Showing posts with label Irish public sector reforms. Show all posts
Showing posts with label Irish public sector reforms. Show all posts

Saturday, June 16, 2012

16/6/2012: IMF Report on Ireland: Public Sector Pay Reforms

Continuing with analysis of the IMF Article IV report on Ireland, the first post dealt with headline assessments of economic performance and risks, the second post dealt with mortgages distress. In the present post, I am focusing on the IMF analysis of our public sector pay and pensions.

Box 5 on page 25 of the report [ as usual - emphasis and comments are mine]:

"Ireland’s compensation for public employees rose by 3.5 percentage points of GDP (and GNP) in the pre-crisis boom." [In other words, public sector compensation costs rose faster than GDP and GNP growth during the boom.]

"During 2000–08, the gross exchequer pay bill rose 118 percent in nominal terms, driven by staff numbers rising 35 percent and average pay increases of 61 percent. In ESA95 terms, by end-2008, compensation had risen to 11.2 (13) percent of GDP (GNP) and one-third of primary current spending, above European levels, especially the original 11 Euro Area economies." [Not only our public sector remuneration rose above that of the EA11 average, but it has done so during the period when public services delivered to the population actually contracted due to previous privatizations and the expansion of private services substitutes (e.g in education and health, as well as transport etc). The cost of maintaining diminished public services provision also rose despite the fact that we had progressively lower proportion of old age population that requires more extensive and more expensive public services.]


"The authorities’ immediate crisis response included pay cuts and a hiring moratorium, followed by a multi-year agreement with unions on staffing reductions and efficiency-enhancing reforms. After a breakdown of the tripartite Social Partnership Agreement in early 2009, public wages were cut by 13.5 percent, on average, over two years." [The IMF does not distinguish between cuts and pensions levy, although, as I pointed out on a number of occasions before, pensions levy is in effect a cut as well, since it is not ring-fenced.]

"The cuts were progressive, with those earning over €100,000 facing net pay reductions of up to 30 percent. In March 2010, the government struck a new multi-year deal (Croke Park Agreement (CPA)) with public sector unions, protecting workers against layoffs and further wage cuts, in exchange for a validation of the 2009–10 pay cuts and cooperation on voluntary retirements, redeployments and other efficiency measures (such as reform of non-core-pay entitlements) to help achieve targeted pay bill savings. Other measures since adopted or in progress include: for new entrants, a 10 percent additional reduction in salaries and a unified (less generous) public service pension scheme; for public service pensioners, a 4 percent average levy; and a €200,000 salary cap." [IMF fails to point out that the salary cap does not hold. However, IMF is correct in pointing out the progressivity of pay cuts. IMF also fails to note that at least some of the reductions have been achieved by effectively undercutting new staff and temporary staff pay and employment.]



"By end-2011, these measures had delivered net annual savings of €1.7 billion. Lower pay rates and staffing levels have helped reduce the net exchequer pay bill by €2.5 billion, but there has been a €0.8 billion increase [emphasis is from IMF] in the net pensions bill, the latter driven by a 53 percent rise in pensioner numbers since 2008 (mostly reflecting demographic trends, but also the
impact of early retirements). With additional net pay and pensions savings of €0.2 billion projected for
2012 and €0.6 billion over 2013–15, the ultimate annual savings by 2015 are €2.5 billion (or 0.7
percentage points of GDP). Nonetheless, as a share of GNP, the net exchequer pay and pensions outlay in 2015 is projected to be 0.4 percentage points below the 2008 level, representing a relatively modest decline." [It is clear that the IMF is not impressed by the dynamics in either pay or pensions savings. I would like to see a more detailed assessment of the 'demographics' trend that could have resulted in a 53% increase in the number of pensioners since 2008, but my suspicion is that it is completely imaginary.]

