The idea that reducing the public service will solve our public finance problem is a delusion, writes Garret Fitzgerald
THE COST of public service pay is now central to the Government’s proposal to cut current public spending by a further €2 billion within the current year. There are only two ways in which such a cut can be achieved within the year: either by reducing public service numbers, or by some form of reduction in pay levels.
Let me deal first with the proposal to cut the size of the public service. There are, of course, parts of the public service where cuts in staff numbers could be effected without serious detriment to public or social services.
First of all, during the post-Celtic Tiger years of the current decade – when demand was artificially maintained by inflationary credit creation rather than by solid export growth – many jobs were created in innumerable new quangos when it would have been better to have added any genuinely necessary additional posts of this kind to kindred bodies already in existence.
But the area where large-scale staff savings can most readily be effected is clearly within the Health Service Executive. This new body has combined nine regional health boards, all of which had many highly-paid administrators. Its creation thus offered an opportunity for large-scale cost-cutting. But that golden opportunity to cut costs was missed when the Government caved in to union pressure to retain all these superfluous administrators.
Some time ago a Minister revealed that, instead of drastically culling its excess of administrative staff, since its establishment the HSE actually chose to employ 1,900 additional administrators!
It has now been proposed by the Department of Finance that the HSE administrative staff be cut belatedly. There are to be voluntary redundancies designed to eliminate almost 2,000 administrative jobs this year, with a further 2,000 voluntary redundancies to be effected next year within the wider health service – presumably without prejudice to already hard-pressed medical services. These measures should cut spending by several hundred million euro.
However, there should be no illusion that, outside the health service, really large savings can be made by cutting the numbers of public servants. Our Civil Service, which employs only one in eight of all public servants, is small and compact. Even if its numbers were to be reduced by 10 per cent – which I would not judge to be feasible – this would save only about a further €200 million in a future year and would make no positive contribution this year because initial redundancy payments would add to rather than subtract from the 2009 pay bill. The remaining seven-eighths of public servants, outside the Civil Service, are engaged in other activities – two-thirds of them in education or health.
As for education, there are too few teachers at every level, most especially in the primary sector.
The strength of our very small Defence Forces of 11,000 was reduced by one-fifth between 1995 and 2005, and the Government seems already to have decided to cut recruitment to the Garda Síochána.
The idea that our public finance problem could be solved by reducing the size of the public service, which has been promoted by some populist media commentators, is thus a total delusion. At best, we might hope in this way to save in a future year some €200-300 million, representing only 2-3 per cent of the €16-17 billion which the Government has told the EU Commission it proposes to find between spending cuts and tax increases within the next five years.
The Government’s proposal for the current year is to find an additional €2 billion of current spending cuts on top of the similar amount raised in the October Budget. Given the confidence problem that the Government faces abroad – far more serious for the country than its loss of domestic political support – we simply cannot afford to fail to deliver the bulk of this commitment.
Such a failure would prejudice our capacity to borrow the huge sums now needed so that our State can continue to survive as a viable entity. In this situation the Government is no longer a free agent. It is constrained by external pressures which, in the interest of national survival, it simply cannot afford to ignore. If the Government were now to fail to deliver substantially on this commitment it would then have to consider cuts of a similar magnitude in other spending – which in practice would inevitably have to include social welfare payments.
Tribute should be paid to the constructive way in which many trade union leaders have sought to address this crisis. However, I am not sure that the union leadership has yet grasped the reality that the Government now has no choice but to find major pay savings this year, whether with their support, or at any rate tolerance, or even, in the worst case, against their opposition.
It is also unclear whether the Opposition parties have grasped this reality. Enda Kenny proposed last Thursday to limit this public service pay cut to a “soft” €500 million reduction this year. His reference to the Government merely “wanting” to front-load cutbacks suggests that there may not yet be sufficient public and political understanding of the impact upon our international credibility and credit-worthiness of a failure to deliver substantially on the Government’s proposed pay cuts.
In that connection I have to say that this substantial additional spending cut was the least to which the Government could credibly have committed itself this year in order to hold the confidence of the EU Commission and the financial markets in our capacity to manage this crisis.
However, if this issue can be resolved successfully, there will then be time to address our longer-term problem in a more considered way. In that connection the encouraging point has been made that, if a global recovery takes place after 2010, the €16-17 million gap which the Government has identified as needing to be filled by 2013 may be substantially reduced, because of the boost that this would give to our domestic economy.
More widespread pay reductions are currently being negotiated quietly within the private sector, and when matched in the public sector these could offer a real prospect of some recovery in the competitiveness that we lost during the McCreevy years.
However, because overall tax receipts, after the evaporation of what were largely temporary receipts from asset-related taxes, are now grossly inadequate, there is a clear need to restore the level of tax revenue. On this matter politicians seem still to be largely in denial, but by the time the next budget is presented at the end of the year they will have had to face this reality.