Tuesday 15 October 2019

Ireland's state spending most efficient in OECD

Leinster House has bucked trend
Leinster House has bucked trend

David Chance

Ireland comes top of the league in terms of the efficiency of its public spending, according to a new study of 36 countries from the Organisation for Economic Cooperation and Development that placed the State at the top of its rankings between 2013-17.

The study by the European Network for Economic and Fiscal Policy Research measured the amount of money spent and its outcomes in terms of productivity of the economy and the effectiveness of public administration, health, education and infrastructure.

Ireland scored well in large part because its income distribution after taxes is relatively equal and social spending is relatively low at less than 20pc of gross domestic product. "Overall, the countries located in the production possibility frontier, hence the more efficient ones in terms of government spending, are: Australia, Ireland, South Korea, Latvia and Mexico," the study found.

The study was published amid heavy criticism of the Government for massive overspending on a new children's hospital and of its plans for a €3bn broadband investment that has been termed inefficient and a waste of money by critics.

Ireland's ranking has surged from close to the bottom of its European Union and OECD peer groups in the 1990s and, unlike some European countries that initially reformed and improved, it has sustained its gains in moving well above the EU average. The study also found that Ireland bucked the trend of larger countries in general, being more efficient in their use of government spending. It also identified a trend where governments from the centre of the political spectrum topped the rankings, "in contrast with leftist parties where the coefficient estimate is consistently negative".

Overall, the study found that more taxation was generally associated with lower levels of spending efficiency and that the tax take among the 36 countries could be lower by around 32-34pc between 2007-17 with the same level of outcomes.

The tax-to-gross domestic product ratio here has fallen to 22.8pc of GDP in 2017 from 30.8pc in 2000 and the country has one of the lowest tax takes among its peers, ranking 34th among the 36 OECD members in terms of that ratio.

The tax mix is also important, according to the study as a country with less distortionary tax system can finance a bigger government at lower costs. It found that direct taxes produced less efficient outcomes in terms of the amount of economic growth from spending than value-added taxes.

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