McCarthy revenant…

Colm McCarthy is back! Although in truth he’s never gone away. As could be read in the Irish Times last week…something Garibaldy noted in this post.

Minister for Finance Brian Lenihan announced yesterday that he has appointed economist Colm McCarthy, who led the body that recommended €5 billion in public service cuts last year, to chair the new Review Group on State Assets.
It is charged with looking at the possibility of disposing of public-sector assets, including commercial State companies.
According to a preliminary list published yesterday by the Department of Finance, the organisations it will cover include all major State companies, such as ESB, Bord Gáis, RTÉ, Iarnród Éireann, Dublin, Cork and Shannon airports, (all owned by Dublin Airport Authority) 10 port companies and Bord na Móna.

And check this out…

The group’s work won’t necessarily stop at establishing if the companies can be sold. It will also consider how best they can be used to boost growth and contribute to the State’s own investment plans.
Where appropriate, the group will be able to scrutinise companies’ investment and financing plans, business practices and regulation.
They will also have to examine any liabilities that the State may have as a result of owning these businesses.
For example, many of the companies involved have pension deficits. Bord na Móna said this week that the shortfall in its staff retirement fund was €20 million at the end of last year.

It will be most interesting to see if McCarthy can countenance profitable companies being kept within the public sector. Or as importantly unprofitable ones, because some have social and societal functions above and beyond profitability. Although it was very very slightly heartening to read the following…

Eamon Ryan, the Minister for Energy and Natural Resources, whose department is responsible for many of the companies and assets involved, indicated that he would not like to see energy companies such as the ESB and Bord Gáis sold.
The Minister said he wanted to engage fully with the group, and would both listen to it and make his own views known.
However, he added that he was “loathe to break up business models that were working” in the energy sector, and pointed out that these companies had plans to invest €30 billion between them in Ireland over the next decade.

Mind you, it’s some pass where we’re dependent upon the GP stepping up and stating the bleeding obvious on such matters.

Useful too to read Harry McGee in the Irish Times opining that on foot of last week’s Cabinet meeting in Farmleigh…

Yesterday, Ministers leaving the meeting confirmed that the bulk of the €2 billion savings on the current side will come from cuts rather than new taxes. To that end, some of the more politically tricky cuts identified by “An Bord Snip Nua”, chaired by Colm McCarthy, are now under active consideration. The McCarthy report made recommendations for cuts that came to almost €5 billion, many of which have yet to be implemented.

Although surely this is a story, ‘cuts rather than new taxes’ which has been widely trailed both in the Irish Times prior to this and in other newspaper and media outlets.

So, very much a case of same as it ever was. But what’s striking to me – reconsidering McCarthy – is how little scope there genuinely is for cuts in expenditure, and it’s telling that Harry McGee seems to take it as read that the Report was implementable in full.

I don’t want to seem overly sanguine about this, because cuts there will be and I’m very doubtful about their efficacy as well as being entirely certain about their detrimental impact for the most part. But there are political and practical limitations as to what can be done.

And even the government is congniscent of this…

In the wake of the Croke Park agreement between the Government and public sector unions, the salaries of public employees are protected. Therefore, cuts in departmental budgets will lead to cuts in services. A focus of the continuing discussions will be “politically proofing” cuts to ascertain their effect on the public. The Government wants to avoid, if possible, unpopular and politically damaging budget-day decisions, such as the scrapping of pensioners’ medical cards in 2008.

So we have unleashed a language of equitability:

For its part, the Green Party has said it is fully committed to the €3 billion in cuts, notwithstanding the ambiguity and uncertainty voiced by its finance spokesman Dan Boyle at the MacGill Summer School in Glenties this week. On the record, the party has said that it wants to protect education spending as well as homeless funding.
“There must be cuts but they must be as equitable as possible. That is what we are working towards,” said their spokesman in Government yesterday.

And remember, the Labour Party too is committed to the €3bn cuts.

But take this as an example of how the idea that there’s ‘fat’ in public expenditure is fairly wide of the mark:

On the expenditure side, while each department has been asked to prepare its proposals for cuts and efficiencies, the substantive discussions will begin only from September when bilateral meetings are held between the Department of Finance and individual departments.
An average cut of 5 per cent in each department has been mooted, with the Departments of Social Protection, of Education and Skills and Health and Children expected to bear the brunt of the cuts. It is also expected that one of the key elements of the McCarthy report – the reduction in the number of State agencies or quangos – will be tackled. The Government spokesman said last night that the “McCarthy report is still there to be used as deemed necessary”.

Consider these thoughts of Michael Taft’s soon after the release of the McCarthy Report.

The point is that many of these changes, many of these ‘reforms’ that were so loudly trumpeted are either demonstrably less revenue rich than was proposed or would require structural changes that would take many years to implement (the merging of certain third level institutions is a perfect example of that – at its most rapid such a merger would take two, three, perhaps five years). And that is to put aside the pernicious effects of many of them.

That’s not to say that everything in McCarthy was a bad idea. I’ve noted before that in the report there are some good and sensible suggestions. Progressives should never be afraid of increased efficiency in service provision, particularly as we want to extend such services, but by the same token neither should we be blind to practicalities or constraints (moreover taking public sector pensions and the levy as an instance – and McCarthy mentioned them despite them being beyond his remit – I’ve never personally been against that as long as it was part of a serious reworking of all pension provision – sadly the enthusiasm to rework the PS pension has not been matched by any similar enthusiasm to deal with the abysmal lack of stability to the public pension or the private sector pensions area, which is a clear indication of the limits of genuine ‘radicalism’ this government, and any feasible successor might offer).

And what about this extremely pertinent observation by Conor at Dublin Opinion on the child benefit ‘debate’. The ‘unfair and problematic’ excuse seems somewhat implausible given the complexities of the tax system apparent to those of us who have to file returns outside PAYE [paying tax ahead of time during the tax year – nice!]. He’s not far wrong, this is popular with the self-described middle classes and presumably constitutes yet another ‘third rail’ of Irish politics which politicians touch at their peril. The pity is that child benefit is an excellent example of a universal benefit which no more needs means testing or direct taxing but could, as it should be (and strictly speaking is – despite the benefit being cut), funded through general taxation and specifically increased higher taxation on higher earners.

Again, I’ve more thoughts on this example of the limits of the possible which I’ll post up soon.