Special economic report: the high road to disaster
Will the last TD to leave the Dail please switch off the light at the end of the tunnel
The country has reached the verge of national bankruptcy, primarily because of policies pursued by politicians here in the last decade. Vast borrowings have been undertaken, largely to finance current expenditure and hardly at all for wealth-creating investments. We now owe in total foreign debt a sum the equivalent of £6,000 for every income tax payer in the country.
In spite of this, politicians continue to promise further schemes of public expenditure and some of them actually boast of their foreign borrowings to finance what they desscribe as "productive investment". The fact is that almost no productive investment is undertaken. Instead, these borrowwings are used for day-to-day expenditure as well as for proojects which owe their instigation more to their vote-getting potential than to any economic or social justification.
There has been a prevailing belief among "progressive" people involved in Irish politics that public expenditure is essentially good and any attempt to cut is essentially evil. This belief is founded on the notion that public expendiiture operates in a way to transfer wealth from rich people to poor. But as the following analysis of public expenditure shows this is far from the case.
The following are some instances in which public expennditure and taxation policies actually represent transfers of resources to the better off rather than from them:
* the £67 million electrification of the Howth-Bray raillway line.
* the continued subsidisation of third level education to the tune of £60 million annually.
* the granting of £50 million of "equity capital" to Aer Lingus.
* the £220 million capital expenditure annually on the teleephone service.
* the entire housing policy which effectively encourages the middle class to buy houses bigger than they need but which fails to provide houses for the homeless.
Each of these projects is examined in more detail elseewhere. There are several other projects which simply reepresent massive wastage. The most spectacular of these are: `
* NET which loses £57 million per year and in addition wastes natural gas from Kinsale at a further but undisclosed cost to the nation of £50 million annually. This means that NET costs the country £100 million per year
* the £100 million which has been thrown away on the failed attempt to eradicate bovine tuberculosis.
There is also the question of the bloated nature of the public service - in the last five years 32,000 additional public servants have been added to the public pay-roll. Public sector pay has risen at spectacular rates over the last several years. The following shows by what amounts and percentages:
1977 1978 1979 1980 1981 1982 (F) F = Forecast
£m. 776.2 927.2 1158 1555 1940 2 250
% 19.5 24.9 34.3 24.8 15.8
These increases are vastly in excess of increases in other sectors of society and have caused huge problems in relaation to the public finances.
But there is an even more alarming dimension to public sector pay and conditions - public sector pensions. At preesent the net cost of the pensions to the State is £89.4 milllion, but because of the rapid growth of the civil service and the age structure within it, it is estimated that this will get entirely out of hand within the next ten years and that there should now be a contingent liability inserted into the accounts of the State each year of something in the region of £460 million - a figure larger than the cost of the very expensive general medical service and almost as large as the entire allocation for social service.
The following facts give some insight into the seriousness of our economic situation:
* we are forecast to have the lowest growth rate in our economy in all the OECD countries in 1982 (the OECD countries include all 10 member states of the EEC, along with the United States, Canada, Japan, Spain and Portugal).
* only Britain, Belgium and Spain have a higher unemployyment rate.
* only Greece has a higher rate of inflation.
* no country has a worse balance of payments situation.
* governments have borrowed the equivalent of £6,000 for every taxpayer in the country. The net foreign debt will exceed £5 billion at the end of this year and in the first half of 1981 the net foreign debt rose by an amount almost equal to the foreign exchange reserves.
This analysis of public expenditure was undertaken by a number of economists. Dr. Sean Barrett of TCD undertook much of the analysis on the capital programme. Two economists in the private sector, who prefer to remain anonymous, wrote a great deal of the analysis of the current expenditure. Colm McCarthy of Davy, Kelleher and McCarthy, advised on the overall project. Joe Durkan of the ESRI also contributed and the entire article was edited by Vincent Browne.
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Capital Spending
Waste-has cost us £600m
There is an almost unanimous connsensus among our politicians that capital spending - investment - is good, even if current spending may not be so. Particu1ar merit is attached to infrastructural investment, commmitment to which is regarded as the litmus test of all politicians of a farrseeing and progressive disposition.
But the facts are that a high prooportion of OlU capital spending reepresents not an investment in the nation's future but a drain on future resources as we struggle to meet the interest charges and repay the capital sum of capital spending which has been misconceived, wasteful and, in some instances, reckless.
We invested almost 50 per cent more of our national income in the years 1976 to 1980 than we did in the years 1961 to 1965 and yet the growth rate in the economy was only one tenth higher. (The investment ratio from 1961 to 1965 was 18.8 per cent and the growth rate was 3.5 per cent; the investment ratio from 1976 to 1980 was 27.8 per cent while the growth rate was 3.9 per cent). The situation is now even worse. In 1981 the investtment ratio was around 30 per cent, while the growth rate was only 2 per cent.
