DO IMMIGRANTS REALISE THEY TAKE ON PRE-EXISTENT PUBLIC DEBT AND LIABILITIES?
INTRODUCTION
One of the world’s current puzzles is why immigrants continue to come to the UK, as well as other western European countries and the USA, where they automatically assume responsibility for the interest burden and repayment liabilities of enormous government debt. This debt was incurred by past government spending and incurring of liabilities before these immigrants even arrived. Little of this debt was used to acquire government assets. Of course, further liabilities will be incurred in the future.
There is another puzzle. Those who advocate immigration, and even talk about immigrants helping to pay for pensions, do not care to inform immigrants of the liability they are taking on. Indeed, this silence – probably based on ignorance - seems to extend, not only to politicians and commentators, but even bishops, both Anglican and Catholic. However, the fact is that new immigrants take on an enormous debt burden for past government spending. They become late entrants to a Ponzi scheme. Recently, short-term consumer finance organisations have been attacked for putting poorer people into debt of hundreds or thousands of pounds. It does not seem to occur to the advocates that government action is loading poor people with debt on a scale far beyond consumer debt.
Those who advocate immigration are often quick to adopt a posture of high morality. However, the fact is that they are putting forward a policy that will saddle immigrants with large-scale debts for past government spending and entitlement promises.
EMIGRATION
A further aspect is that emigrants from highly indebted countries, shed their share of that debt when they emigrate. Nowadays, there is an increase in emigration, especially of the better skilled, from southern Europe, Ireland and the UK. Even in the US, as reported by the Washington Post in November 23 2012, there is “a wave of young educated young Americans heading overseas in search of better employment opportunities.” It reports, “the percentage of Americans aged 25 to 34 who are planning to move abroad has quintupled in two years.” The motivation for this movement is to find jobs not to avoid debt. However, often mentioned is that these jobs carry lower tax burdens and the tax burden reflects, interalia, debt servicing. The fact is that if their emigration is permanent, they do shed their share of their native country debts.
Joel Kotkin in Forbes magazine, 28th June 2012, pointed out “An estimated half million left Spain last year alone. Ireland, which in recent decades actually attracted migrants, was exporting a thousand people a week last year. In recession-wracked Britain, a 2010 poll found nearly half of the population would like to move elsewhere.”
Nick de Bois, MP, Secretary of the 1922 Committee, drew attention to the emigration phenomenon (Daily Telegraph, 23rd January 2013). His research showed that over ‘ten years, to 2011, 3,599,000 people permanently left the UK. Contrary to the perception of typical emigrants being older people retiring to a life in the sun, the figures showed that 1,963,000 were aged between 25 and 44. Only 125,000 people of retirement age emigrated.’
There is clearly a danger that emigration of the better skilled, motivated at present by a search for employment, will leave the remaining population with more debt per capita. When this is realised, emigration may increase substantially.
IMPAIRMENT OF THE SECURITY OF LENDERS
Lenders to the British government need to be aware that their perceived security, which is the future taxes levied on the British taxpayer, and defined in the Whole of Government Accounts as ‘Total Liabilities to be funded by future revenues’, is gradually being transferred. The underwriting taxpayer is gradually changing as the better skilled emigrate and are replaced by immigrants whose taxable capacity may be less.
IMMIGRATION/EMIGRATION AND DEBT
In a free currency world, an emigrant takes away with him from his native country his private assets and his private liabilities. In the simplest case, he simply exchanges his assets from his native country to another country, whether in cash or stocks’ ownership. In such a case, he is unlikely to take away private liabilities but mortgage, or other secured debt, remains attached to its relevant asset and cannot be abandoned. Other liabilities may be abandoned. An emigrant may or may not care to repay his student loan or consumer debt. From media reports it appears many EU students do not repay student loans they took out from the state lender to finance their studies at UK universities.
Similarly, an immigrant brings with him his cash and stock ownership and exchanges these into his new country but rarely brings private liabilities except of an informal type.
