Transfer payment

In macroeconomics and finance, a transfer payment (also called a government transfer or simply fiscal transfer) is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return (in contrast to financial transaction). These kind of payments are one-sided in nature, i.e. one party enjoys economic benefits from the other party. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. Examples of transfer payments include welfare, financial aid, social security, and government subsidies for certain businesses. Unlike the exchange transaction which mutually benefits all the parties involved in it, the transfer payment consists of a donor and a recipient, with the donor giving up something of value without receiving anything in return. Transfers can be made both between individuals and entities, such as private companies or governmental bodies. These transactions can be both voluntary or involuntary and are generally motivated either by the altruism of the donor or the malevolence of the recipient. For the purpose of calculating gross domestic product (GDP) by expenditure method, government spending does not include transfer payments, which are the reallocation of money from one party to another rather than expenditure on newly produced goods and services.

Australia

In Australia, the horizontal fiscal imbalance arises because of the mismatch between the tax revenues and government expenses for the various state and territorial governments. This imbalance is addressed by a horizontal fiscal equalisation (HFE) policy overseen by the Commonwealth Grants Commission.

Canada

In Canada, Federal-Provincial transfers usually refer to a system of payments from the federal government to the provinces as part of Canada's "fiscal federalism" through explicit and implicit redistribution. These transfers are intended to assist provinces with less fiscal capacity than others in providing comparable public services in all regions, including health and education. Transfers include explicit programs such as equalization payments, Canada Health Transfer (CHT) and the Canada Social Transfer (CST) (formerly the Canada Health and Social Transfer) and Territorial Formula Financing. There are also implicit transfers that result from federal taxation and spending decisions and policies. Canada's transfer payments originated in the British North America Act (1867)'s Sections 118 as provincial subsidies. By 1907, these payments were altered as new provinces joined the Dominion. In a 1957 arrangement, poorer provinces received annual payments: Prince Edward Island received $2.5 million and the three provinces, Newfoundland, Nova Scotia, and New Brunswick each received $7.5 million. These payments ended and were rolled into the 1967 equalization program intended to "enable each province to provide an adequate level of public services without resort to rates of taxation substantially higher than those of other provinces." In Canada, transfers payments are contentious and equalization formulas are often revised. Implicit transfers through federal taxation, for example, are greater in higher income provinces such as British Columbia, Alberta, Saskatchewan, and Ontario and lower in provinces such as Manitoba, Quebec, and the Atlantic provinces. Canada measures average fiscal capacity of each province which varies widely. Alberta is the highest at $12,577 per person and PEI is the lowest at $6,013 per person. In 2016 federal income tax in Alberta was more than $8,000 compared to less than $3,000 in PEI. All provinces pay the same federal tax rates. Economist Trevor Tombe wrote that by 2018, transfer payments had become "complex arrangements" that are much larger than the original subsidies and are "more equally distributed". By 2018, inter-provincial redistribution has decreased to less than 2% of Canada's GDP, its lowest in 60 years. In the early 1980s it was 3.5%.

China

Since July 2011, existing regional and local social security schemes, including pooling arrangements, are gradually being unified under the country's first national law on social transfer payments. The government aims to establish a comprehensive, equitable, and unified pension system that covers both urban and rural residents by 2020. In 2016, the government decided to establish a unified health insurance system for both rural and non-salaried urban residents. The government has also announced that medical insurance and maternity insurance programs will be merged.

India

India has four types of social transfer payments – old age and disability benefits, sickness and maternity benefits, work injury transfers, and unemployment benefits. Most sources of payments are employers (via provident funds), and the government.

United States

The U.S. still utilizes paper transfer payments in its Social Security administration as many recipients, particularly those in lower-income categories, are unbanked, i.e. do not have a bank account to facilitate direct deposits. However, the U.S. has been able to implement electronic transfer systems in its food stamps and education assistance programs.

References

Text derived from https://en.wikipedia.org/w/index.php?oldid=1363335243 under CC BY-SA 4.0; modifications have been made.

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