Public services face crunch time
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Thursday June 26 2008
THE size and cost of the Irish public service have risen rapidly in the past 12 years. But the economy has grown even faster, so the relative cost of the public service -- as a proportion of national income -- has not increased.
Now, growth in national income (GNP) has stalled. It is not expected to return to the levels of recent years even when the economy recovers. The problem is whether the growth in public spending can also be cut, in line with economic growth, while still delivering better public services.
Those spending increases were the second highest in the 30-nation OECD from 1995 to 2005 -- running at an average of 5pc a year, on top of inflation.
Most of the money went on the health and education sectors. The number of public sector workers grew by 30pc during the period, and the numbers in the health service by 73pc.
But the total numbers at work in Ireland rose by 50pc during the same period. So the Irish public service is not particularly large as a proportion of the total labour force. It started from a low base compared with richer countries.
This meant the rapid increase in spending, including a 90pc rise in the pay and pensions bill since 2000, could be accommodated without any rise in taxation. With national income growing at 6pc a year, there was even scope for tax cuts.
Expansion
Such rapid expansion may not have been good for public sector efficiency. It seems unlikely that the system was really able to figure out where and how an extra one-in-three workers could best be employed or how budget increases of almost 10pc a year in money terms could best be spent.
Public service managers knew as well as anyone that this could not last. So it made sense for them to go for increased budgets while they could.
Hence the complaints that services have not improved despite all the money invested. The recent OECD report on the public sector was only the latest in a long line to note the focus on "inputs" -- people and money -- and the almost complete lack of information on "outputs", i.e. what they actually achieve.
It was also politely scathing about the failure of 10 years of reform programmes. So it is not an encouraging situation as the public sector faces likely real increases in its budgets of 2pc or less over the next two years.
The challenge is to find a way to deliver badly needed improvements in health, education and transport within those kinds of resources. The trouble is that no one seems to have any idea how.
Public sector pay leaves Cowen in a tight corner; Business Supplement: Page 4
- Brendan Keenan
