Thursday 25 December 2014

Brendan Keenan: Deep cuts draw blood from the health service

Published 06/12/2011 | 05:00

The tricolour flies behind the statue on Daniel O'Connell on O'Connell Street in Dublin yesterday
The tricolour flies behind the statue on Daniel O'Connell on O'Connell Street in Dublin yesterday

THERE are few concepts more slippery than a public spending cut. First of all, what is a "cut?" Is it a reduction in the amount actually spent, or the amount which would have been spent had there been no cut?

Politicians are very fond of the second definition. They trumpeted about their spending cuts, even as spending was actually rising.

But there is no room for such conjuring tricks now. Spending has to come down in real money. Even so, Brendan Howlin's spending statement cannot resist using it.

If nothing had been done, net day-to-day spending (after taking in PRSI receipts) would have risen by €760m. That figure has had to be cut by €1.6bn. However, on the kind of budgeting that you and I would do at home, the reduction in actual spending over last year is just €1bn.

A second difficulty with definitions is more subtle. Most people instinctively think that a government spending cut affects the Government, and those who work in it.

Once upon a time, that might have been true, but not in a modern state.

A great deal of the operations of such a state consists in collecting money from some people to give to other people -- or, very often, to the same people. Most of this comes through the welfare system. But in bubble Ireland, tax reliefs -- which directly return money to the same people -- were also a major transfer.

These reliefs have been reduced, but the last attempt to cut property tax reliefs was stalled by cries of woe. Quite justified cries of woe perhaps, but those coming from the lone parents and those in 'fuel poverty' who got hit yesterday may be every bit as justified .

The social welfare bill could not escape the axe. At €18bn, it accounts for almost 40c in every euro spent by the Government. Thereby hangs a tale. As unemployment tumbled to 4pc, successive ministers fought successfully to keep their social welfare spend in line with growing revenues.

Not that they had to fight terribly hard with Bertie Ahern in charge. Targeted welfare spending can do much good, but widespread spending is very popular. Cutting it back is extremely unpopular, as the present Government now knows all too well.

After PRSI, welfare spending rose from €4bn in 2003 to €13bn. This tripling compares with a doubling of total current spending to €44bn. To get back to 2003 ratios of spending, the welfare budget might have to be cut by a further €3bn.

Mr Howlin has more in mind. Yesterday's announcements will produce cumulative savings of €700m by 2014, but he will look for another billion on top of that in the next two Budgets.

Much of the increases during the bubble years came from extra schemes, not just increases in basic rates. They took the bulk of the cuts yesterday, especially payments to lone parents. Remarkably, at over €1bn, these cost almost half as much as unemployment benefit.

Mr Howlin summed up the Irish nightmare in his speech. The bubble was so vast that, when it burst, tax revenues fell by a third. Those revenues paid for the doubling in public spending, but it is not possible to cut spending by a third. The programme envisages a 10pc fall in actual spending and there are already doubts as to whether the political system can stand the strain.

The other thing modern governments do, apart from re-distributing money, is provide services. The two most expensive ones are health and education. There are two kinds of cut here as well -- reducing services or charging more for them.

Both are happening. The thrust of the spending statement was on more charges for health. The HSE is to find €220m in cost savings which, in theory, do not involve cuts in services. But those with private insurance are to be billed an extra €270m in a full year in higher hospital charges and reduced subsidies.

Mary Harney received almost universal condemnation for her plan to co-locate private and public hospitals. Much of the criticism was valid, but she had identified the problem. The present tangle of private and public health is unworkable and unsustainable, while the coalition's universal insurance is a long way away.

Health may have taken the biggest hit, as measured by the chief economist at Ulster Bank, Simon Barry. Leaving policy choices aside, he just looked at the cuts compared with the share of spending.

On that basis, social protection would have received an extra €100m hit, and education the same. Relative to its size, this is a bigger saving for education, where extra charges for third-level students are the only major change.

But health is contributing €140m more proportionate to its size. Perhaps this was a policy choice.

Or perhaps it reflected the political skill and determination of two Labour ministers up against a novice health minister.

There is no way of knowing from the statement.

Mr Howlin has promised more evidence-based policy in future.

This is a phenomenon as rare as a good Irish summer but, with a task as gargantuan as this, we have to know more about the gains and losses from specific measures.

This will become even more urgent as the tough Budgets roll on and attention turns to core spending.

Despite all the job losses, which threaten to decimate many public services, pay costs have fallen just 5pc since the process began and will drop by less than 1pc next year.

The Government needs all the convincing evidence it can get for what lies ahead.

Irish Independent

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