You may think that I am on occasion anti-public sector in my pronouncements (actually I’m not; I just think that Irish public sector management is lazy and inefficient and provides poor leadership).  Anyway, compared to the guy quoted below, I am a pussycat.

Dr J C Lester argues that only (net) taxpayers should be allowed to vote, thus ruling out state sector employees!

Why should people who are not taxpayers be allowed to vote money away from those who are? If we must have state services, it should at least be for those who pay for them to vote for which services they want and how much they wish to pay. To allow those providing, or living off, the services to vote is like allowing a shopkeeper to vote on what you must buy from him, or a beggar to vote on what you must give him….

… Consider state distribution of tax-money. We can see that this must create two social categories: those who are net taxpayers and those who are net tax recipients. Only the net taxpayers can be said to provide the state with tax-funds. The net tax recipients are paid out of taxation, plus any payments in newly created state-currency (which effectively taxes those who hold money). So to the extent that people are in the pay of the state they cannot be genuine taxpayers. A proof of this is that if their jobs were abolished the state would have more money to spend elsewhere, unlike those jobs in the genuinely taxpaying sector.

The writer, Jan Lester, is a leading member of the Libertarian Alliance.  The public sector seems to be a prevalent theme of writing on the LA website.  Its home page currently has a lead article by D.J. Webb called “Living off our Taxes”, of which the introduction gives a flavour:

There is nothing more frustrating than having to pay tax and national insurance so that public-sectors workers can earn more than you. People in the private sector face greater job insecurity and have less lavishly funded pension arrangements, where such arrangements even exist, and yet they are the golden goose that has to be repeated slaughtered in order that state workers can have secure and higher-paid jobs with astonishingly generous pension provision.

In case you were wondering, Webb was writing about the United Kingdom, not Ireland.  But, let’s be honest, he could have been writing about Ireland.

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Sometimes one comes across a set of circumstances which are, to put it mildly, eyebrow-raising.   The awarding in 2007 of the contract to construct and operate Dublin’s new Convention Centre is an example.

Last September, the Irish Independent reported as follows:-

A PROPOSAL to build the newly opened national convention centre for half of its eventual cost was rejected by a government-appointed committee, a report by the Comptroller & Auditor General (C&AG) reveals.

Spencer Dock Convention Centre Dublin (SDCCD), part of businessman Johnny Ronan’s ailing Treasury Holdings group, won the public private partnership contract to build and run the centre after bidding €390m in 2007.

However, it has now emerged that the rival Anna Livia consortium, which was backed by Bennett Construction, had three bids between €203m and €224m rejected by a government steering group.

Convention Centre Dublin, located in the Dublin docklands, was officially opened earlier this month.

The Sunday Tribune used the headline “Taxpayers’ €47m-a-year bill leaves a bad smell” when it ran a report last July (the reference to a bad smell is a pun, as the Convention Centre was also revealed to be without proper sewage facilities, despite the high spend):

Under the multi-million euro deal worked out between the government and Spencer Dock Convention Company Ltd (SDCCL), the state will pay €47m a year for the next five years and €23.9m a year for the following 20 years to the company for building and running the controversial centre.

This works out at a total outlay of €713m, making it one of the most expensive state projects, on a par with the Luas and the Port Tunnel. The first monthly instalment of just under €4m is due next month and these will continue until 2015 after which the payments will drop down to just under €2m a month until 2035. The centre will then revert to state ownership…..

Responding to criticism of such a massive spend on a conference centre in such straitened times, a spokesman for the OPW said the total payment of €713m over 25 years is equivalent to €350m at today’s prices.

The capital costs of both the winning and the losing bids were apparently much the same and the huge difference arose in the tendered cost of  operating and maintaining the centre.

Amazingly, in the tender assessment process only 25% of the available marks was originally allocated to financial factors, far too little,  and this was mysteriously reduced to 20% during the process.  The C&AG points out that “In a meeting of the Steering Group in 2004, the Department of Finance had concerns when the financial criteria weighting was lowered from 25% to 20%, and the design and construction weighting increased to 40%.”    Furthermore, within the financial criterion, only 13 of the 20 marks allocated were assigned to an assessment of the cost of the deal. Most of the remainder were awarded based on evaluating the revenue sharing mechanism proposed and the financial robustness of the deal.

The C&AG said that this weighting system was not enough to distinguish between bids with widely varying costs.

And here’s the really stupid part:  the costs of the proposed bids were assessed not relative to each other but by comparison with a level of 90% of a pre-established public sector benchmark (PSB) cost.  The Office of Public Works, which oversaw the awarding of the contract, was required to develop a PSB against which tenders from the private sector could be assessed. It estimated the cost of the project at €422m in net present value terms.

