There appears to be a growing consensus that one of the primary causes behind our current economic recession is excessive public spending. It has been thrown around at will without any statistical evidence of late that I almost began to believe it myself. It was only after the announcement today that cuts of €5 billion have been identified by ‘an bord snip nua’ that I went and reminded myself of some important facts.
Irish public spending remains one of the lowest in the OECD, depending on what figures you believe we rank around third from the bottom. That 14/17. In terms of health and education we are around the average. However, in comparison to our European neighbours we rank even lower again. It is not the expenditure of our public spending that is the problem it is the design of how it is spent, who spends it and what do we get in return. Our administrative structures need reform, not the level of money spent. Cutting social welfare is taking money out of the economy. This is the opposite of what needs to happen at the moment.
There is also a growing myth that Ireland was wrong to adopt ‘universal social policies’. This was espoused by Noel Whealen on ‘Questions and Answers’ last night. He argued that we were fiscally irresponsible for allowing universal benefits in both the children allowance, and the medical card for over 70’s. This, again, is a myth. Ireland has one of the most residual, means tested welfare systems in the developed world. The vast majority of cash benefits available to Irish citizens (disability, job seekers, medical card, rent allowance etc) are heavily means tested. Furthermore, in terms of our benefits in kind (education and health) we have, effectively, a two tier system. A brief look at who goes on to Third level education would indicate it is those from fee-paying private schools (subsidised by the taxpayer). Our health system is even worse, with an unapologetic two tier apartheid system, brilliantly documented in a book published this week by Sarah Burke ‘Irish-Apartheid, Inequality in Ireland‘. Again, the problem with these public services is not the expenditure but the administrative structure, the design of delivery and the level of accountability.
Another myth being espoused is that our public sector workers are overpaid, that social partnership instituted a bloated wage bill. What we have had in Ireland over the past 15 years is wage restraint. Some of our senior public sector, and the more privileged (university professors, judges, senior civil servants and politicians) employees of the state are overpaid but not the majority. Overall unit labour costs went down since 1987. Capital profits soared. Again, what needs to be done is a reform the excessive levels of pay for those at the top. Reform needs to occur but it should be targeted at those who have benefited most from the ‘Celtic Tiger’.
Finally, Ireland has instituted a low tax regime since the late 1990’s. Irish tax revenues in 2006 was 32%. The EU average was 40%. Furthermore, the basis of our revenues system was premised upon a volatile income stream: indirect consumer taxes, and taxes generated from an unsustainable property boom.
This is the reality of Ireland’s political economy. A reality that ought to inform how we grow, and invest our way to a new export, sustainable led economic recovery.