Four key issues concerning the long-term sustainability of public spending are being ignored
IT IS A bit of a stretch, I know, but suppose for one moment that European governments really were concerned with the long-term sustainability of public spending. What kind of things would we be talking about in Ireland right now?
Unemployment – the biggest single factor – is only now being addressed as an afterthought. The public payment of bank liabilities is a matter for a parallel universe; here are four issues that will shape government budgets in the coming decades but that are, apparently, not worth talking about:
OBESITY: Two-thirds of the Irish population is either overweight or obese. At least 370,000 children in Ireland – more than a quarter of all kids – are currently overweight or obese and the number is rising by at least 10,000 a year.
Leaving aside the personal and familial costs, the direct burden on State finances is horrendous. Three-quarters of all health expenditure in Ireland relates to chronic diseases, almost all of which are hugely influenced by obesity. In addition, obesity has a significant impact on the welfare budget, through unemployment and disability payments.
This direct fiscal cost of obesity in Ireland was officially estimated at €4 billion a year in 2005 – it is surely way beyond that now. There are also major indirect effects on State finances – a 10 per cent rise in obesity depresses GDP by 1 per cent, with significant knock-on effects for Government finances.
Everybody knows that this is a crisis. Everybody knows that obesity in itself will derail public finances in most of the western world over the next 20 years. Are we doing anything about it, like, for example, taxing sugary drinks? Are we even allowed to talk about it as a fiscal issue? Fat chance.
INVESTMENT IN CHILDHOOD: Leaving aside the basic questions of social justice and decency, it is well established that the best fiscal strategy any country can adopt is to invest heavily in early childhood care and education. Purely as a matter of responsible control of public finances, this is a no-brainer.
The Massachusetts Institute of Technology, to take just one of umpteen studies, reports: “Every dollar invested in quality early care and education saves taxpayers up to $13 in future costs . . . Failing to invest sufficiently in quality early care and education short- changes taxpayers because the return on investment is greater than many other economic development options.”
The fiscal benefits come directly in the form of much lower long-term spending on welfare, crime and health and indirectly in much higher productivity and more revenue. However, instead of investing in children, we’re making them bear the brunt of so-called “austerity” – poverty is increasingly concentrated in families with children.
More than one child in eight never eats a breakfast on a weekday. More than one in five sometimes goes to bed hungry.
This is morally obnoxious but it’s also fiscally reckless: children who are physically and socially neglected will cost the State a fortune when they grow up.
Ending lone-parent payments when a child reaches the age of seven without having in place an adequate system of childcare is just one example of an approach that will, as a matter of certainty, place larger burdens on State spending in the future.
PENSIONS: Ireland enjoys a huge fiscal advantage over other EU countries by virtue of having a particularly young population. One of the effects of this is that demand for health services is much lighter: the percentage of the population reporting good or very good health is the highest in the EU and is double that of Portugal.
Another is that the proportion of the population that is of working age is much higher than elsewhere, but we know that the number of people over 65 is expected to more than double over the next 30 years.
Basic fiscal responsibility therefore demands a pension system that works. If incomes drop off a cliff when people retire, the consequences are personally nasty – but they are also fiscally dire: more people directly dependent on the State, fewer able, for example, to pay for hospital or nursing home care.
Yet pensions policy is in an unholy mess. The National Pension Reserve Fund has been vaporised, largely because of the bank guarantee. Pension policy is based on encouraging people to invest in private pension funds. Their performance is abysmal: the average five-year return of Irish pension funds is minus 2.9 per cent. The average 10-year return is 2.2 per cent – and this is before the fund managers take their huge fees.
INEQUALITY: Inequality is enormously expensive. The health- related effects of inequality alone cost the Irish taxpayer about €6 billion a year. We know that inequality is increasing rapidly as a result of current policies, which means that these public costs will also soar in the future.
There are other issues that will have a determining effect on public finances over the next 20 years: environmental sustainability, oil dependency and management of natural resources, to name but three. If we were serious about balancing budgets, we’d be talking about them. The silence, in this case, is eloquent.