Societies and governments are based on creating jobs and collecting taxes, this way the system ”works”. Both taxes and jobs are complimentary in order for the system to work and they are in fact two sides of the same coin. The reasons communism failed is because there are artificial jobs and artificial demand and supply with no taxes. Tax is one of the most abused, hated, and misused tool from time immortal. Tax collection was considered a sin and was justifiably called exploitative in most parts of our history.
That is where we like to bring in skills and its impact on taxes today. Times have changed and so have nature of jobs in the past three decades and it is going to impact the way governments function. Going forward, we believe that there are challenges to the existing system as new ideas are created rapidly and change is quicker in the new economies, so the governments and tax departments find it hard to adapt.
Tax in most countries is collected almost exclusively from a defined age group, based on the system we have built over the past generation. I would like to break this up into three parts – education, job, and retirement. Only the middle (job) stage of the citizen is most viable to the governments. Education and retirement stages are non-viable. Middle stage always funds (via taxes) the other two and it is done in an efficient manner in some countries and rather inefficiently in others.
This system is under stress now due to two factors – Technology and Social. The viable job stage is a time where citizens are productive, this stage is shrinking for the governments, whereas the third stage of retirement is rapidly expanding and the education stage is becoming less relevant in the current format due to the skills gap in education. Both education and retirement stages are getting expensive for the governments – it’s getting more difficult for governments to balance the books! Simply put, governments with big social security are heading towards hard times.
Time to change the business model? Perhaps, and it needs to be done in order to keep the governments functioning as per the expectations of its citizens. Skills are changing and taxes are not that simple to collect and distribute for government schemes (i.e. welfare). We have grown used to the fact that we pay for a service and that same thinking goes for tax, we pay taxes for basic services that will be maintained by governments.
While this change happens, the most impacted are job seekers and Millennials, in particular. With the rapid change in technology and skills, the millennials are unable to use skills from education. We have a unique situation where all the years of education and training on the desk are quite outdated for most jobs available. A lot of time and resources are being spent on skills development, however, the return on investment for parents, banks, and governments are diminishing. All this has a very profound effect on youth unemployment as well as tax collection. Lack of skills will automatically result in industries moving to other areas where it’s available and this will create social issues locally. Some of the present qualifications are going to have no value in the coming years and it is important that the government and educational institutes are regulated accordingly.
We need a very robust and dynamic system, where there is more information flowing in terms of education, courses offered, and the jobs that are available – more like demand and supply and due to increased digitization it should not be difficult to achieve.
The HR teams of private as well as government agencies need to be linked in a common portal and a proper analysis should be possible to predict the future skills shortage and the skills that could be in less demand. As long as data is available on the required skills, we are in a position to work backward to feed this data to the education institutions. With this data, governments can try to regulate the quotas for seats in colleges with courses that have no future demand, especially the ones supported by public funds.
A simple way to look at this is, for instance, the central government’s findings estimate that the construction sector will create over six times more jobs than the Information Technology (IT) and related services sectors by 2022 (FICCI 2010:11). However, the state growth plan for two major states, Uttar Pradesh (UP) and Maharashtra, which drive construction growth, shows state government initiatives for the IT sector and none for construction. This mismatch between India’s policies at the national level and ”on-the-ground” implementation by the states nullifies the policy focus in the informal sector, further compounding the perpetual shortage of skilled workers – which can be avoided if we change the business model.