Fintan O’Toole: If we want to change squalid public services we must raise taxes

As we approach a general election, there is a basic story that both the government parties would like to tell. The last seven years have been horrible because we had no money and had to do dreadful things to vulnerable people and basic public services. But now it’s different. We’re not going back to mad spending but with a growing economy we will be able to repair the damage and get public services back up to scratch again. Pretty much everyone is going to be telling a version of this story. The problem is that without major change, it’s not remotely credible. Within the current framework, it is quite certain that public services will be in a bad state for the foreseeable future.

Let's start with a simple example. The Minister for Health Leo Varadkar recently said that the health service, simply to meet current demand, needs an extra €1 billion a year. But, at least for the next three years, €1 billion a year is about the size of the increase that's permitted in all government expenditure under the fiscal rules we've signed up to. And that extra billion in health expenditure is only to meet current demand – it doesn't take account of the reality that demand will grow.

Grossly inadequate

Over the next decade there will be significant changes in the structure of the Irish population. And these demographic changes alone mean that we have to spend a lot more money just to keep the education and health systems at their current, grossly inadequate, levels. The number of people under 20 is projected to grow from 1.26 million to between 1.3 and 1.45 million over the next decade. In 2018, for example, there will be 29,000 more kids in our primary schools than there were last year. In 2026, there will be 46,500 more students in our third-level colleges than there were in 2013.

Meanwhile, the number of people aged over 65 is set to increase from 534,400 to between 850,000 and 860,000 – an increase of at least 58 per cent. Already, the Department of Health estimates that these demographic pressures, on their own, are adding around €200 million a year to the cost of the health service. The story with old age pensions is just as dramatic: the cost to the State, assuming no increase in rates, will rise from €5 billion now to € 7.5 billion in 2026. Supplementary benefits for pensioners (like travel and fuel allowances) will also rise by €200 million a year.

And all of this is before we even begin to think about actually improving services that have been severely damaged by years of so-called austerity. Or building up services that were pretty awful even before the crash – childcare, for example. Or making up the deficit in infrastructural investment in areas like transport and broadband since 2008 – a task made all the more difficult now that Irish Water’s spending goes on the Government’s books. The share of GDP invested in capital projects in the Republic has been among the lowest in the EU for each of the last five years. We can’t go on with these low levels of investment and expect to remain a competitive international economy.

But – and here's the rub – the State is not planning to increase public expenditure, even in line with economic growth or with demographic changes. It's planning to cut public spending as a proportion of the economy. According to the projections given to the IMF by the Department of Finance, spending (leaving aside interest payments) will fall as a proportion of GDP in the lifetime of the next government – from 34.7 per cent of GDP to 31.3 per cent in 2019. On the hybrid of GDP and GNP developed by the Fiscal Advisory Council, public spending drops from 40 per cent this year to 35 per cent in 2019.

There are only two possibilities here. One is that the State is lying to the IMF and the European institutions about its intentions to squeeze public spending after the election. The other is that the Government and some of the other parties will be lying to the electorate when they say that they plan to improve public services. Given who the real masters are, it is highly likely that the second of these scenarios is more accurate. There is no serious intention to restore public services or to invest substantially in vital infrastructure.

Austerity measures

On the contrary, since spending won’t even keep pace with demographic demand, services will get worse. Austerity measures that were understood – and just about tolerated – as temporary exigencies in an emergency period will become permanent. And that’s when the real trouble will start for the Irish political system.

We need to start talking honestly about all of this now. There’s a profound choice facing Irish society. We can carry on the current path towards a permanent crisis in public provision. Or we can decide to raise both overall tax revenue and overall spending. Proportionally, the Irish State raises only about 80 per cent of the revenue raised by the average euro-zone state. If that doesn’t change radically, we will get, at best, more of the same squalor.