Costing an Alternate Social Security Provisioning

7/29/2019 Costing an Alternate Social Security Provisioning

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Costing an Alternate SocialSecurity Provisioning

Jawed Alam Khan

Subrat Das

Centre for Budget and Governance Accountability

(www.cbgaindia.org)

September 8, 2012


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Limited Fiscal Policy Space in India

The fiscal policy space for making public

expenditure depends to a significant

extent on the magnitude of tax revenue

collected by the government

Total magnitude of tax revenue collected

in India has been lower than that inseveral developed countries as well as

some of the developing countries


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Tax-GDP Ratio (in %) for Selected

Countries (for 2010 / 2011)

Note: Tax revenue figures (used for computing the tax-GDP ratios) include

social security contributions (if any) in each of the countries selected

Source: IMF, Revenue Mobilization in Developing Countries, 2011; and

Indian Public Finance Statistics 2011-12, GoI.

Developed Countries Developing Countries

Sweden- 50.1 Brazil- 34.2

Denmark- 49.1 Turkey- 32.5

France- 44.7 Russia- 32.3

Netherlands- 39.5 South Africa- 31.2

UK- 37.4 Ghana- 22.4

USA- 27.3 India- 16.5


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Thus, the overall public resources available to

the government in India for making investments

towards socio-economic development appears

inadequate in comparison to several othercountries

Consequently, the magnitude of Total Public

Expenditure in India has been lower than that inseveral developed countries as well as some of

the developing countries

Limited Fiscal Policy Space in India


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Contd..

Total Government Expenditure as % of GDP

Countries For various years between 1997 and 2002

Sweden 54.2

Denmark 53.7

Belgium 48.6

U.K. 39.2

Brazil 39.8

South Africa 33.8

U.S. 32.7

Argentina 29.6

India 26.5


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Contd..

Total Public Expenditure in India as % of GDP

Year Total Expenditure from Central and State

Budgets as % of GDP

1990-91 27.2

1998-99 25.5

1999-2000 26.5

2001-02 26.9

2002-03 27.0

2003-04 27.7

2004-05 25.4

2005-06 25.3

2006-07 25.3

2007-08 24.9

2008-09 27.2

2009-10 (RE) 28.0

2010-11 (BE) 25.7


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OECD Countries Budgetary Spending on Social

Sectors (as of 2010 / 2011)

Country

Expenditure as % of Total Budget

Housing and

communitiesamenities Health Education

Social Security

Payments / SocialProtection

Total Social Sectors

(including socialsecurity payments)

Australia 2.4 18.1 14.1 30.8 67.6

Austria 1.2 15.9 10.9 40.9 71.0

Belgium 0.7 14.7 11.9 35.6 65.4

Canada 2.3 18.7 18.3 23.4 65.0

Czech Rep. 2.6 16.8 10.9 30.0 63.2Denmark 1.1 14.9 13.4 43.3 75.8

Estonia 1.6 13.1 16.9 29.4 66.8

Finland 0.9 14.3 12.0 41.3 70.8

France 3.6 14.8 11.1 41.4 73.8

Germany 1.7 14.3 9.3 45.1 71.8

Greece 0.7 11.4 8.3 36.5 58.1

Hungary 1.8 10.0 10.7 36.2 61.6

Iceland 0.9 13.7 14.5 15.5 51.2

Ireland 4.7 18.3 12.6 32.3 70.0

Israel 1.2 12.4 16.7 25.5 59.6

Italy 1.5 14.6 9.3 38.5 65.6

Japan 1.6 20.1 10.5 35.0 67.5


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OECD Countries Budgetary Spending on Social

Sectors [as of 2010 / 2011]

Country

Expenditure as % of Total BudgetHousing and

communitiesamenities Health Education

Social Security

Payments / SocialProtection

Total Social Sectors

(excluding socialsecurity payments)

Korea 3.6 13.0 16.3 12.4 47.8

Luxembourg 1.7 12.0 11.8 42.1 72.2

Netherlands 2.1 12.7 11.6 35.2 64.5

New Zealand 1.8 16.6 18.6 25.8 65.6

Norway 1.6 16.9 13.0 38.2 72.5

Poland 2.7 11.7 13.3 36.1 66.8

Portugal 1.6 14.4 14.3 35.9 68.6

Slovak Rep. 1.9 19.7 9.9 29.0 63.1

Slovenia 1.9 13.8 13.8 35.9 69.1

Spain 2.6 14.7 11.2 33.9 66.5

Sweden 1.5 13.3 13.2 40.7 70.9

Switzerland 0.6 5.4 17.1 40.7 66.1

UK 2.5 15.8 13.5 33.5 67.6

US 1.8 20.5 16.6 19.4 59.1

OECD 31 (Avg.) 1.9 14.7 13.1 33.5 65.9


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Priority for Social Sector in India's

