Saturday 22 October 2016

Coalition's performance on reform was at best a 'missed opportunity'

Published 04/02/2016 | 02:30

“The plan for addressing the fiscal crisis was inherited from the previous Government and the troika. Changes made by the current administration were little more than tweaks.” Pictured: Enda Kenny. Photo: Gerry Mooney
“The plan for addressing the fiscal crisis was inherited from the previous Government and the troika. Changes made by the current administration were little more than tweaks.” Pictured: Enda Kenny. Photo: Gerry Mooney

The economy will loom large in election campaign debates over the coming three weeks. The Coalition partners will likely spend most of their campaigning time claiming that they have managed it well.

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Last week, this column assessed some aspects of the Government's economic management record over the past five years, with most emphasis on how much credit it deserves for the strong growth in employment since 2012 ('quiet a lot' was the answer).

Here, issues around two other planks of economic management - the public finances and the public sector - are assessed. Along with getting people back to work, bringing the public finances under control was the most urgent priority of the Coalition when it took office. But unlike the measures needed to address the jobs crisis, the plan for addressing the fiscal crisis was inherited from the previous administration and the Troika.

Changes made by the current administration were little more than tweaks.

That is not to say that there were not implementation challenges or that the Coalition parties didn't pay a political price for raising taxes and cutting spending. But as they were simply doing what they were obliged to do under the terms of the bailout, less credit is due the Coalition for bringing the State back from the brink of default than is due for contributing to very healthy job creation.

Very little credit at all is due for the post-bailout period. When sovereignty was fully restored with the departure of the Troika, the Government used every available ruse to start doling out money, all of which was being borrowed. That added to the already mountainous national debt.

The 2015 budget, unveiled in October 2014, was the first without Troika oversight. It included tax cuts and spending increases, albeit small ones. In the most recent budget, the giveaways were a lot bigger. This has increased the chances of a return to austerity in the event that something goes wrong in the economy. The stimulatory nature of the budget stance had no justification given that the economy is already growing solidly.

And outside the annual budget cycle, the Coalition has ignored its own three-year expenditure ceilings, designed to lessen the 'if I have it, I'll spend it' instinct.

That instinct is, alas, still strong.

If the Government has done as little as possible in order to minimise the risk of a return to austerity since it regained control from the Troika, it has been lucky in that the many risks to recovery have not materialised.

And the Coalition has had a good deal of fiscal luck in other ways too.

The most watched measure of a government's annual deficit and accumulated debt is not the cash figures, but those figures expressed as a percentage of GDP. But because the GDP numbers have been massively inflated in recent years owing to a quirk of international accounting standards, it has been considerably easier to meet targets.

And we are not talking about trifling amounts. If, since the crash, GDP had grown in line with employment (as it usually does in most economies), it would be around one fifth lower than it currently stands. That would have resulted in the (already very large) public debt now being one fifth higher as a percentage of GDP.

If the Government's record on managing the public finances is mixed at very best, its public sector reform efforts are harder to measure and evaluate. The public sector is vast and diverse. Assessing everything that has changed over the past five years and gauging how those changes have boosted productivity and given taxpayers better value for money is utterly impossible to do with precision.

That said, there have been a range of modernisation measures introduced, including: smarter public procurement procedures; the introduction of shared services, such as IT, to more parts of the sector; and the requirement for departments and agencies to produce rigorous (in theory) External Service Delivery plans. These changes and others, along with stringent financial constraints, have certainly made the system get more for every euro of taxpayers' money.

But there has been no revolution across the system. Most of those who work in the sector and who really want to improve the service they provide to the public still complain about the same old problems: bringing about change is like wading through treacle and under-performers continue to face few sanctions.

This is unsurprising. The Government was not prepared to take on public sector unions, just as it was not prepared to take on other powerful interests, such as the legal profession. As a result, the Coalition did not push though the kind of changes that would have allowed bigger improvements in outcomes and would have made the public service more capable of dealing with the vast number of tasks and challenges that the modern State faces over the longer term.

A pertinent example is the failure to level the playing field in the labour market by introducing a single employment contract for public and private sector workers. The situation whereby private sector workers, who are exposed to lay-off and redundancy, pay to ensure that public sector workers have 100pc job security, is not only grossly iniquitous, it massively hinders reform.

Shutting down a superfluous quango, for instance, doesn't save very much if its employees are shoe-horned into other parts of the system regardless of their skills. It can actually end up being a cost to the taxpayer if the organisations who are obliged to accept unsuitable staff can't hire the right people as a result and have to use up resources managing people who shouldn't be there.

If the redundancy issue was not contemplated for fear of industrial unrest, the failure even to consider reforming how pay levels in the public sector are set so that they don't explode again says more about the general timidity of the outgoing administration.

Despite the role excessive bubble-era public sector pay increases played in the subsequent fiscal crisis, the Government never sought to put in place proper, independent structures to insulate the pay-setting process from vested interests who are all too effective at getting politicians to give them other people's money.

There are worrying signs that this is happening already - in the last budget, the single biggest chunk of the package of spending increases went on pay. And that despite almost all of the available evidence pointing to pay levels in Ireland's public sector still being higher than average in Europe.

The public sector, which employs almost one in five of those at work, accounts for a huge chunk of economic activity. How it functions has a big influence on the rest of the economy. Given the scale of the reforms needed and the mandate of the Coalition, "missed opportunity" is a kind way of describing the past five years.

All told, the Government functioned smoothly as a unit during its five-year term and that contributed to a sense of stability underpinning the return to economic growth. Many of the measures, policies and actions that it implemented also aided recovery. Of the aspects of that recovery the Government can claim most credit for is the hugely important pick-up in employment. But proactive leadership on addressing important matters, including those discussed here, was lacking.

When the Coalition had real choices, the path of least resistance was the one taken more often than not. It can only be hoped that the day when the lost opportunities are rued does not come too soon.

Irish Independent

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