Value for money seems an alien concept

Economics: McCreevy has promised tighter management where public finances are concerned but can he really change an age-old system asks Cliff Taylor?

Would you pay a bit more in tax to get better public services? An extra percentage point on the income tax rate for a better health service? A bit more in car tax to pay for better roads?

It sounds like a reasonable deal - pay a bit more and get better services. But given the record of the Fianna Fáil/PD coalition on managing public spending I, for one, don't want to pay a penny more. Not, at least, unless I can see that it will be well spent.

Take the health service. The report of the Commission examining value for money in the health service, chaired by Professor Niamh Brennan and due to be published in a few weeks, contains extraordinary examples of profligacy and mismanagement.

Here's one. In the election package of December 2001, the Minister for Finance, Mr McCreevy, decided he wanted to extend medical cards to people over the age of 70. The Department of Health, according to the Commission's report, says it only heard about the proposal "a few days" before budget day. It rushed out an estimate to Finance that 39,000 people would benefit at an annual cost of €19 million. It subsequently transpired that 77,000 people would benefit at a cost of €55 million.

Did Mr McCreevy think up the idea at the last minute? Was it not assessed at the round of pre-budget meetings? Can the Department of Health not count? The commission concluded that it is a "stark example of totally inadequate planning and control".

Worryingly, the commission report finds a pattern. For example, the funding necessary for the General Medical Card Scheme (GMS) has been consistently underestimated. Since 1997, the estimated annual average increase in GMS costing pencilled into the budget has been 6.8 per cent. The actual out-turn averaged 21 per cent. This year a rise of 5.2 per cent is predicted. So much for learning from experience.

And a final example from the report. A 2001 pay deal for childcare workers had an estimated cost of €4.7 million per annum. The actual cost was €11.4 million. When the knock-on effect to other grades is counted, it climbed to €45-€50 million.

The report has recommendations to improve management and accountability, all of which seem sensible. But what a pity none of this was noticed before we more than doubled health spending over the past five years.

Health is not the only area where value for money is a crucial issue. The National Development Plan (NDP), which plans major investment projects, has suffered from massive inflation caused by inadequate planning and by pushing up spending sharply in a booming economy.

A report by Farrell Grant Sparks Consulting and economist Gerry Boyle illustrated the point. Examining increases in the cost of undertaking projects under the NDP in 2000 and 2001 - due to sectoral inflation and increases in other costs - it found the cost of building national roads increased by 31 per cent on average in each of the two years. The cost of public transport rose 16 per cent annually, as did health building costs.

As Prof John FitzGerald of the Economic and Social Research Institute (ESRI) writes in the latest edition of the Irish Banking Review, "the problems. . . over the last few years have had less to do with shortage of finance than with the inability of the economy to produce the infrastructure at a reasonable cost".

He says a number of studies conducted before the latest NDP started in 2000 highlighted the danger of much of the money being "eaten up" by higher inflation. A key ESRI document said steps were necessary to try to lower the demand from the private sector for a period. This advice was not heeded.

Meanwhile, the lack of a coherent planning framework that, for example, matches housing with public transport and adds in appropriate educational and recreational facilities, is obvious. And the planning process continues to condemn many projects to extraordinary delays.

The argument that we should borrow or raise taxes to complete infrastructure projects thus misses the key point. We should be sure we can complete them efficiently and on time before doing either.

In the light of the experience of the past few years, are we getting any better at applying the value-for-money calculus? Mr McCreevy has promised much tighter management. Listening to his budget speech it was hard not to hear the thud of the stable door as the horse whinnied a few miles down the road. However, better management has to start somewhere and better now than later.

The pity is that there will be much less money to spend over the next few years, as slower growth diminishes tax buoyancy. And much of what there is will go on benchmarking pay awards to public servants.

Benchmarking is part of the national agreement voted through by unions and employers this week. The benchmarking report - and the subsequent National Economic and Social Council document advising on the agreement - recommended that significant increases in productivity must be achieved in return for benchmarking. So how does this deal measure up?

There have certainly been some concessions from public servants. But again and again in the agreement, key issues - the ability to recruit from outside the Civil Service, the introduction of promotion on merit, the hours of operation of health services - are made subject to further talks and negotiations. Phrases such as "we will work energetically" to agree on such issues are sprinkled throughout the agrement. On the specifics, things are not tied down.

Teachers, who are to receive 13 per cent, have committed to introduce, from the next school year, certain minimum flexibility on the holding of parent-teacher meetings as agreed and paid for under a previous national programme - the Programme for Competitiveness and Work, which ran out in 1996. Further talks will be needed before introducing additional flexibility in this area, with the aim that this will happen for the 2004/05 school year. But no detail is yet agreed.

There is a mechanism to try to ensure that the money is only paid when the concessions are given. However, surely agreeing the deal before settling on the sum to be given in return would have yielded a better result. I would be willing to bet a large amount of money that the monitoring mechanism will not hold up any of the payments due under the benchmarking award. The required major improvement in public services in return for the bill of at least €1.5 billion a year is thus far from certain. Again, huge amounts of money are committed with no guarantee of value in return.

So when our political masters reassure us that the upward creep in taxes in the next few years is necessary to maintain or improve public services, the answer should be clear. You wasted too much of our money in the past few years. How can we be sure you won't do so again?