The two volumes can be found here: Vol. 1 and Vol. 2.
An initial glance through suggests that it’s all meat and little padding. It will be for others to frame the wider implications of what is being proposed.
There can be no doubt that the decisions that will be taken on public spending in the coming months will shape our society for a long time to come. Let the debate begin. And let’s get the balance of analysis and polemic right!
Update: OK, enough is enough. The volume of disparate comments — over a hundred now on this strand — tells me that some specialization is needed here, so I am opening five new strands to facilitate a more coherent discussion of sub-issues.
One strand, then, on each on the three biggest areas by spend (Social Welfare, Health, and Education) one on specific issues in the remainder and one on the strategic and structural aspects.
No doubt some contributors will also be drafting substantive posts on particular aspects, and on the overall implications of the report and reaction to it.
111 replies on “An Bord Snip Nua report”
In case anyone can’t get to the report on the finance site, the report is also hosted here: http://bit.ly/yis2y.
12 or more months in, and they’re only now getting around to ‘talking about’ the actual problem….
[…] report of Colm McCarthy’s An Bord Snip Nua is out this afternoon. Amid a flurry of crashing websites, extended RTE shows and tweeted short […]
only browsed through the report, but I agree with the broad outline as well as the details I saw (no surprise there)
I would think, though, that we would want to discuss this department by department
Can we give funding/education a blast here first?
Agree with a lot of admin cuts and amalgamation possibilities within the institutes. Not quit sure where he meant in relation to the NUI’s?
Also he might have crippled funding possibilities for students, I agree with looking, even demanding, an economic return from investment in PhD’s and stepping away from the obsession with citations and paper publishing, I just hope research bodies don’t interpret this as to put a full stop to all possible students.
the goverment should lead by example and take a 25% + pay cut , is it right that brain cowen gets payed more then the US presadent. i am a public servent and have a family too support on just one wage packet , and my income is €530 weekly how are familys too survive on this in these times , if this goes through the fainna fail party will not be in goverment for many years too come.
There’s a definite stink of class war off these documents.
Hush! I’m reading.
every time they see culture they reach for the scissors
Heres an interesting tidbit from the report…It’s in the section on Coillte…. Im not sure if the boys flogging NAMA will be glad to see this… sounds like the idea of “long term economic value” is not universally shared.
“Explore the scope to dispose of non-essential land/property holdings owned by the State agencies.
The Group agrees with the principle of the sale of surplus assets. The excuse that property/land prices are now too low to sell has little validity as in the foreseeable future property prices are unlikely to return to anywhere near the inflated levels of recent years.”
Flicked through it and it looks like they have done a pretty comprehensive job. There’s hardly an interest group who won’t be up in arms.
As a short term plan it looks achievable if the will power is there to implement it. Pity it only saves €5b but they can go again if things don’t improve as predicted in 2010. In many cases the job cuts only bring some of the agencies back to around 2008 levels, it will need to go further.
The knock on effect on the economy will be far reaching as cuts in children’s allowance, drugs scheme, social welfare, training schemes, garda allowances etc etc take its toll.
Still at least the government knows it is seriously unpopular already, it can’t get much worse for them. If they stick to their guns on this, I might even vote for them.
My verdict – decent job in the circumstances. Now let’s implement it asap.
This cry of class war is the tack taken by Republicans in the US in defence of tax cuts for high earners.
The value of the report is that it starkly sets out the conspiracy of the insiders against the public interest.
Pension costs estimated at 30% of earnings; judges appointed from the private sector in their 50s and then given full-service pensions at 65; Gardaí free to retire on full earnings indexed pensions at the age of 50 and so on.
“The Group notes the large number of allowances paid to members of the Gardaí and that the majority of these allowances are pay-related and pensionable. Many of the allowances appear to have limited rational justification. The Group consider that the current system of Garda allowances on top of pay, and high levels of overtime, should be reviewed to realise savings.”
Hardly a crime to tackle such issues?
As for change in the 1898 vinatge system of local government, it would surely be progress.
Other relics of the Victorian era are unlikely to change in conservative Ireland: e.g full public spending transparency
It would also be optimistic to expect any big changes in the buck stops nowhere system.
good report with lots of good data
public serive employment up by one third-number of mangers doubles-that efficiency for you?
pupil teacher ratio in high 20s but when you take divide number of teachers into a/c its 16/1-who has kidnapped all our teachers? Lots of special needs teachers with no pupils?
Abolishing NUI-please explain!!!
number of embassies to be cut-21-I think-that’s an awful lot of Ferrero Rocher
Pity about the Equestrian team-worth more than 20 embassies
this is a report written by economists, when are yee going to realise that we live in a society, and for every action their will be a reaction that you can not measure in graphs and charts and put a euro sign at the top of it.
“It would also be optimistic to expect any big changes in the buck stops nowhere system.”
LOL, That is the best analysis that I have come across.
Short, concise, and to the point.
Well said Michael Hennigan.
I get the uneasy feeling that Colm Mc Carthy (Economist) is being used by both the FF/PD government and the Department of Finance (the permanent government) to lend his name to a review and recomendations that should never have been necessary if they had not let public expenditure get out of hand on the back of an unsustainable housing bubble in the first place
This report is really a product of Department of Finance thinking. The Second Secretary General, Department of Finance and a former senior
official in the Department of Finance are part of the small group. Other members seem to be from the Ireland’s elite business/administrative cadre.
This group’s first acknowledgement in the report is to ” the excellent assistance and support provided by officials in the Sectoral Policy Division of the Department of Finance. Officials provided the Group’s Secretariat, as well preparing detailed papers for the Group on each Ministerial Vote Group and papers and notes on a significant number of policy areas.”
Colm used ….never. It is a thorough and well researched report by a group that knows where the bodies are buried.
Can anyone tell me……..there are always ‘consequences’ for any action. Is there anything accompanying this report that attempts to predict what the economic and social consequences might be should they try to implement some of these proposals? I couldn’t see anything in the report itself. Maybe that sort of thinking isn’t in vogue but surely you have to understand the consequences before you decide on an action? Even if your name’s Brian?
@ Aidan C
Colm McCarthy et al are obviously gonna get a lot of stick from those who are quite clearly opposed to massive cuts to the public sector. However, can i ask what the alternative is? The fiscal path as it currently stands is completely and totally unsustainable. National bankruptcy is the only logical conclusion from a “continue as is” position. If we accept that the fiscal gap MUST be cut, then opposition to large public sector cuts means that you are de facto in favour of extremely large tax hikes, probably in the order of 10-15% across the board. To deny this is to either (a) lie or (b) admit you don’t actually have any real solution or plan to suggest. Those in favour of cuts have been fairly open and honest about their ideas, so i’d appreciate if those against the cuts would do the same with their suggestions.
We can moan all we like about how we got where we are, it doesn’t change the need to do something about it. That’s what Colm and his group have put forward. The Dept of Finance are probably the best people to do it. That’s what they are there for. You’re not likely to get individual departments volunteering to fall on their swords.
Watching the 9pm news – So far SVP, INTO, INO, Impact have come out fighting. Wonder where they actually think the savings should come from.
This will really test the government’s metal.
Funny how they left the bloated administration (€400,000 remuneration packages anyone?) at UCD untouched….
Draw your own conclusions.
In case anyone wants to draw the conclusions you think they should, I’d direct people to read page 72 of Volume 2:
D. 7 Rationalise research administration at the third level institutions
The Group notes that many third level institutions have built up substantial research administration staffing in recent years as R&D funding increased significantly. Over 200 staff are involved in the administration of research and research budgets in the 7 universities at a cost of over €16m per
annum. A total of 67 of those staff are employed in UCD at an annual cost of €5.3m while 40 are employed by Trinity College costing €3.2m per annum. There is scope for staff savings in this area given the likely future reductions in R&D allocations and the excess staffing employed which have
not led to any sizeable increases in private funding for R&D at the institutions. Overall, savings of €4m are targeted.
That seems to indicate that frontline admin jobs should be cut in those institutions (“excess staffing”) and says nothing about the off-the-scales salaries enjoyed by the chosen few.
I see the €1.7bn annual capital expenditure on roads was protected in favour of cuts to more sustainable forms of transport, overseas aid, etc. That’s the kind of fresh thinking we need alright.
@Karl: absolutely. I am sure we all were pleased with this section of the report. My one gripe with it is that I wouldn’t have singled out the research beurocracy alone since there are mini-HSE’s springing up all over the place. Take a look at this for example:
@ ERNIE BALL
Maybe those in UCD will lead by example and slash their ridiculous inflated salaries, followed by the governments cutting their own salaries and pensions. Then we will know they mean business. Maybe others will start to fall on their own swords one by one. If the McCarthy report is not implemented there will be state bankruptcy.
This report is only a starting point we need a new constitution for the 21st century, a new political system where politicians are accountable where the buck stops and we know it has stopped by the word “resigned!”. In short we need political reform and then economic reform. We will not get the latter without the former.
Jack O’Connor better be very careful about calling this report “a fantasy” which was his opening cheap shot. A lot of us know, what Jack fantasizes about and that is, running this country by dictat without ever receiving a single vote from the electorate.
If the anger of the ordinary working people or unemployed people of this country is turned on him for protecting ‘his members interests’ he will rediscover something he has never experienced before it is called grass root anger. Jack O’ Connor epitomizes the distortion of wages and salaried between the private sector and the public sector and he can pretend that he is not a wolf in sheep’s clothing all he likes.