Public Expenditure

Year

Total Budgetary

Expenditure (by

Centre and States)

as % of

GDP

Social Services

Expenditure by

Centre and States

as % of

GDP

Total Exp. On

Social Services as

% of the Total

Budget

2004-05 25.4 5.3 20.9

2005-06 25.3 5.5 21.7

2006-07 25.3 5.8 22.9

2007-08 24.9 5.8 23.3

2008-09 27.2 6.6 24.3

2009-10 (RE) 28.0 7.1 25.4

2010-11 (BE) 25.7 6.7 26.1


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National Social Assistance Programme

Combined Exp.

(Centre & States)

in

NSAP

(in Rs. crore)

Combined Exp. (Centre & States)

in

IGNOAPS

(in Rs. crore)2006-07 1968.3 1726.2

2007-08 3123.1 2894.6

2008-09 3961.5 3546.9

2009-10 4914.9 1651.0*


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Costing an Alternate Social SecurityProvisioning

1

Total Projected Population in 2011

(55-59 years) 4.28 Cr.

2

Total Population 60 years + Age

Group 9.85 Cr.

3 Population 55-59 years (20 % less ) 3.43 Cr.

4

Population 60 years + Age Group

(20 % less) 7.88 Cr.


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Annual Resource Requirement

for Old Age Pension Entitlements

Amount Per

Beneficiary

Per Month

(in Rs.)

For 55-59

years of age

Group, total

Amount

required

(in Rs. Cr.)

For 60+ years

Age Group

Total Amount

required

(in Rs. Cr.)

Total Amount

Required for

both age

groups

(in Rs. Cr.)

Resources Required

as % of GDP

300 12334 28368 40716 0.52

1000 41160 94560 135720 1.72

2000 82320 189120 271440 3.44


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Need to Improve the Tax-GDP Ratio

and Progressivity of the Tax system

Of the total tax revenue of our country at 16.46 % of GDP

(in 2010-11), while indirect taxes account for 10.6 % of

GDP direct taxes account for only 5.87 % of GDP

Indias tax system, which collects two-third of the revenuefrom indirect taxes and only one-third from direct taxes, is

regressive as compared to the tax system of many other

countries (that collect a much higher proportion of tax

revenue from direct taxes) If India is to move towards a more progressive tax system,

the government should rely more on direct taxes (such as,

corporation tax, personal income tax and wealth tax)


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Reducing the Magnitude of Revenue

Foregone due to Tax Exemptions

Total magnitude of tax revenue forgone due to

exemptions/ deductions/ incentives in the Central

Government tax system is estimated (by the Union

Ministry of Finance) to be Rs. 5.29 lakh crore in 2011-12

What it implies is: the estimated amount of additional

tax revenue that could have been collected by the

Central Government in 2011-12, if all exemptions/

deductions/ incentives (both in direct and indirect

taxes in the Central Govt. tax system) had been

eliminated, is a staggering 6 % of GDP


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Major components in the revenue foregone in

different kinds of taxes applicable for private sector

businesses

Nature of Tax Exemptions Revenue Forgone

(in Rs. Crore)

[in 2010-11]

Projected Revenue Forgone

(in Rs. Crore)

[in 2011-12]

Deduction of export profits for

Units located in SEZs

7,432 8,153

Accelerated Depreciation 33,243 36,468

Diamond and Gold (precious

stones & jewellery)

49,164 57,063

Deduction of Profits of STPI

Units

7,839 NIL (The deduction has been

phased out after

31.3.2011.)

Deduction of profits of

undertakings engaged in

generation, transmission and

distribution of power

7,581 8,316

Mineral fuels and Mineral Oils 41,200 58,190


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Contd..

The Union Finance Minister had recognized in his 2009-10Budget Speech that Indias tax base continues to be low

compared to other countries, mainly due to a plethora of

exemptions in the Central Government tax system

However, the Government has not taken any significantcorrective measures in this regard in the last three Union

Budgets

Tax Exemptions need to be minimised, carefully designed and

justified with sound social and economic reasons

Even if half of the tax revenue forgone presently because of

the plethora of exemptions in the Central Government tax

system get collected, it would generate additional tax revenue

worth 3 % of GDP

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Costing an Alternate Social Security Provisioning