Thursday, 16 July 2009

Bord Snip Nua Report: Some thoughts

Slí Eile: An Bord Snip Nua, or the Special Group on Public Service Numbers and Expenditure Programmes (hereafter the ‘Special Group’) to give it its full title, will dominate public attention for some time. Five months before a budget, two months before Lisbon II, three weeks before the Dublin horse show, four weeks before the Galway races and a week after the Dáil rose. Good timing.


So, it is proposed to make further cuts in Overseas Aid because it ‘cannot be afforded’. That says it all. The Swedish Prime Minister is reported, today, as saying ‘Our citizens will not accept the repeated use of taxpayers’ money to save financial institutions that have acted irresponsibly’.

Say, what is the final figure on the Anglo-Irish bail-out going to look like - €7bn, €11bn, more? And to what end? So much for moral hazard. In the meantime, social welfare recipients can expect mounting political pressure to cut their benefits by 5% in the run up to the December budget (that is if we do not have a budget or an election sooner). Easy to call for a 5% cut in welfare benefits when one is on 100K, 200K, more? per annum. After you, fellow citizens of the Special Group. Let's spell it out. The Special Group was as follows:

• Colm McCarthy, UCD economist (chair);
• Donal McNally, Second Secretary General, Department of Finance;
• Pat McLoughlin, CEO of Irish Payment Services Organisation;
• Maurice O’Connell, former Governor of the Central Bank of Ireland;
• William Slattery, Executive VP, European Offshore Domiciles, State Street Corporation; and
• Mary Walsh, former Partner, PricewaterhouseCoopers (and member of the Commission on Taxation – by the way)

The problem with an exercise such as Bord Snip Nua is that its terms of reference are set in advance to exclude particular issues, including the scandalously low level of tax paid by particular groups in Irish society who avail of various tax breaks and reliefs. The accent of the exercise is on spending. This is sheer ideology.

An interesting feature of the Report acknowledged up front is the following:
"The Group also received valuable submissions from members of the public".

Was there an invitation to invite submissions? Did this include our elected representatives on local authorities and the Oireachtas?

It would be interesting to undertake a values analysis of the Special Group –
• What priorities and competing values were discussed?
• Where did the Special Group stand on the rationale for public versus private provision?
• What is an acceptable level of poverty, and what responsibilities arise for Government, families and other actors?
• And the old chestnut – what is the optimum balance – Berlin or Boston or something in between?

Some initial points:

Total Government spending (current and capital) is projected to rise to over 50% of GNP (the measure of income preferred over GDP by the Special Group). This, it is claimed, is unsustainable. The reason why spending shot up in 2008 and 2009 reflects a rising unemployment payment bill, alongside a collapse in national income. This is typical in a cycle where automatic stabilizers are built in as a result of falling tax receipts and rising welfare payments as economic activity declines.

It is important to note that the Special Group went well beyond the position announced in the Supplementary Budget of April this year. The latter envisaged a cut of €1.5bn in 2010, followed by another cut of €1.5bn in 2011 (in addition to tax hikes, bringing the total adjustment to €9.4bn in just two years 2010-11). The Special Group have gone for cuts of over €5bn, where ‘most but not all of the savings identified would be potentially deliverable in 2010’ (p4). The total hit – if implemented in one year – would be around 9.3% of total spending. The main targets would be reductions in staffing in the health and education sectors, and reductions in payments to those on social welfare. Inevitably, many public service programmes will be curtailed or discontinued - as is already happening.

Although the Special Group has no remit in regard to levels of public sector pay, it clearly indicated that further cuts in take-home pay are on the cards. Also recommended is a Benchmarking (downwards) exercise. Presumably this will not extend to the highly paid in the private and financial sectors.

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