July 28th Morning: The Recession Diaries

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a0_fractions_1.jpgSo, ‘curbing’ public spending growth is the only option. Thus spake Paul Tansey in last Friday’s Irish Times. Working from figures supplied by the Department of Finance, he attempts to show how public spending has ‘ballooned’ and now it has to be popped.

Let’s go through his apocalyptic presentation of numbers and see if the problem is ‘public spending’, or if it resides somewhere else.

Mr. Tansey produces a table that shows public sector pay and social welfare spending has more than doubled since 2000, while public sector payrolls have jumped by 32 percent. Seems bad until we look at it another way.

Public sector pay: jumped from €8.9 billion in 2000 to €19.4 billion in 2008. Now, we know that these are only headline figures and that the ‘cost’ to the state is actually much less once you factor in tax revenue that the Exchequer gets back. But let’s stick with the headline. As a percentage of our total wealth, the public sector pay bill has increased from 10.1 percent to 11.5 percent. Yes, this is an increase. But is anyone really going to go to the barricade on the basis of 1.4 percent? Are we really expected to believe that this is the rock upon which the economy has foundered?

Social welfare spending: it has jumped by a little over €10 billion since the beginning of the decade. But back in 2000, nearly half of all elderly lived in relative poverty. Now that figure is down to 13 percent – still too high, but an improvement nonetheless. That’s down to spending more. Do we really want to turn back the clock? In fact, regardless of how our social spending may appear to have risen (it’s only gone up by 3.1 percent as a percentage of total wealth), we still rank as one of the stingiest in the EU when it comes to social protection spending. We would have to spend over €13 billion more per year just to reach the EU-15 average (that’s in 2005 – the last year the EU has figures for).

Public Sector Workforce: it has increased by 75,000 since 2000. Never mind that the OECD stated that the Irish public sector is one of the smallest in Europe, what does this number really tell us? It tells us that public sector employment has increased from 13.9 percent of the total workforce to 14.7 per cent – a mighty increase of 0.8 percent.

Mr. Tansey’s arguments comes down to fractions. What fascinates me is that he never once referred to the real unproductive waste in the economy. Whereas the headline increase in public sector and social welfare spending comes to €20.7 billion (always remembering that a large chunk of that comes back to the Exchequer in tax – thus, substantially lowering the net increase), Mr. Tansey doesn’t mention the €50 billion that has fled the country since 2000 in overseas investment property (never mind the billions in our own home-grown speculative industries). Nor does he mention those massive tax cuts for the well-off that allow some people to go on their merry way:

Sales of women’s luxury goods, including Hermes handbags costing up to €1,500 each, have soared, and sales of Christian Louboutin shoes, that sell for between €600 and €700 a pair, have risen by “an amazing” amount despite the economic downturn, Ireland’s top retail buyer has said. Stephen Sealey, group buying director for Brown Thomas and BT2, said that compared to last year, women shopping at its Grafton Street, Cork, Limerick and Galway stores were buying more shoes costing over €500 and more designer outfits and accessories at over €3,000 each.

But that’s recession times for you. Some people are fair game and some things you just don’t talk about.

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