Dempsey starts to loosen apron strings

Local government in Ireland celebrates its centenary this year, for it was in 1898 that the present system of county councils was established under British legislation. Yet there is little enough to celebrate; Ireland still has the most centralised governmental structure of any EU member-state.

That's the real context of this week's announcement by the Minister for the Environment, Mr Dempsey, on the funding of local authorities. But if his "new deal" tends to relax the virtual vice grip that central government exercises over what happens at local level, it will surely be a step in the right direction.

Predictably, the Automobile Association was first into the breach to condemn Mr Dempsey's intention to increase motor tax by 6 per cent over the next 12 months. His promise that the proceeds - about £320 million a year - would be mainly used to improve county roads did not impress the AA, which holds that motorists are over-taxed.

It is, of course, bizarre that more than half of the funding for local government is to be provided by the revenue from a growing army of motor vehicles. But this particular wheeze was not dreamed up by Mr Dempsey; the notion - unique in Europe, it has to be said - was put forward by his predecessor, Mr Brendan Howlin.

Mr Howlin, who had put local government reform high on his agenda, commissioned consultants to examine various funding options, based on a review of international practice. Having received their report in 1996, he proceeded to ignore what it had to say and, instead, fixed on the idea of using motor tax as a funding mechanism.

At the time the notion was denounced by Mr Dempsey, who said the system of local government "should not be towed behind the family car". Within a week of taking over as Minister he made it clear that he intended to revoke Mr Howlin's proposals and come up with his own. In the end, he effectively executed a U-turn on the issue.

The main difference between the latest scheme and what Mr Howlin had in mind is that this source of revenue will be largely tied to county road improvements. Mr Dempsey has also gone further than his predecessor in proposing a local government fund of £270 million, "ringfenced" from interference by central government.

Under legislation which he intends to introduce this fund will also be "inflation-proof" and its size will take account of new obligations which may be imposed from time to time on the local authorities. This should ensure that they will no longer be required to carry out extra duties without being given additional funds to do so.

Overall, under Mr Dempsey's deal, the local authorities will be some £120 million better off in 1999 than they are this year. And the Minister's advisers insist that all of this money can be used for discretionary expenditure on whatever they decide. To that extent, the deal represents a loosening of the apron strings.

As it is, the local authorities are entitled to use their income from commercial rates - currently £338 million - for discretionary spending, though obviously the wages and salaries of some 30,000 staff must count as a first call. To this they can now add the extra £120 million, plus a further £45 million from motor tax revenue.

That's what the Department reckons will be left over after the roads are paid for. So, altogether, the local authorities will have a total of £503 million to play with as they see fit. This represents just over a quarter of their overall budget of £2 billion; the rest is earmarked to fund programmes approved by central government.

The £2 billion includes capital expenditure such as national roads, water and sewerage schemes, housing and urban renewal programmes, all of which are fully funded by the Exchequer - usually with substantial EU aid. Thus, for most of the money that passes through their hands, the local authorities are merely agents of the State.

To qualify for £204 million in State aid for county roads they will continue to be required to submit detailed programmes to the Department, in line with the more planned approach adopted under Mr Howlin. This is seen as a more effective way of dealing with the pothole problem than indiscriminate block grants. The Department is also anxious to see the local authorities adopting a more environmental approach to the discharge of their functions, rather than the timehonoured practice of putting forward costly engineering schemes.

A decade ago, it was estimated that the local authorities had discretion over a mere 10 per cent of their budgets. From next year they will be in the happy position of being able to decide how to spend the additional resources - even, perhaps, on some mad millennium project which they could hardly have considered before now.

"There will be more discretion because there will be more money," said one senior official. "And as the local authorities become more efficient, the apron strings will be loosened further. This is already happening in the case of housing and staffing, which used to be controlled from the Custom House. Things are changing all the time."

He stressed that the Minister was committed to implementing other elements of his predecessor's reform programme, such as giving a greater role to councillors through the establishment of strategic policy committees on each local authority. Mr Dempsey will be hosting a seminar on this issue early next month.

However, pinning 54 per cent of local government funding on the proceeds of motor tax can hardly be regarded as an environmentally sustainable approach. Its main advantages in revenue terms is that it is "buoyant", because more and more people are buying cars, and that the proposed 6 per cent increase will hardly be noticed.

It is also, in a sense, the last resort for a political system which cannot bring itself to rectify a mistake of mammoth proportions - the abolition of domestic rates. Brendan Howlin once declared that he had no intention of committing political suicide by proposing that rates should return, and most politicians would agree with him.

Domestic rates were abolished 20 years ago, fulfilling a rash promise made by Fianna Fail in its "giveaway" manifesto for the 1977 general election. There is hardly a single local authority official in the Republic who thinks this was a good idea; indeed, it did more than anything else to emasculate local democracy in Ireland.

It also virtually ensured that our income tax rates would be among the highest in Europe. With domestic property out of the equation, what else could governments do - at least until the advent of the Celtic Tiger - but to add more to the impositions of PAYE and PRSI, not to mention VAT? The revenue had to come from somewhere.

As Mr Howlin said a year ago when he introduced his "Better Local Government" programme, the funding of local authorities is "a difficult and thorny issue which successive governments and ministers have avoided" - even though they had all found it increasingly difficult "to keep the wolf from the door".

Mr Dempsey is no different in that respect. Neither he nor his Cabinet colleagues have the stomach to return to rates, so the "hard-pressed motorist" - as the AA would see it - is being required to bridge the gap between economic necessity and political cowardice. Is this not merely yet another Irish solution to an Irish problem?

And if the Government is truly committed to restoring "real decision-making and power to local authorities and local people", as its own programme said last June, why is it that the Dail will shortly be considering legislation to defer local elections until 1999, extending the term of office of current councillors to an unprecedented eight years?