On the positive side: "The authorities’ approach, thus far, has helped keep industrial peace, protect frontline services, raise public sector productivity, and deliver agreed savings in a durable way. The cuts in employment have been strategic rather than across-the-board, focusing on the health sector while protecting teacher numbers given the rising number of school-going children. A similar targeted approach is being adopted on the pay side: by reining in hospital and police overtime costs (through smarter rostering) and sick pay. The authorities are also currently reviewing options in relation to out-of date allowances." [The focus on healthcare cuts relative to education is also consistent with IMF-favored, and I must agree with them here, adjustment path that stresses the need for skills retainment and investment during structural adjustments. It is also reflective of our younger demographics. Alas, the real issue, ignored by the IMF, is the currently inadequate healthcare system in Ireland, as well as the fact that majority of health costs cuts took shape via increases in involuntary private health substitution and costs. Shifting burden of healthcare onto those who cannot pay it (the middle class) while pretending that they are the 'wealthy who can afford private insurance' is a false 'saving' as it simply reduces the overall private spending and investment in the economy already starved of both, while faking non-tax 'revenues' increases and health sector balancesheet improvements.]



Saturday, January 7, 2012

7/1/2012: Irish Exchequer Results 2011 - Expenditure


In the previous post I looked at the tax revenues side of the Exchequer figures for 2011. The core conclusions emerging from that analysis was that:

Irish Exchequer tax receipts did not perform well in 2011 compared to both 2010 and the target, with most of the improvement (some 80%) accounted for by reclassification of the Health Levy as tax revenue and addition of the temporary, extra-Budget 2011 Pensions Levy.

Irish Exchequer tax revenues for 2011 cannot be interpreted as being indicative of any serious improvement. Factoring in Pensions Levy and delayed receipts (Corporation Tax receipts for December carried over into 2012), overall Exchequer revenue fell 3.1% short of the target set in Budget 2011, not 2.5% claimed by the Department of Finance.

The above shortfall amounts to 0.66% of the expected 2011 GDP and 0.81% of our expected GNP and comes after significant increases in taxation burden passed in the Budget 2011, suggesting that the economy’s capacity to generate tax revenues based on the current structure of taxation is exhausted.


Subsequent posts on the topic of Exchequer balance will focus on overall balance, capital spending dynamics and relative distribution of tax burdens. This post focuses on the expenditure side of the Exchequer balance.

In general, there are good reasons as to why discussion of the expenditure side of the Exchequer balance is a largely useless exercise, rendered such by:
-       Constant re-alignment and renaming of departments, and
-        Changes in the departmental revenues (as in the case with the Health Levy reclassification) impacting the Net Voted Expenditure on Health

Here’s a good post on the above caveats from Dr Seamus Coffey which is worth a read.


So let’s consider some of the higher level figures.

Overall Net Voted Expenditure for 2011 came in at €45.711 billion, or €723 million (-1.56%) below 2010 levels and with a savings of €3.602 billion (-7.3%) on 2008. The target for 2011 expenditure was set at €46.022 billion and the end outrun implies that the Government has under-spent the target by €311 million. Note: I am referencing the original Budget 2011 target, as referenced, for example, in End-June 2011 - Analysis of Net Voted Expenditure. The Department for Finance reference figure for the annual 2011 target is €46.151 billion or €129 million ahead of the original estimate. This discrepancy is reflected in part in the capital carryover figures for 2010-2011 and 2011-2012.



Year on year, 2011 marks the third year of declining cuts. In 2009 yoy spending fell €2.150 billion, in 2010 it declined by €0.730 billion and in 2011 the drop was €0.723 billion. In proportional terms, expenditure declined 4.56% in 2009, 1.57% in 2010 and 1.58% in 2011. Cumulated net expenditure ‘savings’ since 2008 are now standing at a miserly €3.602 billion. Given that over the same period we accumulated €81.017 billion of deficits clearly shows the inadequate extent of cost reductions in the public services. Whichever way you spin it, to cover just ½ of already accumulated deficits out of cost savings achieved so far would take decades, and that before we factor in interest payments and the fact that much of the ‘savings’ delivered to-date comes out of temporary cuts to capital spending. More on this in the forthcoming analysis of capital and current spending.

Now, since we cannot clearly de-alienate actual spending, let us at the very least consider the spending priorities. These have changed over the years and changed in the direction that, while inevitable in the current crisis, is worrisome nonetheless.


Please keep in mind that although I did try to adjust as much as possible for changes in departments compositions, the data below is not fully reflective of these. Nonetheless, it does present some interesting changes in the overall spending dynamics.