@Ernie I don’t think they have addressed salaries yet though that figure seems extraordinary.
The more I hear about salary levels, the more I am convinced of the need for a maximum as well as a minimum wage… in a bankrupt country with rocketing unemployment it is criminal to be paying 10 times average wages for what seems to be an ordinary enough job….
I give up. If you want to, you can believe that the authors of this report are recommending the continuation of huge off-the-scale salaries and want to exclude these people from the €4m “staff savings” recommended. But, in my humble opinion, this would be a somewhat strange way to interpret this section.
@Ernie: a pretty strong indication of what Colm thinks about these bloated salaries can be found here:
There is also the fact that the section you cited refers only to “research administration.” What about the burgeoning numbers of vice presidents, etc. in other areas?
As for your other claim, there is nothing in the report that targets off-the-scales salaries among administrators. You may think it’s contained in some of the recommendations about general cuts in research administration, but that strikes me as overinterpreting the document. You can’t just assume that because the report recommends swingeing cuts that therefore it must also implicitly recommend all other obvious cuts. It doesn’t.
I don’t believe the academic salary scales at UCD (or the other Irish universities) are at all inflated given that these institutions have to compete internationally for staff and have to try to attract top staff to what is, after all, an expensive and in many ways unattractive island (and not getting better). What is a scandal are the off-the-scales salaries that some locally-recruited administrators are earning.
If you think the figure is extraordinary, read this. It’s a puff piece but you’ll get the idea.
This report, if implemented, will damage the delivery of public services so much that it will take at least 20 years to recover.
For example: Mc Carthy flippantly stated today ““Those who teach English to newcomer children for example are not needed as much as they were before,”…..
I work in this sector, and can tell you for a fact, that this is absolute nonsense. There are just as many children in primary schools with english langauge difficulties today, as 10 years ago.
The report is based on cutting numbers, easy for an economist, catastrophic for those of us who live in the real world, where real people represent numbers.
Class war requires two sides. This is a one dimensional assault on society.
That one-word comment from Colm McCarthy doesn’t say much and the post it’s appended to conflates off-the-scales administrators (who, as you point out, are almost always recruited locally) and on-the-scales academics.
Primetime was interesting due to the assertion by Constantin Gurdgiev that “government legitimacy” is an issue. He had to explain to the rest of the panel what he meant in that the government needed to get its own house in order first in relation to salaries, expenses, pensions etc. I believe this is key to any acceptance of cuts by the general public. How can any government cut unemployment benefit and old age pensions of €200+ per week when their own salaries are 10 or up to 30 multiples of same. They must show leadership. Does Brian Cowan really need 4 properities and if most of our ministers are heavily mortgaged or involved in property does this affect policy decisions?
I thought Fergus Finlay and Jack O’Connor sidestepped the issue of “high salaries” quite neatly.
On education I think the closing of smaller schools would fit quite well into an overall policy of non-religious schools and the stopping of the idiotic separation of 4 year olds to attend schools of their “belief”.
However, I suspect we ain’t that brave. I’d agree with “It would also be optimistic to expect any big changes in the buck stops nowhere system.”
I do think the “drop in prices” argument in favour of cutting social welfare is somewhat disingenuous; excluding interest rates @ 2.2%. This would be one prescription fill of the new €5 charge in the week, and rent supplements have already been cut.. I’m not saying social welfare shouldn’t be cut, but it should be the last cut of any “moral” society.
I feel queasy. I’m a secondary school teacher. Like everyone else, every cent of my wages is labelled before I even get them. Really feel the 10% I’m already paying. Honestly, couldn’t afford to keep my house if any more pay cuts are implemented.
I’ve been considering a solution…I’d work more hours each week if my salary was left alone. That would reduce the number of teachers needed. We need to stop training so many teachers. The training is free to the student, at the moment. Will there be jobs for all these newly qualified people in the future?
The fact that this education system educated the population that has successively voted these idiots into power with the knowledge that they never had a clue , the last thing we should do is change class sizes , maybe we should change the curriculum. ie teach people what the word ethics mean.
@ Ernie Ball
Regarding all the hard earned salaries in UCD. The following do not compare to favorably with salary levels at UCD. Firstly, President of the United States of America one Barack Obama who’s salary is a mere $400,000 U.S dollars. Secondly, Brian Cowen Taoiseach who’s salary is 257,000 Euro. Thirdly, one Nicholas Sarkosy, President of France who’s salary is 240,000 Euro. Fourthly, Prime minister Angela Merkel of Germany 228,000 Euro. Fifthly Prime minister of Japan Taro Aso $243,000. Finally, Kevin Rudd Prime Minister of Australia $229,000.
Having lectured myself I am under no illusions about the responsibilities of lecturing and administering courses in Irish universities. However, I do question staff at universities receiving more than the leaders of the U.S.A. Germany, Australia, France and Japan. It makes me wonder have we lost the run of ourselves completely. Perhaps, the above, are all in the wrong jobs?
Reading the comments above I can see that the viral selfish gene, has mutated to an extraordinary degree in the body politic in Ireland. However, it makes little sense to kill the host organism, as rapid death soon follows. Let us see if that lesson needs to be experienced rather than comprehended in Ireland.
and another thing . just to get this straight in order to improve our economy we have to take as much money out of it as possible especially off the people who dont save and put all their money back into the economy, and leave the people who are wealthy with as much money they can save so the banks can have huge deposits and loan to no one because the people who spent money can’t borrow without a job and then default on their mortgage leaving the bank with less deposits and the cash economy dry as nevada.
on second thoughts maybe we should concentrate on the economics syllabus, because if any body thinks that that the department of finance knows anything about economics it must have been home economics they studied.
So you don’t mind sacrificing other teachers’ jobs so long as yours is OK then? That sounds like what you’re saying and why it’s going to be impossible to implement these cuts (and many other cuts that are needed).
welcome to the realities faced by the private sector every day.
Can anyone tell me how you would quantify the savings if a maximum wage were introduced in Ireland (really ‘sharing the pain’)? I’m talking about for those paid out of the public purse e.g. TD’s, civil servants and others I’m sure (are Anglo Irish bankers in this category?). Let’s say if the cap was €100,000 and also €150,000 for a comparison.
Is it possible to do? If not, has anyone got any ‘educated’ guesses??
The standard answer when challenging any of these cuts is going to be “So what would you propose instead then?”. I’m just trying to think ahead.
I am surprised at a lot of the commentary here. This is not an economically driven report. It is a crude and narrow accountacncy solution to an economic problem, the economic consequences of which are not even considered.
The attack on each level of education from Fourth level to primary, and I hasten to point out that I do not work in that sector, exposes this document for the ideologiaclly driven sham that it is.
On one level it is so outrageoulsy ill considered and ideolgically driven that it stands not the remotest chance of being implemented in full or anthing close to that.
Re: Jack O’Connor, Peter McLoone and the union bosses. I am a civil servant at a professional (highly educated) grade being paid the average industrial wage (€34k) and feel damn lucky to have it. All my colleagues (we are aged 27-35) voted against the recent Impact ballot allowing strike action as we are not utterly mindless of the crisis in the public finances (despite what some irishconomy.ie contributers might think). I am fairly confident that we will deliver McLoone another bloody nose if he attempts to push us towards striking.
The main militancy in the civil service union membership comes from the CPSU, which, in all fairness, represents people who earn a very poor salary: for most of their working lives (ie home-buying, child-rearing years) they are paid €24-28k. The levies have hit these people hard and the new taxes coming down the road will hit them harder.
Finally, I think the idea of any state servant earning €200k+ is disgusting and immoral. All salaries (inc. politicians) should be capped at €100k, or around €70k if I had my way.
>>I see the €1.7bn annual capital expenditure on roads was protected in >>favour of cuts to more sustainable forms of transport, overseas aid, etc. >>That’s the kind of fresh thinking we need alright.
Capital spending is not covered by the report.
“Capital spending is not covered by the report.”
And yet the report says that the Western Rail Corridor should not be extended. So somehow they do feel free to recommend cutting capital expenditure on rail, but not with regard to roads.
Now of course I realise that one can argue that re-opening the rail line will cause current expenditure in the future to rise, but the same could be said for roads.
There is a definite pro-road bias to this report.
at the end of the day, there’s very few public sector workers earning 150-200k, so i don’t see what nominal effect a maximum wage would have. Even a thousand people (and its far less than that) earning 200k a year only adds up to 200mio in total. Thats a big amount, for sure, but we’re looking at a budget deficit 100 times bigger than that. The real problem is that there’s a huge amount of public sector workers earning 50-100k. This is where the savings can, and must, be made. I suppose the one positive effect of a maximum wage would be that it should cause a trickle down effect on general wages throughout the public sector.
sorry, is it accountancy driven or ideologically driven? You can’t have it both ways.
Fiscal deficit of 20bio: Tax hikes or spending cuts? Please suggest, even at a very general and basic level, what you see as the alternative to the Bord Snip report.
This was always a buck passing excercise from the beginning. CLaims of €5bn in potential reductions in expenditure. Apply the usual reality factor that is needed for such estimtes and we are probably looking at €2.5bn. A drop in the bucket compared to the actual structural deficit in Ireland, which is now being revealed (labour markets below capacity, but factor market prices and factor costs still very inflated).
