OPINION:Public sector waste costs €4bn per annum, but there is no political will to tackle it
THE INTERNATIONAL capital markets and the Brussels mandarins have been impressed by the Irish Government’s tax increases and expenditure cuts. They, of course, could not care less about deflationary implications or rising Irish unemployment.
Unfortunately, impressing the international establishment is not the end of the matter. We have to continue taking the painful medicine for at least another two years and, as George Lee recently reminded us, we may have to suffer deflationary consequences for even longer. This is a classic reminder that no economic policy is costless.
However, in Ireland’s circumstances there was, and is, a policy that would work and that would involve little or no pain. We know that the Government wants to claw back €4 billion a year and so get the Government deficit down to 3 per cent of GDP by 2014. But it does not have to raise taxes or cut expenditure to achieve these savings.
RTÉ recently estimated that €2 billion of social welfare spending each year is due to fraud and inefficiency. It follows from this that the amount of waste in the public sector as a whole is at least €4 billion per annum. As well as wasteful expenditure there is also considerable tax evasion. Real public sector reform would save this amount of money every year and avoid the self-flagellation of higher taxes and expenditure cuts.
The main problem with this proposal is that it will never be adopted by political parties. There are several reasons for this – ranging from clientelism to lack of management skills – but the main reason is the pandemic of political appointments to public bodies.
When the former taoiseach Bertie Ahern admitted openly that he had no compunction about appointing personal friends to State boards, no politician of any party criticised this practice, which is obviously deeply rooted in our political culture. The silence was deafening.
It is apparent that politicians of every hue wish to retain these top jobs in their gift because it helps them achieve popularity. Installing friends in top positions throughout the public sector also allows politicians to know what is going on in many different sectors of the economy. This was very important to the presidential style of Mr Haughey but it has now spread to all political parties. Public sector reform is simply not possible as long as this practice continues.
The practice of political preferment at the highest levels is disastrous for the economy and it should come as no surprise that waste of some €4 billion occurs every year. There are at present something like 850 public bodies and quangos in the country. They range from Dublin Bus to the HSE, from Iarnród Éireann to the National Consumer Agency, from the Dublin Port Company to the Dublin Docklands Development Authority, from regulatory bodies to ombudsman offices. The idea that bodies like these can be run by personal friends of politicians is absurd. What happens is that inefficiency and mediocrity become embedded in the system and valuable assets, owned by all the people, remain underutilised.
This is one of the main reasons why the public sector is in such poor shape, why so much taxpayers’ money is wasted, and why such a small contribution is made to the economy as a whole. First, many of the political appointees are out of their depth. They lack the basic knowledge to assess the senior executives or chief executive of the organisation in question. They will tend to rubber-stamp much of what is put in front of them. If in doubt they may revert to the politician who appointed them and canvass his or her views. This politicises the body in question and discourages innovation.
Second, there is a demoralising effect on staff, who soon realise that networking and political affiliation are far more important than expertise or efficiency. Written material sent to politically constituted boards need not be of a high standard. There is a general levelling down of standards which, after a while, is almost impossible to reverse.
Third, this practice gives the political ruling class the ability to influence events by stealth. For example, the appointees may be given “riding instructions” on how to handle certain issues. They will follow these instructions, but the Minister in question will remain invisible and need not be accountable. It is strange that political appointees do not seem to mind being used in this way. This influence by stealth is one reason people are sceptical about Nama. They do not believe it can be shielded from political influence, which can operate so easily from behind the scenes.
It should come as no surprise that bodies like Fás were out of control for years, spending €1 billion a year even at a time of full employment. The Dublin Docklands Development Authority is now in financial difficulties because of property deals, and is seeking a handout from the exchequer. Why did the authority of the Financial Regulator not curb the commercial property lending of Anglo Irish Bank and Irish Nationwide, which had clearly become the canaries in the coalmine? Were politicians ultimately behind the decision not to take any action? It is doubtful if any inquiry will answer that question.
Whenever a political party talks about the need for public sector reform, they should be asked where they stand on political appointments. That is the litmus test. It is unlikely that any government will ever grasp this nettle and introduce proper procedures for top-level appointments. Unfortunately, without this improvement it will be impossible to transform the public sector and reduce the fiscal burdens being unfairly borne by the ordinary citizens of this State.
Michael Casey is a former chief economic adviser to the Central Bank and former board member of the IMF