As shown above,
-       Agriculture, Food and the Marine net voted spending constituted 3.36% of the total spending in 2008. This now has fallen to 2.28%.
-       Tourism, Culture and Sport accounted for 1.43% of the total spending in 2008 and is now down to 0.60%.
-       Communications, Energy and Natural Resources share actually rose from 0.54% in 2008 to 0.55% in 2011.
-       Defence saw a relatively shallow decline from 2.16% in 2008 to 1.93% in 2011.
-       Education and Skills – the third highest spending department in 2008 and 2011 – remained relatively static with 18.31% of total spending in 2008 and 18.07% in 2011.
-       Jobs, Enterprise and Innovation share of total spending fell from 2.94% in 2008 to 1.73% in 2011.
-       Environment, Community and Local Government spending fell from 6.41% in 2008 to 3.39% in 2011 – the drop that largely reflects changes in the departmental composition.
-       Finance share of spending declined from 2.83% in 2008 to 0.75% in 2011 – a dramatic fall.
-       Foreign affairs and Trade, despite gaining a new function of Trade have seen their share of spending decline from 1.99% in 2008 to 1.51% in 2011.
-       Health – the largest spender in 2008 at 27.45% dropped to the second place in spending distribution with 28.25% in 2011 despite having lost a number of functions. Adding back Children function to the DofH, the department spending share rose to 28.7% in 2011.
-       Justice and Equality accounted for 5.25% in 2008 and this dropped to 4.84% in 2011.
-       Social Protection rose from being the second highest spending department in 2008 with 19.06% (virtually identical share to that of Education) to the first highest spending department in 2011 with 29.16%.
-       Public Expenditure and Reform – a new department that, at least in my opinion is failing to show much value for money so far – has managed to rake in spending amounting to 1.71% of total net voted expenditure in 2011 – higher spending priority than Foreign Affairs and Trade, almost identical priority to Jobs, Enterprise and Innovation, more than double the spending priority of the Department of Finance. Let us presume - for a moment - that the Department has two important, related, but not fully coincident functions: bring down current spending (since bringing down capital spending is no-brainer) and produce longer-term reforms of public services (which is not all about cuts, of course). Given the numbers achieved to-date - see forthcoming post on capital and current expenditure reductions - one should have serious questions about the new department value for money.
-       Taoiseach group saw its spending priority virtually unchanged over the years, declining marginally from 0.38% in 2008 to 0.37% in 2011.
-       Transport – the department with significant compositional changes – has seen its spending share decline from 6.47% in 2008 to 4.18% in 2011.


So overall, top 3 departments accounted for 64.83% of total net voted spending in 2008 and this figure rose to 75.48% in 2011. The rate of increase in these expenditure shares has accelerated over the years. Year on year, share of the three top spending departments in overall expenditure rose 2.97 percentage points in 2008-2009, 3.80 percentage points in 2009-2010 and 3.89 percentage points in 2010-2011. Once Children function is added back to Health, the rate of increase in 2010-2011 jumps to 4.34 percentage points.

Top 4th and 5th ranked departments (Justice and Equality and Transport) saw their combined share of spending declining from 11.71% in 2008 to 9.02% in 2011. This largely reflects changes in composition of the Department of Transport.

Together, Social Protection, Health and Children accounted for 46.51% of the spending in 2008 and this now is up at 57.88% in 2011. In other words, almost €6 per every €10 spent by the state goes to finance the two functions that constitute in traditional nomenclature social welfare benefits and social benefits (note that private spending on health is netted out via departmental receipts in the net expenditure figures). Education accounts for roughly the same share – ca 18% of total spend – in 2011 as in 2008. Economic sectors departments (other than Transport) used to account for 6.84% of the total spend in 2008 and this is now down to 4.56% in 2011.

In short, the priority of the Government spending over the years of the crisis has shifted firmly away from supporting economy’s productive capacity and delivering structural subsidies to ‘social and environmental pillars’, to serving social welfare functions and preserving as much as possible public health spending. It is worth noting that the latter, of course, has been achieved by shifting more costs burden onto the shoulders of health insurance purchasers.

Tuesday, December 13, 2011

13/12/2011: Sunday Times 11/12/2011

The unedited version of my Sunday Times article from December 11, 2011.



Billed as the Budget that will fundamentally change our fiscal policy over the long-term, the documents released this week have managed to make history. Indeed, Budget 2012 was a record-breaking one in three ways.

