Health and welfare may be big target of savings

ANALYSIS:The bulk of Government spending goes on public sector pay and social welfare payments. Saving money means cutting either or both, writes COLM KEENA.

FIGURES FOR the distribution of current or day-to-day expenditure across Government departments are contained in a statistics document produced last October and available on the budget.gov.ie website.

The estimated gross expenditure figure for 2009 was €55.79 billion. Public sector pay and social welfare payments made up approximately €40 billion, with non-pay service delivery costs accounting for the remainder.

The October document broke down the gross current expenditure figure by the various departments. The figures which stand out are for the Health Service Executive (HSE), the Department of Social and Family Affairs, and the Department of Education and Science.

Pay is the major component of expenditure in health and education. The pension levy introduced by the Government will bring about a net reduction in income for workers in these departments of €580 million and €387 million respectively. This means a total pay saving of €967 million from health and education, which between them have an overall budget, pay and non-pay, of €23.53 billion (42 per cent of total expenditure). Further cuts from these sectors are inevitable.

The overall figure for the HSE is €14.8 billion. The Department of Finance is understood to be unhappy with the level of detail supplied by the HSE in relation to the breakdown of its expenditure.

The vast bulk of the HSE expenditure, as would be expected, goes on pay. The pay expenditure includes a large amount of salary at administrative level, both at headquarters and around the various divisional areas.

Grants to voluntary and joint board hospitals, and other bodies, were €2.2 billion while medical card services cost €1 billion.

A large proportion of the overall health spend goes on care for the elderly. Long-stay residential hospitals, nursing home subventions, day care services and home help services cost €1.84 billion. Care for persons with disabilities costs €1.6 billion, primary care and community health costs €1.9 billion and mental health care €1.1 billion.

Within these figures of course are pay rates, including pay to consultants who are due to receive an increase under new contract terms. Some figures were sought from the HSE last week but no answers were forthcoming at the time of going to press. Attempts to contain costs in the health sector are notoriously difficult.

The pay and other expenses that constitute the voted expenditure on health are not the only cost to the exchequer. There are tax relief schemes in the health area that have a “cost” equal to the tax forgone. The Labour Party leader Eamon Gilmore has claimed that the cost to the exchequer of locating private hospitals on the grounds of public hospitals could be more than €100 million in taxes forgone over seven years. Overall he has said the plan will cost more than €1 billion in various ways, though this has been strongly contested.

The early child supplement payment comes out of the health budget. It is an untaxed universal payment and will cost an estimated €340 million this year.

The estimate last October for the 2009 Social and Family Affairs budget was €10.3 billion, a €1.3 billion rise on the previous year. The jobseekers’ allowance cost was estimated at €1.7 billion while the jobseekers’ benefit estimate was €1.22 billion.

These figures will all now increase. The only way to contain the rise is to introduce a reduction in rates.

A cut in welfare rates generally could be justified in a context where prices are falling. If the rates are not reduced, then welfare recipients will end up better off by the end of this year, while workers, who are suffering pay cuts, are also facing substantial tax hikes as part of the effort to restore order to the public finances.

One of the large budget items in welfare expenditure is the child benefit payment, which is expected to cost the State €2.5 billion this year. The payment is made irrespective of income or wealth, and is untaxed.

The total Department of Justice spend this year is expected to be €2.48 billion, as per the October estimates. The Garda will cost an estimated €1.55 billion, of which €1 billion will be salary.

Social welfare, health, education and justice between them account for 82 per cent of the voted spend.

Business receives welfare support and the support of the agricultural sector is also substantial.

The estimate for the Department of Enterprise, Trade and Employment is €1.49 billion and this includes €722 million for such bodies as Forfás, IDA Ireland, Enterprise Ireland and the Shannon Free Airport Development Company. Included in the €722 million figures is €334 million in support of science and technology and innovation programmes.

The department’s labour force division, which includes the national training agency, Fás, has an estimate of €702 million. Further funding to this area comes via the €450 million-plus training fund income, which comes from employers.

Tax reliefs for investors in certain types of property as well as tax reliefs for landlords and others, result in very substantial amounts of taxes forgone. In that sense they can be considered similar to current expenditures and are likely to be, or should be, addressed in the near term. On its own tax relief for interest on landlords’ mortgages will cost the State €877 million in 2009.

The largest of them all is the tax relief arrangements that are available for pension contributions and the profits of pension funds. There is a strong argument that the contribution relief should be at the standard – the lowest – rate of income tax rather than at the marginal – the top applied rate for the person concerned.

Such a move would save the exchequer significant amounts in taxes forgone and would have the added bonus of undoing an inequitable aspect of the public sector pension levy. Whether the Government makes such a move, by the end of this year if not in the upcoming emergency budget, could be considered a measure of the extent to which political considerations are guiding its decisions.

The introduction of a medium to low cap on the amount of money that can be drawn down upon retirement from a pension fund, without incurring tax, is another measure that has merits.

Introducing cuts that hit services, further affect the pay of public servants, or hit the recipients of social welfare payments, are likely to be very contentious politically.

In that regard a number of cuts that may not raise much in terms of the deficit in the public finances would be important in terms of reducing political tensions.

Ministers of State earn salaries of €150,000 a year. They are backed up by officials who cost the exchequer €8 million annually. The numbers of such Ministers – up from just seven in 1978 to 20 today – has in the view of many increased because of the need to reward TDs rather than the ever-increasing complexities of government.

Oireachtas politicians receive generous salaries and allowances and former ministers can receive pension payments while still TDs or senators.

The Taoiseach’s pay is not much different from that of the president of the United States.

Colm Keena is Public Affairs Correspondent; Tomorrow: Capital expenditure