The revised Estimates for Public Services 2011 were published at the end of July. Notwithstanding all the media coverage of Ireland’s economic conditions and the challenges confronting the new Government, it is interesting that few if any have picked up on any of the key messages coming through from the revised estimates. These are, of course, important given the need to bring the expenditure growth of the past decade under control. A simple reading suggests the depth of the challenge confronting the Government in bringing this particular herd of wild horses under control!
The broad commitment under the IMF/ECB/EC package is to bring overall government borrowing down to around 3% of GDP by 2015. The budgetary profile suggests that this will be achieved in broad terms by an increased tax take, underpinned by 3% annual growth in GDP over the life of the package, along with an increase in some taxes and the introduction of new taxes and regulatory charges such as property and water charges. The real key however will be the bringing of public expenditure under control and this challenge, as most now recognise, is considerable. The government is looking to reduce spending by some €10 billion on an annual basis by 2015.
The Revised Estimates for Public Services 2011 therefore provide us with an overview of what will be a rolling series of such estimates bringing spending down to more sustainable levels. As such there would be an expectation that much of the heavy lifting, as envisaged in the Programme for Government, would be found within the detail of the revised estimates. So is this the case and are there aspects of the estimates which might suggest that both political and public service management has its work cut out for them?
In general, the estimates reflect an almost 5% reduction in gross spending between 2010 and 2011. The load is primarily on the capital spending with a reduction of over 25%. Current spending is envisaged to drop by just slightly less than 5%. In net terms however, total spending is only expected to drop by less than 1%, while spending on current services will actually increase by 3%! In fairness however, this needs to be considered against the backdrop of adjustments to the way current net spending is now calculated due to the introduction of the universal service charge. So examination of gross estimates for the moment does provide the reviewer with a more rigorous set of figures with which to consider the challenges confronting the Government.
The figures become all the more interesting when examined on a department by department basis. The breakup of the Department of Community, Rural and Gaeltacht Affairs is reflected in a reduction of spending from over €277 million on current spending to almost €99 million, while its capital spend has dropped from over €107 million to €14 million. Much of this reduction is however accounted for by the integration of the “Community” element of that Department into the re-configured Department of the Environment, Community and Local Government. Presumably this accounts for much, if not all of the increase in the Environment Department’s current spending of 2.3%. There is a major reduction in capital spending by Environment, some 27.3% ,reflecting a huge reduction on spending for housing and water/waste water investment. Health will see a reduction of almost 6% in day to day spending while Defence is sustaining a reduction of almost 3%.
The Department of Jobs, Enterprise and Innovation has to make do with just over 5% less than 2010 albeit that it does see an increased spend on capital. Given these reductions it would seem that Education has managed to come through relatively unscathed with an overall reduction of just over 1%. Of course Education would argue, with some justification, that this reduction must be placed in the context of the hugely expanding numbers attending all levels of education. This expansion requires on-going recruitment even with expanding class sizes. Social Protection, surprisingly is pencilled in for a reduction of over 3%. Surprising, given the increased numbers claiming unemployed benefit, the increase in children and pensioners. It does reflect nonetheless, some variations to the expenditures arising from the introduction of the amended benefits since the last budget along with other technical changes.
So broadly speaking across most departments, if not quite all, there is a clear reduction in capital spending and a more limited reduction in day to day spending. Does this mean that the government is achieving what it set out to do within the IMF/ECB/EC Framework? There the jury remains out. Examination of the detail of spending within the individual departments throws up some interesting and at times puzzling data.
Given the advent of a Presidential election this year it is understandable that there would be an increased estimate of slightly over 14%. The Taoiseach’s Department has an increased spend of almost 12%, presumably much of which is accountable by various state visits, referendums etc. The CSO is delivering a new census so again there are no surprises when it comes to an increase of 54% over last year’s current outturn. It does however become more difficult to appreciate why spending by the Comptroller and Auditor General increases by 19% while the Secret Service sees an increase of over 72%. Strangely in an era of downsizing of the public service, the Commission for Public Service Appointments sees an increase of almost 54%?
More interesting when the costs of the civil service itself are examined the overall pay bill reduces by just over 1% while pension costs see an increase of 7%. The net difference between the pay reduction of €214,504,000 and the pension increase of €191,539,000…a net saving of just €22,965,000 is indicative of the challenges for the Government. If sustaining a net reduction in employment generates such limited savings, the Government will be hugely challenged as it seeks further reductions in pay and pension costs. Public service staff numbers are expected to drop by just over 3,000…a net reduction of 1.1%. Pension numbers however increase by over 8,000 suggesting a replacement rate of around 60% so even with the focus on numbers employed, the savings generated are relatively limited. For that reason it is unsurprising to see demands for greater examination of public service pay levels, particularly those of the higher ranks in central government.
The Estimates also throw up some interesting, and slightly concerning data. While significant savings are envisaged in sectors such as local government, health and education the costs of central administration seem to be increasing. A 3% increase of €63 million is provided for. This includes a 14% (c€5million) increase in travel and subsistence and a 27% (c€16 million) increase in “incidental expenses”. These increases along with others do raise questions against the background of other cuts on front line services and presumably must be a cause for concern in the Department of Public Expenditure and Reform.
There are probably very legitimate reasons for these increases but they do demonstrate the scale of the challenge confronting the Ministers for Finance and Public Expenditure and Reform in moving the national finances towards a more sustainable budgetary profile. Even with the many cuts and increases in taxes and charges confronting the wider population, the pressures on public spending, much of which is driven by demographic factors, remains enormous. However, it goes without saying that savings, particularly on administration and pay within the central administration has to be confronted in a manner similar to that currently taking place in local government. Under the Local Government Efficiency Review savings of around 10% are likely to be put in place this coming year, with a focus on management and general administration. This follows an already heavy reduction in numbers employed in local government(c15%) over the past three years. A similar level of reduction in central administration would suggest savings in direct civil service numbers of 5,800 people not including Education, the HSE, the Garda and Defence Forces. Administrative spending reductions similar to local government would achieve savings in the order of €200 million.
Simple when it is written down but far more difficult to achieve in real life! Just ask anyone in local government.