Firstly, Government’s retreat over the issue of disability payment cuts for the younger beneficiaries has to mark the fastest policy reversal ever achieved by the State. Secondly, by labelling new revenue measures in health services as expenditure cuts, Minister Howlin has managed to perform a minor miracle of transfiguration – transforming sweat and labours of ordinary insurance card holders who will now pay higher services charges into a Public Sector reform.

Thirdly, the Government set another speed record that will be hard to match. Within just 9 months after coming to power, the Coalition has magically morphed into a Fiana Failesque clone, replete with Bertie-style creative thinking which equates economic growth with property incentives.

The 2012-2015 profiling of spending and tax measures, released by the Department of Finance clearly shows that this Government has adopted Brian Cowen’s approach to crisis management. Tax measures are frontloaded into 2012 and 2013 at €2.85 billion out of the total €4.65 billion. The bulk, or €5.55 billion, of the spending cuts out of the total of €7.75 billion were delayed until 2013-2015. Within spending reductions planned, capital cuts are frontloaded into 2012-2013, while current spending reductions are pushed back. In other words, the Government is delaying the painful reforms in a hope that something turns up to rescue the Exchequer revenues.


This much is clearly reflected in the Department of Finance’s overly optimistic outlook for growth. The Budget estimates appear to reflect the Department November 2011 forecast for 1.6% 2012 growth in GDP. Subsequent revision downward to 1.3% projected GDP growth in 2012, revealed on Tuesday, seems to be a window dressing to suggest caution as they clearly were introduced sometime around December 5th and 6th – with no time alter core budgetary estimates. Afterall, the Department Monthly Economic Bulletin, released this Monday continues to project 2012 growth at 1.6%. Even at that, the Department projections exceed most recent forecasts by the ESRI (0.9% GDP growth) and OECD (1.0% growth).

Past 2012, medium-term projections envision 2014-2015 growth coming in at a lively 3.0% per annum, boosted by booming exports and investment assumptions. Balance of payments, the metric that reflects economy’s overall ability to generate external growth, will skyrocket more than seven-fold from 0.5% this year, to 3.7% in 2015.

The country drowning in the sea of middle class debt, collapsed domestic investment, crashed consumption, rampant emigration, skills drain due to excessive taxation and exploding growth in the black markets, in the view of the Department of Finance economics experts will shrug off the depression and get back to the business of filling Government’s coffers with cash.

Incoherent numbers set the stage for incoherent policies.

The Government that is concerned with deposits stability in the Irish banking sector and talks about the need for investment is frontloading capital cuts and has introduced three measures on DIRT, CGT and CAT that will do exactly the opposite of what it tries to achieve. The Government that incessantly drones about jobs creation has managed to publish a budget that will further depress investment, reduce disposable incomes and increase costs of doing business in this country. To make things worse, the Budget also made hiring workers more risky by increasing the future cost of redundancies. With measures like these, the only jobs creation that will be taking place in Ireland for the foreseeable future is going to be taking place in the Fas-run schemes.

The Government that talks about exports-led recovery has managed to introduce not a single measure to help exporters. An exports credit guarantee scheme and ringfencing of new tax incentives for marketing Irish goods and services abroad would have helped. As would a scheme to encourage technical skills importation in the sectors where such skills cannot be found locally. None came.

Plagued by declining tax revenues the Budget unveiled three measures – VAT, fuel and tobacco taxes increases – that will see Black Market economy booming once again at the expense of legitimate businesses.

On the expenditure side, the very same Government promising deep reforms loaded the Budget with small-scale measures that neither address the issues relating to the value-for-money in public services delivery, nor achieve substantive real savings, nor improve productivity in the sector.

Take one of the largest ‘reforms’ – the reduction in the numbers employed in the public sector. At 6,000 planned reductions in 2012, the target is un-ambitious. More importantly, it marks the very same ‘extend-and-pretend’ approach to change that is traceable across the entire Budget. Instead of taking the medicine upfront and setting a target at 12,000-15,000 reductions, the Government opted to increase uncertainty about future positions and promotions for those who stay in their jobs. The fact that even the shallow target is to be achieved solely through early retirement adds insult to the injury. Early retirement schemes solemnly lack any connection between employees’ suitability for their jobs, their performance on the job, and other meritocratic metrics. As the result, early retirement schemes will not enhance overall levels of productivity in the workforce.

