Fixing the banks by removing their toxic assets as well as their performing property loans is the purpose of NAMA, in the process establishing the biggest state property company in the world. (As an aside, an optimistic column in this week’s Sunday Times suggests an unintended consequence may be to finally bring some common sense into our planning system as NAMA will herald an end to the days, never to be allowed to return again, of local authorities tacking ridiculous planning schemes for see-through shopping centres, malls and apartment blocks onto the outskirts of towns and villages throughout the country simply to swell their coffers with developers’ fees.)

Then there’s the murky, messy issue of restoring competitiveness to the Irish economy, to ensure our readiness to participate in a global upsurge in demand when the great recession comes to an end, whenever that may be. Competitiveness is linked into the other three in one way or another, as well as to pay cuts throughout the public and private sectors, cost of living, cost of government services, energy costs and just about everything else you can think of.

The McCarthy Report is like one of those awful TV programmes like ‘How Clean is Your House?’, where the team wades in and tears out decades of clutter and rubbish of which the immediate residents have grown rather fond, even if it long since ceased to serve any useful purpose and is, in fact, injurious to their long term health and happiness.

Out go long-cherished principles of universality in healthcare and social welfare provision and education and in the conditions and perks that public servants from politicians to barristers to teachers to gardai, and just about every other agent of the state, thought of as their just and rightful entitlements. From farmers to gaelgeoirs to artists, the message is: you can sink or swim, but there is no State-sponsored financial safety net to keep you afloat any longer.

It’s revolutionary, but it’s not coming about by choice. Colm McCarthy was at pains to stress the point in various interviews since his report came out that the State is borrowing €400m a week to pay for wages and public services and social welfare. That the debt market from which this money is being borrowed is not the debt market of the 1980s when Ireland and couple of other countries were the only countries drawing on it. That it is already overstretched by the demands of the bigger countries like the US and the UK that sooner rather than later it will turn off the tap on small countries like ours, particularly if we are seen to be doing nothing to reduce our borrowing requirement. The day arrives when there is no money to pay civil servants salaries, or teachers’ and doctors’ pay or social welfare payments to the unemployed; no money at all, not even for ministerial pensions and TDs’ expenses.

His second major point is historical: in the 1980s we tried to tax our way out of recession; and only succeeded in keeping the pain going right throughout the decade. Therefore, logic suggests that we make a huge and painful adjustment on board now; since it will be less painful in the long run.

The third point which he didn’t make, but was made elsewhere, is that much of the money that was expended on creating so many state services, indulging the vanity projects of individual ministers and departments and accelerating increases in social welfare payments and pensions and state supports, ahead of inflation, were bankrolled out of receipts of property taxes and stamp duty, and in the case of local authorities, developers’ fees and the like. We may not have known it at the time, but that too was ‘borrowed’ money. Those particular chickens have come home to roost on the rickety fences of our fiscal imbalance as well as the crumbled edifice of our banking system.

It’s a bitter pill to swallow. The fact is this was never ‘a rich little country’ as so many of our political class universally claimed as they sloshed money around or demanded even more expenditure to cure every social ill that came to light. Worse, nobody cares a stuff what happens to us; we’re entirely insignificant. So much for Ireland ‘punching above its weight’ on every global street corner!

Government Ministers, understandably, have nothing to say on the McCarthy cuts agenda, since they cannot pre-empt either the estimates process or the Cabinet decisions that they will have to take in the Autumn. Even the Green Party ministers, as partners in Government, are circumspect on what will comprise an acceptable package, until their negotiations with Fianna Fail on a redirection of the Programme for Government are completed.

A quick scan of the Fine Gael website might give rise to the impression that the McCarthy report was not published at all last week – with the exception of some non-committal contributions to radio and TV debates by Richard Bruton, the party’s silence on the report has been notable. Predictably, the Labour Party has issued a raft of statements pointing out the disastrous consequences of McCarthy’s prescriptions in every area of the public services, but without proposing alternatives. The public service trades unions distinguished themselves by rejecting the report even before it was issued and other interest groups, notably including the IFA, are gearing up to preventing any cuts that will affect their particular sector. If the Government buckles and goes along with what suits its political interests rather than the national interests, then the game’s up. The worst political delusion probably is that things can’t get any worse than they are now.