Ireland needs a blank piece of paper and the following:
A disciplined decision about what publically provided services are actually needed (face it – an enormous state “training” monopoly, food boards, expensive regional and industry policy supporting departments, grants and subsidies, absurdly profligate transfer payments in the form of child allowances)).
A completely new tax system (last week I had need to learn about PRSI and discovered there is about 30 different classes for all different types – madness, and surely we don;t need to mention the stupidity of a 22% consumption tax that only cover 20% of expenditure, or an income tax system that results in no payments by more than 40% of income earners).
The purpose of Snip though has now been served. Those incompetent, career glad handers who tax us and through our money around with gay abandon can calim they are doing what is needed.
A complete sham that provides no hope for the Irish economy that is still sliding towards oblivion
“is it accountancy driven or ideologically driven? You can’t have it both ways.”
I rather think I can, Eoin. The report itself is an accountants balance sheet exercise without any analysis of economic consequences. It is that way deliberately because its remit is ideolgically driven!
As to your question in relation to tax hikes or spending cuts dont forget that we have a commisssion on taxation to report yet.
The bottom line is that the approach is deflationary and will worsen the economic situation.
i’m sorry, but this “its deflationary” excuse is starting to wear thin. The simple fact is that we pay our public service way too much, and/or get too little in return from it. Its unsustainable madness. If that means a deflationary cycle, and all the horrible economic problems that that brings with it, then so be it. There’s simply no other way out of this. Its better than the alternative that is national bankrupcty and the IMF clearing the decks in the civil service to the tune of 30%.
But hey, at 30mio a day, waiting a couple of months for the commission on taxation to tell us this exact thing is only gonna cost us a couple of billion, right, so whats the problem??
Sorry but I don’t deal with hysterical rants.
Would be interested to know, however, what sector you work in and whether you have had anything to say about banking/financial/construction sector that is costing us, the taxpayer, multiples of McCarthy’s cuts.
‘Cut your coat according to your cloth’.
Ireland simply cannot keep borrowing ever increasing quantities of “cloth” (credit/debt) to continue living as we were all encouraged to do in the “good” old days of “Planet Bertie”.
In the 10 years from 1999 to 2008 the net increase in loans outstanding by the Private sector at end of each year increased from €94 billions at the end of 1999 to €429 billions at the end of 2008 , an increase of €335 billions. http://www.scribd.com/doc/16931406/OSHEAcreditjune22
At 5% interest rate, this costs the Irish economy €16.75 billions to service each year. This is over 8% of last years GDP (€198 billions).
The problem is huge. I am not at all confident that those who were cheerleaders for this crazy and unsustainable boom are credible guardians of a recovery based on fairness and transparency.
Colm McCarthy and the group he chaired deserve plaudits for putting such a comprehensive menu of public expenditure cutbacks and potential efficiency savings before the Government – even if even if the range and size of the portions will prove unpalatable.
Some context is required. The report examines current expenditure and numbers in the public sector. It does not take pay, productivity, taxation or capital expenditure into account explicitly. Of course, some specific references are made to capital expenditure as the context demanded and there are implicit assumptions about productivity, but the key levers of pay and taxation were clearly out of bounds. The Government presumably expects to have the outputs of the Commission for Taxation and its own proposals on public sector pay as the principal tools to get whatever it requires of this package of cutbacks through whatever remains of the so-called “Social Partnership” arrangements.
What the report does not have – and which it neither could nor should have – is a clear vision and set of principles governing the role of the State in a modern economy and society. This is the guidance that is required to restore some measure of prosperity and cohesion in society, but our system of democratic governance is totally incapable of providing it.
Of the 149 TDs who reveal their former occupations the following may help to explain why:
Education 40 (26.8%)
Unspecified Business 19 (12.8%)
Farming 18 (12.1%)
Local Business 18 (12.1%)
Accountancy 11 (7.4%)
Law 11 (7.4%)
Technical Skill or Profession 11 (7.4%)
Medical 6 (4%)
Public Sector 5 (3.4%)
Media 3 (2%)
Political Support 3 (2%)
Economics 2 (1.3%)
Trade Union 2 (1.3%)
Over 50% come from education, farming and local business (e.g., publican, undertaker, auctioneer, insurance broker, plant-hire, etc.). I’m sure that dealing with children, animals and crops provides wisdom and insights, but I’m not sure that these provide the skill-sets to legislate for a modern state and to exercise effective democratic restraint on the executive and the plethora of statutory and non-statutory bodies it has established. Pay peanuts and you’ll get monkeys; deprive the Oireachtas of any power and authority and you’ll get seat-fillers.
And on the need for pay cuts that seems to be energising some many posters, it may be worth looking at price levels in Ireland (which cannot be unrelated to the levels of pay sought by workers in both the public and private sectors).
Eurostat has recently presented EU member-state price indices (EU27=100) for Household Final Consumption Expenditure and for major components in 2008: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-09-050/EN/KS-SF-09-050-EN.PDF
Ireland’s index levels and rankings are revealing:
Household Final Consumption Expenditure 127 (2)
Food and non-alcoholic beverages 127 (2)
Alcoholic beverages and tobacco 184 (1)
Clothing 91 (23)
Consumer electronics 111 (7)
Personal transport equipment 125 (2)
Restaurants and hotels 137 (2)
Electricity, gas and other fuels 114 (4)
(If other fuels and the impact of taxation were excluded, Ireland would be second to Cyprus with an index level in excess of 120.)
It is difficult to avoid the conclusion that there are serious inefficiencies and rent gouging by businesses (and by Government via taxation).
Finally, the Group chaired by Colm McCarthy proposes taking €5.3 billion out of the economy. There seems to be an almost universal consensus among the cognoscenti in Ireland that any form of investment stimulus would be wasteful and irrelevant (let other countries do and we’ll get a free ride, we can’t afford it, there would be huge leakages, and so on), but there seems to a broad international consensus that, while households and businesses are deleveraging, saving and not spending or investing, governments are the investors of last resort. The international liquidity that fed the global financial crisis has been diminished, but it hasn’t disappeared. There is anything between €10 and 15 billion sitting in equity in the existing semi-states that could be disposed of and the proceeds used to leverage the financing of much needed investment in infrastructure and utilities. And the efficiencies generated would bring down prices in these key sectors.
This, I believe, is the context in which this so-called “McCarthy Report” should be assessed.
From the OTT comments above we can see why it is going to be hard to do anything to sort things out.
Fact: We have a €20b deficit that is unsustainable
Fact: It can only be bridged by increasing taxes or reducing expenditure or as we are seeing a combination of both. (I’m an accountant, we understand these things!)
Fact: 75% of expenditure is health/education/social welfare so it is going to have to be hit somehow.
Fact: The jobs cut represent just over 1/3 of the jobs increase in the public sector since 2001. So we still should have better services than 8 years ago.
Fact: We need to do something pretty quickly to stem the tide and waiting for report after report just means there will be more to come
Fact: €5b is not enough even if we return to low level growth in 2010. The 2009 budget will include increased taxation and I suspect a property tax.
So we have taken 10 steps forward and are taking 4 or 5 steps back. Ireland inc will still be a far better place than 1980 or 1990 or 2000.
What are the economic consequences:
By doing this: Reduced spending, reduced services, probably a pretty stagnant economy for a few years
Not doing this: Hello IMF or ECB or whoever who will make us do this anyway but we will have no control.
It’s not going to be pretty, there is no magic wand. Get over it.
hysterical rants? Ah yeah, there’s nothing like slinging a bit of mud to win an argument. This country is gonna be in great shape with debates like this.
I work in the banking sector. However i work for a foreign bank so im not costing you a dime. If the guys in Anglo were taken out back and shot, i’d plead for clemency on the guys pulling the trigger. If a lot of the banking sector lost their jobs i couldn’t create a decent argument against it. Despite having a better 2008 than 2007, my bonus was hacked in half a few months ago, so my ‘real’ take home pay is 15% lower this year than last year. Im not expecting any pay increase at the end of this year, but to be honest i think a pay freeze in combination with keeping my job is a reasonably decent scenario given the economic outlook. This is the reality of working in the private sector – 15% less this year than last and im reasonably content. Would that the public sector would look at life in this way. What do you work as Vincent???
“Please suggest, even at a very general and basic level, what you see as the alternative to the Bord Snip report”.
Put it out of its misery?
I suppose we could always outsource/rent Ireland to India to use as a very large vegetable garden and source of fresh water……
“Please suggest, even at a very general and basic level, what you see as the alternative to the Bord Snip report”.
Put it out of its misery?
I suppose we could always outsource/rent Ireland to India to use as a very large vegetable garden and source of fresh water……
OH! You’re my new favorite blogger fyi
we should talk. I want to put one of those US missile interceptor bases on the Achill Islands. Reckon its worth a billion or two in rent per year.
Sorry I meant to add: “If a lot of the banking sector lost their jobs i couldn’t create a decent argument against it.”
I’m kind of surprised there haven’t been a lot more banking job losses announced in Ireland. Is it because the banks are waiting to get NAMA out of the way/get whatever else they can get out of the government then, when there’s no more to be had, pull the plug at that point and dump a few more thousand on to the dole?
it is a bit strange that there hasn’t been widespread job losses across the industry alright, though i would note that a lot of non-headline staff cuts have already occurred (ie contract/temporary staff, natural wastage).
To be honest i think its more a case of “we have X-billion in writedowns, what difference is €100mio in job cuts (ie 2,000 x 50k per yr) really gonna do” mentality, with management at the banks not having a clue how to get out the hole they’re currently in. They’ll start to cut into the fat next year after the writedown phase is complete via NAMA.
