Saving Ireland from economic bankruptcy is the crisis mission. It has two phases. The first has commenced. It involves raising taxes to bridge a yawning gap between revenue and expenditure. It is the crude desperation measure that governments grasp in order to avoid economic disaster. It is a wise first move in an emergency and signals to the global community that Ireland is no longer in denial and is prepared to take strong measures to save the economy. It also generates some revenue. But while raising taxes may help to balance the public finances it reduces competitiveness, triggers job losses, kills indigenous enterprise and encourages multinationals to close and move operations elsewhere.
Cutting public expenditure and streamlining the public sector is the crucial second phase of the rescue mission. If we get it right it offers a win-win. Sorting the public finances while reducing the bureaucratic burden on the job and wealth creators.
Restoring international competitiveness must be the prime focus in cutting and streamlining the public sector. We have too many public servants and too many public organisations. Since 2000 when Ireland was the fourth most competitive country in the world 86,000 extra public servants have been added with an annual pay bill of over €4 billion. Since then the number of public sector organisations has grown to some 700 and for the past decade the Irish public sector grew at the highest rate in the developed world….and so has Irish public sector pay. The once-useful social partnership process transformed itself into a damaging mechanism that has fostered a bloated public sector and pay scales that bear no relationship to those of our competitors. That our prime minister is the highest paid in the EU has been singled out for special attention but the same can be said for university presidents, doctors, nurses, school teachers and public servants in general. The extents to which pay levels in Ireland have exceeded the norms are quite staggering. Irish teachers are paid 54% more than those in Finland. Yet Finland’s school system is ranked amongst the top three in the world while Ireland’s is not amongst the top 20. Finland is one of the world’s most competitive countries. The pay gap with France is even greater: French school teachers receive 75% less take-home pay than their Irish counterparts.[1] Similar anomalies exist right across the public sector.
When there were few unemployed and Government was under pressure from the opposition to explain why it was running budget surpluses social welfare payment grew in extraordinary ways so that today huge anomalies exist. Most obvious is the difference at either side of the Border in jobseeker’s allowance. In Northern Ireland a single 20 year old gets €54 in the Republic €204. A married couple gets €107 in the North and €339 in the South. Ireland’s welfare payments exceed the average weekly wage in almost all of the new EU accession states. Many who came to Ireland during the boom and are now unemployed are faced with the prospect of a drop in income if they decide to abandon welfare in Ireland and return home to a job.
The major interstate welfare disparities result in welfare fraud and a further burden on the Irish tax payer and struggling enterprise. A border town such as Ballyconnell, Co Cavan had a population of 747 according to the 2006 census, yet in March this year it had 1044 people receiving welfare assistance. The Public Accounts Committee was informed in 2006 that 10% of PPS numbers were fraudulently obtained. Payments to lone parents represent the area of greatest social welfare fraud. Of those claiming disability benefit for lower back pain a pilot study by the department of Social and Family Affairs found that 90 percent were ineligible[2]. Clearly there are huge savings to be found in the annual €23 billion welfare budget by eliminating fraud. The great administrative challenge is to ruthlessly identify and deny fraudulent claims so that available funding can be directed to the many who have recently lost their jobs and are in great distress and real need.
With the annual rate of deflation at 5.4%[3] cutting welfare payments by 5% will achieve a saving of over €1 billion a year while retaining the existing high welfare levels. But until moves are made to bring welfare payments into line with those in the UK fraud will be a costly burden imposed on an already bloated welfare system.
The Bord Snip recommendations to radically reduce the number of public sector organisations will be less contentious than those related to welfare. Most are aware of the flab within the public sector and will welcome the proposals to merge or eliminate various organisations. Local Authority structures were created at the time when it was desirable to be able to travel to the county town by horse and return in the same day. We no longer need so many local authorities. Single authorities of many European cities administer populations the size of the whole of Ireland. County athletic rivalry has indirectly served to preserve small local authorities that should have been merged into larger ones many decades ago. While fully supporting the merger of county councils to create more effective administrative unity there is a strong case to ensure that in the knowledge economy cities are seen as the drivers of whole regions. Strong vibrant cities are crucial to attracting and retaining investment in the regions. Any reorganisation of local authority boundaries should provide the regional cities with unambiguous control for planning and managing the whole urban area together with an adjoining peripheral zone in which future urban growth can be planned.
Shannon Development has played a most exceptional role over the years in pioneering programmes that helped lay the foundation for the Celtic Tiger while providing development leadership in many countries worldwide. Unfortunately in recent years ambiguity of mission, potential overlap with the other development organisations has been an impediment to the development of the Shannon region which has failed to keep pace with adjoining regions. It is time now to catch up on a lost decade.
Dan O’Brien, the senior editor at the Economist Intelligence Unit in London says Ireland has a 15% chance of falling into bankruptcy.[4] If Ireland fails to implement the recommendations of the Bord Snip Nua report bankruptcy becomes inevitable and we fall into the hands of the IMF and according to Dr Alan Ahearne of NUI Galway public sector pay cuts of between 30 and 50% will be imposed[5] combined with the other harsh measures and the social trauma now being experienced in Iceland
Public sector leadership will now come under unprecedented pressure and threats from vested interests, some of whom will stoop to the lowest forms of intimidation to retain bloated structures, pay levels and privilege. The Government has now an opportunity to redeem itself by demonstrating that it has the courage and determination to give the leadership required at a time of the greatest national emergency faced since the foundation of the State. At times of great national crisis some countries are fortunate that leadership qualities emerge that give confidence and some optimism. We need this now and we should offer our uninhibited support and encouragement.
[1] SBP. 26 Apr 2009.
[2] O’Brien, Carl. Irish Times. 18 May 2009.
[3] Slattery, Laura. Irish Times. 10 July 2009
[4] McCaffrey, Una. Irish Times. 16 May 2009.
[5] Holland, Kitty. Irish Times. 23 Feb 2009