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Setting public vs private is just family bickering

IN a broad sense, the public sector comprises those who are paid directly from the public purse. Payees may be divided into three categories.

Firstly, there are 308,000 public sector workers who account for a total pay bill of €16bn, or an average of €52,000. The individual range of pay is from around €25,000 to more than €200,000.

Secondly, there are 103,000 pensioners who share a public pension pot of €2.2bn, or an average of €21,700. Some of these pensioners will also qualify for a PRSI pension of €11,900, bringing their annual income to €33,600.

Thirdly, there are 285,000 unemployed persons for whom the individual weekly payment is, since Budget 2011, €188 per week or just €9,800 per annum. There are increased payments for adult and child dependents.

In addition to the three categories mentioned, others who belong to the broader public sector include those who have retired from the private sector and have fallen on hard times perhaps because of erosion of savings due to the collapse of bank shares, or for other reasons, and are dependent on the old-age assistance pension. Total expenditure on the non-contributory pension is around €1bn.

Taking into account those dependent on other public payments -- for example those who rely on the €1bn spending on one-parent payments and the close to €0.5bn on carer's allowance -- around one million persons, more when dependents are included, are paid from the public purse.

How is this expenditure funded? Public sector workers and pensioners pay taxes and they will have contributed to the state coffers over the years, but the ultimate resilience of the tax base depends largely on those who generate goods and services.

Looking back over the past 30 years the size of the services sector has grown markedly in relation to the numbers engaged in agriculture and industry. Thirty years ago, in 1981, when total employment was 1.15m, agriculture accounted for 17 per cent of the total; industry 32 per cent and services 51 per cent. By 2010, of the much larger total at work of 1.85m, agriculture accounted for 4.5 per cent of the total; industry 20 per cent and services 75.5 per cent.

Significantly, the absolute numbers working in industry in 1981 and in 2010 were almost identical: 361,500 in 1981 and 365,400 in 2010. Even more significantly when the numbers employed in construction in both years are subtracted, the numbers employed in industry -- mainly manufacturing -- were greater in 1981 than in 2010 when they were 260,000 and 240,000 respectively.

Over the same three decades, 1981-2010, the numbers in public administration and defence grew by 55 per cent from 69,000 to 107,000. In education the numbers more than doubled from 67,000 to 150,000; in health the numbers grew fourfold from 63,000 to 234,000.

It is important to stress that these data do not imply any judgment regarding the relative value or productivity of workers in the public and private sectors. One need only recall the behaviour of the top echelons in the Irish banking establishment to expose private sector frailties.

As we set about rebuilding from economic ruins, focus needs to be directed firmly towards the production of saleable goods and services at competitive prices: industry, small and large, agriculture and agri-business, and marketable services in tourism, IT and everywhere else that opportunities may be found.

And there are a number of gems littered among the ruins. For example, in the boom years a number of local theatres obtained or improved premises which have brought cultural vibrancy to local communities and visiting tourists.

In efforts to build up industry, agriculture and saleable services, the emphasis should not be exclusively on the bigger employers. No venture should be overlooked because it is small. A substantial amount of employment is given by quite small firms. The food industry is a good example of an industry in which both giants and minnows play their part. The same is true for tourism.

Excess capacity has been generated in the hotel industry due to tax breaks. Hoteliers, local authorities and Government need to work out survival strategies. Hotels in rural towns are important providers of employment and should not be undermined by tax-favoured Goliaths in larger centres.

In the past, the IDA has done an outstanding job in landing many big industrial fish into Ireland. With shadows gathering over our corporation tax rate, it is worth reflecting how much small family businesses dominate in countries such as Italy. Some of these have grown into very large enterprises. Gucci and Benetton are examples which serve different markets in the fashion world.

Likewise, while exports are important for economic recovery, it would be a mistake to neglect the home market where import substitution can play an important role. It is easy to downplay, even to mock, the 'Buy Irish' and 'Holiday in Ireland' campaigns but in fact they are not only of value to the economy, they also are a means whereby effort can be dispersed among the community and very large numbers can be drawn into what is in essence a national recovery programme.

Finola Kennedy is an economist whose areas of research include public expenditure.

Sunday Independent