Ivan Yates knocks hells bells out of our benefits to save money.

Let’s get rid of all those freebies and put a ceiling on child benefits
By Ivan Yates
Thursday, October 14, 2010
A FEW years ago at a meeting with a senior banker in relation to financing an acquisition I raised the question of their fees. The head honcho replied “I love to talk dirty…”
He meant money. With prior EU approval required, the heavy lifting for budget day will be done in the next few weeks. It’s time to get down and dirty with the specific measures to close our fiscal deficit by the required €4.5bn. My blueprint requires slaughtering sacred cows.

More than 70% of current spending comprises welfare or payroll costs. Savings are impossible without addressing these head on.

The Department of Social Protection spends €22bn out of €50bn. If old age pensions can’t be cut, the axe must fall on fringe benefits. €966m is being spent on free schemes — without a means test. Pensioners have been exempt from cuts to date. This is despite a significant reduction in the cost of living. Current pensioners receive defined benefit private pensions that will be unattainable to younger generations.

Imaginative innovations of the 1960s need to be reviewed. The staggering costs are as follows: free travel scheme, €626m; free electricity/gas, €165m; free telephone rental, €120m and free TV licence, €55m. These could be phased out over a two-year period, with a 50% subsidy applying for one more year. These universal benefits are currently payable irrespective of income. Should Fergal Quinn, Michael Smurfit and George Hook really have access to free travel and other fringe benefits?

Administrative arguments about the impossibility of child benefit reform are redundant. The British review in the mid-1990s concluded that means testing and taxation was unworkable because of cohabiting couples and current year incomes. Apparently, you could not discriminate constitutionally against married couples relative to unmarried partners. Because of the inadequate database on the latter, there was a veto on change.

The British chancellor George Osborne cut through this confusion by abolishing child benefit where one parent earns more than £50,000 (€56,600) per annum from 2013. We can follow suit. We could halve child benefit under the same circumstances for those between €50,000 and €100,000 per annum and abolish it where one income exceeds €100,000 per annum. We could save €800m out of child benefit costs of €2.26bn.

However distasteful, this would be much more equitable than flat-rate cuts that are envisaged.

Another British government welfare reform is a cap on total payments per household. Should child benefit be paid beyond the fourth or fifth child? The disincentive to work is greatest where there are large numbers of dependants. Total state benefits per household could have a cash ceiling of the industrial average wage or €40,000 per annum. To earn this money, net of income tax, requires extraordinary gross pay levels.

Last year’s budget adjustment to public sector pay did not extend to pensions. Total state occupational pension costs are heading towards €3bn per year. Smart actuarial experts assess the current total state liability on the cost of future public service pensions at €108bn. Given our demographics, with a huge increase of those of pension age by 2030, we must act to mitigate this fiscal time bomb.

An immediate two-tier cut in pensions is now appropriate, along the lines of last year’s pay cut. For example, 5% under €50,000 per annum, along with a 10% reduction over this pension threshold could be achieved.

The link between pensions and contemporary pay grades has to be terminated and replaced with cost of living/inflation increases — reviewable every 10 years. Private sector workers face only defined contribution schemes.

The Croke Park deal has yet to deliver real savings. Blather about redeployment, efficiency and productivity from ministers won’t deliver reform. Each department needs to be given a set objective amount to be saved in 2011 and each year thereafter. This could be achieved by altering the sick pay scheme to reduce absenteeism. In a hospital, closing down the maintenance department and replacing it with subcontractors may be the expedient efficiency. In the Department of Transport it could result in some of the 37 subsidiary organisations being amalgamated.

A central voluntary redundancy package, based on five weeks pay per year, needs to be implemented. Multi-annual targets for numerical reductions are required. The Bord Snip report set out a template for this in each department comprising a total of 17,300 less staff. All public bodies must stop the practice of using up unspent money at the end of each year.

Nothing in life is free. Governments tried to convince us otherwise. Ultimately, these panaceas are economically unsustainable. In 1996 third-level education fees were abolished and the entitlement to free access was established. The beneficiary must be liable for the cost of this valuable service. More open competition between universities, colleges and institutes should be based on price and quality. A phased reduction of state subvention would oblige these education dons to cut their cloth according to the market measure. It is patently unfair that an early school-leaver, now a manual labourer, should subsidise the wealthiest kids in our most esteemed educational facilities.

In 2002 it was decreed that household water should be free. By 2050, the world’s scarcest commodity will be water — not oil, fossil fuels or food. EU directives require us to charge for water supplies. In rural areas you have to pay the full cost whether sinking your own pump, procuring a private group water scheme or are on a public supply meter. Free water is unappreciated, disrespected and wasted.

A SEMI-STATE company could replace our local authority water provision. Water could be provided and paid for in the same way as a phone, gas or electricity by a commercial utility provider. Deferring liability until metering is in place is a cowardly cop-out. An immediate minimum flat charge of €3 per week is modest and reasonable.

Colm McCarthy’s proposals to rationalise and amalgamate quangos have been subject to the most intense obfuscation. This can no longer be tolerated. A zero budgeting principle needs to apply. Senior civil servants are guilty of facilitating obstruction by bodies under their aegis. Petty turf wars have been sponsored by compliant secretary generals and ministers. They have allowed themselves to see their cabinet role as defending their patch.

A general repeal of legislation giving statutory effect to these organisations needs to be threatened. The myriad of partnership boards, regional bodies and county structures amounts to a maze of bureaucracy — each with its own human resources and accounts departments. These are no longer affordable and don’t provide essential core public services. €2bn can be saved through a deferral of Metro North, the National Children’s Hospital and other capital projects. This menu is without recourse to tax increases or cuts in rates of welfare. Just like a tooth extraction, the anticipation is worse than the actuality. The gaping hole heals and new normality asserts.

Let’s bite the bullet and cull those cows.

This story appeared in the printed version of the Irish Examiner Thursday, October 14, 2010
Read more: http://www.irishexaminer.com/opinion/columnists/ivan-yates/lets-get-rid-of-all-those-freebies-and-put-a-ceiling-on-child-benefits-133426.html#ixzz12OCDZS87