We should decide to stop borrowing from the future by failing to invest adequately in health and education, writes Fintan O'Toole.
WE DO not have a national debt. We have three national debts. The first is the one that economists and analysts like to talk about: the money the State borrows to make up the gap between its income and its expenditure. The second is the money the present borrows from the future: the money we don't spend now, knowing that it will end up costing our society much more in the long run. The third is the debt society incurs when it takes from some children their entitlement to an equal opportunity in life.
The first of these debts is the one that dominates public debate, but it is, in fact, the least important. Generals always fight the last war, and there is a real danger at the moment that we end up combating the last big recession of the late 1980s. Back then, the State was obviously borrowing way too much money because the exchequer had been decimated by poor controls on spending and by rampant, organised tax evasion. The impulse now is to slash and burn in the way the Fianna Fáil government did in 1987 and 1988 and hope that the suffering will be good for us.
This would be immensely stupid. We don't have a fiscal crisis. The general government budget has recorded an average surplus of 1.6 per cent of GDP over the past 10 years. In 1987, the ratio of public debt to GNP was 151 per cent.
In 2007, it was less than 24 per cent. At the end of last year, the national debt was the equivalent of just three months' tax revenues. In 1990, three months' revenue was enough only to pay the interest on the debt.
But even this understates the relative rosiness of the picture: when the assets of the National Pension Reserve Fund are taken into account, general government debt is just 14 per cent of GDP. To put this in context, the limit on government debt allowable in the euro zone is 60 per cent of GDP.
No one would suggest that we go mad and return to 1980s levels of public debt. But equally, we need to remember that this conventional notion of the national debt is the least of our worries right now. We don't really have a problem with modest increases in the national debt provided the money is well spent.
Which brings us to the two other kinds of national debt, the ones we really do need to be talking about. We need to stop borrowing from the futures of so many of our children. And we need to remember that we can run up debts, not just by spending money, but by refusing to spend money.
In 2005, the National Economic and Social Forum did a cost-benefit analysis which estimated that every €1 spent now on things like early childhood education yields a return of over €7 later on. The return is both positive (more productive workers who are better able to compete in the global economy) and negative (money the State will not have to spend in the future on crime, unemployment benefit and the health consequences of poverty). By failing to spend enough on primary education, for example, we are effectively loading costs on to the next generation and denying them real opportunities. Leaving aside all the arguments about social justice and equality, this is economic folly.
Or think of the health system. We know that cutbacks in frontline services don't save money; they simply impose larger deferred costs on the system in the future.
If you take away the home helps that work to keep elderly people in their own houses (where they are happier as well as healthier), many of those same people will end up in acute hospitals, where their care will cost far more than you've saved.
If you don't create the specialised stroke units that have been shown to prevent long-term disabilities for large numbers of patients, you end up having to care for those people for decades.
If you don't build step-down facilities, you end up paying to keep people in acute hospitals. If you don't invest in community preventative medicine and physical education in schools, you end up paying the huge costs of preventable conditions.
All you are really doing is dodging the current responsibility and posting the bill to future taxpayers.
This, surely, is a time for a dose of old-fashioned Keynesianism. The slump in the building trade, for example, bears no relation to real social needs. We have a quarter of a million people in Ireland who are currently inadequately housed.
I grew up in a house that was built by the State in the 1940s when Ireland was in a massive slump and the world was recovering from an apocalyptic war. If we could afford to build so many local authority houses back then, why can't we do it now? Why, instead of having children taught in corridors, don't we embark on the biggest school building programme this State has ever seen?
Why, for once, don't we decide not to borrow from the future but to leave its citizens in our debt.