Thursday, 19 May 2016

Where ambition meets reality: new Government spending plans do not add up

Marie Sherlock: As we have learned the hard way over the past decade, there is one hell of a gap between the lofty ambition of rescuing and building the economy and the hard task of making it happen and finding the resources to do so.

This Government sets a very high test upon which to judge its success or failure - “our approach to governing will be clearly seen in how we address the issue of housing and homelessness” - their objective is to end homelessness and ensure 25,000 new homes are brought in the housing sector every year.

So what can we really expect? In the area of housing, there are broad commitments to deliver 100,000 units over the next five years through a raft of measures. These include: establish a new model of affordable cost rental housing for low income groups; performance link exchequer funding for local authorities; incentivise greater use of derelict sites; and introduce a help to build or buy scheme and a number of supports to builders through a reduction on the reduced VAT rate and increased rebates on development contributions.

Other than a commitment to an exchequer funded €100m local infrastructure fund, little other exchequer funding appears to be committed to help with house building with an expectation that the Nama surplus post 2018 and the credit union reserve fund will fill the gap. A rough estimate of just under €400m for these housing measures won’t make a major dent in the Government’s €3.175bn pot but neither is it likely to deliver the three-fold annual increase to meet the target of 100,000 additional houses.

In Children and Youth affairs, there is a commitment to extend parental leave to a year, better fund child poverty programmes, reduce classroom sizes and introduce the long awaited subsidized childcare.

Based on the Department of Children’s own costings, the childcare and extended parental leave could cost just under €400m per year depending on the criteria of the schemes. Add in reduced classroom sizes and the increased cost goes to over €540m. Add in another €60m for an additional 1,500 gardaĆ­ to be trained on top of existing numbers plus investment in CCTV and this brings the total housing, children and garda bill to over €1bn.

In the area of social protection, the new Government has promised above inflation increases for the State pension, increases in disability benefit, carers allowance, blind pension and the rural social scheme while also committing to introducing a new Working Family Benefit. If we assume that  no one already getting family income supplement loses out (and that is a very big assumption!), then the combined value of all these changes is somewhere north of €1.1bn. A €5 increase in the State pension will cost €788m alone. Our €3.175bn pot is now looking a lot smaller with 70% accounted for by social welfare, housing, children and gardaĆ­.

This just leaves just over €1bn to cover the many plans this new Government has for health, mental health- full implementation of the decade old “Vision for Change”, agriculture, the rural economy, the €100m for the Wild Atlantic Way, the education system, transport and climate change, not to mention a new public sector pay deal that has to be in place before September 2018.

During the General election, most parties recognised that the Irish health system would require between €2bn to €3bn to ensure decent timely healthcare over the next 5 years.

Already the health system will likely require an additional €600m this year and it is not clear where the additional resources will come from to shorten waiting list times, expand ambulance and first responder services increase funding for fair deal units and recruit more nurses.

Huge changes and cost efficiencies are now promised arising from the disbandment of the HSE and the establishment of the hospital trusts- the history of major changes amongst health systems across the world suggests that money has to be spent before it can be saved.

Furthermore, commitments to allow individual hospitals establish their own recruitment procedures implies a move towards individualized wage setting, something espoused by the outgoing Minister of Health some months ago. If the recruitment and budgetary crises in Irish hospitals was bad before this, it will almost certainly worsen as hospitals compete on consultant pay.

The key to ultimately resolving the bottleneck that is the Irish hospital system lies in the development of fully functioning primary care centres that treats patients in a much more timely, cost effective manner.  Commitments to a fully functioning primary care system ring hollow as free GP will now be only be extended to the under 18’s, while expansion of services in primary care centres will depend on the use of tax reliefs and other State incentives to private investors.

This strategy goes to the heart of so much of what has been committed to by this Government- laudable spending plans, but someone else has to pay for it. The push for private investment is clear not only in primary care, but in the plans for infrastructure and housing. There is a clear lesson from the past that when the delivery of public policy is outsourced to developers, investors and the private sector, the costs to the exchequer can be quite large and the benefits to the taxpayer and general population much reduced. So far, it doesn’t look like the €3.175bn will go very far in covering all of the Government’s plan. The sugar tax and other excise hikes should be a small help but we’ll await and see.

The Government plans to spend just €6.75bn in additional public services over the next five years. €3.5m of this is already factored into the budgetary arithmetic to cover demographics etc which leaves €3.175bn to very thinly spread across the very many policy commitments.

There is a general consensus that Health alone requires an additional €2bn-3bn over the next 5 years and just €500m is committed to education and childcare- an indication that working families will see little or no childcare support over future years if funding for it is to be found in this pot alongside smaller class sizes, additional education supports etc.

Finally, the State has over €10.1bn in fiscal space available to it over the next five years - that the incoming Government is planning to spend less than is what is available for services and pay speaks volumes in itself.

Marie Sherlock is a researcher with SIPTU. This blog is based on an article in current issue of Liberty, SIPTU's monthly newspaper.

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