In poor health

Growth in demand and pay means dissatisfaction with State-funded services remains high, writes Paul Tansey.

The level of current public spending planned for 2007 is almost €20 billion higher than in 2002. Over the past five years, day-to-day Government spending has risen by more than half.

The scale of current public spending can be gauged from the fact that each and every day during 2007, the Government will be spending €150 million on the provision of public services and the disbursing of transfer payments, of which old-age pensions and child benefit are among the most important.

Yet despite a sustained surge in public spending, the electorate remains unconvinced that public services have improved appreciably over the past five years.

Even the Government itself appears puzzled that its public spending spree has failed to deliver more visible results.

And the extra cash has certainly been spent. In 2002, public spending on day-to-day services such as health and education and on State benefits amounted to almost €35 billion. Total current expenditure is budgeted at €54.7 billion in 2007. Thus, in the space of just five years, annual current public spending has risen by €19.7 billion or by 56.2 per cent.

So, with all the extra spending, why are the outcomes, particularly in the sphere of public service delivery, perceived to be so disappointing? Where is the ghost in the public service machine?

Of the four major components of current public spending, national debt interest is no longer a significant drain on exchequer resources, while subsidies are relatively small.

The remaining two components - transfer payments and public spending on goods and services - account for more than 94 per cent of all day-to-day Government expenditure.

Total spending on transfer payments has risen by two-thirds since 2002. Payment rates have increased substantially. For example, the personal rate for the State contributory old-age pension has risen from €147.30 a week in 2002 to €209.30 a week in 2007, an increase of 42.1 per cent, or €62 per week.

Similarly, monthly rates of child benefit for both the first and second child have been raised from €117.60 in 2002 to €160 in 2007, an increase of 36.1 per cent.

With consumer price inflation estimated at 17.3 per cent over the five years 2002-07, there have been substantial improvements in the real purchasing power of the principal State welfare benefits during the Government's term of office. Many may still feel that the levels of such benefits should be higher, but social welfare payment rates are not the primary source of voter discontent. The principal object of the electorate's ire is clearly centred on what it sees as the inadequate provision of public services, especially in the key areas of health, education and policing.

It is estimated at €27.7 billion for 2007, an increase of €9.4 billion or 51.7 per cent on spending levels five years ago. Thus, Government spending on public services since 2002 has risen almost three times faster than the 17.3 per cent rate of consumer price inflation estimated for this five-year span.

How can it be that such a major increase in public spending has left so many people still in the queue for public services, particularly in the sphere of healthcare? The answer lies in the interplay of two factors: supply and demand.

First, despite the jump in spending, the supply of public service workers - and particularly those in frontline positions actually delivering services to the public - has not risen significantly since 2002.

By their nature, public services are extremely labour-intensive. Public services require public servants to deliver them. Public service numbers increased by 8.3 per cent between 2002 and September 2006, or by 2 per cent a year.

Moreover, there is a suspicion that a large slice of the addition to the public service workforce in recent years consists of administrators and managers rather than of frontline service providers. It should be pointed out, however, that published data on public service numbers are available only to September 2006, and there may have been significant additional hirings since that date.

The public service workforce increased by 23,600 or by 8.3 per cent between 2002 and 2006. Additional jobs in education and health accounted for 19,700 of the net employment increase.

Much of the disappointment with public service provision in recent years stems from the slowdown in public service recruitment.

Admittedly from a much lower base, under the previous government, public service employment increased by 55,700 or by 24.4 per cent, between 1997 and 2002, with almost 15,000 positions being added to the education payroll, while employment in health increased by 27,800.

Thus, in the years since 2002, a very large increase in State spending on public service provision has purchased a relatively small addition to the number of public service providers. And it is the number of frontline public service staff that ultimately determines the quantity and quality of public services.

The reason why so much additional State money purchased so few additional public service providers lies in the rate of growth of public service pay. The pay and pensions bill for the public service increased from €11.2 billion in 2002 to a planned €17.5 billion this year, an overall rise of 56.2 per cent over five years.

In essence, the scale of pay increases in the public service effectively pre-empted the delivery of additional public services to the electorate by making it too expensive for the Government to hire additional staff.

But if the adequacy of public services in recent years has been tested by the relatively slow growth in the supply of public service providers, it has also been strained by the increase in the demand for public services.

The second reason why the electorate is disappointed with the performance of public services lies in the fact that more people are seeking access to these services.

Between the censuses of 2002 and 2006, the State's population increased by 322,000 or by 8.2 per cent, or by roughly 2 per cent a year. Moreover, the Irish population is ageing and an older population consumes more public services.

When population growth since 1997 is taken into account, there has been little change in the number of public servants per 1,000 of population between 2002 and 2006 while the number of frontline public service workers - in health, education and the Garda - has edged ahead marginally since 2002.

The experience of the 2002-2006 period contrasts sharply with performance between 1997 and 2002, when public service numbers increased substantially per 1,000 of population.

Thus, much of the public dissatisfaction with public services stems from the fact that, since 2002, growth in the supply of public services, as proxied by the expansion in public service numbers, has only marched in step with the growth in demand, as evidenced by the scale of population change in recent years.

Barring substantial productivity growth, this leaves no scope for any improvement in public service provision or delivery to the average individual voter.