At the end of it all we can be sure of one thing: Humpty Dumpty Ireland will never look quite the same again. And if our national capacity for self-aggrandisement and self-delusion are among the things that are swept away, maybe it’s no bad thing at all.

Headscratching stuff. The Defence Forces have already been pared down to the bone from a decade-long transformation arising from the PricewaterhouseCoopers report in the Nineties. So where is the ‘fat’ meant to come from, exactly?

Manpower

The PwC report produced an intentionally under-strength Permanent Defence Forces; with the gaps to be filled with a Reserve (the old FCÁ) reduced in size but with more investment in their equipment and training. How does Colm McCarthy and his colleagues propose to square this circle with a cut of a further 500 PDF personnel and losing two-thirds of what’s left of the RDF?

I’m not going to start a discussion of the worth to society of young people having the option of Reserve service. Those who would agree with it need no convincing, and those who don’t never will.

The Equitation School to go? Welcome development, and easy knowing that Charlie McCreevey’s not around anymore…

Infrastructure

Selling off the training grounds is nuts. These are an absolute prerequisite for a trained and effective military, and the relatively small amount of money raised is dwarfed by the waste of resources on inadequately-trained troops.

Likewise selling off Cathal Brugha Barracks, which would attract only a percentage of what it would have a few years ago. The Defence Forces have invested an enormous amount of time, effort and budget in moving the units previously barracked around Dublin into “the Brugha” and renovating it to serve a modern military in the 21st Century (shades of the Spike Island debacle all over again).

Flushing all of that down the toilet is an action we will come to regret, and rather smacks of the old Finance advice to Dev during the Emergency that the country should surrender to any invasion in order to save money.

Equipment

Scrapping the replacements for the Naval ships nearing the end of their working lives means that there will in the very near future be fewer ships available to patrol our EEA and to carry out the coastguard function – which includes rescue and drug interdiction. It is a matter of fantasy to speak about ‘extending’ the lives of these ships (which were built to commercial, not naval standards), and we’re shortly going to be revisiting the spectacle last seen in the ’70s of rusting Naval Service ships tied up at the wharf in Haulbowline.

In light of the above, it’s inexplicable that McCarthy restricts himself to talking merely of Departments being charged for use of the Air Corps VIP taxi service, rather than selling off the (two) government jets and the fleet of supposedly ‘military’ helicopters which were bought recently at enormous cost, and which seem to exist solely to ferry Martin Cullen and his colleagues around the country.

Likewise the recent turbojet trainers could be disposed of – the only fixed-wing aircraft we actually require (and certainly not the government jets) are the two CASA maritime patrol planes, which are part-funded by the EU anyway. Flight training can surely be carried out either commercially or by sending trainee pilots abroad to foreign military academies (both of which already occur to an extent in certain areas). The masters of the universe at Aer Lingus want to become a private company? Then fine: then we cut off the no-costs supply of trained Air Corps pilots which both they and Ryanair rely on, and we the taxpayers will never notice any difference.

UN service

We actually get paid by the UN for Irish soldiers on UN service. It is therefore entirely baffling as to where Colm McCarthy and his colleagues believe that there are significant savings to be made in this regard (non-UN missions such as Chad are a different matter entirely). And the claim in the Report that we should pretend that our UN service should count as foreign aid is the finest example of gombeen-talk that I’ve heard out of officialdom in some time.

Comments welcome below.

