Pragmatism behind Budget failure to move on reform

BUSINESS OPINION: Unneeded State agencies survived while the threshold for drug refunds went up

ONE OF the many things noticeable by their absence in last Wednesday’s Budget was any mention of the rationalisation of the plethora of State agencies.

There had been an expectation that the Minister for Finance would make some sort of announcement in this regard as part of his plan to cut day-to-day spending by almost €1 billion, on top of the €1.76 billion in payroll and social welfare cuts announced in the Budget.

The merger or elimination of overlapping State agencies was one of the areas studied in some depth by the Special Group on Public Service Numbers and Expenditure Programmes headed up by Colm McCarthy.

The group made proposals in this regard that it believed would result in savings of €170 million a year, including some €19 million in capital expenditure. They ranged from doing away with whole organisations such as the Family Support Agency, to hammering together the various economic development agencies and functions into Enterprise Ireland.

A quick spin through the estimates for the public service released as part of the Budget documentation would indicate there are no immediate plans to implement these proposals. The various bodies which McCarthy recommended be rationalised, merged or abolished appear to be funded for another year at least.

So much for that good idea then? Maybe. Certainly, the official line from the Department of Finance is that nothing has been ruled out, and it is keen to point out that most of the State agency rationalisation announced in the 2009 budget has gone ahead. The department is sensitive to the criticism that it has chickened out of implementing the reforms recommended by McCarthy, claiming that some €2 billion of the savings announced on Budget day are contained in McCarthy’s report.

Informed sources also point out that having just blindsided the public sector unions with a pay cut after the negotiations on restructuring and unpaid leave broke down, it would not have been very smart to announce the unilateral reform of various State agencies in the Budget.

While this is all very well, it is hard to avoid the suspicion that the Government has once again ducked the issue of reform, in the public service and elsewhere.

The Budget booklet contains little detail on how the planned non-payroll savings in the public service will be made.

What we do know is that the bulk, €450 million, is to be made in health, and much of it is not savings at all. It is in fact stealth taxes, such as prescription charges and increased thresholds for claiming drug refunds.

The remainder is to come from value-for-money savings at the HSE and prices reductions for drugs bought by government.

Presumably the other €576 million in non-payroll cuts being sought across other departments are similar in nature. If that is the case then the Government has simply moved on to the medium-hanging fruit, having taken the low-hanging fruit in the last two budgets. The high-hanging fruit – to stretch the metaphor – of the reforms proposed by McCarthy and others remains undisturbed.

It’s easy to understand why the Government chose to go down this route. If, for the sake of argument, it had decided that instead of introducing stealth taxes in health it would instead bite the bullet on the issue of duplication and overlap among State agencies, it would have been fought on numerous fronts.

The agencies themselves would argue – as they have done – for their continued existence. And so they should – McCarthy and his colleagues are not infallible and their arguments need to be challenged on economic and fiscal grounds.

But once that battle is lost many agencies will use political leverage to fight for their survival. Most have political placemen on their boards who will not give up their sinecures and opportunity for local patronage easily. Many agencies also provide grants and services to individuals who are politically connected at a local and national level.

It is one thing for the Government to overrule the economic arguments that might be made for why such-and-such an agency should not be abolished, but it’s another to ignore claims by a political appointee to the board of some State agency, or a local party hack, saying that its closure will cost votes in a marginal constituency.

Throw in threats from “Independent” deputies propping up the coalition, and you start to see why making the chronically ill pay more for their drugs is a better option than reforming State agencies – or reform generally – if you actually have to deliver real savings to stop the State going bankrupt. This is before you have allowed for the need to get the public sector unions on board for reforms you have in mind.

Such is the price of democracy, Irish-style, and proportional representation in particular. The pros and cons of this is another day’s work, but it does raise a very big question mark over next year, and the three years after that, during which another €6.5 billion has to be cut out of the deficit.

The Minister implied on Budget day that he will do it without further tax increases. If he is serious he will have to take on those in his own party and elsewhere who still don’t comprehend the depth of trouble we are in – and the need for reform.