One of the things I find missing in the public debate – just as it was missing throughout the boom – is a genuine public discourse about the the kind of society we want to live in, or rather that we want our children to grow up in.
I accept we have – through political failure, market failure and other – ran ourselves into a terrible situation fiscally. There will have to be cuts in spending and the tax base must be broadened and deepened.
But there are many ways to skin a cat: even accepting that we need to get order on the fiscal situation, we ought to be discussing what is the shape of the destination we want to get to. Ultimately do we want to pare back our public services and public spending as chunk of GDP so that we drift further from the more universal models of Europe (especially northern Europe), leaving the state as a facilitator for economic actors and providing a safety net only for those who are in most diffuclty. Or do we want to strive for a public service that provides a wide and excellent service in health, education, transport and so on.
I think without this debate we have a scattergun approach – add a bit of tax here where you get away with it, make a cut there where there is less resistance and so on. The result is a patchwork of sometimes conflicting goals.
It seems to me the government just wants to balance the books and doesn’t care how. The will likely take McCarthy’s prescription and run with it, trying to implement as much as they can politically. So they want to balance the budget (ish) but don’t care how. But citizens should care.
Unfortunately the debate will be taken over by the same major voices – with their vested interests – and these powerful forces will shape the outcome more in terms of what it preserves or delivers for their particular constituencies rather than any long term goal about the shape of society.
To answer your query-I work in the Public Sector and have had my take home pay reduced by about 13.5% this year. For the record I have spent much time in the Private Sector also.
I also believe that the Public Sector requires fundamental structural and cultural change none of which have been addressed. This is a pity because I see the current economic crisis as an opportunity which unfortunately has not been addresssed in this exercise or in the actions of Government to date.
To return to the point I do not think that the slash and burn of public services will address the economic problems created by a market that was allowed run crazy.
I just finished reading the report and feel like I just witnessed a car crash;
For a detailed, critical and independent analysis of the report see:
It is high time that we stop refferring to this report as ‘independent’. It is not. It is a straight forward application of market principles to the public sector. And this valued loaded application is not independent.
Thus, the first battle against the implementation of this report is a fight against failed market-economics reasoning. I call on all astute, critical and independent thinking economists to start critiqing this ‘independent rationalisation’.
Prime time last night sums up everything that’s wrong with this country. Vested interests, lobbying, inability to see any big picture just protect your own patch. Beardy, leftie unelected trade unionists with more power than your average TD. You get the impression nobody cares if the country goes bust as long as their little project / patch is still there. No vision of any kind but why would you expect it after 20 odd years of Haughey and Ahern, two corrupt sweaty fixers. Roll on the IMF it’s our only hope.
Everybody knows there’s massive waste in the public service. Everyone knows the country is going bust. Are we going to have a long round of debate between every vested interest under the sun, strikes etc. while we go further down the toilet ? what the hell is wrong with Irish people ? we’re completely immature, intellectually dishonest, hypocritical and selfish so no surprise we’ve ended up in this mess.
@ John H
Easy now, we don’t all fall under that category
@ Vincent Byrne
“I also believe that the Public Sector requires fundamental structural and cultural change none of which have been addressed”
Great point, the public service needs an internal, yet supervised, restructuring, not an external one where a simple number crunch was done and the chop is given. No matter how well advised Colm McCarthy is you need to have an internal knowledge/experience in departments of the public sector to make judgement calls and cuts.
Now, “abolishment of NUI’s”
The scale of job cuts would evacuate another 17,000+ misfortunates onto already lengthy dole queues, costing an average of 20k per recipients and thousands more per person in taxes forgone (since they are all “overpaid” public servants). I’d calculate this would cost the state at least 320 million euros a year in payments and cost probably anything from 100-400 million a year in lost taxes, depending at what levels the jobs are lost. I don’t see these figures taken into account anywhere. There is an awful lack of systemic thinking in this report. It would certainly eat up as much as 1 billion of the so-called “savings” and I suspect that a lot more of the suggestions would have unindented cnosequences that would reserve the “savings” made.
listen, i have no ideological gripe against the public service. The problem i have is that they are basically in a monopoly position in most of the services they provide, and they are gnerally run by a combination of politicians and extremely strong unions, neither of whom have any real direct ‘benefit’ from making the PS more cost effective etc (ie unlike private sector management and shareholders). As such, inefficiencies and excess capacity are not only likely, they’re highly probable.
We have a fiscal deficit of 20bio. It’s likely to stay at somewhere close to this figure for the next few years unless remedial action is taken. If it stays at these levels, we’re all toast and we’re going cap in hand to the IMF and/or ECB. Its a simple equation – we either hike taxes or cut expenditure, or a combination of both. Public sector pension levy, check. Income levy’s, check. Vat increase, check. Time for expenditure to feel the blade as well.
Public sector pay is in the region of 20bio, and social welfare is something similar. A hopeful “efficiency increases” type program in the PS would suggest 5% savings and deliver around half that at best, which would barely be a dent in a deficit of 20bio. The cuts need to be deep and meaningful.
Public sector pay and numbers ballooned under the Celtic Tiger budget surpluses, which are now, with hindsight, clear to all as in fact being enourmous structural deficits masked by equally massive one-off cyclical revenue boosts. We either admit and rectify this, or we let someone else do it for us.
There are a number of comments about how the recommendations will “worsen” the economy/society. While true, it is minor in the scheme of things. Massive and unsustainable borrowing this year is keeping the country going. In my mind, the “worsening” has already happened, it’s only a matter of where we assign the pain. But don’t worry, there’s plenty to go around.
I’m not commenting on the social/secondary effect rights or wrongs of this report. I’m pleased that it communicates the scale of the problems facing Ireland. The public also need to understand that this only addresses part of the deficit. I’m of the opinion that a quick savage correction and a nuclear winter is the way to go. The longer we bicker, the more the national debt grows.
Although the public sector unions rightly argue that it was the bankers/developers/gov & regulators who messed up the economy, this is not the issue. State employees were among the biggest passive beneficiaries. Captain Bertie dished out the doubloons of de boom to his crew. He didn’t want a mutiny. The booty is now gone.
Is there the political will to correct this economy without external intervention? Personally, I fear they’ll do the bare minimum. Just enough to keep people lending to us for the next few years.
You rage against unions is quite impressive, but will advance the public debate not one inch. I would agree that unions will put the interests of their members first, and that may mean before the common good. But in that are they any different from IBEC, a political party, the Irish Pharmacy Union, or whoever. I have no doubt at all that there are changes which should be made to the public service which unions will resist. But there also should be changes to competition in the professions, or to GP funding, or many other things which will also be resisted. We are just going to have to have as best a public debate about it as we can and try to overcome the difficulties. This kind of public debate is the essence of a free country – in fact, it is more important to democracy than the workings of Dáil Éireann. What do you propose? An edict from the minister for Finance that implements the cuts forthwith? That might be possible in China, but not in a free, democratic country.
On the subject of “massive waste” in the public service. In fast, this has never been shown and in any case, isn’t credible. Is there a certain amount of waste? Without doubt. Are there inefficient practices? Surely. Is there overlap and bad management? No question. But each function that is not performing well needs to be identified and changed where necessary. That is a huge, detailed job of work and can never lead to any sort of nirvana of engine-clean efficiency. Why? Because such doesn’t exist.
The private sector has some of these flaws. I have worked in firms, large and small, and saw very significant waste, poor management, and outright failure. This is not to mention the other consequences of failures in the pricate sector – externalities from environmental damange to wealth destruction, to, you’ve guessed, financial collapse. The truth is the shareholder doesn’t always pay. Not always. Often enough workers pay, or the taxpayer. The cases where these happened – even in Ireland – are too numerous to cite.
Any debate which doesn’t accept both the failures and necessity of both market and public sectors isn’t worth having. But the view must be at least based on analysis of facts. The wearing of a beard alone, I suggest, should not be an offense punishable by hanging. But I would say that, I am biased, I’m wearing a dark, ominous, Friday stubble.
@Stringer Bell “There are just as many children in primary schools with english langauge difficulties today, as 10 years ago”
Maybe that’s true, but what about two years or even one year ago?
That seems a more relevant comparison.
In the current climate, I feel you’d be pretty safe to assume less people are arriving with no English, and, if the teachers have been doing their jobs, the other kids’ English has been improving… so logically there should be less need for those to teach “English to newcomer children…” No?
That’s not to say those people can’t teach something else, just that that role has less demand.
I agree with the other Eoin, Go on then, suggest where we can save the €20B… Tax?
This report outlines a vast array of places where money can be saved. If the government has the balls, it’ll act on as many as possible… But it’ll probably do a few, the unions will strike, teh Government will launch a review or something… and try to do some more next june… by which time we’ll have lost another €10B…
Tomaltach – I agree. The discussion needs to be about society; not about interest groups protecting their patch but look at events to date. The best example is the assertion by the judges that they could not be compelled to pay the levy and the acceptance of this by government. Add to that Colm McCarthy’s comment on accelerated pensions for judges.
“Justice is that which is in the interest of the stronger” so while I have little faith in the trade union leaders to lead the way, I have less for IBEC, CIF, the Law Society, the Medical organisations, etc. etc..