Were capital spending projects as wise in the late seventies as they were in the early sixties, then this country would be about £600 million richer.
PUBLIC CAPITAL PROGRAMME 1981
£m % Total
PRODUCTIVE
· Industry 359.2 20.7
· Agriculture, Fisheries, Forestry 172.1 9.9
· Tourism 5.0 0.3
INFRASTRUCTURAL
· Energy 290.3 16.8
· Phones 220.0 12.7
· Roads 59.4 3.4
· Water & Sewage 72.7 4.2
· Transport 90.4 5.2
· Other 19.7 1.2
SOCIAL
· Housing 242.4 14.0
· Public buildings 53.9 3.1
· Health & Education 120.0 6.9
· Others 27.5 1.6
TOTAL 1,732.6 100.0
This is a considerable sum. For instance, it would wipe out almost all of the current budget deficit and would alleviate the need for the harsh budgettary action which is now necessary to get our affairs back into order.
The wastefulness of much of this capiital expenditure arises from the innadequate project analysis which takes place, or very often doesn't take place, prior to sanctioning of vast amounts of public money. Secondly, some of the economic areas of infrastructural innvestment, such as road building, have not taken place because there isn't enough votes in it. Thirdly a lot of the investment has gone into capital "deepening" rather than capital "widdening" by which is meant that projects have been undertaken which rationalise existing investment and lead to job losses, rather than new projects. (In the long run this shouldn't make any difference to the rate of growth but in the short run it does).
Finally, because of the low cost of investment in the private sector beecause of capital grants, tax reliefs and perhaps most notoriously the Section 84 which allows the banks to operate leasing arrangements, inefficient proojects have been undertaken.
CAPITAL - Industry
The Telesis report, which has been leaked by Irish Business but which has still to be published officially, raises very serious questions about the operation of the IDA and in particular questions its claims on job creation (in 1979 it announced 35,000 job "approvals", while only 9,000 jobs actually materialised). It also raises questions about the cost per job to the public exchequer and then there is the question of the social equity of rewarding private industriallists with huge capital grants for the purchase of plant and machinery which then become their private prooperty. There is the further question of the desirability of IDA rement grants which substitute capital for labour, as for instance did a su bbstantial IDA grant to Guinness and the Drogheda cement factory.
In spite of these criticisms the repuutation of the IDA remains very high. It is the best industrial promotions agency in Europe, with a highly motiivated, highly professional and highly paid staff, which incidentally has doubled in the last decade while Irish manufacturing employment has deeclined. A full analysis of the IDA will have to await the publication of and debate on the Telesis report.
Justin Keating was the Minister for Industry and Commerce when the Marino Point debacle was given the green light. It was he who was also directly responsible for another finanncial disaster, Irish Steel. This plant also experienced vast cost overruns in its construction (its electric arc furnace was originally costed at £28 million, but is now estimated to cost £45 million). It was given the go-ahead in spite of a strong EEC commission recommendation to the contrary - this recommendation proved prophetic as the plant is not now able to compete without further subsidy. It is predicted that Irish Steel will be the N.E.T. of the 1980's.
CAPITAL - Agriculture
We have invested £2,000 million in agriculture since we joined the EEC and during that time there has been no increase in agricultural output - this was the case even right up to the 1979/80 collapse in the industry. The primary reason for this failure has been the prevailing land structure. No Government has got around to enunnciating, let alone implementing, a policy on this issue and all attempts at structuring the tax system to prevent the inefficient use of land have been successfully resisted by . the farming lobby.
CAPITAL - Tourism (5m)
We have now reached the stage in which we spend more on tourist immports (i.e. Irish people going abroad for holidays) than we earn on tourist exports (i.e. foreigners coming to Ireeland as tourists). Therefore a tax on foreign holidays would probably achieve more in terms of our balance of payments than promotional expennditure, which a NESC survey found 'to be of dubious value (only 35 per cent of visitors to Ireland can be described as discretionary tourists and the proomotional costs involved in bringing these from Britain is about 70 per cent of the total expenditure when they get to Ireland). Bord Failte has now 550 employees and 70 per cent of its exxpenditure goes on administrative costs.
In spite of a rapid growth in the alloocation to Bord Failte each year during the past decade, tourism has declined from almost 6 per cent of GNP in 1970 to 4.5 per cent in 1981. The main reason for this decline is that we are getting the hitch-hiker tourist more than we are getting the wealthy visitor,
The entire project was designed to cope with a world shortage of ammmonia which never occurred. Imports of ammonia increased three-fold in volume from 1970 to 1977 and the rise in the price of ammonia was less than the rise in the consumer price index. And then to cap it all, the plant was given access to Kinsale gas at a cost of only one sixth of the raw
materia! cost of naptha, which is used by the Dublin Gas Company. This hidden subsidy to NET is in the region of £70m to £100m, per annum.
