Since the publication of the An Bord Snip Nua (ABSN) report on Thursday, it’s become clear how poorly understood the nature of the challenge facing Ireland Inc was. Naturally, we had all the usual patch-protection reactions. But above those, three reactions that have leapt out in particular:
1. “This is just a menu, we can pick and choose.”
While nothing in ABSN has to be implemented, this head-in-the-sand notion has emerged that it’s only a menu. After all, the government only wanted to take out €3bn and these lads have come back with over €5bn, right? Wrong! Public expenditure will more than like have to be cut by between €10bn and €15bn – possibly more. If we only take 60% of what ABSN recommends, we’ll have to have another Bord Snip every year until 2013. To extend the analogy, this isn’t a menu from which can pick and choose – this is just the starter.
2. “We’ll take the painless, faceless cuts please!”
When the government announced in December that it was setting up An Bord Snip Nua to come back with billions in public expenditure cuts, it stated that this Bord was not allowed look at either public sector wage rates or capital expenditure. Once you do that, pretty much the only things left to look at are (1) the huge sums of money we pay in each other in Social Welfare (€21bn), and (2) the number of people employed in health and education. Where people who didn’t want either of those to take a hit thought the money was actually going to come from is beyond me!
The ‘Don’t hit us’ or NIMBY brigade (Not In My Back Yard) were of couse out in force. Groups such as farmers and teachers were out saying ‘Under no circumstances should you cut REPS/Special Needs teachers’. And of course they’re entitled to have a say about the distribution of cuts within their sector. They are not entitled to tell the taxpayer, though, who’s paying their bills, that they do not want any cuts at all in their sector. In some ways, it would have been a far better exercise if there had been a first step, telling each Department how much in cuts is needed from them. This would let each sector know the scale of the hit they will have to take. During the second stage, then, ABSN would make its specific recommendations, the context of the size of cutbacks needed. That way, when farmers say ‘No cuts to REPS’, the taxpayer can say ‘OK, fine, but if not there, where is your €300m going to come from?’
It seems that people, at least the louder people in the media over the past few days, had thought our public expenditure profile was something along the lines of the left-hand pie below. In truth, of course, the vast bulk of public money is being spent on health, education and social welfare – the true profile of public expenditure is the right-hand pie. There are no (or at least very few) painless, faceless cuts. Public expenditure is generally money in someone’s pocket, so if it’s being cut, someone’s going to be out.
3. “The rich should pay – and cap salaries at €100,000!”
First off, this was a review of public expenditure. Very little money from the public purse goes to the country’s wealthiest citizens, so there’s no way that ABSN could have come out with ‘Cut the Grant to Homes with Butlers & Yachts (saving: €3.2bn)’. The rich will pay, but they will pay through the taxation side.
Well, not of course, if some people have their way. Recently, Vincent Browne – as well as allies such as Anne Cahill in Saturday’s Irish Times letters page – has been peddling the notion that all salaries in the economy should be capped at €100,000. After all, who can’t live on €2,000 a week?
The economics, or lack thereof, underpinning this argument is truly staggering. A whole thesis in itself would be the detrimental effect this would have on Ireland’s competitiveness, as the best and brightest elsewhere stay elsewhere and are joined by the best and brightest from Ireland. Leaving that aside for a minute, though, this has to be one of the least thought out suggestions yet. The 100,000 or so people earning more than €100,000 a year took in €20bn in income in 2006. Capping that at an arbitrary €10bn will certainly save their companies a lot of money. It might even save the government, which employs quite a few people on salaries of more than €100k, about €100m. However, and this is the key point, it would actually reduce income tax receipts by about €4.5bn.
So even if the bulk of ABSN cuts were implemented, if Vincent Browne had his way, the public finances would actually be worse off than when we started!