An emigrant also relinquishes his share of public assets and his share of public liabilities. He never was able to monetise his share of public assets in his native country as these are in the form of roads, hospitals, schools, etc. but, as a resident, he obtained the benefit of using them. Obviously, being no longer resident, he no longer requires them. By emigrating he also sheds his share of public liabilities, that is, paying interest on and repayment of a share of the liabilities built up to the date of his departure.
Similarly, an immigrant immediately acquires in his new country a share of public assets and the benefit from them but also his share of public liabilities and the interest payable on them.
There are two further factors to consider. An emigrant ceases to use public assets but these assets remain in being. The cost of maintenance and depreciation is spread over a smaller population/taxpayer base. In the case of an immigrant, and where capital assets are maintained at the same level per head as the native population, new assets have to be created. An immigrant, therefore, imposes capital costs. However, he also pays maintenance and depreciation for the existing capital assets. He also diverts capital from natives to build up a share of private capital in the form of housing, factory and office equipment, etc. (Note these are not necessarily owned by an immigrant but result in allocation to his use following the reshuffling of capital following immigration. This is exactly the same process as public assets which are not owned, but used.)
GOVERNMENT DEBT AND LIABILITIES
The other factor is the effect of public liabilities. While an emigrant sheds his share of public liabilities (such as public pension, health and government debt) he also reduces his claim on the state pension and healthcare promises. An immigrant takes on a share of public liabilities but also receives a claim on the state provision on healthcare and on old age pension.
The effect of immigration and emigration on public liabilities is, therefore, quite complicated. In order to simplify we can consider the three largest liabilities.
- Formal government debt. An emigrant clearly sheds his share of this and an immigrant clearly acquires his share.
- Public Sector Pensions. An emigrant who does not receive a public sector pension sheds his share of paying for public sector pensions. An emigrant who is in receipt of a public sector pension pays tax on it but sheds liability for the general taxpayer liability for public sector pensions.
- An emigrant may receive a downsized state old age pension personally but sheds responsibility for the general taxpayer liability.
As regards public sector pensions, an immigrant only benefits personally if he is a public sector employee but, for his taxpayer role, he also takes responsibility for the generality of public sector employees. An immigrant benefits from the old age pension if he is a contributor but, as a taxpayer, takes on the liability for the generality of old age pensions.
As regards public provision of current services, such as welfare, education and health, the median worker is assumed to pay for the benefits he receives so that emigration reduces benefits and taxes by the same equal amount and immigration increases taxes and benefits by exactly the same amount.
However, forecasts of public health expenditure in the UK show that there will be an increasing fiscal burden in future. It should be noted that wage income, however, does not provide the whole of the tax base as capital receives one-third of income and pays tax on this.
WHAT ARE THE FIGURES FOR THE UK?
According to the Office for National Statistics in its publication, ‘Capital Stocks, Capital Consumption and Non-Financial Balance Sheets’, the total wealth of the UK at 31/12/2010 was £3,181 billion in terms of the net written down value of all fixed assets (£2,539 billion in 2004) and is, therefore, per head £50,781 (£40,532 per head in 2004).
The UK population is about 62 million. The gross value of UK fixed assets (stocks, work-in-progress and also land and foreign investment, are all excluded from these calculations of wealth and capital assets) in 2010 was £5,199 billion, or £82,996 per head.. The actual total of government assets, according to the Whole of Government Accounts for 2009/10, was £1,207 billion (at 31/3/2010) or £19,268 per head, so the share of government assets acquired by each immigrant was £19,268 per head. (Note: these assets are basically valued on a mark-to-market value, a different basis from the original cost, exclusive of land, less depreciation basis, used in the ONS Capital Stocks’ publication.)
The total government liabilities of the UK are £6,269 billion at 31/12/2010, that is, the total of government official debt, public sector pension and state pension liabilities, or approximately £100,000 per head. Therefore, each immigrant immediately assumes this amount of liabilities. As only half the population is actual workers or income generators, each worker assumes a debt of £200,000. From the figures on wealth above, the amount of written down capital assets acquired for use by an immigrant is less than half of this (£50,781) and his share of government assets is about twenty per cent of his share of government liabilities. An emigrant from the UK immediately sheds a corresponding amount.
