Cutting smarter to maintain vital public services
INNOVATION PROFILE PWC:While severe cuts to public expenditure will be implemented in the budget PwC consulting partner David McGee argues for a more innovative approach to the cuts.
“The budget will be one of the toughest in recent years and there is a legitimate debate in terms of what cuts should be made and how they should be made,” he says.
Part of this debate centres around austerity. “One of the questions up for debate is about austerity – if it has run its course or if we should continue on our current path. But we have to accept that we have no choice in relation to a lot of what needs to be done. We can argue the rights and wrongs about how we got to where we are, but the scale of the deficit in the public finances will remain with us. Even if we could ignore the banking debt, the Anglo promissory note, and the rest of the national debt we would still have that underlying deficit to contend with.”
This is the core issue for McGee: “We can’t make the required corrections without the support of the markets and to get that support we have to keep trying to balance the books. That’s the fundamental issue. The question for the policymakers is if you treat it as a top down or a bottom up problem when seeking a solution.”
McGee says the numbers are clear from a top down perspective. An annual deficit of €17 billion-€18 billion, or more than 12 per cent of GDP, emerged in the early part of the fiscal crisis and this is now down to 9 per cent of GDP. The Government must bring this to 3 per cent of GDP within the next three to four years. The difficulty lies in where and how to find those cuts.
“The challenge comes from the bottom up and how to execute cuts and adjustments,” says McGee. “With the greatest of respect, it can be easy to sit in Merrion Street and decide on cuts, but if you’re a manager in a public service department implementing them it can be a lot more difficult. That’s where smart cuts come in.
“The real question facing us is how to maintain or even increase service levels but with less money. There are a number of things we can do to support the ability of the public service to implement smart cuts but we should acknowledge that a lot of this is already going on. We also have to come to a greater understanding of the nature of the increase in public expenditure which happened over the past decade.”
His point here is that only a relatively small proportion of the increase was accounted for by pay rises for members of the civil and public service. “While it is generally acknowledged that the level of increase in expenditure was huge over the past decade only some of this was due to benchmarking and other pay increases,” he says.
“Quite a bit of it was due to increased demand for services from society as well as the introduction of new services. Society now expects a lot more from government and the public service than it did a decade ago.”
He cites a change within the Garda as an example: “Ten or 12 years ago the Garda had no specialist child interviewers; now they do. As a society, do we expect children taken into custody for questioning to be treated as if they were adults? I think we all know the answer to that question. And would we now go back to a situation where they are? I don’t think so. This is one example of how it is not possible to go back in a straight line and say that we are going to bring public expenditure back to 2003 or 2002 levels and why smart cuts are needed if we are to achieve the overall goal.”