Many of the measures in the report will take months, if not years, to bring about, writes JOHN McMANUS
CONTEXT IS everything. And the context for the list of cuts in public service numbers and programmes announced yesterday is the wider effort to first stabilise and then restore the national finances.
The goal is reach a position in 2013 where the exchequer deficit – the amount it borrows each year – is less than 3 per cent of gross domestic product (GDP) – the value in euro of all the goods and services produced by the economy.
There are several reasons for doing this. This first is that is the target set under the terms of our membership of the single currency. It is also the level that is generally considered prudent and sustainable.
The final reason is that the economic incompetence we have demonstrated in the last three years means we must pay more to borrow than other countries. There is also a limit to how much money the international debt markets will lend us. No one really knows what it is, but neither is anyone of a mind to find out.
GDP and deficits may seem like abstract concepts, but they do give us some numbers by which to measure progress towards recovery. When the Government stared into the abyss last summer, it was looking at a deficit for this year of something in the region of 16 per cent of GDP or over €27 billion.
The various measures announced since then, starting with last summer’s cutbacks and including the two subsequent budgets, have trimmed this figure to somewhere in the region of 11 per cent or €20.3 billion.
The measures announced yesterday, will form part of the campaign to get this figure back towards the low single digits.
The other components of the plan will be further cuts, further tax increases, the restructuring of the banking sector and, hopefully, some sort of economic uplift as the international economy recovers.
In McCarthy’s view we are about a quarter of the way through this process. Yesterday, he was understandably reluctant to speculate as to how much further down the road the reforms and cuts his group has proposed will take us. However, it is Government policy – under the fiscal consolidation plan agreed with Brussels to get the deficit back within agreed limits – that current expenditure will be cut by €3 billion between 2010 and 2011. Capital spending will be cut by €1.75 billion over the same period.
The bulk of these cuts will presumably come from the measures outlined in yesterday’s report. McCarthy was at some pains yesterday to point out that his group had not focused on what might be called “quick wins” or “low-hanging fruit” which will produce big savings this year.
Many of the measures in the report will take months, if not years, to bring about, in particular the structural reforms. In many ways, when the issue of making savings in Government spending is looked at in isolation, McCarthy’s job was the easiest part. Making the decisions about which ones to implement and following through is the bigger part of the job.
The simplest, but amongst the politically most fraught, measures are the cuts in social welfare benefits and the children’s allowances, which would produce savings of around €1.2 billion.
The other big saving comes through the shedding of 17,300 public service jobs. For some reason the report shies away from giving a global figure for the amount that this would save, instead breaking it down on a department-by-department basis.
The overall figure for staff savings is about €800 million, with the two big areas being education, where almost 7,000 jobs would go at a saving of €421 million and health, where savings of €300 million are identified with the loss of over 6,000 jobs. It is – in fairness to the report’s authors – difficult to separate the job cuts and savings from the other recommendations, as a great number of them involve changes in work practices or the disappearances of jobs and whole agencies, if not necessarily redundancies.
But, at the same time, it is hard not to escape the conclusion that there is more to the sensitive treatment of the issue of job cuts in the report than meets the eye.
The lack of any global savings figure and the emphasising that there will not be any on compulsory redundancies, is in contrast to the very stark smash and grab raid on social welfare and children’s allowances envisioned in the report.
The suspicion must be that these are the measures destined to produce the savings required in this December’s budget.
The much more protracted job of getting the public sector unions to agree to the massive structural change – which the McCarthy group says will deliver billions in savings – in exchange for a relatively small number of non-compulsory redundancies, will be left to next year.