These figures can be summarised as follows for the UK in 2010.
£
1. Total government liability acquired per head by a new immigrant 100,000
2. Total government liability acquired per head by a new worker 200,000
3. Total government assets acquired per head by a new immigrant 19,268
4. Total share of national wealth acquired for use per head by a new immigrant 50,781
5. Total wealth needed to be created for each new immigrant if capital assets per
head are to be maintained. (This figure is different from that in (4) because new immigrants 82,996
have to be equipped with new capital equipment as it is impossible to add extra part-used assets to the economy.)
The enormous rise in formal government debt, public sector pension liability and state pension liability over the last six years, (it has more than doubled in five years) means that the total of liabilities taken on by the average immigrant is now substantially in excess of the total assets gained for use by an immigrant and massively more than his share of government assets.
QUALIFICATIONS
For the purpose of this analysis, it is assumed that each emigrant or immigrant has exactly the economic characteristics of the average (mean) earner of the native population.
In fact, the cost of taxes falls more heavily on higher earners, who do not include most UK immigrants but who will have to pay for a greater share of the burden of past government debt and liabilities.
An emigrant who is a high earner will, therefore, shed a greater sum of government debt than an average earner. A high earning immigrant will take on a greater share of debt than an average immigrant.
A broader perspective should also take on the possibility that government liabilities have grown so large that they can never be paid and must be defaulted on. This may make the apparently irrational intention to immigrate a more rational course of action.
CONCLUSION
Like most native citizens, immigrants do not usually form their judgement of whether to change their country of residence on contemplation of relative long-term government liabilities.
However, for most immigrants into the UK, it is clear they take on responsibility for past government debts on a massive scale. Similarly emigrants from the UK shed their share of responsibility for these debts.
Is there not now a case, both morally and practically, and in the interests of transparency, for giving a formal notice to each immigrant that they are taking on such a large liability?
FUTURUS/28 January 2013
One of the world’s current puzzles is why immigrants continue to come to the UK, as well as other western European countries and the USA, where they automatically assume responsibility for the interest burden and repayment liabilities of enormous government debt. This debt was incurred by past government spending and incurring of liabilities before these immigrants even arrived. Little of this debt was used to acquire government assets. Of course, further liabilities will be incurred in the future.
There is another puzzle. Those who advocate immigration, and even talk about immigrants helping to pay for pensions, do not care to inform immigrants of the liability they are taking on. Indeed, this silence – probably based on ignorance - seems to extend, not only to politicians and commentators, but even bishops, both Anglican and Catholic. However, the fact is that new immigrants take on an enormous debt burden for past government spending. They become late entrants to a Ponzi scheme. Recently, short-term consumer finance organisations have been attacked for putting poorer people into debt of hundreds or thousands of pounds. It does not seem to occur to the advocates that government action is loading poor people with debt on a scale far beyond consumer debt.
Those who advocate immigration are often quick to adopt a posture of high morality. However, the fact is that they are putting forward a policy that will saddle immigrants with large-scale debts for past government spending and entitlement promises.
EMIGRATION
A further aspect is that emigrants from highly indebted countries, shed their share of that debt when they emigrate. Nowadays, there is an increase in emigration, especially of the better skilled, from southern Europe, Ireland and the UK. Even in the US, as reported by the Washington Post in November 23 2012, there is “a wave of young educated young Americans heading overseas in search of better employment opportunities.” It reports, “the percentage of Americans aged 25 to 34 who are planning to move abroad has quintupled in two years.” The motivation for this movement is to find jobs not to avoid debt. However, often mentioned is that these jobs carry lower tax burdens and the tax burden reflects, interalia, debt servicing. The fact is that if their emigration is permanent, they do shed their share of their native country debts.