The size of the subsidies to Marino Point strongly suggests that the plant should be closed down immediately even in spite of the massive capital cost which has been incurred.
rather than an overall decline in tourist numbers. The problems of the North have been cited repeatedly as the reason for the fall-off of tourist revenue but this excuse is wearing increasingly thin.
CAPITAL
Energy Wastage in the ESB
The major problem in this area is bad pricing policy. Principally this involves the wastage of the Kinsale gas resource by giving it to NET at a nominal price and to the ESB at a price well below the market level - the exact prices being charged to NET and the ESB are closely guarded State secrets!
The ESB accounts for £235m of the investment in energy and while it was regarded as the fair-haired wonder of the public sector serious doubts about its efficiency have begun to emerge. In the first place industrial electricity prices in Ireland are now 30% to 45% higher than those in the U.K. and beetween 50% and 70% higher than the French prices. This is mainly because of obsolescent oil fired capacity for
base-load generation - 50 per cent of electricity costs are accounted for by fuel. Coal is now half the price of oil per unit of electricity generated. There is also the problem of heavy overrmanning which. first identified as a major problem in 1970 in the Flettcher report (this found that manning levels in ESB generating stations was 2.2 times that of German generatting plants). The ESB is also responsible for the wastage of Kinsale gas, not just because it is paying less than an econoomic price for the gas but because there is a 60% wastage factor in the transferrence of gas into electricity .
CAPITAL - Telecommunications 220m
This is NOT infrastructural investment
Last year the number of telephones innstalled was around 60,000. The total capital cost of this and in the general development of the telephone service was £220 million. It is estimated that the actual capital cost of installing each of the 60,000 telephones was in the region of £1,500. However, the innstallation charge is only £150, thereefore the State is subsidising the installlation cost of each telephone to the tune of about £1,350.
Of the 60,000 telephones installed, at most only 10,000 would have been for business purposes. Therefore 50,000 phones were installed for private use - this has nothing to do with infraastructural development. The cost to the State of this non-infrastructural innvestment was therefore in the region of £67.5 million. The total investment by the State in non-infrastructural telecommunications was about £178.2 million.
As the threshold of the £150 has to be crossed before people can avail of this State subsidy and as people have got to be in a position to pay for the current telephone charges, this necesssarily represents a massive transfer of wealth to the better off sections of the community.
CAPITAL - Roads (59.4m)
The one genuine area of investment and they starve it of resources
This is one of the areas where investtment by the state would be most prooductive in infra-structural terms but (predictably?) it is the area which has suffered the most severe cuts in the last decade - indeed when depreciaation is taken into account there has probably been no actual investment in road building at all. Investment in roads as a % of GNP has fallen to half the level that obtained in the early 'sixties, while car ownership has inncreased fourfold. The major study on this "The Road Needs Study" by An Foras Forbartha has been censored by the Department of the Environment.
CAPITAL - Water and Sewerage (72.7m)
Investment here is necessary to proovide adequate serviced land at reasonnable prices for housing and industry °a shortage of serviced land drives up the price of houses and industrial locations. A more direct approach to the control of the price of serviced land was advocated in the Kenny reeport which recommended that the price of the land be fixed at its agriicultural value. Although applauded by the non-landowning electorate, it failed to find favour with the policyymakers because, as John Kelly recently stated, the rights of private property aren't simply outlined in the Constiitution, they are enthroned in it. Anoother approach might be to forget about the zoning of land altogether and about all attempts at planning. The politicians have managed, in the main, to make a hames of the developpment plans while there has been wideespread suspicion of widespread corrupption on re-zoning decisions. The placcing of preservation orders on buildings of historical and architectural interest and allowing the market place to take care of the rest would probably result in no worse an environment than preesently prevails, while serving to reduce the price of houses through the availlability of building land wherever anyybody wishes to build.
CAPITAL - Transport (90.4m)
The CIE nightmare and the Aer Lingus dilemma
The public transport system has been a loss-maker since 1926 and has been a drain on the exchequer since CIE was established in 1951. The main problem is the railways which lose massive amounts of money each year. This constitutes socially regressive expenditure for the 1979 Household Budget survey showed that the top two sociooeconomic groups spend almost twice as large a proportion of their incomes on rail travel as the lower four sociooeconomic groups. The railways should simply be closed down. The Provincial bus service is being superceded by illeegal private transport companies and is rendered more inefficient by the reefusal of the unions to allow the operaation of mini busses instead of the 53-seat vehicle which is uneconomic on a great number of runs. Cl E wasted a lot of money since the early sevennties in investment in its freight service which has proved entirely unprofittable. The Dublin bus service also loses money for reasons that are less depresssing. The expiring (literally!) bus stock was hopelessly unreliable, while the new Bomadier has proved more proomising than was at first feared. Traffic congestion has contributed greatly to the difficulties here but so too has bad pricing policy which offers no fare enncouragement to people to travel on the off-peak hours. The company also charges proportionately more for short runs than for long which means that as the city expands it earns less and less revenue.