Minister Howlin, and with him the rest of the cabinet, simply appear to be unaware of what reforms are supposed to achieve. What is really needed is a comprehensive independent review of all positions across all departments and subsequent involuntary removal of those who are unsuited for their jobs.

There is also no joined-up thinking on welfare system reforms. For example, introducing a refundable tax credit per child at a mid-range rate of, say, 20%, would make the credit automatically means-tested. This would also make the scheme virtually self-administered for the majority of the recipients and allow to focus more resources on the cases where special help is needed most.

There is a virtually hit-and-run feel to the Government’s grasp of what constitutes long-term change. At this stage in the crisis, it is clear that sooner or later, the sacrosanct basic rates of social welfare as well as the unlimited nature of benefits will have to come to the chopping block. There is no economic growth path that can get us out of this painful corner.

Yet, instead of tackling the problem head on, the Government attempted once again to move along the margins, selecting individual sub-groups of aid recipients in a hope of ‘striking gold’ – finding the least vociferous ones for the hit. This is done in a naïve belief that the loudness of the group complaints is somehow proportional to the need for assistance. The end result is that those most in need, but are present in smaller numbers, got the stick, while the able-bodied adults with lesser merit claim to help are getting their carrot.

There are no reforms of the public sector pay and pensions in the Budget. The gargantuan bill for new and existing state retirees will fall this year by just €500,000 and is expected to decline by less than 2.3% in years ahead.

With social welfare fraud rampant Minister Joan Burton cheerfully reported back in August this year that her Department delivered €345 million worth of savings tightening enforcement of the welfare payments in just 7 months of 2011. Why is then Budget 2012 aiming to generate just €41 million in new fraud reduction-related savings for the entire 2012?

Despite the rhetoric, Budget 2012 was another windows-dressing for avoiding painful reforms. The new curtains of ‘austerity’ will now adorn the rotten façade of state finances until the whole structure crumbles over the next 2 years under the weight of our debts and structural recession.


Box-out:

Back in July 2010, the Minister for the Environment published a relatively un-ambitious Report of the Local Government Efficiency Review Group. The report reviewed the cost base, expenditure of and the numbers employed in local authorities in Ireland. It identified some marginal savings to the tune of €511 million comprised of €346m in efficiencies and €165m in improved cost recovery and revenue raising to be gained from introducing very moderate set of reforms, such as joint administrative areas for some sets of counties; reductions in senior management and other staffing levels; greater efficiency in procurement; more use of shared services, such as joint inspectorates and regional design offices; and better financial management. None of these suggestions have made it into specifically costed savings under the Budget 2012. Which begs a simple question – why?

Monday, November 28, 2011

28/11/2011: Average Hourly Earnings Q3 2011 Ireland

Latest earnings and labour cost figures for Q3 2011 in Ireland are providing some interesting insights. This post will deal with data for earnings and the subsequent post will highlight findings for employment levels.

Average Hourly Earnings in:

  • Industry stood at €21.28 in Q3 2011, down 0.47% qoq and unchanged yoy. AHE in Industry are up 1.77% on Q1 2008.
  • Construction stood at €18.93/hour in Q3 2011, down 2.82% qoq and 4.30% yoy. AHE in Construction are down 1.82% on Q1 2008.
  • Wholesale and Retail Trade and repairs of vehicles and motorcycles are now at €16.39/hour, down 1.50% qoq, up 1.93% yoy and up 0.06% on Q1 2008.
  • Transportation and Storage AHE are at €19.18/hour, down 1.59% qoq,  -1.39% yoy and -3.76% on Q1 2008.
  • Accommodation & food services AHE are at €12.87/hour, up 2.71% qoq, +3.21% yoy and +2.88% on Q1 2008 (highest rate of increase in AHE on Q1 2008).
  • Information and Communication AHE are now at €27.36/hour, up 3.87% qoq, down 0.04% yoy and down 0.15% on Q1 2008 (currently third highest AHE).
  • Financial, insurance & real estate AHE are at €28.42/hour, down 2.27% qoq, up 3.12% yoy and down 14.60% on Q1 2008 (currently second highest AHE and highest decrease in AHE since Q1 2008).
  • Professional, scientific & technical AHE are now at €23.59/hour, down 0.08% qoq, down 2.64% yoy and down 3.52% on Q1 2008.
  • Administrative & support services AHE stands at €16.22/hour, down 0.61% qoq, up 5.39% yoy and up 1.44% on Q1 2008.
  • Public administration and defence AHE  down 0.95% qoq, up 0.31% yoy and down 6.44% on Q1 2008, currently at €25.99/hour (fourth highest AHE, but also second highest decrease in AHE since Q1 2008).
  • Education AHE are at €34.58/hour (highest AHE), down 0.83% qoq, up 4.06% yoy and up 2.46% (second highest increase) since Q1 2008.
  • Human health & social work AHE are at €23.54/hour, donw 0.63% qoq, up 0.09% yoy and up 1.90% on Q1 2008.
  • Arts, entertainment, recreation and other services AHE at €16.26/hour, up 1.12% qoq, down 1.22% yoy and up 1.31% on Q1 2008.
Charts below illustrate:




Private sector AHE are now at €19.22/hour compared against Public sector AHE of €28.54/hour. Total economy AHE are at €21.64/hour. QOQ, public sector AHE declined 0.972%, while private sector AHE fell 0.979% (virtually identical falls), while YOY public sector AHE is up 1.06% and private sector AHE is up 1.64%. However, relative to Q1 2008, public sector AHE is down 0.35% against private sector AHE down 1.13%.


As the result, AHE gap between public and private sector now stands at 48.49%, slightly up qoq on 48.48% in Q2 2011 and slightly down on 49.34% in Q3 2010.


Saturday, September 17, 2011

17/09/2011: QNHS 2Q 2011 - public sector v private sector trends

This is the second post on the data from QNHS for 2Q 2011.

Table below summarises data from QNHS results, showing changes for specific sectors of the economy as well as core figures for overall employment, labor force and unemployment.
Using the data from core QNHS we can compute decomposition of employment pool into three broadly defined subsectors, as shown below. The core trends here are the following:
Ratio of private sector employees to those employed in public sector now stands at ca 2.76 private sector workers per 1 public sector employee. Sacred yet? That ratio rose from 2.73 in (an improvement, in fact) qoq between 1Q 2011 and 2Q 2011, but is down from 2.78 in 2Q 2010 and 3.00 in 2Q 2009. In other words, there are fewer private sector employees now per each public sector employee than in either 2010 or 2009 or indeed in 2008 and so on.

The same is true across the specific sectors. There are more people in employment in education per private sector worker now than 2007-2010, there are more people employed in public administration per private sector worker now than in 2007-2010, there are more people employed in healthcare per person employed in private sector today than in any moment since 1Q 2004. This, after the allegedly savage cuts in numbers in public sector employment.

QNHS also now reports EHECS-based public sector employment estimates. Table 1.1 below (reproduced from QNHS release) shows the estimates of public sector employment broken down by the different high level areas within the public sector. I've added the red line below showing proportional allocation of employment - the number of private sector workers per each public sector worker. This only slightly differs from the same metric I derived above based solely on QNHS. Again, there are, broadly speaking, 2.82 persons working in private sector per each 1 person in public sector. A year ago, there were 2.86, 2 years ago, there were 2.85... savage cuts folks? Not exactly. Looks more like continued steady burden on private sector from supporting public sector employment.
That's a tough thing to swallow, folks. Per CSO: "The number of employees in the public sector showed no change over the year to Q2 2011. However, the employment figures for this quarter include 5,300 additional temporary Census field staff who were employed during the periods covering Q1 and Q2 2011. When these staff are excluded there was a fall of 1.3% in employment over the year to Q2 2011." Give it a thought, folks - a fall of 1.3% when unemployment rose 3.93% and underemployment went up 20.89% and employment fell 2.1% and private sector employment declined 2.4%.

"The number of employees in the public sector has continued to fall over the last three years with a total decrease of 24,600 up to Q2 2011 when excluding census field staff." Drama unfolds? Let's check that table above. Since 4Q 2008 through 2Q 2011:
  • Private sector employment is down 12.9%
  • Civil service employment is down 7.5%
  • Semi-states employment is down 8.5%
  • Total public sector ex-semi-states employment is down 5.5%
  • Total public sector employment is down 5.9%
Draw your own conclusions as to whether the Croke Park is delivering or not.