COVER SHEET

Module: EF213 Public Finance

Lecturer: Gerard McGuinness

Date: 03 March 2014

Student Name: Ed Cuddy

Student I.D. Number: 11723555

Word Count: 1671

a) Compare and contrast the Public finances of two European economics with

reference to changes in the General Government budget deficits and General

government debt over the recent past (20-30 years).

Introduction

When discussing Public finances different economics variables will be compared with each

other. This will determine if any correlations between them exist to perhaps explain certain

trends and changes in the variables. The four variables focused on in this essay will be

Gross Domestic Product, Government budget surplus/deficit, Government debt to GDP

ratio and Inflation. A Government budget deficit is where a government spends more

money than it takes in. The opposite where a government takes in more money than it

spendsis calleda budget surplus.GovernmentdebttoGDP ratio is the amount of national

debt a country has as a percentage of its GDP. Government debt is basically, the money

owed by aGovernment to its creditors.The greater the debt to GDP ratio, the less likely the

country will pay its debt back, thus the more likely the country is to default on its debt.

Inflation is a general increase in prices and fall in the purchasing value of money. is an

increase in the average level of prices. They opposite to inflation is deflation a decrease in

the average level of prices. The equalibrium between inflation and deflation is price

stability.(Tradingeconomics, 2014). I will compare and contrast Poland and Germany

under these variables over the past 20 years where possible.

Background

Poland’s Government debt in its historical context reaches back to the Communist period.

The fall of Communism resulted in a large deactivation of labour which placed a heavy

burden on the country’s public finances. Furthermore, with the creation of acompulsory

private pension system at the end of the nineties government debt increased

greatly.Poland’s overall economic performance has been impressive over the last decade,

bringing living standards towards the EU average. However, the economy slowed abruptly

in 2012-13 (Rae, 2014). Germany’s Public debt has rose substantially at the beginning of

the nineties, mainly due to the fiscal consequences of reunification with East Germany.

However, part of the expenditure incurred in integrating East Germany was financed by

raising taxes and social security contributions and by cutting spending. Germany’s recent

economic performance has been stable, with record low unemployment rates and a sound

fiscal position, which sets it apart from many other EU countries(Deusche Bundesbank,

1997)

Gross Domestic Product

The Gross Domestic Product (GDP) in Poland expanded 0.6% in the fourth quarter of

2013 over the previous quarter.GDP Growth Rate in Poland averaged 1.03% from 1995

until 2013, reaching an all time high of 6.4% in the first quarter of 1997 and a record low of

-3.2% in the fourth quarter of 1996. (Tradingeconomics Poland GDP, 2014). The GDP in

Germany expanded 0.40% in the fourth quarter of 2013 over the previous quarter. GDP

Growth Rate in Germany averaged 0.29% from 1991 until 2013, reaching an all time high

of 2.1% in the second quarter of 2010 and a record low of -3.7% in the first quarter of

2009.

“Germany is the fourth largest economy in the world and the largest within the

Euro Area. The German economy is heavily export-oriented. Germany is the

second largest exporter in the world and exports account for more than one-

third of national output. As such, the export of high added value products has

been the main driver of growth in recent years.” (Tradingeconomics Germany

GDP, 2014)

(Tradingeconomics, 2014)

Government budget Surplus/Deficit

Poland recorded a government budget deficit of 11734.70MillionPolish zloty (PLN) in 02/

2014. Government Budget Value in Poland is reported by the Ministry Of Finance, Poland.

Government budget deficit in Poland averaged -15079.19 Million from 1994 - 2014.It

reaching an all time high of 4407.34 Million in 01/2008 and a record low of -44591.10

Million in 12/2010 (Tradingeconomics Poland Deficit, 2014). Germany recorded a

Government budget surplus of 0.3 billion euros in 2013.From 1996 - 2013, Germany

Government Budget averaged -2.0 Percent of GDP reaching an all time high of 1.3% of

GDP in 12/2000 and a record low of -4.2% of GDP in 12/2010 (Tradingeconomics

Germany Surplus, 2014) .

(Tradingeconomics, 2014)

Government Debt to GDP Ratio

Poland recorded a Government Debt to GDP of 57.1% of the country's GDP in 2013.

Government Debt to GDP in Poland averaged 46.57% from 1995 until 2013, reaching an

all time high of 57.1% in 2013 and a record low of 36.8% in 2000. (Tradingeconomics,

Poland Debt to GDP, 2014). Germany recorded a Government Debt to GDP of 78.4% in

2013. Government Debt to GDP in Germany averaged 66.69% from 1995 - 2013, reaching

an all time high of 82.5% in 2010 and a record low of 55.6% in 1995(Tradingeconomics

Germany Debt to GDP, 2014).

