One of the keys to an alternative budgetary strategy is to stop cutting current public spending. This would provide an opportunity to re-direct or re-invest productivity gains and spending efficiencies into expanding growth and employment. This would be more effective at repairing public finances than the current austerity strategy.
Let’s take an example. The Government reduces the drugs bill by €400 million. This is a good cut. There is likely to be little if any deflationary impact; jobs will not be lost, income will not fall, and growth will not be cut. This is one of the few examples where a cut actually equals a savings of the same magnitude.
What do we do with that cut? Do we just remove it from public spending? If so, the deficit falls by €400 million but not much else happens in the economy.
So, why don’t we do something creative with it – address a social need, increase growth and employment, and reduce household costs? Why don’t we roll out an affordable childcare programme?
Childcare in Ireland is one of the most expensive in the OECD and has been identified as a substantial cost to households in work, or attempting to return to work. What would be the economic and fiscal impact of rolling out an affordable childcare network?
Let’s first examine the cost of rolling out such a network. Deloitte, on behalf of the National Children’s Nurseries Association, prepared a detailed study – Review of the Cost of a Full-Day Childcare Placement (it no longer seems to be available on-line). They calculated the cost providing childcare places – wages, rent, insurance, materials, food, etc. In 2007 they found that the average weekly cost of providing a full-time childcare place was €227.
I updated costs – by increasing non-staff costs by 10 percent and staff costs by 17 percent (employing childcare assistants at €19,300 is far too low for this important function). When I do this, the cost of providing a place in a childcare centre comes to €260 per week.
Therefore, the €400 million drug bill saving would, if re-directed, finance 30,000 affordable childcare places. Does this mean there is no deficit reduction? Let’s see.
Employment: The €400 million investment in childcare places would directly create 7,700 jobs – based on the ratios used by Deloitte. Of course, a portion of this would be a transfer of staff from existing private and voluntary crèches so that job creation would not be net. Still, there would be considerable job creation from this. This doesn’t count the jobs created/retained due to non-wage expenditure – purchasing materials to run the childcare centres from private sector (purchase of food, materials, etc.).
Impact on GDP: Being job dense, this investment would increase in GDP by €350 million. This only counts the wage element of the expenditure. There would be additional growth from the non-wage investment.
Impact on Deficit: Using the Department of Finance’s Debt Sensitivity Analysis, this growth would reduce the deficit by €175 million – but this would be slightly higher when the non-wage impact is included.
Fees Income: If we assume an average weekly fee of €60 per week at 45 weeks, the potential income would be €80 million. This would reduce the gross cost and, so, feed into deficit reduction.
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