Aer Lingus is seeking £50 million appproximately in equity capital from the Government at present, according to a news report in The Irish Press on July 27 last. The company refuses to confirm this or disclose how much is needed or even what the money might be wanted for. "Aer Lingus would not see its future worthy of the airline's traditions if its existence were to be subject to subsidy", stated the commpany's chairman at the 1981 AGM. No less an authority than Senator T. K" Whittaker debunked this notion that equity investment in companies such as Aer Lingus was something other than a subsidy. He said in the Senate on April 15 last that request for a free capital, alias equity, by state companies were based on a "mistaken belief that interest payments are a form of robbery from which State ennterprises ought to be rescued by throwing the interest burden on the taxpayer" .
One can only guess at the purposes to which the further subsidy from the taxpayer will be if Aer Lingus gets it, in view of the company's refuusal to allow the taxpayer know on what his/her money will be spent. At the AGM.in 1981 there was no eviddence that the extra money would be used for the purchase of extra airrcraft. There is therefore a suspicion that any additional cash would be used to bale out the loans to the company hotels in the United States, especially as there seems to be a co-incidental effort by the airline to change the rules requiring its ancillary activities to cover their capital costs.
Quite apart from this, there are a number of reasons to believe that Aer Lingus is acting against the public interest. The charge of £145 return fare from Dublin to London also reepresents a major subsidy on the part of passengers on this line for the operation of routes that are clearly uneconomic and for manning levels that seem unjusti fied.
The airline loses £20m. per year. Of this £15m. is lost on the North Atlanntic route and £5m. on European routes. The contention that the North Atlanntic route is losing money for all airrlines and that Aer Lingus is therefore no exception is belied by the intense competition there was among airlines in America for the Miami-London route when the Pan Am licence came up for renewal. Aer Lingus has a total staff of 6,800, of whom 1,500 work on the North Atlantic operation alone - they employ more people than they fly passengers per day. This by itself must account for a major part of the airline's losses. There was a proposal two years ago to "Lakerise " the North Atlantic operation - i.e. turn it over to a private operator. Des O'Malley was the person who proposed this and it was believed it was his idea that Tony Ryan of Guinness Peat should be allowed to run a service to New York from Shannon.
Aer Lingus and the Department of Transport are foremost among those in Europe opposing a break of the airline cartel arrangement in Europe which would open up competition and reduce fares. They vigorously and successfully opposed recently the British Government proposal to allow Dan Air to fly from Gatwick to Dubblin, knowing that Dan Air would greatly undercut the Aer Lingus Dubblin-London fare.
The airline serves no social objective, apart from the employment of its 6,800 staff. The hidden cost to the community for this is substantial, through the inflated charges that are made for air travel out of Ireland.
Squandermania 1 - How to waste a national asset
NET
This has been the greatest financial disaster in the history of the semi-state companies. The cost escalation of its plant at Marino Point, Co. Cork has been staggering. In early 1973 the cost was being spoken of in terms of £6m. By October 1974 a memorandum from the Department of Industry and Commerce to the Government estimaated the cost of the plant at £42m, but the NET management was estimating the cost at £63.51m, the following month - the Department was not informed of this revised estimate until 5 months later and the Government gave the go-ahead without knowing of this. Subsequent upward revisions in the cost of the project were also not relayed to the Government until a long time later.
Then, incredibly, NET entered into a contract with the construction firm for the plant, Kelloggs, which did not have a fixed price but which committted the company (and therefore the taxpayer) to paying any increased costs that would ensue. By April 1980 the costs had risen to a staggerring £137m. But that is not all.
Squandermania 2
How to throw away £67m on rich people
One of the most glaring examples of public waste in recent years has been the electrification of the Howth-Bray railway line, the effect of which will be to increase the losses on the line from £4 million to £ 10 million per annum at least.
The Voorhess report on the Dublin Rapid Transit Study in 1975 showed that for an extra expenditure of £67 million in 1973 prices (over £200 milllion in 1982 prices) the most expennsive of three electrification options would increase peak traffic on the line by a mere 1.23% over a diesel train plus busway system. It was supported by the Department of Transport and by its then Minister Padraigh Faulkner. They argued, entirely without eviidence, that the electrified system would attract many more passengers, especially in the off-peak hours. The proposal was strongly opposed by the Department of Finance and by its then Minister, George Colley, and the then Minister for Economic Planning and Development, Martin O'Donoghue.