Joel Kotkin in Forbes magazine, 28th June 2012, pointed out “An estimated half million left Spain last year alone. Ireland, which in recent decades actually attracted migrants, was exporting a thousand people a week last year. In recession-wracked Britain, a 2010 poll found nearly half of the population would like to move elsewhere.”
Nick de Bois, MP, Secretary of the 1922 Committee, drew attention to the emigration phenomenon (Daily Telegraph, 23rd January 2013). His research showed that over ‘ten years, to 2011, 3,599,000 people permanently left the UK. Contrary to the perception of typical emigrants being older people retiring to a life in the sun, the figures showed that 1,963,000 were aged between 25 and 44. Only 125,000 people of retirement age emigrated.’
There is clearly a danger that emigration of the better skilled, motivated at present by a search for employment, will leave the remaining population with more debt per capita. When this is realised, emigration may increase substantially.
IMPAIRMENT OF THE SECURITY OF LENDERS
Lenders to the British government need to be aware that their perceived security, which is the future taxes levied on the British taxpayer, and defined in the Whole of Government Accounts as ‘Total Liabilities to be funded by future revenues’, is gradually being transferred. The underwriting taxpayer is gradually changing as the better skilled emigrate and are replaced by immigrants whose taxable capacity may be less.
IMMIGRATION/EMIGRATION AND DEBT
In a free currency world, an emigrant takes away with him from his native country his private assets and his private liabilities. In the simplest case, he simply exchanges his assets from his native country to another country, whether in cash or stocks’ ownership. In such a case, he is unlikely to take away private liabilities but mortgage, or other secured debt, remains attached to its relevant asset and cannot be abandoned. Other liabilities may be abandoned. An emigrant may or may not care to repay his student loan or consumer debt. From media reports it appears many EU students do not repay student loans they took out from the state lender to finance their studies at UK universities.
Similarly, an immigrant brings with him his cash and stock ownership and exchanges these into his new country but rarely brings private liabilities except of an informal type.
An emigrant also relinquishes his share of public assets and his share of public liabilities. He never was able to monetise his share of public assets in his native country as these are in the form of roads, hospitals, schools, etc. but, as a resident, he obtained the benefit of using them. Obviously, being no longer resident, he no longer requires them. By emigrating he also sheds his share of public liabilities, that is, paying interest on and repayment of a share of the liabilities built up to the date of his departure.
Similarly, an immigrant immediately acquires in his new country a share of public assets and the benefit from them but also his share of public liabilities and the interest payable on them.
There are two further factors to consider. An emigrant ceases to use public assets but these assets remain in being. The cost of maintenance and depreciation is spread over a smaller population/taxpayer base. In the case of an immigrant, and where capital assets are maintained at the same level per head as the native population, new assets have to be created. An immigrant, therefore, imposes capital costs. However, he also pays maintenance and depreciation for the existing capital assets. He also diverts capital from natives to build up a share of private capital in the form of housing, factory and office equipment, etc. (Note these are not necessarily owned by an immigrant but result in allocation to his use following the reshuffling of capital following immigration. This is exactly the same process as public assets which are not owned, but used.)
GOVERNMENT DEBT AND LIABILITIES
The other factor is the effect of public liabilities. While an emigrant sheds his share of public liabilities (such as public pension, health and government debt) he also reduces his claim on the state pension and healthcare promises. An immigrant takes on a share of public liabilities but also receives a claim on the state provision on healthcare and on old age pension.
The effect of immigration and emigration on public liabilities is, therefore, quite complicated. In order to simplify we can consider the three largest liabilities.
- Formal government debt. An emigrant clearly sheds his share of this and an immigrant clearly acquires his share.
- Public Sector Pensions. An emigrant who does not receive a public sector pension sheds his share of paying for public sector pensions. An emigrant who is in receipt of a public sector pension pays tax on it but sheds liability for the general taxpayer liability for public sector pensions.
- An emigrant may receive a downsized state old age pension personally but sheds responsibility for the general taxpayer liability.
