Scope for the An Snip pain to be spread over the years

The authors of the so-called 'An Bord Snip', the body the Minister for Finance, Brian Lenihan, appointed to identify huge public spending savings, starting with the budget this December, certainly know their way around the public sector. The report over two volumes (available on the department's web site) is laid out clearly and its recommendations or menu of €5.3bn in cuts reach into most items of government spending on staff and day-to-day spending. Its authors included a former senior head of the Health Service Executive, a former governor of the Central Bank and one of the most senior civil servants in the Department of Finance. In the numerous interviews, Colm McCarthy, the consultant turned UCD academic economist who chaired the group, has repeatedly made the case for the cuts: the State cannot continue to spend at 2009 levels when the annual tax revenue it raises is dropping back toward 2002 levels. A gap of €20bn, or half of all the revenue the government raises in a year, has opened up between its annual spending and revenue. The money needs to be borrowed from abroad and the sums are so large that waiting for an upturn in the world economy to close the deficit is no longer an option. Refreshingly, McCarthy does not concern himself with analysing the parts of the government deficit that will recover when the world economy starts recovering and the deep-seated or so-called structural problems that are of the government's own making. He warns though it would only take a renewed international crisis for the international debt markets to cut the government off from refinancing its budget sums. Since 2001, the head count in the public service increased to 350,000, or by over 45,000 to 310,000, when part-time and full-time staff are together measured on a full-time basis. The extra numbers recruited to the public service since 2001 costs €2.5bn a year. McCarthy says cuts will be needed in health and education even though their additional numbers could be justified by the increased services delivered. In health, staff numbers have risen in the past eight years to almost 112,000 from 93,000, and, in education, full-time numbers have risen to 93,000 from 73,000. Bluntly, the report says cuts will be needed because the State can no longer afford the levels of expenditure in big spending departments and needs to act quickly. "Given the state of the national finances, there should not be undue delay in achieving agreement on how best to deliver services effectively and efficiently in the public interest," it says. The report identifies numerous programmes for staff and expenditure that will reach into every area, including the number of special needs teachers in primary schools, the administration of secondary schools and the number of hours lecturers teach in our universities. Opposition to the report has been fairly muted so far. This could suggest that the 17,300 staff, or about five per cent of the 350,000 of the public service headcount the report identifies for cuts, will be found fairly easily. More plausibly, the public sector unions and other interest groups will hold fire to see which of McCarthy's recommendations will be implemented in the December budget. After all, the government has no expectation of applying all the €5.3bn in savings in the 2010 budget, economists say, and most of the McCarthy report will not be implemented next year. It instead gives a plan to finance ministers over many budgets and in years to come. But, in the media interviews, the key point that McCarthy made in the report has been somewhat lost. McCarthy believes that the 17,300 staff cuts must only be the start and that governments need to continue with a rigorous paring of staff numbers over many years. It is also clear that McCarthy group will not reach its €5.3bn savings target without cutting social welfare payments. Even at a time of soaring unemployment, the government will probably find it politically easier in the December budget to cut welfare than to target employment numbers in the public sector. From Snip to Nama Setting up a bad bank, the National Asset Management Agency (Nama), the new government agency was proposed as recently as last April. Like the Bord Snip report, Nama was the work of a consultant, Peter Bacon, commissioned by the government. Bacon set out a basic framework for Nama to identify the €80bn the banks loaned to mostly a small group of property developers. Nama would then pay the banks discount prices for the loans to reflect some of the depressed value of land and commercial buildings after the crash. Removed from the banks, Nama would hold and manage the troubled assets for up to ten years. Because it is buying the property assets, hopefully, at the bottom of the market, the agency will bet it will limit taxpayers' losses, or even make a profit, when it comes to sell the loans when markets recover in future years. Unlike the banks, Nama has the time to nurse what are now toxic property loans back into performing assets. By buying their troubled loans, Nama aims to clean up the Irish banks to allow them to start lending again to the real economy. Since April, Nama has appointed an interim head, Brendan McDonagh, and advisers have started the mammoth task of estimating what they will pay the banks. Now, the legislation that will set up the bad bank will be published in the next few days. The nature of the Irish banking crisis will again be laid bare: banks loaned excessive amounts to a concentrated group of property developers. Astonishingly, the top 100 borrowers account for €40bn of the commercial property loans clogging up the banks. The next group of 1,400 borrowers account for the other €40bn. Together, the €80bn amounts to about half the annual output of the whole economy. The legislation is likely to set up Nama for a ten years and will allow it the freedom to sell assets at any time with the aim of recovering money for the taxpayer. There may also be a spot of good news. The banks loaned about €30bn for commercial projects into Britain, mostly around London. Property markets there appear to be bottoming out more quickly than at home. Nama could be selling back the first of the