The statistical distortions created by the impact on the Irish National Accounts of the global assets and activities of a handful of large multinational corporations have now become so large as to make a mockery of conventional uses of Irish GDP. I suggest four preliminary remarks to help overcome some of the challenges facing observers of the Irish macroeconomy.
- GNP is now almost as unhelpful an aggregate economic measure for Ireland as GDP. (This is due to a change in the way in which some globalized countries are managing their affairs, with some significant global headquarters now being located to Ireland)
Ratios to GDP are now almost meaningless for Ireland in most contexts. They need to be supplemented by alternative purpose-constructed ratios for specific uses, as the Irish Fiscal Advisory Council already proposed a few years ago with its weighted average of GDP and GNP for assessing fiscal sustainability – though that particular solution will no longer work well for the reason mentioned in point 1.
International statistical conventions should be revisited to help the interpretation of the data in a world where huge MNCs, legally controlled from small jurisdictions are moving assets around on this scale.
One natural approach is to apply the thinking underlying the current statistical treatment of financial intermediaries to this kind of MNC.
(One aircraft leasing firm that publishes its accounts has just 164 employees in Ireland – and just 221 elsewhere – but a balance sheet total of $44 billion, the bulk in the form of aircraft that are operated by other firms. I do not know how the statisticians classify it, but in economic terms it looks much more like a financial firm than a non-financial firm).
Failing international convention changes, it may be necessary to envisage a parallel set of accounts being also prepared for the Irish economy.
- Some of the big aggregates of the national accounts are largely unaffected by the distortions. For instance, the figures for personal expenditure on consumer goods and services and for government expenditure on goods and services. These two series can still be used to get a more realistic picture of the recovery as it is felt in public and private consumption. But they should not be expressed as a percentage of GDP, but instead in real constant price terms, seasonally adjusted.
Thus, by the first quarter of 2016, personal expenditure was still just below its quarterly peak of eight years ago; it has been growing for twelve quarters since the trough at an annual average rate of 3.5%.
Government spending on goods and services (i.e. not including transfer payments) in the first quarter of 2016 was still six per cent below peak but has grown by 4.0% per annum on average in those twelve quarters.
Personal disposable income (a much under-used series; up to date figures not available yet); other elements of the government finances; building and construction investment are other series that remain valid and usable for understanding the relevant parts of the economy.
How do these recent growth rates in consumer and government spending compare with those registered in the decade before the bust? Much lower of course: consumer spending rose by an average of 5.6% per annum 1998-2008, and government spending by 4.9%. Recovery yes: boom no.
In addition to the Department-by-Department blow-by-blow recommendations, An Bord Snip Nua has offered general comments and recommendations in Chapter 2 of its Volume 1. Among other things, it speaks about:
– Outsourcing and economies through shared ICT.
– Rationalization of Departmental structures and agencies including for the delivery of services at local level;
– Improvements in procedures for public procurement and property management.
– Value for money and performance appraisals.
I would welcome specific comments on these structural and strategic aspects in this thread.
How about some specialized discussion on proposed cuts?
I haven’t yet counted the recommendations in Volume 2 of An Bord Snip’s report, but there is much detail on which specific expert comment would be valuable and could begin here.
Three-quarters of the potential savings identified by An Bord Snip nua are (unsurprisingly) in the three biggest spending areas: Health, Social Welfare and Education. I’m opening a separate thread for each of those three: keep this thread for the rest.
Please no general waffle on this thread please!
I’m opening this strand to facilitate more specialized discussion on the cuts in Education proposed by An Bord Snip, which total €0.7 bn or 8% of the €9 billion currently spent in this area.
The proposed cuts include:
Structural efficiencies (e.g. amalgamation of some ITs and VECs).
Staffing reductions and productivity improvements (e.g. in the area of sick leave arrangements, special needs assistants, pupil-teacher ratios, and more teaching hours)
Programme adjustments (mainstreaming of traveller education, costbrecovery of school transport, PRTLI)
I’m opening this strand to facilitate more specialized discussion on the cuts in Health proposed by An Bord Snip, which total over €1.2 bn or 8% of the €15 billion currently spent through the HSE.
Cuts here include: staffing roll-back of over 6000; a tightening of the eligibility requirements for medical cards; increased co-payments for prescriptions and walk-ins to A&E; and some rationalization of agencies.
I’m opening this strand to facilitate more specialized discussion on the cuts in Social Welfare proposed by An Bord Snip, which amount to €1.8 bn or 9% of the €18 billion currently spent in this area.
Among the proposed cuts are an overall roll-back in rates of 3% or 5% nominal; a 20% reduction in Child Benefit; and some changes in eligibility (double payments).
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.