A recent report from the IMF titled “Ireland: Selected Issues” made some observations and comments on ” Medium-Term Fiscal Consolidation in Ireland”.
There were a few suggestions in the report for possible cuts in spending – and it will be interesting to see if any of these cuts make an appearance in Budget 2013 which is due to be announced on December 5th this year.
Public Sector Pay :
The IMF report points out that the average public pay/GNP per worker in Ireland is one of the highest among advanced European economies, which is suggestive of a public wage premium over private pay . The report says it may be possible to achieve paybill reductions within the framework of the Croke Park Agreement through allowances, sick pay and reduction in premium/overtime payments. However, if significant progress within the CPA framework proves elusive, pay rate adjustments may be necessary.
Public service pensions
The 4 percent average levy on public pensions in 2011 appears to have generated relatively small savings in the public pension bill. With a 53 percent increase in pensioner numbers between 2008 and 2011, ( partly due to early retirements and redundancies) – the net public service pension bill has risen by 49 percent since 2008. This cancels out one-third of the savings in the net public pay bill.
The report also points out that the public pension scheme reforms currently being introduced will apply only to new entrants and will not help to reduce the rising public service pension burden for almost 30 years. The report goes on to say that the average public service pension is roughly double the state pension and suggests that a review of the scope for further savings in the pension bill is warranted.
State Pensions :
The IMF report states that the rate for contributory pensions (paid to about 80 percent of state pensioners) is only 5% above the rate for non-contributory pensions. They suggest that these rates could be equalized as the link between PRSI contributions and pension entitlements appears weak; and contributory pensioners more likely have occupational pensions. (We assume they are suggesting a cut in the contributory pension rather than an increase in the non contributory one?)
Household benefits package : The increasing cost of providing universal free TV license, telephone, electricity and travel for the elderly was also mentioned in the IMF report. They make a suggestion of abolishing these benefits and instead introducing a corresponding increase to the means-tested pension. They point out that there would still be considerable savings, as only one-fifth of pensioners receive means tested pensions.
The IMF report mentioned that the medical card means test for people over-70 is much more generous than that for the under-70s and over 95 percent of the over-70s population have medical cards.
The IMF report suggests that a standard means-test for all ages could be considered. They also suggest the use of more graduated medical card coverage (like the GP-only medical card) as well as incentivizing greater generic drug usage.
In the IMF report – there are a couple of suggestions on how to cut child benefit expenditure in Ireland . One method would be to treat it as taxable income. Another suggestion is to reduce the universal component of the payment in conjunction with offsetting increases in qualified child allowances and family income supplement (which are means-tested).
Student Fees – Third Level : The IMF report points out that the annual cost of subsidizing college fees for 160,000 Irish students in 2010 was about €1.2bn. Total (public and private) expenditure per college student is €9,800 in Ireland as opposed to €7,700 in the OECD, but the private share is relatively low (14 percent in Ireland as opposed to 33 percent in the OECD) . A suggestion of reintroducing fees that vary by course—as existed till 1995—”would generate substantial progressive savings which could be deployed to supporting low income students.”