Friday 28 October 2016

Let's call it as it is - expenditure is not the same thing as investment

Through the clever abuse of language, blowing the budget can be easily reclassified as prudent, writes Colm McCarthy

Published 06/09/2015 | 02:30

Tanaiste Joan Burton and Environment Minister Alan Kelly: Ms Burton has defended state ‘investment’ in the free travel scheme
Tanaiste Joan Burton and Environment Minister Alan Kelly: Ms Burton has defended state ‘investment’ in the free travel scheme

The public finance figures announced last Wednesday show, on the face of it, an improving picture. Tax revenues are ahead of expectations, government spending is apparently contained and the budget deficit is below the target. But the persistence of any deficit at all, after seven years of fiscal correction, means that government debt continues to rise. Any country with debt over 100pc of GDP and lacking a national currency is vulnerable should there be another leg to the international financial turmoil. Small indebted countries in the eurozone will, on past experience, be the first casualties if things turn nasty again.

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On closer inspection, the figures for the year to August do not live up to the headlines. Tax revenues are indeed stronger across the board but the star performer is the volatile category of corporation tax.

Spending is in line with government intentions but only because another large overshoot in health, which could reach €500m for the current year, is offset by lower interest charges on state debt.

It is most unlikely that the historic lows in interest rates will survive through the years ahead and so there is no guarantee of permanently low borrowing costs. But the failure to keep health spending inside allocations is an enduring feature and has not been addressed.

It is premature to conclude that the task of budget correction has been accomplished, and particularly worrying that any improvement in the figures brings forth immediate and strident demands for extra public expenditure across the board.

Last week's instalment of the Spend More Money campaign got under way on Monday, when the escalating cost of the free travel scheme for pensioners provoked the modest suggestion that it be available only in off-peak hours. Any such notions were promptly dismissed by Tanaiste Joan Burton, who defended what she revealingly described as state 'investment' in the free travel scheme. The same description ('investment') was employed by HSE chief Tony O'Brien in his considerably more audacious bid for almost €2bn of extra current expenditure on health next year.

This use of the term investment to describe current expenditure is revealing. The State does indeed have an investment budget and it is associated in the public mind with the development of useful, long-term assets like roads and schools.

Spending money on investment sounds prudent, as against writing cheques for cost over-runs in health, or free tickets for pensioners on over-loaded peak-time buses. So the logic apparently is that if you can get your current spending favourites mis-classified in public discourse as investment, you are half-way there. Less stringent scrutiny will be attracted, since investment is presumed to be prudent and a good thing. This is an abuse of the English language for political purposes. George Orwell spotted the trend almost 70 years ago: "Most people who bother with the matter at all would admit that the English language is in a bad way, but it is generally assumed that we cannot by conscious action do anything about it.

"Our civilization is decadent and our language - so the argument runs - must inevitably share in the general collapse. It follows that any struggle against the abuse of language is a sentimental archaism, like preferring candles to electric light or hansom cabs to aeroplanes."

The alternative to slipshod language is to argue the merits of whatever current expenditures one happens to favour. The unwillingness to do so suggests a lack of confidence in those same merits.

The argument about the free travel scheme is a small matter, compared with the enormous health budget but it is instructive nonetheless.

The free travel scheme has been in place since the late 1960s. It covers all people aged over 66 regardless of circumstances, as well as those with a disability, and carers. Until 2006, holders of free travel passes could not use them during the morning and evening weekday peaks in Dublin, Cork and Limerick, when public transport services tend to be congested.

They were of course free to travel and pay the standard fares at those times, or to stick to the off-peak and travel for free.

The then minister for transport, the late Seamus Brennan, abolished the restriction to off-peak hours in 2006, at a time when no attention was being paid to expenditure control and none was paid either to the reservations about peak congestion expressed by transport operators.

There are perfectly legitimate reasons for offering senior citizens discounts, and they are not motivated solely by social policy concerns. My local barber will cut your grey hair on a slow midweek morning at a bargain price. But there are also legitimate reasons why things cost extra at times of peak demand.

Take a look at any of the airline websites for outward travel on a Friday over the next few months. You will find that flights at unpopular times (early morning or late evening) are cheaper than flights in the afternoon peak. Travel pass holders who wish to spend the weekend with an elderly aunt in Cork can travel for free anytime they like. No such luck if she lives in Birmingham.

There are arguments in favour of the existing system favoured by the Tanaiste, including most obviously its ease of administration and its popularity with beneficiaries. But the arguments against are not countered through describing current expenditure on the scheme as 'investment'.

A far larger assault on the everyday meaning of words was the resort to the investment label in the demand for almost €2bn in extra spending next year on health. The Government has indicated that the total leeway in October's Budget, to be split between tax reductions and spending increases, will be €1.5bn. The expectation is that spending increases across all departments will be about €750m.

Note first that the Central Bank, the ESRI, the Fiscal Council and numerous other spoilsports have cautioned against such a large budget give-away.

The State's finances are still heavily in deficit and the international outlook remains uncertain.

Note second that the HSE demand for funds is almost three times what is likely to be available for all government spending combined. But note finally that the demanded increase, in the words of Tony O'Brien, is to be devoted to 'investment'.

There seems to be some public perception that state spending on health in Ireland has been curtailed drastically, or compares unfavourably with what is spent in other European countries.

This is simply not correct. The portion of national income devoted to state health spending in Ireland is comfortably ahead of the EU average. Ensuring that this delivers commensurate outcomes is the primary task of the HSE.

The restoration of various public spending levels to those obtaining at the top of the bubble in 2008 is not a legitimate object of policy. Those spending levels were cut because they were not sustainable, not because the Government decided to be unpopular.

Unsustainable means that they cannot be financed merely through the fruits of economic recovery.

Nor can they be justified by pretending that current expenditure, including serial breaches of agreed budget allocations, can airily be re-classified as 'investment', the better to divert public attention from failures in expenditure control.

Sunday Independent

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