It was ironic that the scheme should have been so vigorously opposed by Colley and O'Donoghue for it would have been of direct benefit to their constituents in Clontarf and Dun Laoghaire respectively. However they "were opposed in cabinet not alone by Faulkner but by Charles Haughey and, surprisingly, by Dessie O'Malley, who was persuaded by the IDA that the company which was to construct the rolling stock for the system would proovide 800 jobs in Inchicore. O'Donooghue pointed out that this was a very unlikely eventuality as a company would hardly set up a new plant just to construct the rolling stock for such a relatively small system - and so it transpired. The cabinet, in early 1979 which was already giving Padraigh Faulkner a hard time on the postal strike, agreed to back him on this prooject and it was given to go ahead.
This project is more wasteful than the Knock airport one. It will devour very much more capital than did Knock airrport (£67 million at least as compared with £20 million at most). It will lose very much more money than Knock would have lost - the total losses on the electrification project will be in the region of £ 10 million per annum. The system already loses £4 million and the cost of financing the capital investment alone will be in the region of £10 million per annum (esstimated at an interest rate of 15%).
Furthermore, it will represent a masssive subsidy for the better-off. Properrty prices in the Bray, Killiney, Dalkey , Dun Laoghaire, Blackrock, Clontarf, Sutton and Howth areas (all among the wealthiest sections of Dublin) will increase to reflect this added amenity. Suburban rail services are even more socially regressive than the railway system in general - in other words it will be the middle classes who will benefit from the massive current subsidy from the taxpayer.
But it is not too late to stop the prooject. No overhead wires or new rolling stock have yet been installed. Thereefore losses could still be cut - as they were in the case of Knock airport 8if the electrification project were stoppped right now and the diesel plus exxtended bus option operated instead. This would mean that the capital costs could be pared by at least around £30 million and the ongoing losses also cut severely, while making almost no diffference to the number of passengers who would use the service. In addiition real jobs could be created in the diesel works in Inchicore where the new diesel rolling stock could be connstructed.
Barry Desmond has earned a reputaation for himself since becoming Miniister for State at the Department of Finance for his opposition to wild spendthrift programmes. The fact that the electrification project will benefit his constituents directly should hardly constrain him from opposing this crazy venture as well.
CAPITAL - Housing (242.4m) - Subsidising the middle classes
Authorities into severe financial diffiiculties.
The scale of investment in housing is determined by an assessment of houssing needs. This was set at 25,000 houses p .a. for the 70's and with conntinuing population growth is probably around 30,000 at present. The state subsidises housing both directly and indirectly principally through morttgage interest relief and not taxing the imputed rental income of owner occupied houses. Capital spending on housing is divided half between Local Authority housing (£114m) and various grant schemes and the subsidy for SDA loans.
Local Authority housing completions in 1981 fell to their lowest level for 10 years (5,500), however the Governnment had to provide £30m extra in the July budget merely to maintain the number of houses under construction a t this level.
There are two main reasons for the fall in Local Authority housebuilding: (a) the rise in house building costs, due to rapidly rising construction costs and even faster rising land costs (b) the abolition of rates on private houses and the ensuing unwillingness of Cenntral Government to adequately commpensate the Local Authorities for the revenue loss, thus forcing the Local
But more serious questions arise in relation to housing policy. Local Authhority housing is too cheap for many people benefitting from it, while the middle classes are given enormous enncouragement through mortgage interrest relief and mortgage interest subbsidy to buy houses which are too big for their needs and which operate both as a form of tax avoidance and as tax free capital gains. It would probably be preferable to give housing vouchers to those who need to have their acccommodation subsidised (this would help those in private rented accommoodation as well) and to phase out the mortgage interest tax relief and morttgage interest subsidy, thereby saving on expenditure and gaining on taxaation revenue, at the expense of the better off.
One further point in relation to houssing. The grants towards house purrchase such as that introduced by Fianna Fail before the last election have the effect of increasing the price of housing by the amount of the grant. This means that the money goes straight into the pockets of the buillders and has no impact on the total volume of housing.
CAPITAL - Public buildings (53.9m)
This provides, in the main, for office accommodation for public servants. Substantial cuts in this figure would be possible if the cuts in the level of public servants, outlined elsewhere in this review, were undertaken.
Over 50 per cent of Dublin centre city office space is occupied by public serrvants. There is no reason why, for innstance, the office of Public Works and Bord na Mona should have their headdquarters in the centre of Dublin.
