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.