Bids costing 90%, or less, of this estimate were to be awarded full marks irrespective of how much cheaper than the 90% they were. The  C&AG notes that “This had the effect of awarding relatively high marks to proposals that were much more costly in absolute terms”.

The report includes a comparison with the financial assessment of the PPP project in relation to the Criminal Courts Complex.  This differed in two key ways from that used in the assessment of the tenders in the Convention Centre project: (a) a total of 30% of the overall marks were allocated to financial criteria as compared to 20% for the Convention Centre, with 27% of the overall marks based on the cost of the bids as compared with 13% in relation to the Convention Centre; (b) the assessment of the cost of the bids in relation to the Criminal Courts Complex  compared the cost of the bids relative to each other rather than by reference to the cost as identified in the PSB.

Not surprisingly, the C&AG said that there needs to be a change in how future bids for public-private partnerships are assessed.  His report can be found here.

This looks like a giant financial cock-up, and wicked people could postulate a more sinister interpretation.  I’m told that conspiracy theorists have been wondering what Richard Barrett (Johnny Ronan’s partner in Treasury Holdings) meant when, at the official opening of the Convention Centre,  he was caught on camera jovially remarking to former Taoiseach Bertie Ahern “keep pulling for us”.   Sheer begrudgery, no doubt.

It’s a commonplace that the Celtic Tiger died in the early noughties, when real growth was replaced by false growth based on inappropriately low interest rates, an over-stimulated construction sector, and excessive pay increases for all sectors.  At the same time, the public sector and its various agencies grew stale and bloated.  Proper management skills withered on the vine, as the solution to every problem became the throwing of money at it.  Those who shouted loudest, or who had an inside track, got an even greater share of the spoils.  Welfare benefits began to outstrip those available almost anywhere else.

And now that the tide has gone out, we see that the State’s finances are in ruins because we have an inflated public sector cost base and welfare budget, but our tax revenues have shrunk dramatically (the bank bailout is not the main reason we are bust).  The fiscal gap will have to be closed by higher taxes, lower public sector costs and decreased welfare benefits, and the process has started.  It is a condition of the bailout deal that we travel down this road, but most of what we are going to do would have to have happened even without the bailout.

We need to look back to a time before things went pear-shaped, to a time when tax rates and yields were sensible, when we got reasonable value for money from our public sector, and when welfare benefit levels were appropriate to our real standard of living as a country.

Realistically, this would be sometime around 2002.  At that time, we hadn’t yet experienced a prolonged period of low Euro interest rates which was to prove such a part of our problem; we hadn’t seen the worst of the crazy pro-cyclical property incentives and unnecessary tax cuts; and the three-card-trick of public sector bench-marking lay in the future.

Did we feel poor as a country in 2002?  Were welfare recipients marching in the streets at the low level of benefits available?  Were civil servants and politicians noticeably underpaid?  Were there PAYE marches as there were in the 1970s?

No, no, no and no.

So let us turn back the clock, fiscally speaking, and revert to a position that is acceptably fair and is affordable.  This will involve further big cuts in pay, pensions and benefits, combined with additional tax increases for all taxpayers, including a substantial annual property tax.  Let’s do it, and do it quickly.   While we are at it, we need to get smart with our policy on the statutory minimum wage by re-setting it every 6 or 12 months at the average of the currently prevailing minimum wage in a “basket” of competitor countries.

And let us be prepared to resist the shouts and roars from politicians, the media, NGOs and commentators that we are being savage in our treatment of this sector or that sector.  After all, all we are doing is trying to reconstitute the sort of economic and fiscal conditions that applied in 2002.  We thought we were doing all right then, and we were.  The social fabric was certainly not collapsing then, in fact we had a bright future ahead of us and, in contrast to the present national mood, optimism was the order of the day.

At the cinema the other day, I again saw the expensive advertisement created by Dublin Airport Authority for their new Terminal 2.  You have probably seen it several times.  If not, you can see it on YouTube here.

My reactions were the same as it was the first time I saw it.  Firstly, that it’s smug, self-regarding and creepy.  Secondly, that only a state-owned body with an effective monopoly in its sector could and would produce such an expensive, gold-plated offering.

Thirdly, and the main question that puzzles me: from a business perspective, what’s the point of the advertisement, beyond using up the DAA’s advertising budget for the new terminal?  Are we all going to rush out and book flights through the new terminal on the strength of seeing the ad?  Will it add a single Euro to DAA’s bottom line?  I don’t think so. 