Current Spending
All figures for current Government expenditure are taken from the Januuary 1981 Book of Estimates. As is well recognised, these were set notooriously low so as to give the impression that current spending was being reined in. The fact that they are underestiimates is not too material, since in this section, we are mainly interested in their relative rather than their absolute level.
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Current Government spending is domminated by the three major social deepartments of Health, Education and Social Welfare, which account for 49% of total.
CURRENT - Education
Dale Tussing, author of the ESRI report "Irish Educational expenditures in Past, Present and Future", has written: "the system of finance for education in Ireeland runs against the interests of the poor, the working class and the large majority of the Irish people. It is essenntially a regressive system, in which the many support the few. And there are demands that the few who benefit must be given more" ("One Million Poor", edited by Stanislaus Kennedy).
CAPITAL - Health and Education (120m)
Capital expenditure on health arises largely from the failure to implement the 1968 FitzGerald report on hospiital rationalisation. This failure has been due entirely to party political considerations, prompted by constiituency pressures to keep small regioonal hospitals open. A further part of this capital expenditure has been due to the failure of public health proogrammes, notably on smoking. For further consideration of Health exxpenditure see the review of current expenditure.
The only possible savings in capital spending on education is a slowdown in the building programme for commprehensive and community schools. Building costs for these schools were £10m in 1981, the same as for the entire secondary school system. The slowdown will be limited by the neecessity of providing extra second level places in some fast growing areas e.g. the western suburbs of Dublin. If the argument is accepted that Higher Eduucation should fund itself to a greater degree (as outlined in the review of current spending) then this should also be applied to the building proogramme of the Higher Education Authority with consequent savings of approximately £1Om on the capital programme.
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Table: CURRENT SPENDING 1981
Department £m % of Total
Education 606.2 16.4
Health 712.1 19.2
Social Welfare 495.8 13.4
Industry Commerce Tourism 76.7 2.1
Environment 244.9 6.6
Agriculture 206.9 5.6
Transport 82.3 2.2
Justice, Prisons Guards 172.4 4.7
Defence and Army 178.1 4.8
Labour 35.6 1.0
Others 889.7 24.0
TOTAL 3,700.7 100.0
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Squandermania 3
Subsidising rich kids
Essentially the issue centres on the finnancing of third level education, which cost the taxpayer in the region of £60m. in 1981. A recent study has shown that, in spite of the free seconndary education scheme started in the mid-'sixties and the heavy subsidisaation of third level education since then, no change has taken place in the proporrtionate representation of students from the lower socio-economic groups since the mid-'sixties (ESRI paper on the financing of third level education by Tony Barlow). Therefore almost all the subsidisation of third level educaation is a transfer of wealth from the general taxpayer to the wealthy. But more than that, the primary beneficciary of third level education has been found by Tussing to be, not the community at large, but the recipient of this education, who, having been subsidised by the taxpayer to acquire a qualificaation, then uses this qualification to claim a high income from the rest of society for the rest of his/her life. There is no jusitifcation for this £60m. expenditure by the state. Students should be charged the economic cost of their education at third level (at present they pay less than one fifth) and a system of scholarships should be instituted to help students from econoomically deprived backgrounds. In addiition there should be a loans system whereby other students can borrow the finance needed to put them through third level education on the underrstanding that they repay this money on being qualified.
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CURRENT - Health (712m)
Another political cop-out
This is one of the most difficult areas in which to achieve any cost cuttings but, because of its size (19.2% of total current expenditure) no cost cutting exercise can be meaningful if it is ignored.
Ireland spends 7% of its G.N.P. on health, as compared with Britain's 5%. In 1960 when British current incomes were at the current Irish level, Britain spent 3.9% of its G.N.P. on health. Thus prima facie there are considerrable inefficiencies and superfluous expenditures in our health service. The cost of drugs and vmedicines in 1981 was in excess of £29m. The nummber of prescriptions per patient last year were three times what was antiicipated when the general medical service was introduced in 1973.
In 1968 the FitzGerald report said that the number of "acute" hospital beds was 50% more than was necesssary; that the average size of hospitals was too small, even for Ireland's low population density, and that there was a great deal of imbalance in the geographical spread of hospital beds. Reports published since then have confirmed this basic assessment. Yet the politicians have shied away from taking any hard decisions on the issue because of constituency pressures and have thereby made the task of reduccing the proportion of expenditure on health very difficult.
There has also been the problem that the establishment of the Health Boards have greatly escalated the administraative costs of the health service and that preventative medicine has been entireely overshadowed by hospital building programmes.
There was a suspicion that the doctors were ripping off the system to a masssive extent but this has been amelioratted in recent years by competition within the medical profession because of the profusion of medical graduates that come onto the scene each year we produce four times more doctors than we need and this represents a very significant cost to the taxpayer through the subsidisation of their lengthy third level education.