The Western Rail Corridor is proposed for scrappage. The Department of Rural and Gaelteacht Affairs is set to be abolished. Job losses will hit the highly-specialised courses in agricultural colleges. Research and advisory services are also up to lose staff in the short to medium term. The suckler cow scheme is set to go. The Disadvantaged Area Compensatory Allowance Scheme, which was availed of almost solely by people outside the cities is to be considerably reduced. The REPS scheme, which farmers have already been up in arms about, is in the firing line for further cuts – for an idea of the political impact this would have consider that the farmers were abusing Brendan Smith today on this issue before the Snip report was published.

But there’s more…

The Snipers say the Rural Transport Scheme should be abolished. The maintenance budget for regional roads should be reduced by €20m. All development aid grants should cease to all regional airports. County enterprise boards, which are currently dotted around towns all over the country, would be subsumed into the more nationally focused Enterprise Ireland body. All the industrial relations bodies are to be centrally located – where?

there’s even more…

Tipperary Institute to be merged with other Institutes of Technology. The School Transport Scheme – mainly availed of outside the cities – will hit parents who would be asked to pay €500 to have their children bused to school even though the cost was already increased to €300 in the last year, it was around €200 beforehand. The Courts system looks likely to move towards the towns. Off-shore islands will lose massive funding. Local authorities will be merged.

But the really potentially destructive elements will be the proposals to merge small Garda stations that typically cover large geographical rural areas and the similar proposal for small schools. They will cause uproar if taken on board by Government.

The rural TDs will be up in arms.

Public sector pay was outside its remit but it the report aims particular fire at public sector pensions noting that on an accrual basis they account for €7.7 billion of expenditure — the annual incurred costs for future pensions is over twice the cash cost of existing pensions.  As the report explains, the basic public pension is of the final salary type: pension = half of average salary in last 3 years of employment.  Calculation assumes 40 years of service but with pro-rata reductions for less than 40 years and accelerated eligibility schemes for certain groups (e.g. police and judges).   

As the report implies, the mathematics of final salary pensions are highly favourable to the recipient, whereas a defined contribution pension such as in the private sector will reflect average earnings over the career and the money with the longest time invested will reflect the earliest salary whereas the public sector pension puts all the weight on the highest salary portion of the career.  Not only that, but the pension is then earnings-linked, so rises with the earnings of people currently in the public sector.  Due to national productivity growth, earnings growth typically exceeds inflation so the real value of the pension is growing during retirement.  Again very unlike private sector pension where you’re at the mercy of financial markets over the earning and retirement cycle. 

According to the report, there already was a paper on pensions (2007) about which nothing has been done, but it asks that its options be back on the agenda: higher retirement age, higher contributions (which I suppose they’ve now done with the levy), modifying the earnings link, no accelerated eligibility schemes, and shift to career average pension calculation. 

That section of the report closes with two warning shots to the government but also to a beneficiary group –

Reforms along the lines set out above, while undoubtedly significant in terms of longer-term affordability and sustainability if applied to new entrants, will not yield any immediate savings for the public finances unless they are applied for the existing cadre of public servants and pensioners.

Finally in this regard, the Group observes that the burden of budgetary adjustment, both in terms of the measures introduced over the past year and of the measures proposed in this Report, will be borne broadly across most areas of society, with the exception of those people currently in receipt of public service pensions. Bearing in mind that such pensioners in many cases have earnings-linked pensions at present, the Group believes there is a case for the Government to consider how best to secure an appropriate contribution from this sector of society.

In their statements today, the unions are yelling about pay cuts.  One wonders if they intend to leave the latitude for reduced growth in pensions, because that’s where An Bord Snip Nua is telling the government to look.

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The report on this section begins by outlining the role of the Department of Agriculture, Fisheries and Food, (D/AFF) before going establishing that the D/AF&F accounts for €3.3bn of expenditure in 2009. It claims that the D/AF&F and its associated agencies employ circa 6,200. The Bord is proposes cuts of €305m in expenditure and staff cuts of 1,140 for the Department. It recommends testing the use of outsourcing administrative functions regularly.

One of the main themes of the section is the privatisation and selling off non-essential assets. It dismisses the notion that it would be unwise to do so at this point in time since property prices are unlikely to improve to “anywhere near the inflated levels of recent years” in the near future.

