Economic Analysis:Estimates fail to say if efficiences are saving money, writes Marc Coleman, Economics Editor
The word economics comes from the old Greek word for housekeeping, Oikonomos. And as anyone knows good housekeeping is concerned with two things: what is being spent and what is being received in return.
According to the latest Estimates for Public Services and Summary Capital Programme, published yesterday, the Government will spend an extra €3 billion of our money in 2006.
Although one of the largest increases ever seen in nominal terms, spending will rise by only 7 per cent over the €45.5 billion due to be spent by the end of this year. This year spending rose by 6 per cent, implying a "steady as she goes" approach. The first reason for this approach harks back to 2001, a pre-election year in which government spending rose by 16 per cent. Our environment is more hostile to this kind of thing.
The Government is anxious to avoid the accusations of a pre-election binge and a single-digit increase in public spending leaves it less exposed to criticism here.
Of course the planned increase in spending is subject to upside risk. For a start, the budget will contain provisions for additional spending on social welfare measures.
Next summer the Government will have to replace the current pay deal with public sector unions, putting further upward pressure on public sector pay and pensions. These already account for the lion's share of overall spending and spending growth.
In themselves modest spending increases are not necessarily bad for the Government's election prospects. The lower the spending growth commitment in the Estimates, the more scope there is for tax cuts and welfare increases that can be aimed at specific voters.
And that scope is already good. With revenues likely to grow by 9 per cent at year end, the Government could start the budgetary season with up to €2 billion more to play with.
If nominal economic growth grows as expected, by around 8 per cent, and revenue growth keeps pace with that, then the Government's latest spending plans leave ample room for budgetary generosity. These are likely to be aimed at childcare as well as tax cuts for the lower paid. For the latter reason, a binge in public spending is hardly necessary. Even before the SSIAs, personal borrowing is rising by over 20 per cent. With the private sector already enjoying a binge of its own, further help from the Exchequer isn't needed.
The IMF recently urged Brian Cowen to cut public spending. The Central Bank less unrealistically called for a "neutral" budget. The Government has not followed this advice and it has not ignored it either.
But coming back to housekeeping issues: where is the money going and is the efficiency of Government spending going to increase? As in recent years, the Departments of Health, Education and Social Welfare continue to get most of the spending. The health service will get an extra €750 million, targeting primary care, new hospital units and disability services.
Some of this extra spending will be financed by higher contributions from those attending A&E wards, as well as increased charges for private use of public sector beds.
Education spending will rise by €530 million, with resources targeted at reducing primary school pupil teacher ratios. The Department of Social and Family Affairs will receive at least €98 million, but further spending rise are likely on budget day.
An extra €146 million will be spent on the Department of Justice, to fund planned increases in Garda numbers and extending operations against organised crime.
Some of the smaller spending increases are significant. The Department of Enterprise, Trade and Employment will boost spending on the Competition Authority and the new National Consumer Agency, proving that Eddie Hobbs still haunts Government.
And spending on overseas aid will rise by €129 million, bringing Ireland significantly closer to achieving its target of spending 0.7 per cent of gross domestic product by 2012.
Criticisms of the Estimates have already materialised. Capital spending in net terms will rise by just 2.9 per cent. And a lump of capital spending, around €280 million, remains undigested and carried forward to next year. Groups as diverse as the Labour Party and Dublin Chamber of Commerce are disappointed in what they see as an inability to deliver on capital projects.
More seriously, the Estimates totally fail to say whether - and if so - how much money the Government has managed to save through greater efficiency.
And even if spending grows only in single digits, it will be faster than the rate at which public services are being improved.