@Eoin re Western Rail “Corridor” – it mightn’t look it but it IS a current expense item. IE were forced to reopen a track they didn’t want with stations/stops corresponding to the rural cattle docks of yesteryear rather than an express service – this has a current expense implication and not merely a capital one since railway lines in the modern era must be kept maintained, not to mention what the gurrier element does to it, and that’s before we get to the yawning spaces we’re likely to see in the carriages.
They had no intention of touching Athenry-Ennis until Fr. McGreil decided he wanted to have the legacy of the sort James Horan has (see the line item on Regional Airport subsidies).
I’m a bit concerned about Ballina though – freight from Ballina to Belview is one of the few ways IE is keeping cargo trucks off the roads these days.
@eoin f…. “Go on then, suggest where we can save the €20B… Tax?”
Stop NAMA… Let the banksters swing.
OK its not “the” 20B but its another much bigger bill coming down the line.
I’m not “raging” against the unions.. I’m raging about the immature approach to tacking problems in Ireland. Bertie bought off every single problem with a non recurring revenue stream and we’re now paying for it. I agree with you that other vested interests will also put their members’ interests first, I guess that’s what they get paid / elected for. But I despair at the pavlovian reaction of the union leaders to the snip report – we’re not having it, there’ll be strikes, Jack O’Connor says it’s “fantasy”. Absolutely no attempt to engage with it, offer other alternatives just say no and continue borrowing 400m a week.
There is massive waste in the public service – there are hundreds of practices which would just not be tolerated in the private sector. Health has had 10bn a year pumped into it since 2000 – does anyone think the service is better ? nobody I know does. If the service is not better, then by definition that money was wasted and continues to be wasted. What about e-voting ? PPARS ? FAS? I’m not suggesting there’s some nirvana in the private sector where every project is on time and on budget. I do know though that if you continually waste money on failed projects, sooner or later either you’ll be fired or your employer will go bust and the outcome for you will be the same. This just does not happen in the public sector, there’s no incentive to spend the taxpayer’s money wisely.
I am contributing to the debate whether you agree with my viewpoint or not. I’m contributing to this discussion. I don’t propose an immeditate edict from the Min for Finance – however I don’t want to see what I expect willl happen which is a long drawn out wrangle between the Govt and all of the vested interests you mention in your post, 3 months Dail holidays, more reports, more consultatations, more social partnership talks and all the while we continue to borrow 400m a week. Decisions have to be taken now.
I also have a small goatee but as I’ve been self employed for 25 years am not a union member 🙂
@ Eoin F
“In the current climate, I feel you’d be pretty safe to assume less people are arriving with no English, and, if the teachers have been doing their jobs, the other kids’ English has been improving… so logically there should be less need for those to teach “English to newcomer children…” No?
Logically perhaps, but in practice, not in the slightest, for a whole variety of different reasons, which, an economist is not likely to understand. Granted I said 10 years, when really, I should have said 4-5 years. Even according to your logic, if teachers were not doing their job, it is not a sufficent basis to get rid of them. The child who needs support remains. Replace the teacher not get rid of them. This is the social dimension to the real-actual (not the fantastic-econometric) impact of cuts in educational supports.
The level of english language neccessary for a post industrial ‘knowledge based’ economy is not being met at primary level. Cutting educational supports for language development is akin to removing maths from the curriculum and then asking Irish school kids to take an economics degree. The rational basis to these cuts, in practice will be the most irrational thing the state has ever done (egged on by a failed method/quasi-science).
There is absolutely no systematic, societal analysis in this report. It is not even cost-benefited, in the sense that there are costs to cuts not just benefits. It is number crunching downwards, nothing more nothing less.
“One of the things I find missing in the public debate is a genuine public discourse about the the kind of society we want to live in, or rather that we want our children to grow up in.”
I quite agree.
The first step in this debate should be a debate about what proportion of GDP/GNP should be taken in taxation. That is central. All else follows from that. I prefer not to get involved in the nitty gritty of whether this cut or that cut will have this effect or that effect. I prefer to look at the broader picture, of which the proportion of GDP/GNP taken in taxation is the most important element.
In most EU15 countries the proportion is in the range 40% to 45%. In the Nordic countries it is 50%. As it happens, I think that is too high. I’d prefer it to be around 30% to 35%, which it has been for most of the Celtic Tiger years. In the 1980s in Ireland it was over 50%, which was too high.
However, it now looks as though the proportion of GDP taken in taxation in Ireland in 2009 will be about 23%, and of GNP about 27%. I will stand corrected if anyone can show that these figures are wrong. But, that’s what I estimate them to be this year. This is way below the lower limit prevailing in any other country in the developed world. Taxation as a percentage of GDP/GNP in Ireland is now about half the level it is in the
‘social democratic’ countries of northern Europe.
What the Government, the main Opposition, the ESRI, the media, the banks and stockbrokers, An Bord Snip Nua, Colm MacCarthy, and indeed most of the academic economists running this site, are all about is ensuring that, without any public debate, the taxation to GDP/GNP ratio remains at this extremely low level forever and that public expenditure is adjusted accordingly. There is a certain logic, if not morality, in it. Once you decide that taxation as a percentage of GDP should be around 23%, then there is no alternative to taking the axe to public spending, if the level of public spending was based on the assumption that taxation as a percentage of GDP lay in the region of 30% to 35%. If that is what the public want, then fine. But, there should be a debate as to whether we want the taxation to GDP/GNP ratios to go that low.
From what I can see, the far-right are now rampant in Ireland and there is no stopping them. I have now given up trying and will content myself with watching football and golf while they implement their agenda. They run the two major parties, the media, and the economics departments of the universities. Their capacity to scaremonger the public is unlimited. They have set themselves two major objectives to be implemented in the next four or five years: (a) to slash wages in the private sector to eastern European levels and (b) to slash public expenditure so that the taxation/public spending to GDP ratios are cemented at around 23% forever.
I can see no way at all in which they can be stopped from achieving these objectives. I’m not even sure the public don’t support them. Talk of the power of the unions is laughable. Alan Ahearne boasted in the Irish Times last week about how easy it was to cut wages in Ireland. He said that attempts had been made to cut wages in other countries like Sweden and Hong Kong, but that they had never succeeded. There was too much resistance. But, Alan proudly boasted that cutting wages in Ireland was a piece of cake. In Ireland in 2009, wages have been cut by anything from 4% to 8% (estimates vary). In most EU15 countries in 2009, wages are up 4% to 6%, and by about 10% in eastern European countries. Think how far wages in Ireland will lag behind comparable EU countries after four or five years of this. It will be the same with public spending cuts. They will be implemented, if not in full, then the vast majority of them. There will be so much scaremongering going on, the public will not resist.
When it comes to slashing wages, the main scaremongering tactic that the far-right employs is constantly telling us that exports have collapsed. Read the recent IEA report (which falsely claimed that exports were down 13% in 2009, when the actual figure is 2%, compared with 20% to 25% in every other EU country), or Finfacts, or the business sections of the newspapers. As I’ve pointed out on numerous occasions here, far from collapsing, Ireland is the only EU country in which exports have not collapsed in 2009. But, to no avail. The campaign to slash wages continues regardless.
When it comes to slashing public expenditure, the main scaremongering tactic is that, if we don’t, the IMF will take over and, to soften the public up even more, we’re told that teachers, nurses, policemen are all lazy sods anyway and should be paid as little as possible. Regarding the IMF threat, government debt as a percentage of GDP in Ireland is currently at about 50%. Its forecast to peak at 80% in several years time. In most EU countries, its all ready over 80% and rising. In Belgium, Italy and Greece, its allready close to 120%. So, why aren’t the IMF running those countries?
However, I’d like to finish on a more optimistic note.
Ireland is most likely at the beginning of the mother of all export booms. The far-right agenda of slashing private sector wages to eastern European levels and cementing the taxation/public spending to GDP ratios at around 23% (half that in other EU15 countries), will make the economy massively competitive. We allready see the beginnings of this. In April, at the trough of the worst global recession for 80 years, Ireland’s exports were 12% up y-o-y. In almost every other EU country they were down 25%. In Germany, down 28.3%. If its like that in the middle of the global recession, what will it be like when the global economy rebounds? So, the next few years will be great for many people. Just don’t expect any of the wealth to make its way into increases in wages or better public services.
the problem with your NAMA reference is that while NAMA may indeed come in with a bill around 20bio or so, the current fiscal deficit is coming in at 20bio PER ANNUM, so over the course of NAMA (10yrs), we’re going to run up 200bio in deficits if things remain the way they are right now. Food for thought.
On education: I thought the early years of life are critical in a child’s development. In particular I was always given to understand that providing funding to build towards an excellent primary education was one of the best investments any society could make. After a decade of dizzying, though in hind-sight unsustainable, growth in GDP, Ireland still, according to the OECD, was coming toward the lower end of the league in terms of investment in the earlier stages of education. In these circumstances I find it astonishing that anyone would propose huge cuts in this sector (i.e early education, not education in general).
That is not to say I would oppose all rationalisation or all school mergers. Clearly some of these moves would make sense in the current circumstances. But the rather drastic cuts in primary especially I think are brutally short-sighted. I’m not arguing this from a ‘oh, the poor vulnerable children point of view’, I’m thinking purely in terms of bolstering a solid foundation on which to build a knowledge economy.
On a political level, I think it will be very interesting to see how the Greens deal with this issue. Education – as we saw in the last couple of budgets – is a sensitive issue for them. I would imagine that the grass roots of the party would be utterly opposed to such drastic cuts in primary level especially.