In particular, the report recommends selling of many of Teagasc’s property assets around the country. It notes that Coilte owns 7% of all land in Ireland and recommends that its operations should be reviewed and that consideration should be given toward asset disposal and privatisation.

Teagasc is the target of many of proposed rationalisations. Job losses in agricultural colleges as well as research and advisory services are proposed for the short to medium term. It’s also proposed that the situation whereby Teagasc has separate offices to the Department should be changed. The report also notes that many of the previously mentioned organisations offices are within commuting distance of each other and that no more than 35 should be allowed to remain. The group also feels that the District Veterinary Office structure should be reviewed and that they too should share offices with the above organisations.

The report proposes that consideration be given to abolishing Bord Bia in the light of the transferring of its enterprise and marketing functions to Enterprise Ireland.

The writers of the report recommend that the Suckler Cow scheme should be terminated due to a lack of resources and notes that this could help reduce Co2 levels. They also call for an increase in the disease levies. If the recommendations are followed, famers would also no longer receive full market value for livestock destroyed as a result of TB and Brucellosis. The report supports the view that farmers should receive only 75% of market value as they should be expected to bare a portion of the risk.

A large reduction in the spending on the Disadvantaged Area Compensatory Allowance Scheme (DACAS) is favoured by the report authors. They believe that it should be reduced by 30% as farmers’ incomes are now supported by the Single Farm Payment Scheme and payments under the Rural Development Programme.

The group feels that an in-depth value-for-money review of the scheme for the effectiveness of the Rural Environment Protection Scheme (REPS) should be conducted, that REPS4 should be closed and that there should be no rollover from REPS 2 and 3 into REPS 4. It is the view of the writers that a farmer should only be allowed to avail of REPS once rather than multiple times.

Corporate Services are also targeted for staffing reductions.

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The Snip report makes various recommendations about the courts structure and the administration of the courts which, as a barrister, I read with significant interest. There is to be savings of €23.2 million in relation to the organisation of the Courts, €7.5million in respect of savings under the heading of the promotion of a tolerant and equal society and €2.8million from merging various statutory agencies together.

It is proposed to transfer the functions of the Equality Tribunal to the Employment Appeals Tribunal with a saving of 0.6m. At first glance this would appear to be another attack on equality rights. However, I actually welcome this move. It makes sense to have all the cases related to dismissal and treatment in the workplace in one place and the EAT should be that place.  A saving of €1.5 million will be the result from the abolition of the Minister for Integration. Ordinarily I would shed a tear over this but as its establishment was a sop there is no great loss. A long a similar line there is to be staffing reductions in the Immigration and Naturalisation Services to the tune of €10million. The result from this will be longer delays in processing of applications for citizenship (already at two years) and residency.

I read with most interest the recommendations about rationalisation of Court practices, including the abolition of some ‘outdated practices’ which will save €2m apparently. Included under this heading are recommendations that Courts should sit on Monday, there should be year round Court sittings and there should be the introduction of pre-trial hearings including pre trial jury selection. Monday sittings already happen in Dublin at all levels and pre-trial jury screening was ruled unconstitutional in the Haughey case. Year round sittings will also cost the State more money, which I don’t think was the object of the exercise. Snip also recommends that the Digital Audio Recording be implemented in all civil courtrooms. This caught my eye as DAR was rolled out last year in all High and Circuit Courts regardless of what type of case they were hearing so Snip don’t really seem to know what they’re talking about. Similarly it recommends the establishment of an (uncosted) judicial clerking system apparently without the knowledge that such a system already exists. It strikes me that the members of An Bord Snip have little actual knowledge of the workings of the courts and instead have relied on outdated perceptions. They also recommend the abolition of the distinction between Junior and Senior Counsel. How this comes within their remit I have no idea.

