Friday 22 November 2019

Let's hope teachers have right principles in office

Reform of the public sector is long overdue and is a cornerstone of our recovery, writes James Fitzsimons

Leinster House is like a 'Blackboard Jungle' with all the school teachers in the new Government. But can they teach the last government a lesson? And they don't have a lot of time! If I were in charge of the Government, I would give the ministers 100 days to gain control. We need to see improvements in three to six months. Otherwise it's "Goodbye, Mr Chips".

The government has a large pool from which to choose. Those who got the top jobs should bear this in mind. They haven't got five years to find their feet.

The appointment of two ministers at the Department of Finance has already caused controversy. I am not certain that it improves things. Two heads may be better than one, but we could end up with another committee. They never work, at least not if you need decisive action. I would have appointed three ministers, albeit that two would be subordinate to the third. They too would be heavy hitters. Equal ranking might present constitutional issues.

Ultimately, ministers rely on the civil service to achieve their objectives. That is where we need to see skill and commitment. Recent reports question this, but maybe ministers just need to show the right leadership.

While economic recovery is the objective for all, public sector reform is long overdue and it can start with the civil service under their new ministers.

The Government is borrowing €20bn this year to bridge the gap between tax revenue and spending. If the previous government reformed the public sector in 2008, instead of wasting time and money supporting its quangos, we wouldn't be in so much trouble now.

The new Government needs to focus on accountability in the public sector, including pay and pensions. Department heads and their managers show no accountability. With immediate effect those in charge should take responsibility for the office they hold.

There will be winners and losers, but it is a necessary step in rebuilding our economy.

It is not a matter of choosing frontline over administration. This isn't about cutting essential services. It is about doing what is right and necessary to ensure the survival of what we have. Enda Kenny makes a good Mr Chips. When it comes to renegotiating the EU/IMF deal we need someone like Tom Berenger in The Substitute.

There was a time when many jobs in the civil service were little more than secured poverty. Hopefully for those concerned that has changed for the better. The guarantee of a job for life has no place in modern society and least of all in the higher ranks of the civil service. The new ministers need to deal with this without delay.

The Programme for National Government has many lofty objectives that are unlikely to be achieved. It wants to alleviate poverty. But it can't find a solution for those with impaired loans. It wants to simplify the tax system for small businesses, but has kicked this back to the Revenue Commissioners. Their goal and that of the Commission on Taxation is to achieve sustainable tax yields. There appears to be a conflict of objectives.

If the Government fulfils half of its plans we will be the richest nation on the planet within 10 years. Meanwhile, we are borrowing nearly as much as we collect in tax each year. The strain of paying for this is like asking an athlete to run a marathon at the speed of the Olympic 100m.

If the €20bn we borrow this year came in €50 notes, I estimate it would take the entire staff of the Department of Finance, including the two ministers, five years to count every note if each took one second. That's a lot of time and a lot of money. Obviously they don't count it. Maybe that's why it can take the banks five days to clear a cheque.

If we were not covering the debts of the bondholders and if we were not penalised with excessive interest rates on our ECB loans we could focus on the national pension problem. More than 90 per cent in the public sector have pension arrangements and most of the private sector does not. Unlike public sector pensions, those in the private sector are funded (they are paid for by employers and employees). In 2007/08 when the values of many private sector pensions were decimated, it was thought that public sector pensions were unaffected. That is not the case.

Our ability to pay public sector pensions was constrained by the global downturn. There is no fund to support them and national income has collapsed.

The public sector pension model, like many private sector defined benefit schemes, is not sustainable. In future all pensions should be funded on a pay-as-you-go basis. This is a global problem. Growing dependency ratios and longevity compounds it.

Last December Eamon O Cuiv, then Minister for Social Protection, announced that a sovereign bond would be made available to help defined benefit schemes with deficit problems. This is another example of using taxpayers' money to cover someone else's losses. It highlights the extreme measures that are required to save jobs.

The State should make the arrangements through the tax and social welfare system to provide adequate pensions for all, including public servants. Those who wish to save more would be free to do so. Retirement provision on a voluntary basis hasn't worked for the majority of people.

One option is to tax pension contributions, but exempt the pension when paid.

That could provide much needed tax revenue now but give back the benefit when the public coffers are full again.

Plans are already being made to charge a levy on the value of existing pension funds to claw back tax saved in the past. The Government has a daunting task ahead. We can only hope that it succeeds.

James Fitzsimons is an Independent Financial Adviser specialising in Tax and Financial Planning.

Sunday Independent

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