Public Spending and the Choices Facing the Next Government

Dr Nat O’Connor[i]

Key words: Public Spending; Taxation; Public Services; Public Sector; National Budget, Government Spending

The full report is available here: Ireland’s Public Spending Explained 2024.

Introduction

Ireland has six political parties that might plausibly form part of a government, and none of them has an agenda to raise taxes to any significant degree. Most of them probably agree with the plan to slowly raise social insurance (the rate is going up by 0.1 percentage points in October 2024) and those leaning to the left are more likely to tighten up on tax avoidance and might talk about taxing wealth. Several parties promise tax cuts, including cuts to income tax (above inflation), cuts to carbon taxes and cuts to local property tax.

Given the lack of political appetite to significantly raises taxes, any government that offers ‘change’ will have to grapple with the existing distribution of public spending, and perhaps make some hard choices about where to spend less, or where to cut spending altogether. This can seem easy from the comfort of a desk, armed with nothing more than a spreadsheet and a copy of the Revised Estimate for Public Services, but closer examination of every area shows that important, if not essential, services are provided by each public spending programme.

A new report that launched this week, Ireland’s Public Spending Explained 2024, gives insight not only into where money is being allocated but also to the range of goods and services provided through government departments and state agencies. The report is not a criticism of public spending. On the contrary, the report gives readers a way to get to grips with the complexity of where €114 billion+ will be spent in 2024, and the report showcases the value of many spending programmes. Nonetheless, the report does allow questions to be asked about whether we are getting enough value for money in some areas—or simply whether we know enough about what we are getting for the public’s money.

Local Government

The first question mark is over the €12.4 billion (estimated) to be spent by local government. This is not to say that local government is getting too much money. As the report shows, Ireland’s spending through local government is one of the lowest in the EU, with only Greece, Cyprus and Malta spending less, and most European countries spending proportionately five times more than Ireland through local and regional government. If anything, public spending here is far too centralised, whereas stronger and more transparent local government would bring public spending much closer to the people it is meant to serve.

The problem here is that the local government budget process is too obscure. Local authorities rely heavily on central government funding, so it is only after the national budget that local budgets are drawn up. Local budgets are not published until several months after the year has begun. This is not efficient, and it would make much more sense for central government to allocate grants to local government by June the previous year, so that local government can publish its own budgets before the next year begins. There is almost no media coverage of local government budgets, unlike the rolling coverage given to the national ‘budget day’, which doesn’t help people understand where the money is spent in their own areas.

Future Ireland Fund

The second question relates to the €4.3 billion allocated to the Future Ireland Fund. It was a good idea to save surplus corporation tax revenue that isn’t certain to be there in future. But where will this money be invested? There is a risk that it will be invested abroad, chasing higher interest yields, but this loses an opportunity to invest this money in Ireland, especially in less economically developed regions. A solid return—and major social and ecological benefits—could be made by changing the nature of how this money is invested, while still having it there as both a national reserve and, in future, a revenue stream to help fund the state pension and other growing costs.

Housing

Another question is about the €4 billion going to housing. We have a housing crisis, so it makes sense to invest. But a quarter of this investment is spent renting around 100,000 homes from the private sector (through HAP, RAS and long-term leasing). It would make much more sense to build or acquire more housing stock, as then the state would retain the capital value of that housing as a future asset, but obviously those tenants who are currently supported need to stay housed while the government invests in new builds. Spending more money on housing seems to be the only way to get out of this rental trap. Could this be a use for the Future Ireland Fund? This fund could even offer to buy up some of the housing that we are currently leasing.

Primary Care Reimbursement Service

The primary care reimbursement service will cost nearly €4 billion in 2024. This is the cost of payments to GPs, pharmacists, dentists and others for Medical Cards, GP Cards, the Drug Payments Scheme, etc. We need to know more about what value we are getting for this investment. Wouldn’t it be cheaper to have a universal primary care system, like every other country in the Western EU and many in the East? How much profit is made from this scheme, given that most GPs, pharmacists and dentists are private businesses?

National Debt

The National Debt Servicing, at €3.8 billion, is probably as good as it gets in terms of the relatively low interest rates Ireland pays to borrow money these days. It’s a far cry from 2009! But the issue here is more about whether we should invest more to pay down the national debt. It is still huge; not least due to the debt taken on to bail out the banks, most of which will never be repaid. It is a strategic vulnerability for Ireland to carry such a large debt, especially as the sudden inflation shock from 2020 has left us vulnerable to higher interest rates in the market. Unfortunately, like with housing, this will require more tax revenue, not less.

HSE Other Operations and Services

The €2.4 billion for HSE Other Operations and Services is the most unsatisfactory estimate of spending in the report. It’s just the money left over when every other area of health spending was explained, and while the HSE’s national service plan does provide a list of headings, from screening and cancer control through to doctors’ training and quality assurance, more clarity is needed about the whole health budget so that better strategic decisions can be taken. This applies equally to the €1.7 billion for primary care and the €1.5 billion of health capital spending. The health budget simply isn’t properly aligned to the national budget.

School Infrastructure

A relatively minor question, but still one that might add up to tens of millions, is how much of the €2.3 billion spent on school infrastructure is for the long-term hire of portable cabins and other temporary structures for schools, rather than permanent school buildings. Like with housing, long-term leasing makes no sense for the state, as the state will still be here in 30 or 50 years to reap the benefit of owning the asset once it is paid for, whereas the alternative is to be leasing temporary buildings forever.

Water Infrastructure

Ireland’s water infrastructure needs investment, for both fresh water and wastewater treatment. But we are already spending €1.8 billion—€1.59 out of every €100 of public spending. One of the main problems is the relatively high level of water use per person in Ireland compared to elsewhere. In other countries, unsurprisingly, when people pay even a small amount for water it gives them an incentive to fix their leaky pipes. Otherwise these pipes never get fixed because they are on private land where Uisce Éireann/Irish Water can’t access them.

Concluding Thoughts

These examples all come from the top 30 spending programmes, which account for 81% of public spending in 2024. More questions could be asked of other programmes, but the scope for saving tens or hundreds of millions is reduced as budgets get smaller. That leaves the question of whether we want to keep spending any money on certain areas. For example, do we still need the same level of subsidies for business in a time of full employment as we did when the economy collapsed? Ireland has a very high rate of imprisonment compared to other countries, with prisons costing €446 million (over €84,000 per prison space per year). Community sentences for non-violent prisoners could make a lot of sense to create more humane conditions and reduce prison over-crowding, while also saving public money. How much tax revenue do we get from betting or profits for the €95 million per year Horse and Greyhound Racing Fund? And don’t forget that tax expenditure (tax reliefs and tax breaks) costs over €7.1 billion.

Or maybe the political parties should just look at how much taxation other countries raise without their economies collapsing or their societies crumbling. With our ageing population and the uncertainty about future corporate tax take, it is inevitable that Ireland will have to strengthen its tax base, so better to think about this now, rather than wait for the next economic crisis.

The full report is available here: Ireland’s Public Spending Explained 2024.


[i] Dr Nat O’Connor has taught politics and social policy since 1999, and is currently an occasional lecturer in Maynooth University and UCD. He has a PhD in political science from TCD and a MA in political science and social policy from the University of Dundee. In a voluntary capacity, Nat is chairperson of the Irish Social Policy Association (www.ispa.ie). Nat has authored and co-authored a range of reports and academic papers. You can find him on TwitterX @natpolicy