€2m will be saved by abolishing the current security arrangements at the Four Courts which is long overdue and €8.4m will be saved by way of introducing a means test for Criminal Legal Aid. A means test already exists for Criminal Legal Aid so I assume that the Board is actually recommending a change of policy in respect of objecting to applications for Criminal Legal Aid.

From a legal point of view the most shocking cut is that of the Law Reform Commission, a body which has produced excellent work over the years. For the saving of €2.8million it is to be cut and replaced by a policy of convening the LRC on an ad-hoc basis. The LRC have focused much of its work on reviewing areas of law that are outdated and that nobody cares about politically. It will be a great loss.

The report in general recommends that citizens pay for services they are currently entitled to – this comes on top of a reduction in the number of people who are entitled to these services. The medical gets hit heavily, given it’s proven political toxicity, it’ll be interesting to see to what degree the Government considers implementing the proposals.

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There are two agreements between the trade union IMPACT and the HSE that are now affecting very significantly the HSE’s capacity to reconfigure services and redeploy its workforce in line with best practice in integrated healthcare. The Group recommends that these arrangements be ended and replaced with new arrangements which allow for optimum deployment of resources in the best interests of patients and which take account of the budgetary realities.

It also recommends:

Removal of premium pay for work done between 8am and 8pm for any employee on a contract which currently pays this premium.

Overtime rates be reviewed

The agreement with IMPACT that limited open recruitment competitions be scrapped

Unnecessary demarcation that prevents nurses doing certain duties they are trained to do be abolished

Allowances that are the result of “custom” or “practice” be withdrawn

Compulsory deployment of staff and, if necessary, redundancy.

Non-routine services should be out-sourced if available at lower cost

6,000 jobs should be removed from the system which would result in savings of €300m

No expenditure reductions in the Children’s and Families Program – this would be a false economy in the long-term.

Generic medicenes be used if available at lower cost.

Medical Cards and Long-term Illness Schemes

Reduce the income guideline levels to basic rate of social welfare. This would mean the low-paid wouldn’t be entitled to a medical card, only those on social welfare. However, this would be supplemented by a variable allowance based on medical needs. All current allowances that are based on the entitlement to holding a medical card would be removed. This would mean medical card holders would no longer be exempt from paying State exam fees or eligible for the Early Childcare Subvention Scheme or eligibile to receive free transport to school or eligible for the Student Assistance Fund for third-level attendee or for assistance with the purchase of school books.

Threshold for Drug Payment Scheme to be increased. People will have to pay €125 rather than €100 for drugs before the remainder is covered by the scheme. This would save €37m annually.

People who are on the Long-term Illness Scheme would have to pay €5 per prescription for drugs they currently get for free.

Restructure contracts with GPs and pharmacists to increase competition for contracts.

People presenting to A&E without a letter from their GP would have to pay €125 while inpatient charges will increase by 20% – savings of €6m.

Private facilities in public hospitals to cost 20% more.

The report hints at making patients availing on non-emergency transport could be made pay 20% of the cost.

Medical Card holders will have to pay €5 per perscription.

Introduce measures that achieve greater efficiencies in non-government agencies in receipt of State funding.

Homecare packages for older people may become means tested, savings would hope to total €24m

Increase the maximum percentage contribution for an individual under the Fair Deal agreement to a maximum of 22.5%

On top of staff reductions the headline grabbers are the merging of bodies (quangos effectively) within the department. A little context, we have over 600 quangos at present, most of which are unaccounted for in terms of their benefit and output with little questioning of them during the boom era. The ones that fall under the report’s scope are the Ombudsman for Children – merged with the Ombudsman and saving €0.3m, the Health Research Board should be merged with a science research body run from DETE and saving €10.6m in the run of it.

The Health Insurance Authority is run from DOHC and regulates private health insurance – it should be merged to financial regulator neutral on budget. The NTPF takes up space in public hospitals often from ones which referred patients to the NTPF. That process should be stopped, with the NTPF buying procedures from private only hospitals.

By the end of 2008 the Hep C tribunal has given out €900m spent in awards. These need to be assessed.