(Tradingeconomics, 2014

Inflation

The inflation rate in Poland was recorded at 0.7% in 02/2014. From 1992 -2014, Inflation

averaged 10.14%, reaching an all time high of 46.5% in 04/1992 and a record low of

0.2%06/2013. The inflation rate in Germany was recorded at 1.04% in 03/2014. Inflation

Rate in Germany averaged 2.48% from 1950-2014, reaching an all time high of 11.4%

in11/1951 and a record low of -7.63%t in 02/1950 (Tradingeconomics Poland Inflation,

2014).

(Tradingeconomics, 2014)

Conclusion

Since the outbreak of the economic crisis in 2008, Poland has avoided a recession

through increasing public investment by utilising available EU funds. However, due to

limits on the size of its Government debt and pressure from the EU, the Government will

reduce this spending which threatens to suppress growth and further increase

unemployment. The Government has partly dismantled the compulsory private pension

system, which has temporarily reduced Government debt (Rae, 2014). Germany’s

mediumterm potential growth prospects remain subdued. Germany although doing solidly,

has a number of challenges, such as an ageing population, low hours worked by women

and under productivity in non-manufacturing sectors. Germany’s ageing population and

increasing demand for elder care and treatment of age-related conditions, and heightening

concerns about the sustainability of the public health care system (Deloitte, 2014)

b) With regard to one of your chosen countries, outline the extent and role of

Government provision of Public goods and services with specific reference to either

Public provision of Education/ or Health care.

(Your answer should make reference to market failures (e.g.. externalities, public

goods) and redistribution issues and all figures, tables and data should be

referenced)

All countries in the OECD use a mix of public sector expenditure and private contribution

to pay for health care, but to variant degrees. Public financing is confined to government

revenues in countries where governments are primarily responsible for financing health

services directly. In these countries it can comprise from both general government revenue

and social contributions through funding from social insurance. Private financing covers

patients’ out-of-pocket payments either directly or as co-payments. Third-party payment

arrangements are done through various forms of private health insurance, health services

directly provided by employers, and other direct benefits provided by charities etc.

Healthcare in Germany is funded by a statutory contribution system that ensures free

healthcare for all.

“Insurance payments are based on a percentage of income, shared between

employee and employer. Health insurance in Germany is divided between

statutory and private schemes. The statutory health insurance of Germany is

the Gesetzliche Krankenversicherung (GKV) (Bundesaerztekammer, 2013).

About 90% of the population is covered by statutory health insurance, which is compulsory

for all with a gross income of less than 4,125 EUR per month. Private healthcare insurance

provides either a complete health service for those who opt out of the GKV, or top-up

cover for those who remain within it. (Bundesaerztekammer, 2013)

Germany’s total health care spending is expected to rise by an average of 2.8% a year

from 2013-2017, to 355Billion Euro, and from 11.7% of GDP in 2009 to 11.9% in

2017(Deloitte, 2014).

An externality is any impact, which can be positive or negative, on individuals or groups

not involved in an exchange or transaction.In health care, the critical externality in most

systems is the care provided to others. You benefit from others being healthy because it

reduces the likelihood of you catching their illness. You benefit from a positive externality

of others receiving health care. Your health care costs are also affected by others

choosing to purchase health care. The healthy pay more to the insurance company than

they receive in treatment, while the opposite is true for the sick. Insurance essentially

operates by taking the money from healthy people to pay for the procedures required by

sick people (boundless 2013).

Statutory contribution funding of health care, when combined with the age structures

typical in more developed countries generate a positive externality to population growth.

This is because is because the net flow of wealth transfers in these systems is upward, on

net from younger to older people (Sanderson, 2013). Having more working age adults

diminishes the burden on each one of them to support the older generation. However,

Germany’s population aged 65 or older is likely to exceed one in five by 2017, increasing

demand for elder care and treatment of age-related conditions, and heightening concerns

about the public health care system’s sustainability(Deloitte,2014) (OECD, 2014).

Conclusion

Among the issues facing Germany’s health care sector in 2014 are a continued need for

cost minimisation, efficiency and demands for increased transparency around clinical

quality and patient outcomes. These issues could see further market

consolidation,privatisation and/or strategic partnerships, as the health care providers strive

for scale and cost efficiencies. The German federal and regional governments will to

continue attempting to hold down health care spending growth but these cost controls.

Chancellor Angela Merkel’s new Government will push for new health system reform

which will involve politically salient decisions. What form this may take, are as yet unclear

(Deloitte, 2014).

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