Regarding your remarks on tax/GDP. I am partially in agreement. Yes I would agree that the tax/GDP figure is important and that in Ireland it was never terribly high and is likely to fall since taxes are, unfortunately, falling even faster than our GDP.
Where I differ slightly is in terms of how the public debate can be framed. I don’t really think the tax/GDP ratio should be the starting point. It would be wise to bracket it notionally between say, the lower end below which public service becomes thread bare, and the upper bound where investment and job creation is affected. (Unfortunately neither of these two boundaries are step functions, we are looking at some kind of distorted bell curve I imagine.)
But with these notional outer boundaries in mind, then we start asking ourselves about what kind of place to live and work and rear a family we would like Ireland to be. What kind of education to we want to be publicly provided? What kind of health care? What kind of regulation? What kind of police service? And so on. And from there we build up the components while keeping an eye on what it means in terms of tax/GDP. Obviously if something on the wish list pushes us heavily into the area where investment is badly effected or job creation would stall, we need to trim back our demands to something realistic. I’m envisioning this as a kind of ‘thought experiment’ for now.
None of this precludes an aggressive search for efficiency. Some might say, ‘but now is not the time to set out this vision, we are in crisis’. Yes, but the fix to our crisis cannot be immediate anyway. So why not plan something that is sustainable and brings us closer to a long term goal. So if say, we decided that primary education is crucial to our vision of the future, we would spare it the worst right now and shift the burden elsewhere – even if that meant more tax. If we just slash primary now, and then decide after two years, that after all it is crucial, then we have to rebuild from a low base and valuable time has been wasted.
Vol. 1: “Information and Communications Technology (ICT) represents a particular sub-set of activities for which shared services solutions should be actively explored. Approximately 1,300 staff work in ICT in the civil service at an estimated cost of €65m a year.”
I think this is a vast under-estimate of the amount of waste and duplication that is caused by different departments implementing different IT solutions. I suspect that no development of new sofware or services is included in this figure. How much did it cost the various Local Authorities to implement different planning register systems? The lack of knowledge sharing and co-ordination in IT projects is abysmal. I am deeply disappointed that the focus is on waste in systems maintenance rather than systems development which is where the consultants are really creaming it and where similar modules are developed by different bodies at great expense.
Do different departments and bodies by and really buy maintain and licence different antivirus packages and email server technology etc.? That such could be the case is scandalous and it is good it is being focussed on but development is really the place where huge money is spent and where the opportunities for future efficiencies are going a begging. The suggestion of an IT Advisory group is way too little. There is no one stop shop for departments to share experiences or co-ordinate project developments. Everybody department and body carries out similar projects differently and many do it half-arsed. Furthemore, any private sector that deals with multiple agencies has no contact point to suggest changes that should be deployed across the board. An advisory board is not going to cure that.
Currently, we raise about 34billion in tax and about 10billion in A in A, some of which is tax in another guise. If we were to increase the tax base to 35% of GDP this would imply a tax take of 55-60billion, depending on where GDP settles at. In broad terms, this involves an increase of between 10 and 25billion, depending on your definitions of what tax is and where GDP falls to. Lets split the difference and call it 17.5billion
perhaps you could outline broadly where you would raise this quantum of tax revenues over the medium term.
Are cuts really savings?
It seems to that, in the absence of any discernable methodology or a stated vision of the economic and social objectives that will be secured as a result of the report, many of the recommendations are impossible to evaluate in either economic or social terms (that is, we can only evaluate them in monetary terms). There is a reference in the report to the desirability of using cost-benefit analysis of all major public spending decisions (Vol 1, p. 23). Two points arise: my reading is that the savings in public expenditure presented in the report are gross savings and not savings net of items such as loss of taxation, PRSI, direct and indirect employment, public consumption and loss of other benefits (even if poorly achieved by existing expenditure which I agree is prevalent in many areas of public expenditure). There are also costs associated with some of the recommendations and these are largely unquantified as far as I can see – in particular there are some potentially significant social costs. Second, arsing from the forgoing, the recommendations in the report itself should be subjected to a rigorous cost-benefit analysis with each proposed spending cut being examined to determine net savings taking into account loss of benefits. This might help sift the wheat from the chaff in the report.
I am puzzled as to why there is such a media uproar against the releatively minor proposed cuts in sw, health & education. The reality is all this report will do is buy about six months worth of debt on the bond markets before the inevitable IMF and/or ECB takeover is fully implemented. Be under no illusion, the uneducated political/union class who have ravaged this country have no stomach for even the minor reforms & cuts proposed by An Bord Snip Nua. Far better to leave it to the International bogeyman known as the IMF to put us on the straight & narrow. This country deserves everything it gets as far as I am concerned.
I’d set as my central objective having taxation as a percentage of GDP at 32.5 per cent and public spending as a percentage of GDP at 32.5 per cent, averaged over the economic cycle. That would keep us the lowest-tax economy in western Europe by a mile. Its hardly excessive. Its what Gordon Brown targeted for Britain, except that his target was 40 per cent, which itself is lower than in most EU countries.
The key element would be “averaged over the economic cycle”. During booms, if natural buoyancy sent tax receipts above that, I would run a surplus, and still keep public spending at 32.5 per cent of GDP. During recessions, if tax receipts fell, I’d run a deficit and still keep public spending at 32.5 per cent of GDP.
As we are in the middle of a recession, and taxation receipts are depressed, its impossible to know by how much they need to be raised to have them at 32.5 per cent of GDP averaged over the economic cycle. Its obviously absurd to think that house sales and new car sales are going to remain at their present rock-bottom level over the whole economic cycle.
Basing future taxation and spending plans on the assumption that tax receipts remain at current low levels is as daft as Brian Cowen basing his taxation and spending plans on the assumption that tax receipts remained at their 2007 peak levels.
So, you’d need a large team of accountants to establish how much, if any, tax increases were needed to bring taxation as a percentage of GDP to an average of 32.5 per cent over the economic cycle. Its quite possible it will be very small or even none. You can’t measure these things accurately from when you are right at the bottom of the cycle, any more than you can from when you are right at the top of the cycle.
The key figure to be decided on is how much total taxation should be as a percentage of GDP. The figure I suggest (32.5 per cent) would keep us the lowest-taxed economy in western Europe. We should be flexible about the details of rates of taxation on individual items necessary to achieve this target. What is clear from An Bord Snip, however, is that the powers-that-be in Ireland have now decided that the taxation/public spending share of GDP should average about 23 to 25 per cent of GDP averaged over the economic cycle. I have no doubt that they will achieve it. They will achieve it by slashing public spending now and then, when the economy is growing again, freezing it. But, in my opinion, 23 to 25 per cent of GDP is far too low. Its way out of line with every other advanced country.
Ok if 33% is your target by reference to a European range and
tax/GDP is running at 21-23%-can’t be more precise until we know GDP
add some part of A in A as this is tax in all but name and may indeed be counted as tax in other jurisdictions-that would add another 5% to the tax/GDP ratio again assuming this total is about 10bn this year.
Then allow for the fact that taxation would be somewhat depressed due to the economic cycle. In other words we could be at or close to your target once the full year effect of the tax changes kick in in 2010.
We are still left with an expenditure problem through the cycle.
Mr McCarthy has already had quite an effect.
Over the past couple of days, the standards and quality of this site have taken quite a tumble.
One thing that should be done immediately in my opinion is to publish
real house price statistic’s
What we have at the moment is VI’s publishing crap that is “questionable”
The Revenue have all the details already and should publish them.
Why are these stat’s not available???
The Buck stop’s nowhere system prevails.
@John & Tomaltach
Don’t forget there is one big reason why our tax take is low – we have the lowest CT rate in the EU.
I found the following on Tax rates in Germany (A German tax expert may be able to confirm these)
In Germany singles pay 45% on income above €250k (plus there is a solidarity tax of 5.5% to pay for reunification of Germany) 42% is paid on incomes from €53k to €250k.
Members of churches pay 8-9% church tax
Capital Gains Tax
Exempt for shares and property held more than 10 years
Flat rate 25%
Works out about 33%
Vat 19% mainly.
Property Tax: Couldn’t find one
Irish Tax receipts for 2008 were as follows
If our CT rate was similar to the EU average in theory we would collect an extra €5b. But in practice you may find the profitability of those export companies might drop somewhat.
Otherwise our taxes are not out of line with Germany. So we either bring our CT rates in line with the rest of Europe or we have to push personal taxes way above them. If you are suggesting total tax take increases say €10b and we don’t touch CT, VAT can’t go much higher, then IT would need to go up some 75% (and that’s based on 2008 figures)
The net result is if we want to continue with very low business tax we either increase personal taxes to compensate or reduce expenditure. I vote for reduced expenditure.
Some more data to think about
Forecast German revenue 2009 €527b, down €45b
Deficit expected to be €50b i.e expenditure of €577b
And they’re pretty upset about it.
If we were running a pro rata income/expenditure ratio based on 2008 we would have revenue of €40.8b and expenditure of €44.8b. And if we were German we would still be upset.
Didn’t read the report but get the gist of it from watching rte news clips over the web. It would appear that Ireland has been living beyond its means. A lot of pain to come.
