Friday 21 October 2016

Income before investment may not be the best choice

Published 23/06/2016 | 02:30

RARELY has the case been put so bluntly. The Association of Garda Sergeants and Inspectors has made it plain that they will not co-operate with the upgrading of the force's equipment unless their pay claims were dealt with first.

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That assumes there will be a second stage. Deal with the pay, then invest in the plant and equipment. This is the assumption on which the Irish public sector has operated since the foundation of the State, despite 95 years of evidence that the assumption is wrong.

The evidence is all around us; not least in the Garda. Its computer equipment is described as "prehistoric", many of its stations remain unfit for purpose.

The other day, I saw a nine-year old Traffic Corps car. The armed units' new Audis notwithstanding, one only has to cross the border to see the difference in the personal and mobile equipment of the PSNI.

To which one could add Spanish hospitals, Dutch schools and, God help us, British rail services. For reasons which escape me - and I'm almost afraid to draw attention to it - the only sector with an adequate investment programme seems to be the bus service.

Everything else is shoddy and second rate but, despite being a much-travelled people these days, we don't seem to notice. Except for the new roads, but there the attitude remains one of astonishment that we have roads as good as other people's. Which says it all really.

Given the reduction in living standards for Gardaí and others after the Crash, one can sympathise with the desire to restore income before replacing equipment - provided it is a response to the extraordinary events of the past ten years.

But it is a much older story than that.

Historians have traced this carelessness about the physical, as distinct from the financial, back a long way. This month marks the 70th anniversary of the start of the scheme to bring electricity to rural Ireland; made possible partly by the bold and ambitious decision to build the Ardnacrusha hydro-electric station on the Shannon. But boldness and ambition went dark even as the lights came on.

In his book, 'Preventing the Future', political scientist Prof Tom Garvin recalled how, a decade later, Taoiseach John A Costello cancelled the planned roads programme with the words, "We're building no racetracks for plutocrats."

The Department of Finance seems to have regarded both cars and telephones as consumer luxuries. They were at the time, but investment requires a view of the future.

That view seems as hazy as ever. It is worth noting that the money saved on the 1950s road networks was used to build social housing. To some extent that represents both consumption and investment but the panic over the housing crisis is evidence that latterly, consumption got pretty much everything that was going.

This was made brutally clear in the very up-to-date analysis of the capital budget from the Fiscal Advisory Council (IFAC). One of the most sobering statistics was that Irish public investment, measured as a share of national income, is the lowest in the EU - itself widely regarded as too low - in a country with one of the highest potential growth rates.

I stress "potential". Most of the other countries with good potential growth - those in eastern Europe - are investing a multiple of Ireland's figure per person.

IFAC notes the evidence that public investment increases growth but its calculations are that almost all the planned budget will be needed just to maintain and replace existing stock. Whatever about Garda cars, education ought to be the priority for a country in Ireland's situation, but is particularly ill-served.

The document charts the pattern since the 1970s. The two national bankruptcies in that period saw capital spending virtually disappear, with a 70pc collapse. In the recent episode, it is worth noting that all the "cuts" saw current spending drop by just 5pc. Therein lies the dilemma for the future.

The figure for current spending has already been committed, even if one does not believe it can cover all the pledges in the Programme for Government. Nothing much has been left over to increase the capital programme. The council thinks that is an unrealistic position.

"Maintaining public capital investment at such low levels might be difficult to sustain, taking into account unmet demand following years of curtailed investment since 2008, current projections for economic growth and future demographic changes," it notes.

The government appears to be aware of the problem. Capital spending is not usually the stuff of everyday politics - which makes it a soft target for cuts - but the housing crisis has changed that.

More or less simultaneously with the IFAC analysis, the Taoiseach announced a "mid-term review" of the capital programme; not in mid-term but early next year.

This may have been influenced by the fact that no one knows what the Government's term will be. No point keeping money for a possible successor administration to spend. Public Expenditure Minister Paschal Donohoe says investment will average 3.5pc of national income over the period of the plan.

That would be in line with the long-term average - although it is an average characterised by enormous surges and falls.

It is not clear whether this level of spending is consistent with the "fiscal space" the Government sees as available for current spending. It is clear that it does not include space for the full pay restoration sought by Garda associations and public sector unions. It is also clear that any shortfall on the growth targets (post Brexit, for instance) will shrink the space further.

There is an echo in this of an even more troublesome practice than demanding income before things are fixed, replaced or enhanced. This is demanding more income just to work in an improved environment or with greater productivity.

There is a logic to seeking a share of any extra profits generated by productivity in a profit-making enterprise.

Doing so in a public service - as is the norm - short-changes the public and means the services are not as good as they should be, whether for the citizens who use them or the citizens who work in them.

The latter at least have the consolation of extra money as they cope with inadequate equipment in shabby surroundings. But just as often, there is a stand-off and nothing happens; neither money nor productivity.

Perhaps they should look at their surroundings a bit more often, as well as those of colleagues in other countries, and wonder if they are making the best choices.

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