As regards public sector pensions, an immigrant only benefits personally if he is a public sector employee but, for his taxpayer role, he also takes responsibility for the generality of public sector employees. An immigrant benefits from the old age pension if he is a contributor but, as a taxpayer, takes on the liability for the generality of old age pensions.
As regards public provision of current services, such as welfare, education and health, the median worker is assumed to pay for the benefits he receives so that emigration reduces benefits and taxes by the same equal amount and immigration increases taxes and benefits by exactly the same amount.
However, forecasts of public health expenditure in the UK show that there will be an increasing fiscal burden in future. It should be noted that wage income, however, does not provide the whole of the tax base as capital receives one-third of income and pays tax on this.
WHAT ARE THE FIGURES FOR THE UK?
According to the Office for National Statistics in its publication, ‘Capital Stocks, Capital Consumption and Non-Financial Balance Sheets’, the total wealth of the UK at 31/12/2010 was £3,181 billion in terms of the net written down value of all fixed assets (£2,539 billion in 2004) and is, therefore, per head £50,781 (£40,532 per head in 2004).
The UK population is about 62 million. The gross value of UK fixed assets (stocks, work-in-progress and also land and foreign investment, are all excluded from these calculations of wealth and capital assets) in 2010 was £5,199 billion, or £82,996 per head.. The actual total of government assets, according to the Whole of Government Accounts for 2009/10, was £1,207 billion (at 31/3/2010) or £19,268 per head, so the share of government assets acquired by each immigrant was £19,268 per head. (Note: these assets are basically valued on a mark-to-market value, a different basis from the original cost, exclusive of land, less depreciation basis, used in the ONS Capital Stocks’ publication.)
The total government liabilities of the UK are £6,269 billion at 31/12/2010, that is, the total of government official debt, public sector pension and state pension liabilities, or approximately £100,000 per head. Therefore, each immigrant immediately assumes this amount of liabilities. As only half the population is actual workers or income generators, each worker assumes a debt of £200,000. From the figures on wealth above, the amount of written down capital assets acquired for use by an immigrant is less than half of this (£50,781) and his share of government assets is about twenty per cent of his share of government liabilities. An emigrant from the UK immediately sheds a corresponding amount.
These figures can be summarised as follows for the UK in 2010.
£
1. Total government liability acquired per head by a new immigrant 100,000
2. Total government liability acquired per head by a new worker 200,000
3. Total government assets acquired per head by a new immigrant 19,268
4. Total share of national wealth acquired for use per head by a new immigrant 50,781
5. Total wealth needed to be created for each new immigrant if capital assets per
head are to be maintained. (This figure is different from that in (4) because new immigrants 82,996
have to be equipped with new capital equipment as it is impossible to add extra part-used assets to the economy.)
The enormous rise in formal government debt, public sector pension liability and state pension liability over the last six years, (it has more than doubled in five years) means that the total of liabilities taken on by the average immigrant is now substantially in excess of the total assets gained for use by an immigrant and massively more than his share of government assets.
QUALIFICATIONS
For the purpose of this analysis, it is assumed that each emigrant or immigrant has exactly the economic characteristics of the average (mean) earner of the native population.
In fact, the cost of taxes falls more heavily on higher earners, who do not include most UK immigrants but who will have to pay for a greater share of the burden of past government debt and liabilities.
An emigrant who is a high earner will, therefore, shed a greater sum of government debt than an average earner. A high earning immigrant will take on a greater share of debt than an average immigrant.
A broader perspective should also take on the possibility that government liabilities have grown so large that they can never be paid and must be defaulted on. This may make the apparently irrational intention to immigrate a more rational course of action.
CONCLUSION
Like most native citizens, immigrants do not usually form their judgement of whether to change their country of residence on contemplation of relative long-term government liabilities.
However, for most immigrants into the UK, it is clear they take on responsibility for past government debts on a massive scale. Similarly emigrants from the UK shed their share of responsibility for these debts.
Is there not now a case, both morally and practically, and in the interests of transparency, for giving a formal notice to each immigrant that they are taking on such a large liability?
FUTURUS/28 January 2013