You can easily get bogged down in the details of individual taxes. There are millions of them, all with different rates, allowances, exemptions, levels of avoidance and so on and on and on. Accountants working in the Department of Finance might be able to keep track of them, but I can’t. And, in countries like Germany or the U. States (although not Ireland), there are Federal taxes, and individual State taxes, and City Taxes, and all sorts of other complications. I don’t think you can possibly do comparisons by selecting a few taxes and comparing them like that. Its far more complicated.
The way simple people like me (and indeed most people) know how high or how low is the overall level of taxation in a country is when its expressed as a percentage of GDP. That’s nice and easy to understand.
That’s how organisations like the OECD and the IMF show comparisons between taxation levels in different countries.
The bottom line is that in most continental EU countries taxation as a percentage of GDP is in the range 40% to 50%. In the Nordic countries its close to 50% and, if I’m not mistaken, in some of them its over 50%. In Ireland, its been in the range 30% to 35% for the past decade, which was perfectly fine for keeping CT low, while not having other taxes at exorbitant rates to compensate.
The bottom line is that An Bord Snip Nua (apart from murdering the beautiful Gaelic language) is all about moving the Irish economy From being merely a low-tax economy (30% to 35% of GDP) to being an ultra-low-tax economy (under 25% of GDP). Their mechanism is to adjust public spending to the very depressed levels of taxation that are typical in a recession, and then freeze it at that level when the economy grows again. You could say that the cuts will be restored when the global recession ends and the economy is growing again. But, we all know that, in the prevailing political climate, it won’t happen. What will happen is that, as long as the recession lasts, it will be cuts, cuts and more cuts. And, then when growth resumes, public spending will simply be frozen until its about 25% of GDP.
I really don’t know why we bother debating it any longer. The decisions have been made. The fact is that the government (and opposition too), in alliance with the business world and academic economists, has allready made two strategic decisions. One is to slash private sector wages by 30% to 40% relative to other countries and the other is to slash the public sector share of the economy to an ultra-low 25% or under. To achieve these goals, they will scaremonger us to death. And, I have little doubt that they will succeed. In fact, I’d go so far as to say that the setting up of this site was part of the drive to achieve these goals.
Today’s Economist has an article entitled ‘Domestic Despair’
No prizes for guessing which country they are talking about.
Its funny how we are being asked to copy Germany in some respects but not others. So, we are being told that we have to have these cuts so as to get our deficit in line with Germany’s and make Angela Merkel happy. But, when it comes to wage increases this year, there is of course no question of us following Germany. In Germany, wages are up 5% this year. In Ireland, down around 5% (estimates vary). And, before you say that German exports are competitive and our’s are not, I should point out that German exports were down 28% y-o-y in April, while our’s were up 12%.
Note what it says in the article, about half way down:
“Ireland’s export sector is outperforming all but two of the 30 OECD member countries.”
So, in that case, why are workers in Ireland the only ones of the 30 OECD countries being required to take massive wage cuts, which are one of the major causes of the collapse in demand in Ireland that the article bemoans?
In fact, what the article say about exports is a massive under-statement. The full figures for exports in January to April of 2009 were published by Eurostat today. They are in the following link, about halfway down. In January to April of 2009, exports from Ireland were up 1% y-o-y. In every other country they were down – in nearly all by between 20% and 35%. Yet, we’re the ones being told we are so uncompetitive and we have to take wage cuts, not the countries whose exports, like Finland, are down 35%.
Those behind the drive to cut wages, principally Brian Cowen, Brian Lenihan and Alan Ahearne should be challenged either in the Dail or by some tv interrogator like Vincent Browne to answer that question.
If you are reading this, Vincent, please note.
1. The breakdown of Irish tax revenue for 2008 I gave above is accurate. Which ones do you think should increase to bridge the gap or bring up our taxes as a % of GDP.
2. Private sector wages are not being slashed. We’ve had this argument before. They’re firing people. Businesses don’t do this for fun. They’re losing money. They’re losing money because their revenue has dropped. Their revenue has dropped because their customers are buying less. So they cut costs. That means jobs as well as any unnecessary expenditure. The state is in a very similar position.
3. On the exports I’ll hold fire. I still am suspicious about our figures (as I was about property during the boom), I wonder how much of the figure is real and how much inflated transfer pricing. Time will tell. Germany’s exports will take off again when recovery comes. Hard to see how they can justify pay increases at the present time but they are more unionised.
4. As for this site being some sort of right wing conspiracy there seems to be plenty of debate and opinion on it from all sides. On the other hand I do wonder if your real name is “Brian”
I read a lot of comments, and like to add mine.
First of all, I’m not Irish. I’m one of those people that came here late in the boom finding work. And still work for a healthy company that made their commitment to Ireland.
In my country (NL) we have a norm that public servants are not allowed to earn more than the prime minister. (around 120.000 a year).
Lest not forget we live on an island. (Same as Cyprus) example: if my parents send me a package they pay the same postal costs as for Lithuania and the likes. UK is slightly lower (Italy, Portugal). Transporting goods to Ireland is expensive and that makes our goods expensive.
Yes our income tax is low, very low. But we are taxed on a lot of other goods and we pay a premium for goods that are being shipped in. Due to our location. That’s why our gross income is high. But at the end of the day we are left with the same as our counterparts in mainland Europe.
As one of my ex colleague once told me: Ireland is a very good country. As long as you don’t like alcohol, don’t smoke and don’t like coffee.
The cuts are necessary. Departments need to work together, smaller neighbouring counties need to be transformed to one bigger county. And yes, the head of our political body needs a dramatically pay cut.
This whole report is to make sure the IMF or maybe the ECB keep their hands of Ireland. Because if that happens we’re in very deep shit.
I can’t get a grasp of the full document, even 5 years Ireland is not enough to know the full society. But that things are a bit pear-shaped must be obvious to everybody in this country.
What I did see is still plenty of opportunities in this report. Especially in the areas of IT. Also in a newer way of thinking. If that could be brought in to the education system, this country will be facing the future brighter than it is today.
I think we need our hosts to run a post on the export numbers. It seems like too much serendipity that Ireland just happened to be concentrated in export products that haven’t been hit by the crisis. CSO has an extensive definition attached to their balance of payments numbers that makes me worried — it sounds like they adjust exports for “financial intermediation services indirectly measured” and from what little I can figure out about this, it seems to be a number that goes up when interbank deposit rates go down (the reference rate for the cost of funds). But someone who knows the issue better could take a look.
Net factor income from the rest of the world (NFI) is the difference between investment income (interest, profits etc.,) and labour income earned abroad by Irish resident persons and companies (inflows) and similar incomes earned in Ireland by non-residents (outflows). The data
are taken from the Balance of Payments statistics. However the components of interest flows involving banks in this item in the national accounts are constructed on the basis of “pure” interest rates (that is exclusive of FISIM) whereas in the balance of payments the FISIM
adjustment is not carried out. There is an equal and opposite adjustment then made to the imports and exports of services in the national accounts which is not made to these items in the balance of payments. The deflator used to generate the constant price figures is based on the implied quarterly price index for the exports of goods and services. In some years exceptional income payments have had to be deflated individually.
first off, im getting rather tired of this “look at how successful the export sector is” argument. What about the non-export sector, how do you reckon that’s doing??
Secondly, German wages basically stagnated between 1998-2005 in real terms, while Irish wages went through the roof. Interesting that you don’t refer to that when comparing Ireland against Germany. Somewhat selective comparisons going on there.
Thirdly, Vincent Browne is a complete nut-job. The guy is more or less a communist. He firmly believes that the ownership of private property is the cause of all inequality. If you work 20 hours a week, and i work 60 hours a week, and i get paid more than you, apparently thats inequality. He’s insane. He repeatedly gives out about Tony O’Reilly having too much domination of the Irish media even though Browne himself has the following: his own tv show, his own colum in the IT, his own magazine up until last year, his own radio show up until a couple of years ago. Referring to him in your arguments only makes you look like a similar looney toon.
“Vincent Browne is a complete nut-job . . . you work 20 hours a week, and i work 60 hours a week, and i get paid more than you, apparently thats inequality.”
Stamps foot, juts out chin.
You see what I mean about the deterioration of quality and standards?
This blog is one of the few places where certain serious matters are discussed seriously. In the past couple of days it has been overwhelmed by this kind of childishness.
In protest of this report, I am withdrawing all my savings from the bank, will not purchase anything that has been made/grown in Ireland, will continue to do my weekly shoping in Newry, so that this government is not receiving VAT from me.
I work in the private sector and I am disgusted by this report. This government has increased taxes on citizens, but continues to leave corporation tax at 12.5%. THIS IS NOT SUSTAINABLE.
They now want to hit the most vulnerable people in society with welfare cuts, and cuts to public services. It seems they won’t be happy until the public sector is destroyed and everything is privatised. It was bankers, property developers, de-regulation, subsidies given to private companies like DELL (who have now buggered of to Poland) and politicians who benefited from the so-called Celtic Tiger and it is they who are responsible for this economic crash.
THIS GOVERNMENT NEEDS TO BE OUSTED FROM OFFICE NOW.
BTW: I must read the Shock Doctrine again.
To me, the key issue is not ideology or the level of waste in different sectors but the dysfunctional nature of the Irish State.
Whether it’s public or private, the gravy train has had a kaleidoscope of characters; €1.6 billion annually for State drug purchases, which have an ex-factory price of €1 billion (even the factory price itself has a subsidy); multi-millionaire farmers on public welfare, then hitting property purchasers with a hidden tax through the corrupt rezoning system; huge outlays on IT projects via the opaque procurement process, for private consultants* and then the cornucopia of allowances and other perks available in the public sector, led by the political class, while the majority of private sector workers do not even have a basic occupational pension scheme.