distressed assets within a year. The authors of the so-called 'An Bord Snip', the body the Minister for Finance, Brian Lenihan, appointed to identify huge public spending savings, starting with the budget this December, certainly know their way around the public sector. The report over two volumes (available on the department's web site) is laid out clearly and its recommendations or menu of €5.3bn in cuts reach into most items of government spending on staff and day-to-day spending. Its authors included a former senior head of the Health Service Executive, a former governor of the Central Bank and one of the most senior civil servants in the Department of Finance. In the numerous interviews, Colm McCarthy, the consultant turned UCD academic economist who chaired the group, has repeatedly made the case for the cuts: the State cannot continue to spend at 2009 levels when the annual tax revenue it raises is dropping back toward 2002 levels. A gap of €20bn, or half of all the revenue the government raises in a year, has opened up between its annual spending and revenue. The money needs to be borrowed from abroad and the sums are so large that waiting for an upturn in the world economy to close the deficit is no longer an option. Refreshingly, McCarthy does not concern himself with analysing the parts of the government deficit that will recover when the world economy starts recovering and the deep-seated or so-called structural problems that are of the government's own making. He warns though it would only take a renewed international crisis for the international debt markets to cut the government off from refinancing its budget sums. Since 2001, the head count in the public service increased to 350,000, or by over 45,000 to 310,000, when part-time and full-time staff are together measured on a full-time basis. The extra numbers recruited to the public service since 2001 costs €2.5bn a year. McCarthy says cuts will be needed in health and education even though their additional numbers could be justified by the increased services delivered. In health, staff numbers have risen in the past eight years to almost 112,000 from 93,000, and, in education, full-time numbers have risen to 93,000 from 73,000. Bluntly, the report says cuts will be needed because the State can no longer afford the levels of expenditure in big spending departments and needs to act quickly. "Given the state of the national finances, there should not be undue delay in achieving agreement on how best to deliver services effectively and efficiently in the public interest," it says. The report identifies numerous programmes for staff and expenditure that will reach into every area, including the number of special needs teachers in primary schools, the administration of secondary schools and the number of hours lecturers teach in our universities. Opposition to the report has been fairly muted so far. This could suggest that the 17,300 staff, or about five per cent of the 350,000 of the public service headcount the report identifies for cuts, will be found fairly easily. More plausibly, the public sector unions and other interest groups will hold fire to see which of McCarthy's recommendations will be implemented in the December budget. After all, the government has no expectation of applying all the €5.3bn in savings in the 2010 budget, economists say, and most of the McCarthy report will not be implemented next year. It instead gives a plan to finance ministers over many budgets and in years to come. But, in the media interviews, the key point that McCarthy made in the report has been somewhat lost. McCarthy believes that the 17,300 staff cuts must only be the start and that governments need to continue with a rigorous paring of staff numbers over many years. It is also clear that McCarthy group will not reach its €5.3bn savings target without cutting social welfare payments. Even at a time of soaring unemployment, the government will probably find it politically easier in the December budget to cut welfare than to target employment numbers in the public sector. From Snip to Nama Setting up a bad bank, the National Asset Management Agency (Nama), the new government agency was proposed as recently as last April. Like the Bord Snip report, Nama was the work of a consultant, Peter Bacon, commissioned by the government. Bacon set out a basic framework for Nama to identify the €80bn the banks loaned to mostly a small group of property developers. Nama would then pay the banks discount prices for the loans to reflect some of the depressed value of land and commercial buildings after the crash. Removed from the banks, Nama would hold and manage the troubled assets for up to ten years. Because it is buying the property assets, hopefully, at the bottom of the market, the agency will bet it will limit taxpayers' losses, or even make a profit, when it comes to sell the loans when markets recover in future years. Unlike the banks, Nama has the time to nurse what are now toxic property loans back into performing assets. By buying their troubled loans, Nama aims to clean up the Irish banks to allow them to start lending again to the real economy. Since April, Nama has appointed an interim head, Brendan McDonagh, and advisers have started the mammoth task of estimating what they will pay the banks. Now, the legislation that will set up the bad bank will be published in the next few days. The nature of the Irish banking crisis will again be laid bare: banks loaned excessive amounts to a concentrated group of property developers. Astonishingly, the top 100 borrowers account for €40bn of the commercial property loans clogging up the banks. The next group of 1,400 borrowers account for the other €40bn. Together, the €80bn amounts to about half the annual output of the whole economy. The legislation is likely to set up Nama for a ten years and will allow it the freedom to sell assets at any time with the aim of recovering money for the taxpayer. There may also be a spot of good news. The banks loaned about €30bn for commercial projects into Britain, mostly around London. Property markets there appear to be bottoming out more quickly than at home. Nama could be selling back the first of the distressed assets within a year.