Question

High and rising health care expenditures are one important element that has contributed provincial government deficits. New, or additional, payroll taxes may be one way of financing the higher health care costs. If adopted, how would the higher payroll taxes affect the size of provincial government budgets? How would this affect the role of government in the economy?

Answer 1

In recent years, considerable attention has focused on aggregate health care spending increases. Emphasis has been given to identifying and examining the factors that have contributed to spending growth and proposing policy solutions to reduce spending growth. Factors that contribute to spending growth encompass change in health care utilization, population price inflation, and advances in medical technology.

Some economists note that rising health care spending has important benefits, often outweighing the increased costs. When adjusted for improvement in quantity, these economists found that the cost of medical care is in fact in decreasing. In this view, increased health care spending improves increases access to new technologies providing both new options of treatment and treatment for a greater number of individuals.

At a local level, health care spending growth is more likely to be viewed as beneficial. It creates health care jobs, increases wages for health care workers, expands local tax revenues, and increases demand for related goods and services.

Source:- Business round table December 2017 CEO survey.

Government spending :- Rising health care spending plays a central role in the fiscal health of the U.S. Government. The primary impact of the increase in the government share of health care spending is the burden it places upon the citizens to finance this spending namely increasing taxes or increasing long term borrowing . In addition to reducing the amount of income that firms and households would have for other activities, tax increases also creates incentives to engage in activities to avoid the effects of these increases.

Increased government borrowing to finance health care spending growth has a similar impact on the availability of resources for other activities. As interest rates increase due to government borrowing, the cost of capital to firms and households also increases, which would effectively crowd out investment in some activities that would otherwise been undertaken.

Finally, increased spending often results in greater intergenerational transfers of wealth from younger to older segments of the population.

Over all economy rapidly rising health care spending is considered to lower the rate of growth in GDP and overall employement, while raising inflation. However, some economists view increases in health care spending as a neutral, if not positive, impact on the economy.