One commentator has suggested that the old Chinese system of health care should be implemented here - pay doctors for looking after a given nummber of people and pay them per person but when somebody got sick the payyment for that person would stop until he/she was restored to health. This sysstem would almost certainly lead to (a) an immediate improvement in the overall health of the p opula tion, (b) a reduction in the number of "acute" hospital beds and (c) a dramatic reeduction in the number of drug preescriptions.
CURRENT - Social Welfare (496m)
Time for testing?
Despite the high cost to the State, Irish social welfare payments are very low both in relative European terms and compared to the cost of living at home. Weekly unemployment benefit for a single person is £25.30. NESC has calculated that the typical family (adult dependant and three children) in receipt of unemployment benefit reeceived an income equivalent to 40 per cent of average male industrial earnings.
In a large social welfare system - even one as frugal as Ireland's - there are almost inevitably areas of abuse. The disability benefit scheme (£99m in 1980) seems to be very expensive in the aggregate and open to widespread abuse in its operation. There is quite an incentive to abuse the system because the contribution requirements for disability benefit are far less strinngent than for unemployment benefit.
All you need is a "sick cert". Of innsured married women, one in three is claiming disability benefit.
The major issue in the social welfare area is that of a means test. There have been long standing arguments to this on the grounds that it is degrading and that it discriminates unfairly on the margins. However it should now be possible to devise means tests which would not be degrading - for instance most people's incomes are on commputer with the revenue commissioners - and it should not be beyond the bounds of ingenuity to devise schemes which would cater for the "marginal" cases. The question is, can we afford to be paying, children's allowances, for instance, to the wealthiest sections of our society just because of a dated ideological-pre-occupation with means tests.
CURRENT - Industry and Commerce (77m)
Good and bad in semi-state
This Department is now divided into Trade, Commerce and Tourism as one Department and Industry and Energy as another Department. For the purrposes of this exercise however, we treat them as they were in January 1981.
The expenditure includes £ 13 Am for the bread subsidy and £ I m in terest subsidy for shipping, as well as £6m on Departmental sages and salaries. The most of the rest of the expenditure is allocated as follows (also included are the capital grants to each of the listed semi-state bodies under the aegis of Industry and Commerce.
We have already dealt with the IDA and Bord Failte in the review of capiital expenditure.
Coras Trachtala: its contribution to job creation is difficult to measure but necessary nonetheless in view of the considerable public expenditure it incurs.
SF ADCO: its credibility can be gauged by its support for the Knock Airport project. It has declined in competence and imagination since the '60s when under the direction of Brendan O'Reegan. Semi-state bodies, like private companies, seem to have a natural life-cycle. When the public companies however reach the end of their tether they simply continue in existence unnhindered by market forces, while private companies either close down or get taken over.
I.I.R.S.: It has a good reputation and performs a useful function in the promotion of the application of science and technology to industry.
Kilkenny Design: Partially self-funding and its consumer shops are a success, unlike its efforts at influencing indusstrial design.
The Irish National Petroleum Corporaation: seemed like a good idea two and a half years ago but now performs no useful function.
Irish Goods Council: Since the "Guarranteed Irish" symbol never became a symbol of quality, its usefulness was always doubtful. The activities of the Council are now against EEC rules and therefore there seems little point in, spending £900,000 on it annually.
Irish Film Board: Untried.
£m £m £m
Running Expenses Grants Total
IDA 14.6 196.5 211.1
Bord Failte 15.6 4.0 19.6
C.T.T. 9.7 9.7
SFAD Co. 2.2 3.8 6.0
IIRS 7A 2.1 9.5
Kilkenny D. 0.6 0.6
IPC 0.6 0.6
IGC 0.9 0.9
IFB 0.01 0.5 0.5
51.6 206.9 258.5
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CURRENT - Environment (245m)
This Department is responsible for roads and housing which are dealt with in the review of current expenditure. The main semi-state body under its aegis is An Foras Forbartha.
An Foras Forbartha is the main semiistate body under the Department. Set up as the research and development arm of the construction industry it now has little direct input into policyyformation and serves as a data collecction agency for local authorities and the Department. It has a staff of 200 compared to 900 approx. in the U.K's Building Research Establishment and 260 in Canada's Division of Building Research. Under no circumstances could An Foras Forbartha (£2m) be regarded as producing work seven times the worth of N.E.S.C. (£O.3m) or 2Y2 times the worth of the ESRI £0.9m). In a recent review NBST first proposed merging An Foras with the IIRS but su bsequently funked it.
CURRENT - Agriculture (207m)
"Rates relief on agricultural land ammounted to £42m. In spite of the IF A's protests to the contrary, a land tax such as rates increases agricultural output, since at the very least it disscourages land hoarding. As soon as reasonable prosperity returns to farmming rates relief should be gradually withdrawn.
