The Public Spending Challenge

NAMA is just one policy problem facing the government this Autumn.  I review some issues in the public expenditure debate in this article in today’s Irish Times.

17 replies on “The Public Spending Challenge”

While I agree that we should disproportionally cut projects with a low return, we are not in the habit of collecting data on the impact of public spending, so we do not know which projects are good and which less so.

On the income side, I see further distortions to sustainable income down the road. NAMA, it appears, will offload repossessed development at prices net of VAT and CGT. It will not pay income tax. This will reduce available income for future governments. How much depends on the level of repossession that takes place…


Your walking around the boxing ring here!

If public spending is to be cut, how should this be:

A: Trim around the edges cutting whatever possible protecting jobs.

B: Wage reductions for staff

C: if these occur is there a likelihood that there will be people who will be unable to do their job lack of funds to perform it, (other than wage cost).
Now, if this happens then this job is redundant.
Will it be permanently redundant?
Then, should this job be ended?

We have been talking about A and B. We need ,at least, to be talking about C! We havent been.
For example, there are probably alot of job losses coming in the banking sector as soon as banks are out of the state nest.
IMHO, there hasnt been too much about the in the media.

A is already happening!
B will have a few tantrums!
C will be a fight!


The article is good in that it re-states the point that the cuts must be based on sound economics and on real social benefits. This must be hammered home so that the Govt of the day can make cuts in the interests of the common weal with the support of the majority against the vested interests of vocal minorities. The logic of the cuts and the benefit for all must be re-iterated again and again to be heard above the dross. The setting out of the stock agrument against cuts in a given area highlighted that nicely.

The article gives hope when it says that we should have room for many such cuts because what expenditure was not planned along these lines in the past. It gives further hope when it suggests that people will accept less services when their own income is dropping. This suggests that if the right decisions are taken people will go along with it and lower their demands because they know that resources are limited and it is in all our interests to cut our cloth to measure.

While the article gives hope the mere is an underlying message that there is danger if (i) the wrong decisions are made due for political reasons, and/or (ii) the public becomes recalcitrant, bitter and resistant to cuts. I suggest that one begets the other and a policy which can be justified on economic and social grounds will be resisted vehemently by interest groups but will ultimately garner the most public support, just as it did in the Dukes/Haughey/MacSharry years.


The problem with selecting programmes to cut is that in every department, espcially the big-spending ones, there are people overseeing ‘pet projects’ who will do their damn’dest to make sure they are preserved, even if they have little beyond prestige value. Also, as Karl Whelan pointed out in his Magill lecture, old programmes were not cut to make way for new programmes during the boom years, they appear to have all just been piled upon one another and allowed to carry on merrily. And as pointed out above by Richard we ‘re not in the habit of evaluating the impact of public spending so it’s hard to know what delivers a benefit and what’s largely cosmetic in its effects.

Given the reaction to the McCarthy report – special pleading among competing claimants – it’s apparent there’s still no public consensus that the threat we face is so large there will have to be sacrifices of the rights and entitlements of some groups in order to preserve the whole. Pity those who have to make the decisions!

@ Veronica

“And the king said, Bring me a sword. And they brought a sword before the king. And the king said, Divide the living child in two, and give half to the one, and half to the other.
Then spake the woman whose the living child was unto the king, for her bowels yearned upon her son, and she said, O my lord, give her the living child, and in no wise slay it. But the other said, Let it be neither mine nor thine, but divide it.
Then the king answered and said, Give her the living child, and in no wise slay it: she is the mother thereof.
And all Israel heard of the judgment which the king had judged; and they feared the king: for they saw that the wisdom of God was in him, to do judgment.”
(1 Kings 3:16-28 KJV)


I think that to make wise cuts, you need to be in possession of all the facts – and part of that is having a good understanding of what the consequences are of your actions and decisions. Otherwise, wholesale cuts are not much better than ‘shock therapy’.


And ‘Yes, Minister’ said that politicians may sometimes feel obliged to take the wrong decision -: “It may be wrong economically, industrially, wrong by any standards. Except one. It is a curious fact that something which is wrong from every other point of view may be right politically. If a policy ‘gets the votes’ then it can be argued that that policy is what the people want. And, in a democracy, how can a thing be wrong if it is what the people wil vote for?”

