Economics:  The modern state redistributes billions in subsidies. Many subsidies are to help the less well-off, to incentivise chosen industries, to boost education, etc, writes Paul Sweeney

However, many go to unintended areas and redistribute income upwards. Subsidies which were planned to be small and temporary expand and end up costing tens of millions.

Today, among many others, subsides to Irish farmers equal the net income of all farmers. Some €100 million goes in subsidies to fee-paying schools; there is a subsidy of €40 for every racegoer to the bloodstock industry.

Tens of thousands of highly-educated public servants are employed in subsidising private industry in many State agencies. This is public policy, is widely supported and is worthwhile.

However, periodically, subsidies must be reviewed.

In 2005, several major studies were undertaken and most property-based schemes were ended. In 1982, I challenged the abuse of Section 84 lending, where industry was getting cheap loans from banks but the banks were paying no tax (the nominal rate was 50 per cent). There was a fierce defence of the abuse of what had been intended as an anti-avoidance law, but the government was forced to introduce the bank levy and, in the end, S84 was abolished. It had cost €996 million by 1991.

When the Ictu questioned the expansion of the Business Expansion Scheme (BES) recently, we were similarly attacked. Several articles in this newspaper said that a survey from the Department of Finance of the beneficiaries proved that it was a success because many small businesses had benefited from it.

With this logic, throwing gold coins on the street benefits those who pick them up, but it's not a good way to spend money.

All attacks on us were from the beneficiaries, their representatives or right-wing commentators.

Suddenly, neo-liberals are against free markets, in favour of State aid, of distorting competition and increased State spending!

A debate was generated but at a low level. Most commentators were delighted with the flawed survey. None appeared to understand that it did not prove that the BES was worthwhile, and none has sought an economic evaluation of it.

The uncritical support of the BES by the representative of the lobbyist group for tax planners, the Irish Taxation Institute, stems from the tens of millions their members will gain as middlemen.

Investors are the second group of middlemen who also gain tax euros.

A better scheme would eliminate both sets of middlemen and pass the money directly to small businesses.

Congress supports increased subsidies for small businesses, but not the BES, which is ineffective.

A close reading of the survey tells us that the Department of Finance does not know what is going on around the BES. It did not monitor the recipients of our euros for the past 23 years. Under the Finance Bill, all BES firms will now be monitored, thanks to an initiative of the Ictu.

A tiny fraction of small businesses - around 0.4 per cent - has been assisted under the BES scheme since 1984. What is so special about these firms? Are they innovative? Do they have great potential to grow, to export? Do they pay high wages and are they in leading sectors?

Some undoubtedly are, but many are coffee shops, mushroom growers, yachting marinas, coach hirers, yacht charterers, etc, paying the minimum wage and displacing other small businesses which do not receive the subsidy.

In our view, most small businesses could do with greater and more innovative assistance than under this poorly-conceived scheme.

The Government's own advisers recommended that no scheme proceed without full evaluation and, in any case, for no longer than three years. This extension is for seven years, without full evaluation.

The Department of Finance survey tells us no names of any firms subsidised by our tax euros, nor the backers who benefited.

IDA Ireland lists the names of all firms who get tax euros. The BES, by comparison, is shrouded in secrecy. There is little information on the number of jobs created, skill content, nor any information on any consequent jobs lost in competing firms in the locality or elsewhere. Job displacement is not addressed.

The department admits that, for 60 per cent of firms replying, there was no job expansion. Clearly a high proportion of the subsidy appears to be used to retain existing jobs. There is no information on the number of firms which would not survive in the marketplace without the subsidy.

There has been no supporting economic analysis of how the vast majority of small firms that did not avail of the BES have fared in comparison to BES-subsidised firms, nor on the firms which did and failed.

There is no information on what proportion of taxpayers' euros have been used to purchase existing firms.

The lack of information in the survey on each BES scheme which is asset-backed is surprising. This is very important as many potentially innovative firms, which are usually not asset-backed, find it extremely difficult to raise finance under the BES.

The most remarkable statistic of those BES firms which responded to the survey is that an extraordinary 69 per cent of investors were "very satisfied" or "satisfied" with the performance of their investment in the BES-subsidised company.

Does this mean BES investors have been getting similar rates of return to those from the property boom? If the BES is not a risky investment, should it be subsidised?

Marc Coleman devoted this column (January 19th) to a strong criticism of our opposition to the extension and expansion of the BES, because "the scheme is a good one". Yet he is critical of the survey methodology and agrees that it should be subject to full economic evaluation before extension. He then focuses, not on the scheme, but on Ictu's credentials for opposing it. He infers the BES money is better spent on small businesses than on the alternative of public sector pay and "waste" because Ictu's "membership is overwhelmingly public sector".

First, the majority of our membership is in the private sector.

Secondly, as all of our members consume public sector services and are taxpayers, we support increased productivity in all areas of the public sector.

He then lashes us for being strenuously against competition in buses, electricity and aviation.

We fully support competition, but in contestable markets. Ictu does not "begrudge €178 million to small businesses" but supports substantial increases for schemes which assist innovative and entrepreneurial small businesses when they are effective and targeted (which the BES is not) and monitored.

Paul Sweeney is economic advisor to the Irish Congress of Trade Unions