In the meantime the administration of the system needs to be tightened up. In a study two years ago of county Sligo, the n um bers receiving rates reelief were su bstan tially in excess of the number of full-time farmers enumeratted by the census.
The Land Commission spends £14m, of which £6m is absorbed in wages for its 934 staff. As the PSAC report puts it: "It is doubtful whether schemes and programmes are actually stopped when it becomes clear that they have ou tlived their usefulness".
The research institutes, An Foras Talluntais (£ 11.9m) and ACOT (£13 .2m) are very substantial current costs, while there is little evidence that their activities contribute substantially to growth in agricultural output (growth in this sector was very poor even beefore the 1979-80 collapse). The main problem in relation to growth here relates to the structure of land holding. Probably very much more could be achieved through a heavy tax on land which would discourage land hoarding and maximise output.
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Squandermania 4 - Bovine TB
The bovine TD eradication scheme has been described by Senator T. K. Whitttaker, the former Secretary of the Deepartment of Finance and former Governor of the Central ank, as "the greatest financial scandal in the hisstory of the state". £100 million of taxxPIl;yers motley was poured down the dfain on the eradication of this disease without any reduction at all in the inncidence of the disease.
On the Late Late Show on Saturday, January 16, a number of TDs, includding Brendan Griffin of Tipperary South, claimed that bovine TB had been eradicated several years ago. A report undertaken by the EEC Commmission and submitted to the Council of Ministers late last year states: "since 1965 there has been no change in the bovine tuberculosis situation in Ireland". The investigation which was 9~ed out for the EEC Commission discovered that 5, 17~ cattle infected with TB were not discovered during testing carried out by Irish vets during 1980. Random tests carried out by veterinary inspectors for the Departtment of Agriculture during the early 1970s discovered three times the inncidence of bovine TB among cattle than did the veterinary practitioners.
The EEC report concludes: "there has been no acceleration in the Irish bovine tuberculosis eradication proogramme. It should not be concluded that this lack of progress is due to any lack of finance (£11 million was spent in 198~) but rather to the fundamenntal fact that two thirds of the reactors are being missed at the annual round of testing. "
CURRENT - Transport (82m)
CIE accounts for £65m of this expennditure and it is dealt with in the reeview of capital spending.
CURRENT - Justice, Prisons, Guards (172m)
The Gardai have benefitted from the increased need for security in the 70's through increased numbers, better equipment, and more recently, very substantial hikes in pay levels. Such bounty cannot be repeated in the 80's. Better deployment of existing resourrces could be achieved through the use of the O.R. section of the Department of Public Service. Also a lessening of the anti-education bias of senior Garrdai would speed the growth of proofessionalism e.g. graduate cadetships, Fraud and legal training.
The prison service costs £33 .6m and employs 1,341 staff to care for its 1,315 prisoners. This is a staff-client ratio similar to that which used prevail on trans-Atlantic liners. At a cost of almost £26,000 per prisoner per year, the investigation of other forms of correction is not so much a liberal choice as a financial imperative.
CURRENT - Defence and Army (178m)
While a review of public expenditure cannot evaluate the "value for money" of the defence forces, yet total deefence spending is now 1 V2% of GNP in Ireland. This is low by international standards. However, low levels of spending on defence after World War II was one of the factors that allowed countries such as Japan to allocate so much of their GNP to investment to achieve rapid economic growth. Japan still spends only 0.5% of its GNP on defence.
CURRENT - Labour (67m)
By far the biggest vote within Labour is AnCo. Its total budget in 1981 is £30.5m, two thirds of the total vote. Again a broad inter-agency comparison can be made between AnCo and I.D.A.
Even making allowance for the fact that IDA is involved in a capital-intensive process and AnCo is in a laboursive process there seems little justificaation for AnCo to have over twice the number of employees as I.D.A. and to spend half as much more money.
AnCo deliberately maintains an indusstrial work environment (i.e. 40 hour week) rather than a teaching environnment. However, its student-staff ratio of 9:1 is one that hard pressed primary school teachers would dearly like to share.
The reason that AnCo's activities grew so much in the 70's is that it had a 'free' source of income with its access to the European Social Fund. Certainly AnCo ought to be capable of dischargging its functions with half the present staff and a normal level of productivity. In particular its head office staff is too large, and seems to training managers who come in contact with it, to be more concerned with implementing at a distance complicated control procedures than evaluating on the ground the effecctiveness of its courses.
AnCo I.D.A.
Inputs 1981
No. of Employees 1,800 700
Running Expenses £m. 21.0 14.6
Capital grant £m. 9.5 195.8
Output 1980 16,000 People trained
35,300 job approvals