compliance burden and require companies to pay their tax earlier.

With businesses likely to oppose any moves to extract more revenue, Treasurer Wayne Swan said the change would provide a more timely and accurate reading of the corporate tax take, but was not a tax rise.

‘‘We think this is only fair and it’s only logical,’’ Mr Swan said in Canberra. ‘‘We don’t see why companies cannot be in the same boat as companies that pay their GST monthly.’’

Revenue raised by the mining tax has also been downgraded by more than $3 billion, to $6.5 billion from $9.7 billion.

This tax collection policy will increase tax revenues by $8.3 billion (Australian dollars) in three years but this is not a tax rise.  They’re doing this to relieve the pressures from the lost mining tax revenues but this is not a tax rise.  You can do some accounting tricks to pull revenue into earlier accounting periods and push out cost to later accounting periods.  This will help the earlier accounting periods.  But it will hurt the later ones.  When a company, or a government, plays these games they either have a revenue problem.  Or a spending problem.  Apparently Australia has both.

Corporate income taxes are estimates.  GST taxes are not.  The corporations calculate their final income taxes due after the close of the year.  When they know their final earnings on the year.  Whereas anytime someone buys something the seller knows the exact GST due.  So the GST they pay at the end of the month is the exact amount of GST due.  Even if they have no sales for the last three months of the year.  Not the same with corporate income taxes.  Should something happen, say, like a fall in mining revenue due to a fall in commodity prices, a corporation could lose money in the latter months of their earnings year.  Even suffer a loss on the year.  If they do the government will have to refund those previous estimated tax payments.  Possibly causing the corporation to borrow money in those later months because they’re short on cash.  Because they overpaid their taxes.

This will increase the cost of doing business.  It will strain cash-flows.  And just make running a business harder.  As cash is the lifeblood of a business.  It’s the only thing you can use to pay your employees.  Your vendors.  Your insurance companies.  Your payroll taxes.  This new policy could force businesses to overpay their income taxes leaving them starving for cash later in the year.  And if they can’t find money to borrow they could put their businesses in jeopardy.  Possibly in bankruptcy.  And if they do there will be even less tax revenue for the government to collect.  Monthly.  Or quarterly.

This is bad policy.  Brought on by excessive government spending.  A common problem in advanced economies.  Especially during good economic times.  When they make spending commitments as if those good times will last forever.  Something a business can’t do.  Because when the economy changes a business has to change to survive in the reality of the economic times.  Unlike government.  Who does everything within their power to pass their poor policy decisions onto the private sector.

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A Battle is Building in Australia over their Carbon Tax

Posted by PITHOCRATES - October 27th, 2012

Week in Review

Nations with high tax rates tend to have less foreign investment than nations with low tax rates.  Because lower tax rates allow companies to earn more profits.  More profitable companies have higher stock prices.  And higher earnings per share of stock.  Which means higher returns on foreign investments.  The whole argument about raising taxes on the big corporations is that they’re rich enough and can afford to pay more of their earnings in taxes.  So we know that higher taxes mean lower earnings.  Unless, apparently, it’s a carbon tax (see Abbott won’t axe carbon tax, Combet says posted 10/24/2012 on Sky News).

Climate Change Minister Greg Combet has attacked Tony Abbott’s plan to repeal Labor’s carbon tax as a sovereign risk…

Mr Combet believes abolishing the carbon price – which Mr Abbott says would be the coalition’s first order of government – would diminish Australia’s standing with the international investment community…

“Repealing the carbon price would be damaging to investment confidence and undermine the business decisions which have already been taken.

“This would see financial markets increasing the risk premiums for investments in Australia.”

Mr Combet said people would still pay more for power but without any environmental benefit.

So carbon taxes make consumers pay more for power.  According to the people that gave Australia the carbon tax.  This is the price of fighting global warming.  Higher consumer costs.  And a lower quality of life.  As people have less money to spend on themselves because the government is taking more of their money.

And yet repealing the carbon tax won’t lower the cost of power.  Interesting.  If you increased the cost of power with a carbon tax you’d think you’d reduce the cost of power by eliminating the carbon tax.  So why won’t the price of power come down?  The power companies would have a vested interest to show the people how bad a carbon tax is.  So they will never vote another carbon tax in.  And if the people are going to pay the same for power whether they have a carbon tax or not they’ll probably say,  “Well, if it doesn’t cost any more we might as well as save the planet.”  And vote to restore that carbon tax.  So the power companies would be wise to lower their rates once they repeal the carbon tax.  And most likely will.  As it is in their best long-term interests.

When a country starts using words like ‘nationalizing’ and ‘socialism’ investors will require a higher risk premium.  There’s nothing that will wipe out an investment like a 100% tax on their investments after the state takes it over.  When a country adopts a highly inflationary monetary policy investors will require a higher risk premium.  But one thing investors don’t ask for a higher risk premium is for low taxes.  As low taxes typically stimulate economic activity.  Which creates higher corporate profits.  And higher returns on investment.

Of course, a carbon tax provides a windfall of revenue for governments.  Especially those governments that like to spend the money.  So if this will have an effect on their sovereign debt this means the carbon tax has more to do with funding government spending that saving the planet.  And the risk premium is the higher interest rates they will have to pay on their government bonds if they repeal the carbon tax.  As they will have to borrow even more money to fund their out of control spending.

Remember this lesson well.  This is what a carbon tax is for.  Government spending.  Not to fight global warming.

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