The biggest unreformed vested interest is at the top and I cannot recall any proposals of radical reform from the 216 members of the Oireachtas, most of whom are nonentities, in response to the current crisis.
In recent months, Senator David Norris made a plea in the Irish Times for the retention of the Seanad. It is however instructive, that his own significant contribution to Irish society, would always leave his membership of that defunct institution, as a footnote.
The cost of running the Oireachtas has increased at an annual rate of 12% in the past 5 years.
There has been resistance on both sides of the aisle to sacrificing priviliges and embracing radical change in the archaic system.
The 1828 US term, “‘to the victor belong the spoils,” likely sums up the outlook of the Opposition.
All roads lead back to the political system and Ireland needs to badly look in the mirror.
In contrast to the propaganda, the country remains deeply conservative.
Since a government collapsed in 1951, through pressure from the Catholic Church and the medical profession, the significant change in the system has been the neutering of the influence of the Catholic Church, related to its history of child abuse, and trade union power becoming focused on the public sector, because of its exclusion from much of the private sector.
The system of political clientism remains essentially the same and the vested interests retain their power, with the top earners in the medical profession post-1951, no longer against “socialised” medicine but having a well-healed foot in both camps.
An example of the insider system of little accountability is provided by the first “benchmarking” award, where a system of checks and balances could not work.
They all got the increase and the same Secretary General of the Taoiseach’s Department, five years later was given another 25% pay increase – – as were his 3 retired predecessors.
Inside the loop was RTÉ, the State broadcaster with a virtual monopoly in domestic TV broadcasting and while ministers never took issue publicly with evidence that the benchmarking system was a sham, they were never held to account elsewhere either.
The same people who resist necessary radical reform of the system and a surrender of their own over-the-top perks, are now responsible for selling the béal bocht to a public they had convinced a short time ago, that the free lunch had been invented.
Caution is required when bragging about export success when the better performance than elsewhere recently, is based on the operations of less than 20 American-owned firms.
Knowing the facts about Irish exports is not an easy process.
This week a public statement read: “Enterprise Ireland today reported that its client companies achieved new export sales of €1.3bn in 2008, bringing the total value of exports from Enterprise Ireland-supported companies to €14.3bn. This represents a net increase of 3% on 2007, which was itself a record year for export growth.”
So what does “new” mean?
EI confirmed to Finfacts on Friday that no additional exports came from new client companies of the agency.
Exports sales grew by €400m but the €1.3bn makes a better headline.
Even the total figure is a guess.
The German stats office, Destatis said in June: “Real earnings in the first quarter of 2009 were down 0.4% compared with the same quarter of the previous year. This is the result of the index of real earnings, which has been calculated for the first time; it compares the development of earnings with the price trend. The decrease in real earnings is mainly due to the small increase in earnings (+0.4%).
Major reasons were the decline in extra payments, which were down by 7.9% compared with the first quarter of 2008. In the same period, the basic remuneration, that is gross monthly earnings excluding extra payments, rose by 1.5%.”
Destatis also reported employers in industry and in the entire service sector paid a seasonally-adjusted 5.8% more for one hour worked in the first quarter of 2009 than in the first quarter of 2008. That is the highest increase since the labour cost index time series began to be calculated in 1997. Compared with one quarter earlier, labour costs were up a seasonally and calendar-adjusted 1.7%.
The hourly rate rose because of the stimulus program support for part-time working.
So there hasn’t been a large permanent increase in German pay.
The link above without the asterisk!
Your tax figures are completely accurate with the one exception – PRSI. Ireland has exceptionally low PRSI when compared to continental Europe. Indeed Employer social insurance contributions are a key source of State income.
OK, enough is enough. The volume of disparate comments — over a hundred now on this strand — tells me that some specialization is needed here, so I am opening five new strands to facilitate a more coherent discussion of sub-issues.
One strand, then, on each on the three biggest areas by spend (Social Welfare, Health, and Education) one on specific issues in the remainder and one on the strategic and structural aspects.
No doubt some contributors will also be drafting substantive posts on particular aspects, and on the overall implications of the report and reaction to it.
Wages ARE being slashed. I admit there is a dearth of official statistics on the matter which, as a staistician, annoys me. But, read Garret Fitzgerald’s article in today’s Irish Times. This is what he writes today (I’ve condensed it for brevity):
” during the past century pay rates almost everywhere have moved in one direction only – upwards – but now pay, in the Irish private sector, is actually falling”
“private sector pay (in Ireland) will fall by at least 7 per cent this year and probably by more – in the rest of the eurozone pay is still rising and labour costs are expected to rise by around 4 per cent this year”
Those aren’t my words, they are Garret Fitzgerald’s. He’s a statistician.
So, our wages are falling 11 per cent below the eurozone this year – which, surprise, surprise, is almost exactly the amount by which domestic spending in Ireland is lagging behind that in the eurozone this year.
The reality is that we are being subjected to a unique experiment, massive wage deflation. Its never been tried before, anywhere. It was dreamed up by quack economists under the pretext that exports were collapsing, when we now know they weren’t and aren’t. Its proving disastrous.
As for this business of it not being exporting firms that need these pay cuts (the argument that we were losing export market share now having been destroyed), but non-exporting firms dependent on the domestic market.
Well, of course these businesses are doing badly. If everybody’s pay is being slashed, nobody can afford to buy anything. In addition, if they’re told that their pay will be slashed next year again and the year after again, then quite naturally they will immediately reduce their current spending to bring it below their projected future reduced income. In a nutshell, that’s what’s happening. Incomes have fallen and the proportion of those incomes saved has shot up. Spending has collapsed as a result.
How about putting it to the test?
Reduce employees wages to zero for a year. Let them work for nothing. I mean, they’re all lazy sods anyway, so zero pay is too much for them. Then, let’s see how bars, restaurants, hairdressers, garages, corner shops, beauticians, estate agents, and so on fare in that year. It won’t be pretty!
@John : “Wages ARE being slashed.”
What d’you want – – more job cuts?
Look beyond the figures because in the real world, no well run company would cut wages unless its a response to a steep drop in demand and is designed to keep a sructure in place until a recovery.
It’s hardly consolation to an exporter to the UK who has lost 30% of its business that Pfizer and a small number of other companies have ramped up their output.
What’s on offer: Goverment ban or subsidy or more job cuts and no pay cuts for the continuing employees?
apologies for my rant at Vincent Browne. Quite clearly i dislike the guy (!), but this thread ain’t about him.
What i will say is that at times of crisis and panic like this, people tend to lurch left or right of the political divide, they’re no longer interested in the cosy middle, cost it ain’t so cosy anymore. Look at the formation of the PD’s and how that came about, it being a direct consequence of the horrible 1980’s.
This report could i suppose be described as being to the right of the political spectrum, even though cost cutting and waste/innefficiency reduction should be of interest to everyone, left or right. As such, i fully expect the likes of Vincent Browne, Joe Higgins, CORI, Richard Boyd Barret etc, who i would see as being to the far left of the discussion, to come up with an alternative plan which involves huge tax hikes across the board, and little if any real cuts in the public sector.
Whether the country buys into such a plan is anyone’s guess, but the fiscal deficit as it stands is completely and totally unsustainable. Real and permanent changes need to be made to how we run and fund the country and the public services. Those in favour of cost cutting have made their pitch, so i think there’s an obligation on those against it to come up with an alternative plan for us to discuss, analyse and contrast against.
Yeah, took a look at social insurance for Germany and wow if the figures are correct it is huge!
Pension insurance 19.5%
Unemployment insurance 6.5%
Nursing care 1.7%
Employer pays half and employee pays half. That’s 21% each. Am I right? Works out almost three times ours for employees.
I presume though it means there’s less need for private pensions, health insurance etc. Which would close the gap a bit if you’re contributing 5% to a private pension and say 4-5% for health. (My VHI for a family of 4 costs €1800).
It’s a bit of the chicken and the egg. We all go out and take out private health insurance and pensions because we don’t think much of the state’s offering in this area. If the state improved its offering we might cancel the private stuff but we won’t do that till we see the state’s offering improve……
Colm McCarthy did not go half far enough. Our economy is a basket case and all the vested interests are in complete denial. Invite the IMF immediately to straighten out things.
I like this report, Ireland should have been operating along the report’s intent ages ago. All semi-states should be sold and union contracts re-negotiated in the sale. Fat civil servants (not all, civil servants, just the fat entrenched ones – you know who you are) should be ousted and banished. The Young but Experienced should be promoted, the old can join the ousted civil servants as they move to retirement somewhere hot, with the riches they’ve stollen from the next generation. Generation BLoat is no more.
Has everyone gone mad how can the government implement what has been advised its OK for them with there nice big houses and their fancy cars,what happens when the garda have no resources to attend a burglary in their home or the theft of their car because the patrol car is broken down and the nearest car is an hour away in a less rural station give the garda the resources they need they are the ones that are keeping the sum off are streets they are the ones that are risking their lives daily to protect not only the public but the government who do you think drives them around 24 7 not themselves but a plain cloths garda
I don’t feel sorry for the Gardai at all – they get allowances for rent and boots until they retire – and yet they get their clothes and boots supplied to them free. Private sector people must buy all their own clothes, which takes a big lump out of their wages each year.