While you are working out this conundrum, have a look at the spoof version of the ad here.  It’s terrific.

 This nugget is too good to do any fact-checking on – I want to pass it on even if should ultimately prove to be exaggerated.  I will do the validation when I get time, or maybe wait for my loyal band of followers (all three of them) to do the spadework for me instead.

One of the results of the barmy and corrupt Bertie Ahern regime is, as we all know, that our senior public sector employees (including our politicians) are ridiculously overpaid compared to their counterparts in any reasonably equivalent country. 

The most egregious and commonly quoted example is that our Taoiseach (even with his recently reduced salary of €200,000) is paid a lot more than the UK Prime Minister (€172,000).  See here for the figures.

But how about this?  I am told that the head of the Irish Navy – more formally known as  The Flag Officer Commanding the Naval Service (FOCNS) – earns more than the head of the US Navy!

What a great little country.  Now if only those bloody foreigners in the Eurozone and elsewhere would charge less interest on all the money they lend us to keep on paying ourselves these highly-deserved salaries.  They have a cheek.  Next thing you know, they’ll be asking Enda and Eamonn and all our other public servants to accept the sort of chickenfeed salaries they seem to be happy with in their under-privileged countries.

I had occasion to visit The Coombe Maternity Hospital last Thursday.  The hospital was renamed The Coombe Women & Infants University Hospital in 2008.  According to its website, the reason for the name change is “to reflect the breadth, depth and complexity of clinical and academic activity on the hospital campus…..The Coombe Women & Infants University Hospital is one of the largest providers of women and infant’s healthcare in Europe. Last year, over 8,500 babies were born here. The hospital also provides the largest gynaecological service in the Republic of Ireland.”

I suppose it’s too much to expect that such a major and august institution would would have made arrangements for its car park and access routes to be clear of ice for its patients, staff and visitors.  In particular, most of the patients would be in various stages of pregnancy and icy conditions underfoot would be unwelcome, to put it at its mildest.  But there we were, two weeks into our big freeze, and you were taking your life into your hands to walk around the car park in the Coombe Hospital.  A sample photo illustrates this, I think.

At a time when every two-bit shopping centre makes an effort to clear ice and snow from its public areas, it’s disgraceful that our largest maternity hospital cannot organise for its car park to be similarly cleared.  Another example of public sector malaise and incompetence.

Who is the hospital chief executive?  How much does he/she earn?  Where are the maintenance staff for the past two weeks?  I do not believe that nobody had the time to organise a clear-up, so that pregnant women were not exposed to this unnecessary danger.  And I noticed that parking at the Coombe, for which visitors are normally charged, was suddenly available at no cost;  methinks there was a guilty conscience at play (or lawyers).  Instead of wasting time erecting signs about temporary free parking, or running off and consulting their lawyers, the Coombe employees and management should have got their shovels out and done the honest thing.

That’s Ireland in 2010: shoddy public sector standards, and nobody is responsible, nobody is accountable.

Fr Sean Healy, the knows-enough-to-be-dangerous-but-not-enough-to-talk-sense spokesman for Conference of Religious of Ireland Social Justice Ireland, has claimed that €1.4bn could be saved by reducing the pension income tax relief to 20pc.  But as usual he has the numbers wrong.

Would employees be taxed (as a BIK – Benefit in Kind) on the value of company contributions to pension scheme on their behalf?  If not, then I can see that as being a major source of leakage which would depress the tax yield from the proposal.

But if private sector employees are to be taxed on employer contributions, then surely state employees should be taxed on the imputed value of the state’s contribution to their pensions?  Now that would be interesting.

In a paper presented to the recent Dublin Economic Workshop, a leading pensions expert said the only way to get savings of €1bn by cutting the pension tax relief to 20pc was to also tax the value of the contributions made to pensions by employers. This would hit public servants hardest, he said.  The value of an index-linked pension is massive.  I could see a public servant earning €50,000 having to pay an extra €4,000 or so in BIK.  Would that breach the Croke Park Agreement?

Fr Healy also fails to understand that employee pension contributions do not benefit from a permanent tax saving;  on the contrary, they are put into a fund and are later taxed when the employee retires and draws them down as a pension.  By and large, the tax is just deferred.

So if I only get 20% tax relief when I put the money into the scheme, but am taxed at up to 41% when I withdraw it, then why on earth would I continue to make such contributions?

The real impact of Healy’s proposal would be to make it even harder for the State to persuade private sector workers to fund an adequate pension for when they retire.  And ultimately such under-funded workers would fall back on the State’s coffers for assistance.

Another example of the law of unintended consequences.