The Early Childcare supplement was introduced to assis parents with childcare costs – directed at commuters in the run up to 2007 election. This is to be cut, it should lead to staff cuts at Dept Social Affairs

The National Childcare Investment Programme was designed to replace the above childcare supplement by providing capitation to providers of childcare in order to streamline costs. The Bord Snip reckons €10m can be saved by streamlining the admin and alter the means test.

Total DOHC saving: €41m and 168 staff cut

How it would be done:

Rationalisation of the overseas embassies by reducing their number from 75 to 55. Reduce pay grade of Ambassadors from Assistant Secretary level to principal officer level in all cases bar the five largest embassies – Washington, Beijing, New York, London and Paris.

In the event of ratification of Lisbon it recommends the creation of the ‘European External Access Service’. Details on what exactly this would cover are vague.

Officials assigned abroad are paid a Foreign Service Allowance that not currently taxable, subject to pension levy or the income levy. McCarthy recommends that the allowance be reduced by 12.5% resulting in savings of €1m.

Examine possible duplications in performance between bodies working on full implementation of Good Friday Agreement and semi-state non-commercial bodies.

Cease funding for European Movement in Ireland and Ireland United Nations Association thus saving €300, 000. Reduce allocation of funding to international organisations saving €5m.

Cease funding to the multilateral process of transforming the Chernobyl power plant into and environmentally safe system. Cesse funding the process of decommissioning Soviet-era nuclear reactors . Resultant Savings: €1m.

Reduce duplication of services provided overseas by the deptartment and Enterprise Ireland.

Extend timeframe to meet the UN Overseas Aid target limit of 0.7% of GDP from 2012 to 2015 while maintaining the current rate of 0.39% in the short term.

Removal of the Free Passport Scheme for Over-65s – saves €4.6m

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While these measures are of little note in the larger scheme of things they are somewhat representative of the report as a whole.

Services which were formerly free will now cost citizens. Attempts are made to sort out duplication issues, public servants have their state-employment benefits sliced – generally, anything that can be hit, is hit. The jobs reduction is somewhat minimal however.

Interestingly, in an interview with RTÉ’s Prime Time last week UN Secretary General Ban Ki-Moon said he had received assurances that overseas aid will not be cut. One may assume Ban won’t be back for a few years and that cuts in overseas is not an explosive political issue – I reckon Fianna Fáil will look to implement the report’s proposals in that area, while the Greens may attempt to avoid them doing so.

The report believes most of its recommendations could be implemented within a short timescale and stresses that its savings proposals “should be considered as conservative.” Try telling that to the CIE management and unions, the operators of small regional airports that were looking forward to substantial hand-outs from the government in the coming years and the promoters of the Western Rail Corridor.

Key proposals include:
Administration

Merge existing transport safety authorities (Road Safety Authority, Railway Safety Commission, Maritime Safety Directorate and Irish Aviation Authority) into a single body

Merge Railway Procurement Agency into National Roads Authority

Outsource all driver licensing and testing services

Public Transport
Cut CIE support by €55m

Abolish Rural Transport Scheme and sell Bus Eireann Expressway Service
“Abolish ‘Green Schools Initiative’ (of which, more later!)

Close uneconomic rail services and stop any further development of Western Rail

Roads – bear in mind \nthat €510m was taken out of roads (mainly €490m in capital projects) in Budget

Reduction of €20m in roads maintenance regional roads from DoT

Assign regional roads from DoT to National Roads Agency

Department to consider introduction of national system of road pricing once current infrastructural improvement programmes are completed

Aviation
End all development aid and other grants to the 6 regional airports
Demand increased subventions from DAA and other Airport Authorities to the State

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On the ‘Green Schools Initiative’, the report notes, rather acidly, that: “The State does not need a special Programme of €10m over five years to convince school children and their parents to walk to and from school rather than drive. There must be alternative, cheaper ways to achieve the outcome sought from this initiative, which ultimately relies on community spirit and organisation