To improve the health system in the short-term, the Government must find new sources of revenue, argues Cliff Taylor, Economics Editor.
Amid all the talk of the biggest health system shake-up in 30 years, the Government is keeping quiet about one thing. After years of pumping extra billions into the service, it has now run out of extra cash to spend.
Reforming the health system at a time when resources are flush would be one thing. Trying to reform it when the money is tight will be quite another.
This autumn Government ministers will start to negotiate in earnest next year's spending plans. The Department of Health has already set down a marker, saying it needs €900 million - or close to 10 per cent - extra just to maintain the existing level of services.
Pay is the main pressure on health spending. Benchmarking pay increases - which are starting to be phased in this year - will cost the Health Budget some €300 million next year. While they are due to lead to extra productivity, this has still to be negotiated. And normal pay increases under the new programme will also be due.
If the Government is to grant anything like the kind of increase in funds the Department of Health is seeking, its choices are stark - it will either have to increase taxes or other charges, or cut spending heavily in other areas.
Pressed on RTÉ's Prime Time this week about whether or not the Government would consider higher taxes to pay for a better health service, Taoiseach Bertie Ahern, finally conceded that "if necessary" this could be done. However, he said that first the Government would have to be sure of getting value for the money it was spending. Income tax payers - who are levied about €6,800 a year on average to pay for the health service - will agree.
The difficulty for the Government is that structural reforms will only yield a pay-off over a period of years. Better value for money does not come overnight (unless you can find a Spaniard to tell you how to build a Metro for a few billion less). The Brennan report - published along with the reform plan - was highly critical of financial management in the health service, but said that improving this would have little impact, "unless there is fundamental reform in how the system is organised and managed". And structural reforms take time.
In the meantime, the overall budgetary context for the health debate is grim. Economic growth is slowing, taking a heavy toll on tax revenue. Public pay increases under the new national agreement and the benchmarking deal will cost over €1 billion extra, which will more than use up any spare cash.
With the pay component of spending rising so rapidly, the Government will be under pressure to hold down all other areas of spending.
This leads to problems in delivering public services. We could have better paid teachers still working in crumbling schoolrooms. Or nurses getting paid more for working in hospitals with fewer beds.
Nowhere will this dilemma be more acute than in health, where pay accounts for more than two-thirds of total current spending. If the Government is strict about its policy of capping public sector numbers, there will be no extra nurses, doctors or other healthcare professionals to provide additional services next year. Or if there are, there will have to be cutbacks elsewhere to compensate. And there will be little spare money for the non-pay areas of health spending, also vital to patient welfare.
Ireland now spends about the same percentage of national output on health as most of our EU partners. Over time this should mean a good quality service - and this is what the Government's reforms aim to achieve. The difficulty is that we have only just caught up with EU spending levels after years of spending less than the average. And the reforms will take some years to fully deliver.
The "solution" of a full efficient service is thus some years away. But the problem for the Government is immediate - how to stop a further deterioration in services to the public as the reforms are carried through. For years, soaring growth and tax revenue meant it could have it both ways - cutting taxes and spending more on health and other services. Now weaker revenues mean it must choose.
To improve public services such as health in the short-term, the Government has to find new sources of revenue. It is a dilemma not unique to Ireland - just yesterday, senior UK minister Peter Hain created a storm by calling for higher taxes on the better off to fund improved public services.
Here this debate may yet open the divisions between the low-tax at all costs wing of the Government and those who prefer to inhabit the middle of the road.