Notes on the Front

Over at Cedar Lounge Revolution, WBS is trying very hard to follow the logic of Noel Whelan.  He's made a good fist of it but, truly, Noel would exasperate Aristotle.  I've been tracking Noel's columns and have been reluctant to critique him too harshly.  He has been, crab-like, coming to somewhat sensible positions even if, on the way, he throws out some clangers (his claim that our consumption taxes are relatively low by EU standards is wrong – it's one of the few tax streams that's on a par).  But WBS has highlighted some of Noel's scatter-gun assertions that, whatever about their internal consistency, just don't stand up to analysis.  And in these days it is imperative we have fact-based commentary.

WBS quotes Noel:

Ireland’s public expenditure is too high. When measured as a percentage of GDP over the last couple of years it may have been comparable to euro norms but now that our growth rate has gone into reverse it is relatively high. We can no longer afford to keep the pupil-teacher ratio as low as we had managed to reduce it to in recent years, especially if we continue to pay teachers at the same rate without any increase in their classroom hours. We certainly won’t be able to do so if large chunks of the education budget continue to be spent on State subsidies to private secondary schools or on funding universal free third-level education. Neither can we continue to pay the same level of farm subsidies and grants while tacking such low taxes on larger farm incomes and imposing no taxes at all on land or farm assets.

This paragraph says it all; there's some good points (State subsidies to private secondary schools, farm subsidies on the back of low taxes), and some poor points (can't afford a proper pupil-teacher ratio or free third-level education).  But it all gets undermined by his main point – high public expenditure, or rather the assertion that we 'may have been comparable to euro norms' but now that we are in decline, our public spending is relatively high.  Never mind that Noel says 'may have been' (it either is or isn't and its easy to verify with hard numbers).  The fact is it wasn't, isn't, never has been.  Ireland is a low-spend country.  And here are the facts.

First, Irish public expenditure amounted to 35.4 percent of GDP.  The EU-15 average is 46.2 percent.  We are rock-bottom in the EU-15 table and in the full EU, only Slovakia, Lithuania and Latvia is lower. 

Now, personally, I believe (and I'm in a minority here) that GDP is a valid measurement.  It measures what the economy produces.  Most claim that we must use GNP because that measures what the economy keeps.  In normal economies, these two measurements are roughly the same.  But we have the phenomenon of multi-nationals taking huge swathes of wealth out of the country (approximately 14 percent).  However, what happens to the wealth that an economy produces is neither here nor there when measuring wealth production:  it could be taken out of the country, it could be given over to a handful of people, it could be piled up every autumn and burned to appease the harvest gods.  However, since I'm in a minority on this one – let's look at the GNP numbers.

Irish public expenditure amounted to 41.1 percent (GNP).  That's still 5.1 percent below the EU-15 average.  We rank in the bottom seven of the EU-27 along with Romania, Latvia and Slovakia.  To put budgetary numbers on it, we'd have to spend €8.4 billion more a year just to reach the EU-15 average.  If we did that we wouldn't have to turf kids out of school or deny girls life-saving medical treatment.  

But let's twist this statistical knife some more. The above refers to overall Government spending, including capital spending.  We are currently in a catch-up game when it comes to infrastructural investment.  For instance, in Munich they have four integrated public transport systems – underground rail, overground rail, dedicated trams and a bus network.  Yes, they have to maintain and upgrade it.  And when a suburb is built, they extend the system (those crazy Germans and their joined-up urban planning).  But this requires less capital spend than actually building a system largely from scratch.

So what happens when we just focus on day-to-day spending – the type that Noel emphasises?  We fall even further down the league, if that's possible.  Irish current public expenditure comes to 36.3 percent of GNP, the EU-15: 43.7 percent.  That's 7.4% behind average.  We'd have to spend an incredible €12.1 billion extra on public services and social transfers just to reach the average (and about an extra €22 billion a year to draw level with those whacky Swedes).

Where does that leave Noel's arguments?  In shreds.  But if you just step back a moment you wouldn't have to go through a bunch of financial tables to see that his argument is batty. 

'This country cannot continue to operate the low-tax, high-welfare, big-government model . . . '

This can't make sense.  If we have low taxes but high public expenditure, the only way we could swing that is to resort to borrowing.  But even the yapping residents of the puppy farm knows that our overall debt level is one of the lowest in Europe (our total net debt is 25 percent, in the EU the average is over 60 percent).  I know that Fianna Fail are many things, but they are not alchemists.  The reason why we have been able to sustain a low-tax economy while having such a low debt level is that we don't spend a lot.

Were Noel to argue that, given falling tax revenue and the recession, we have to cut spending – well, fair enough.  I don't buy it but it's a valid, if quite right-wing, political argument.  But to just invent arguments, make unfounded assertions, that bear no relationship to reality – that undermines the wider public debate and is an obstacle to understanding the mess we're in.  WBS is right:

If the messages emanating from our media are so inconsistent on these matters small wonder that our government is so visibly unable to deal with this situation in any sort of a sensible fashion.

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NOTE:  It's not like these facts are hidden away in some high security knowledge prison.  Take some time out and go to Eurostat's 'Government Finance Statistics'.  Have some fun crunching the numbers.  And send the link on to Noel Whelan.