Economics: People in business grasp the difference between a balance sheet and a profit and loss account. They have to. Understanding the size of your asset base and liabilities, not to mention your gearing ratio, is essential for making any commitment of resources, writes Marc Coleman Economics Editor.
Up to now, people in politics have been able to avoid using this vocabulary. Last week Pat Rabbitte showed how the bad old days are coming to an end. Explaining his party's spending and taxation policies, he noted that when the National Pensions Reserve Fund was subtracted from the national debt, that debt was just 12.7 per cent of Gross Domestic Product (GDP).
Pressed by his audience - a breakfast gathering of the Association of Chartered Certified Accounts - he qualified his use of this figure, which understates national debt by some 12 per cent of GDP, by saying that Labour in government would not use the NPRF to fund any of its commitments.
But before proceeding I must correct an error. I wrote last week that Rabbitte's proposal to cut the basic rate of income tax was one of Labour's key commitments for government. I have been corrected: it is not.
As outlined on the Labour Party's website, those commitments are all spending measures related to the health services, education, housing and so on, with scarcely a mention of tax cuts or achieving cost savings in the running of the public sector.
Rabbitte's statement is reassuring. In 2002 Ruairí Quinn suggested the NPRF might be used to fund infrastructure development.
Why, with a capital spending level of 5 per cent of GDP and persistent surpluses, was Quinn so afraid of suggesting the alternative of raiding the NPRF: running a deficit of 1-2 per cent? It constitutes a level of borrowing that any sane economist - no matter how conservative - would regard as acceptable.
Whatever the reason, Labour's clarification of its respect for this fund is very welcome. Currently valued at €19 billion, the fund was created in 2000 to ensure that the State's future pension obligations, both to public servants and to others drawing a State pension, could be honoured. A week before Rabbitte's remarks, and from the other side of the Mullingar accord came evidence that, far from being available for other policy commitments, the fund may come nowhere near meeting its obligations.
A meeting of Dublin City Council two weeks ago took a look through the keyhole of the public sector pensions issue. Looks through keyholes don't reveal more than a tiny part of what's behind the door. But the little bit councillors managed to see - the pensions liability of their own local authority - is horrifying.
Compared to the €19 billion saved so far in the NPRF, €2.4 billion is already accounted for. This figure is the present value of the council's total pension liabilities to past and present staff, as estimated by the Department of Finance.
Not only is it worth more than 10 per cent of the NPRF, this amount exceeds the entire Exchequer surplus last year of €2.2 billion. Reacting to the report, Fine Gael councillor Naoise O'Muiri described the figure as proof that social partnership was placing an unfair burden on taxpayers.
Well he might: assuming an interest rate of 4 per cent, the annualised average cost of servicing these liabilities will be €87 million, or one in every €8 of the council's annual budget. If an interest rate of 5.5 per cent is assumed, the total liabilities equal €1.8 billion, representing an annualised average cost of €58 million. But with present yields on Irish Government bonds at around 4 per cent, the more pessimistic number is also the more realistic one.
To grasp the full horror of the story, consider that Dublin City Council is one of only five city councils, five borough councils, 29 county councils and - wait for it - 75 town councils.
With a population of some 1.7 million, Northern Ireland manages to get by with seven local authorities. That we need 17 times this number of authorities for a population just 2½ times greater is incredible. It is also going to be highly costly.
Assuming the pensions liabilities of all councils in Ireland are broadly proportionate to the populations they serve (this would bias downward any estimate of liabilities, because each council has overheads to maintain), then Dublin City Council accounts for around one-eighth of the total local authority pensions liability.
Multiply €2.4 billion by eight and what do you get? Some €19 billion: in plain and horrifying language, our local authorities between them have already gobbled up the entire NPRF. And we haven't even begun to look at the size of pensions for civil servants, healthcare workers, teachers and other public sector workers.
In 2000 the Pensions Commission estimated the cost of meeting public sector pensions at €25 billion. How this figure squares with the figures for Dublin City Council is beyond me.
But Department of Finance sources confirm that the present cost was likely to be far higher due to subsequent national pay agreements and benchmarking pay awards.
The public service pensions liability figure clearly needs a thorough re-examination. As well as being squared with individual studies of particular branches of the public sector, the figure also needs to be tracked nationally on an annual basis.
Why is this not happening? I leave this to O'Muiri to explain: "Politicians who should be standing up for lower-paid and unrepresented private sector workers have folded up their tents in fear of the collective voting bloc of public sector workers past and present."
Couldn't have put it better myself.