Philip Lane is right about how it should be done; how it will be done is another day’s work.

The missing issue is the unions. Note the case of Aer Lingus, which is not a bad case study of how the unions, helped by passive government decision-making, think. The first proposal in the airline’s latest crisis is to cut jobs — not the wages or working conditions of the staff.

I think the suggestion by John McHale to reinvigorate social partnership has a lot of merit, though I didn’t see in his article, or Philips above, any real outline of a deal that could achieve cuts in a way that is broadly socially acceptable. At the moment the atmosphere seems to be gtting colder and colder. Could a social partnership deal by reached with the following outline:

> Current public sector pay levels, and the basic levels of social welfare, are protected at their current level. This would not preclude the government from reducing specific benefits such as set out in the McCarthy report (e.g. Fas/SW double payment, or particular allowances for Gardai).
> There would be no further increases in either public sector pay or social welfare until the Government deficit is down to 3% GDP.

This approach has a number of advantages:

1. Foregoing future pay increases may be a much easier Union concession than reducing current levels. In fact, unions can point to continued ‘grade’ increases meaning that public services pay will continue to rise, albeit very modestly;
2. It internalises the benefit of improving public sector efficiency and reducing costs amongst unions/public sector workers;
3. It introduces a much greater degree of stability and predictability to family finances, which might help reduce our current excessive savings rate.
4. It is a strong signal to theordinary taxpayer, and international markets, as to the seriousness with which the 3% target is taken. It also does this without taking too much money from the economy up front, a worry of John.

I think Philip is totally correct on this
@Colm: I thought we were getting the detail from you! 🙂

Its a smart move to re-state some of the ongoing issues facing the country since NAMA has overwhelmed centre stage but the structural deficit is likely to haunt is for many years as well.

there is no politically fashionable way to say it and on that basis the honest approach about spending cuts (it seems we are past the main taxation side of the solution) on public sector pay and justification of public projects on benefit is valuable.

Delighted to see that pragmatism is alive and well.

The single most important thing that can make these cuts happen without too much strife is leadership; and the best example of leadership is leadership by example. It’s so lacking in our Government at present that they couldn’t even bring themselves around to cutting there own salaries just to bring them in line with other European States.

We all recognise that it is probable that NAMA will become a millstone around the this society for many years to come, and we all recognise that the skill and expertise needed to get out of a mess is a lot greater that that which got us into it in the first place!

“If the blind lead the blind, both shall fall in the ditch”.

Time for a general election!

If society accepts that what we face is a real threat to our stability and general wellbeing, then ‘strong leadership’ is generally applauded and governments that face down special interest groups and take tough decisions in teh common interest may even experience an increase in their popularity e.g. the early Thatcher government. Where no such consensus exists on the nature or extent of the problem, then the claims of competing interests will come to dominate public debate and a government, or any advisors to it, who are advocating difficult decisions will be constantly portrayed as ‘out of touch’. How ‘strong leadership’ is perceived is a matter of political environment and culture.

Cut away! We need more doctors, nurses and teachers in Australia! The weather is better, the pay is as good and the dollar goes as far as the euro does in Ireland. Keep the civil servants and gardai. You need them more than we do.
Of course that means Ireland will have to train more doctors, nurses and teachers, but we will be forever grateful to you all!
Is this going to mean that we will get the benefit of all your innovation initiatives as well? Public money to pay for private profit, again? Thanks!

Hitler provided strong leadership. Except that whenever he took the military decisions they lost battles, men and equipment. The best wars are fought with spies and paid agents, preferably at the very top. So cost effective! I’m just amazed that the taxpayer is going to stand for all this loss of services …..

Agree with Veronica. Lots of special pleading from the middle management tiers especially. Cuts have been made to frontline services in education, with the promise of more to follow. Yet, I have heard a senior person in a large VEC talking about meetings to formulate opposition to McCarthy’s idea of merging some some of these enitities. So, what’s it ot be? Cuts to book grants, special education needs, larger classes, or doing away with needless layers of bureaucracy?

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